EX-99.1 2 u99685exv99w1.txt EX-99.1 NON CONSOLIDATED STATEMENTS ENDED DEC 31 2004 EXHIBIT 99-1 SHINHAN FINANCIAL GROUP CO., LTD. Non-Consolidated Financial Statements December 31, 2004 and 2003 (With Independent Auditors' Report Thereon) 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 non-consolidated balance sheets of Shinhan Financial Group Co., Ltd. (the "Company") as of December 31, 2004, and 2003, and the related non-consolidated statements of income, appropriation of retained earnings and cash flows for the years then ended. These non-consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the auditing standards generally accepted in 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 used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations, the changes in its retained earnings and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea. The accompanying non-consolidated financial statements as of and for the years ended December 31, 2004 and 2003 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 non-consolidated financial statements. Without qualifying our opinion, we draw attention to the following: As discussed in note 2(a) to the non-consolidated financial statements, accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-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 non-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 1(a) to the non-consolidated financial statements, on March 3, 2004, Shinhan Bank sold 10.2% (29,873,295 shares) of total outstanding shares in the Company for W627,339 million (W21,000 per share), through after-hour block trading. As described in Note 1(b) to the non-consolidated financial statements, the Company decided to acquire 18.85% of minority shares in Chohung Bank through tender offer and share exchange, at the Board of Directors' Meeting held on April 12, 2004, and provided a tender offer for 3.77% of shares in Chohung Bank at W3,500 per share from April 26, 2004 to May 17, 2004. With respect to share exchange for 15.08% of shares in Chohung Bank, the shareholders, who were against the share exchange, were entitled for a right to sell their shares at W3,067 per share from May 25, 2004 to June 3, 2004, with a resolution of an extraordinary shareholders' meeting of Chohung Bank held on May 24, 2004, and the remaining shares were subject to share exchange, at the exchange ratio of 0.1354 share in the Company to each Chohung Bank share, on June 22, 2004. As a result, the Company's percentage of ownership increased to 100% and Chohung Bank became a wholly-owned subsidiary of the Company. Upon the acquisition of 66,363,126 shares in Chohung Bank from shareholders, who were against the share exchange, Chohung Bank became the shareholder of the Company with 8,985,567 shares of common stock in the Company. As described in Note 1(c) to the non-consolidated financial statements, the Company decided to incorporate Goodmorning Shinhan Securities as a wholly owned subsidiary of the Company through tender offer and share exchange, at the Board of Directors' Meeting held on September 17, 2004. Pursuant to the resolution, the Company provided a tender offer for 11.99% of preferred shares in Goodmorning Shinhan Securities at W2,500 per from September 24, 2004 to October 13, 2004, and the Company purchased 8.95% of preferred shares at the market and through over the counter trading during the period. Additionally, the Company purchased 27.26% of preferred shares in Goodmorning Shinhan Securities at W2,495 per share in cash, which shares were held by Goodmorning Shinhan Securities, and with respect to the remaining shares, one share of common and preferred stock of Goodmorning Shinhan Securities were exchanged for 0.1633 share and 0.0977 share in the Company, respectively, on December 23, 2004. As a result, the Company's percentage of ownership increased to 100% and Goodmorning Shinhan Securities became a wholly-owned subsidiary of the Company. As described in Note 1(k) to the non-consolidated financial statements, on April 29, 2004, the Company decided to acquire 49% of total outstanding shares in Shinhan Credit Information Co., Ltd. from LSH Holdings LLC. As a result, on March 21, 2004, Shinhan Credit Information Co., Ltd. became a wholly- owned subsidiary of the Company. As described in Note 1(l) to the non-consolidated financial statements, on December 16, 2004, the Company incorporated Shinhan Private Equity ("Shinhan PE"), which is engaged in providing financial advisory services and operating assistance to domestic and overseas private equity funds. As described in Note 2(c) and 24 to the non-consolidated financial statements, effective January 1, 2004, Company has adopted Statements of Korean Financial Accounting Standards (the "SKAS") No. 10 "Inventories", No. 12 "Construction-type Contracts" and No. 13 "Troubled Debt Structuring", in addition, the Company has adopted SKAS No. 15 "Equity Method of Accounting", effective from the first fiscal year beginning after December 31, 2004 with encouraged earlier application. As a result, the effect from application of those accounting standards was to decrease investment securities accounted for by the equity method and capital adjustments by W226,808 million and W227,622 million, and increase retained earnings and net income by W814 million and W1,007 million, respectively, as of December 31, 2004. Additionally, non-consolidated financial statements as of and for the year ended December 31, 2003, which are presented for comparative purposes, were retroactively restated, as a result, investment securities accounted for by the equity method, retained earnings and capital adjustments decrease by W594,146 million, W1,821 million and W593,139 million, respectively, as of December 31, 2003. As described in Note 4 to the non-consolidated financial statements, as of December 31, 2004, Shinhan Bank and Chohung Bank had loans receivable and others (including securities) in the total amounts of W173,848 million and W164,090 million, respectively, which had been provided to LG Card Co., Ltd., an entity that has been under control by creditor banks due to its liquidity crisis. For those loans, Shinhan Bank and Chohung Bank provided W13,661 million and W14,764 million, respectively, of allowance for loan losses as of December 31, 2004. Actual losses on those loans might differ materially from management's assessment. The accompanying non-consolidated financial statements did not reflect the impact of the uncertainty on the financial position of the Company when its holdings in Shinhan Bank and Chohung Bank were accounted for using the equity method. In addition, for the year ended December 31, 2004, Shinhan Bank and Chohung Bank provided W81,000 million and W73,400 million, respectively, of additional loans, and converted W162,300 million and W147,100 million, respectively, of loans to equity shares. As described in Note 4 to the non-consolidated financial statements, as of December 31, 2004, Shinhan Bank and Chohung Bank had loans receivable and others (including securities and guarantees and acceptances) amounting to W357,295 million and W252,237 million, respectively, which had been provided to SK Networks Co., Ltd. The debtor company has been under control by creditor banks in accordance with the Corporate Restructuring Promotion Act of the Republic of Korea. For those loans, Shinhan Bank and Chohung Bank provided W31,025 million and W18,744 million, respectively, of allowance for loan losses as of December 31, 2004. Actual losses on those loans might differ materially from management's assessment. The accompanying non-consolidated financial statements did not reflect the impact of the uncertainty on the financial position of the Company when its holdings in Shinhan Bank and Chohung Bank were accounted for using the equity method. As described in Note 12 to the non-consolidated financial statements, the Company recorded W1,814,820 million of assets (representing 18.0% of non-consolidated total assets) as of December 31, 2004 and W114,264 million of operating revenue (representing 9.3% of non-consolidated total operating revenue) for the year ended December 31, 2004 through its related party transactions. As described in Note 14(a) to the non-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. Pursuant to the 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. As regards General Indemnity, eligibility of most of indemnifiable items, as provided for in a stock purchase agreement, expired during the year ended December 31, 2004. As for the remaining such items, indemnification appeared unlikely as of December 31, 2004. Accordingly, the Company made adjustment to reflect the aforementioned General Indemnity Payment as an addition to goodwill. The other two contingent considerations are not included in the acquisition cost, for the amount is not determinable. KPMG Samjong Accounting Corp. Seoul, Korea January 27, 2005 ________________________________________________________________________________ This report is effective as of January 27, 2005, 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 non-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. ________________________________________________________________________________ Shinhan Financial Group Co., Ltd. NON-CONSOLIDATED BALANCE SHEETS December 31, 2004 and 2003 (In millions of Won and thousands of U.S. dollars)
Won U.S. dollars (note 2) --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Assets Cash and due from banks (notes 3 and 12) W 31,145 5,353 $ 29,838 5,128 Securities (note 4) 8,262,439 5,714,392 7,915,730 5,474,604 Loans (notes 5, 12 and 13) 1,749,955 1,935,180 1,676,523 1,853,976 Fixed assets (note 6) 2,164 2,020 2,074 1,936 Other assets (notes 7, 12 and 13) 26,949 43,340 25,818 41,521 ------------ ------------ ------------ ------------ W 10,072,652 7,700,285 $ 9,649,983 7,377,165 ============ ============ ============ ============ Liabilities and Stockholders' equity Liabilities: Borrowings (notes 8 and 13) W 154,380 165,868 $ 147,902 158,908 Debentures (notes 9 and 13) 1,948,102 1,980,543 1,866,356 1,897,435 Retirement and severance benefits (note 10) 224 - 215 - Other liabilities (notes 11 and 13) 222,337 30,464 213,007 29,186 ------------ ------------ ------------ ------------ Total liabilities 2,325,043 2,176,875 2,227,480 2,085,529 Stockholders' equity: Capital stock of W5,000 par value (note 15) Common stock 1,596,595 1,472,007 1,529,599 1,410,239 Authorized - 1,000,000,000 shares Issued and outstanding - 319,319,011 shares in 2004 294,401,300 shares in 2003 Preferred stock 486,523 486,523 466,107 466,107 Issued and outstanding - 97,304,564 shares Capital surplus 3,718,623 3,316,380 3,562,582 3,177,218 Retained earnings (note 16) 1,608,185 865,391 1,540,702 829,077 Capital adjustments (notes 4 and 17) 337,683 (616,891) 323,513 (591,005) ------------ ------------ ------------ ------------ Total stockholders' equity 7,747,609 5,523,410 7,422,503 5,291,636 Commitments and contingencies (note 14) ------------ ------------ ------------ ------------ W 10,072,652 7,700,285 $ 9,649,983 7,377,165 ============ ============ ============ ============
See accompanying notes to non-consolidated financial statements. Shinhan Financial Group Co., Ltd. NON-CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2004 and 2003 (In millions of Won and thousands of U.S. dollars, except earnings per share)
Won U.S. dollars (note 2) -------------------------- -------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Operating revenue: Gain from equity method (notes 4 and 28) W 1,108,952 519,287 $ 1,062,418 497,497 Interest income (note 12) 114,264 97,787 109,469 93,683 Other 931 - 892 - ----------- ----------- ----------- ----------- 1,224,147 617,074 1,172,779 591,180 Operating expense: Loss from equity method (notes 4 and 28) 212 129,886 203 124,436 Interest expense 122,967 92,616 117,807 88,730 Fees and commission expense 235 4,962 225 4,754 General and administrative expenses (note 19) 24,224 23,902 23,208 22,898 ----------- ----------- ----------- ----------- 147,638 251,366 141,443 240,818 Operating income 1,076,509 365,708 1,031,336 350,362 Non-operating income (expense): Loss from disposition of available-for-sale securities - (1,725) - (1,653) Loss from disposition of securities accounted for by equity method - (166) - (159) Foreign currency related gain, net 15 1 14 1 Donation (13) (34) (12) (33) Other, net (9,184) (796) (8,799) (762) ----------- ----------- ----------- ----------- (9,182) (2,720) (8,797) (2,606) ----------- ----------- ----------- ----------- Earnings before income taxes 1,067,327 362,988 1,022,539 347,756 Income taxes (note 20) 17,032 - 16,317 - ----------- ----------- ----------- ----------- Net income W 1,050,295 362,988 $ 1,006,222 347,756 =========== =========== =========== =========== Ordinary income and net earnings per share in Won and U.S. dollars (note 21) W 3,197 1,063 $ 3.06 1.02 =========== =========== =========== =========== Diluted ordinary income and net earnings per share in Won and U.S. dollars (note 21) W 2,820 1,022 $ 2.70 0.98 =========== =========== =========== ===========
See accompanying notes to non-consolidated financial statements. Shinhan Financial Group Co., Ltd. NON-CONSOLIDATED STATEMENTS OF APPROPRIATION OF RETAINED EARNING For the years ended December 31, 2004 and 2003 Date of Appropriation for 2003: March 25, 2004 Date of Appropriation for 2004: March 30, 2005 (In millions of Won and thousands of U.S. dollars)
Won U.S. dollars (note 2) -------------------------- -------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Unappropriated retained earnings: Balance at beginning of year W 504,585 432,569 $ 483,412 414,418 Changes in retained earnings of subsidiaries (note 4) (65,387) (10,848) (62,643) (10,393) Cumulative effect of accounting changes (note 24) - (1,787) - (1,712) Net income 1,050,295 362,988 1,006,222 347,756 ----------- ----------- ----------- ----------- 1,489,493 782,922 1,426,991 750,069 Appropriation of retained earnings: Legal reserve 105,030 36,223 100,623 34,703 Dividends (note 22) 347,890 242,114 333,291 231,954 ----------- ----------- ----------- ----------- 452,920 278,337 433,914 266,657 ----------- ----------- ----------- ----------- Unappropriated retained earnings to be carried over to subsequent year W 1,036,573 504,585 $ 993,077 483,412 =========== =========== =========== ===========
See accompanying notes to non-consolidated financial statements. Shinhan Financial Group Co., Ltd. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2004 and 2003 (In millions of Won and thousands of U.S. dollars)
Won U.S. dollars (note 2) -------------------------- -------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Cash flows from operating activities: Net income W 1,050,295 362,988 $ 1,006,222 347,756 Adjustments to reconcile net income to net cash used in operating activities: Gain from equity method, net (1,108,740) (389,401) (1,062,215) (373,061) Provision for retirement and severance benefit 505 140 484 134 Depreciation expense 652 568 625 544 Amortization expense 111 109 106 104 Provision for loan losses - 5,879 - 5,632 Interest expense 3,097 2,492 2,967 2,387 Loss from disposition of available-for-sale securities - 1,725 - 1,653 Loss from disposition of investment securities - 166 - 159 accounted for by equity method Foreign currency related gain, net (9) - (8) - Decrease (increase) in other assets 15,797 (21,526) 15,134 (20,623) Increase in other liabilities 24,657 23,510 23,623 22,524 Retirement and severance benefit paid (259) (180) (248) (172) Increase in deposit for severance benefit insurance (22) (198) (21) (189) Other, net (321) 1,381 (308) 1,323 ----------- ----------- ----------- ----------- Net cash used in operating activities (14,237) (12,347) (13,639) (11,829) Cash flows from investing activities: Cash provided by investing activities: Proceeds from disposition of available-for-sale securities - 2 - 1 Proceeds from disposition of investment securities - 1,529 - 1,465 accounted for by the equity method Decrease in loans 214,060 - 205,078 - Disposition of fixed assets 8 29 7 28 Dividends received 256,536 186,896 245,771 179,053 ----------- ----------- ----------- ----------- 470,604 188,456 450,856 180,547 Cash used in investing activities: Purchase of investment securities accounted (111,894) (1,128,423) (107,199) (1,081,072) for by the equity method Increase in loans (46,036) (1,176,009) (44,104) (1,126,661) Purchase of fixed assets (915) (993) (877) (951) Increase in other assets (798) (1,105) (764) (1,058) ----------- ----------- ----------- ----------- (159,643) (2,306,530) (152,944) (2,209,742) ----------- ----------- ----------- ----------- Net cash provided by (used in) investing activities 310,961 (2,118,074) 297,912 (2,029,195) ----------- ----------- ----------- -----------
Shinhan Financial Group Co., Ltd. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED For the years ended December 31, 2004 and 2003 (In millions of Won and thousands of U.S. dollars)
Won U.S. dollars (note 2) -------------------------- -------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Cash flows from financing activities: Cash provided by financing activities: Increase in borrowings 411,036 130,009 393,788 124,554 Increase in debentures 200,000 1,250,000 191,608 1,197,547 Issuance of common shares - 27,648 - 26,488 Issuance of preferred shares - 900,000 - 862,234 Proceeds from disposition of treasury stock 381 - 365 - ----------- ----------- ----------- ----------- 611,417 2,307,657 585,761 2,210,823 Cash used in financing activities: Decrease in borrowings (409,000) - (391,838) - Decrease in debentures (230,000) - (220,349) - Issuance cost on debentures paid (921) (3,871) (882) (3,709) Issuance cost on shares issued - (21,608) - (20,701) Dividends paid (242,105) (157,017) (231,946) (150,428) Acquisition of treasury stock (323) - (309) - ----------- ----------- ----------- ----------- (882,349) (182,496) (845,324) (174,838) ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities (270,932) 2,125,161 (259,563) 2,035,985 ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 25,792 (5,260) 24,710 (5,039) Cash and cash equivalents at beginning of year 5,353 10,613 5,128 10,167 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year W 31,145 5,353 $ 29,838 5,128 =========== =========== =========== ===========
See accompanying notes to non-consolidated financial statements. Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003 (1) General Description of the 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 Investment Trust Management Co., Ltd. to the Company. The Company was formed for the purpose of providing management services and financing to affiliated companies with W1,461,721 million of initial capital stock and the Company's shares were listed on the Korea Stock Exchange on September 10, 2001. On September 16, 2003, the Company's American depository shares were listed on the New York Stock Exchange. As of December 31, 2004, the Company has 12 subsidiaries and its capital stock consists of W1,596,595 million in common stock and W486,523 million in preferred stock. Details of its subsidiaries are as follows: (a) Shinhan Bank Shinhan Bank was established on September 15, 1981 to engage in commercial banking and trust operations. Shinhan Bank operates through 380 branches and 162 automated teller machine locations and its capital stock amounts to W1,224,034 million as of December 31, 2004. Additionally, on March 3, 2004, Shinhan Bank sold 10.2% (29,873,295 shares) of total outstanding shares in the Company for W627,339 million (W21,000 per share), through after-hour block trading. (b) Chohung Bank Chohung Bank was established on October 1, 1943 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 450 domestic branches, 82 depositary offices and 6 overseas branches and its capital stock amounts to W3,595,592 million as of December 31, 2004. 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. Additionally, the Company's percentage of ownership increased to 81.15% through additional equity acquisition for W200,000 million on December 30, 2003. Additionally, the Company decided to acquire 18.85% of minority shares in Chohung Bank through tender offer and share exchange, at the Board of Directors' Meeting held on April 12, 2004, and provided a tender offer for 3.77% of shares in Chohung Bank at W3,500 per share from April 26, 2004 to May 17, 2004. With respect to share exchange for 15.08% of shares in Chohung Bank, the shareholders, who were against the share exchange, were entitled for a right to sell their shares at W3,067 per share from May 25, 2004 to June 3, 2004, with a resolution of an extraordinary shareholders' meeting of Chohung Bank held on May 24, 2004, and the remaining shares were subject to share exchange, at the exchange ratio of 0.1354 share in the Company to each Chohung Bank share, on June 22, 2004. As a result, the Company's percentage of ownership increased to 100% and Chohung Bank became a wholly-owned subsidiary of the Company. Upon the acquisition of 66,363,126 shares in Chohung Bank from shareholders, who were against the share exchange, Chohung Bank became the shareholder of the Company with 8,985,567 shares of common stock in the Company. 2 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (1) General Description of the Company, 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. As of December 31, 2004, it operates through 79 branches and its capital stock amounts to W796,998 million (including W19,117 million of preferred stock). Additionally, the Company decided to incorporate Goodmorning Shinhan Securities as a wholly owned subsidiary of the Company through tender offer and share exchange, at the Board of Directors' Meeting held on September 17, 2004. Pursuant to the resolution, the Company provided a tender offer for 11.99% of preferred shares in Goodmorning Shinhan Securities at W2,500 per share from September 24, 2004 to October 13, 2004, and the Company purchased 8.95% of preferred shares at the market and through over the counter trading during the period. Additionally, the Company purchased 27.26% of preferred shares in Goodmorning Shinhan Securities at W 2,495 per share in cash, which shares were held by Goodmorning Shinhan Securities, and with respect to the remaining shares, one share of common and preferred stock of Goodmorning Shinhan Securities were exchanged for 0.1633 share and 0.0977 share in the Company, respectively, on December 23, 2004. As a result, the Company's percentage of ownership increased to 100% and Goodmorning Shinhan Securities became a wholly-owned subsidiary of the Company. (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, 2004, Shinhan Card holds 2.51 million franchise accounts and 3 million credit card holders, and its capital stock amounts to W152,847 million. (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, 2004 amounts to W80,000 million. (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 to BNP Paribas Asset Management Group 3,999,999 shares (50% of total outstanding shares less 1 share) of Shinhan Investment Trust Management Co., Ltd., which was renamed to Shinhan BNP Paribas ITMC. Its capital stock as of December 31, 2004 amounts to W40,000 million. 3 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (1) General Description of the Company, Continued (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 the 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 for W20,177 million on July 5, 2002 and its capital stock as of December 31, 2004 amounts to W77,644 million. (h) SH&C Life Insurance Co., Ltd. SH&C Life Insurance Co., Ltd. ("SH&C Life Insurance") was established on October 1, 2002 to engage in the insurance business and other related business. Its capital stock as of December 31, 2004 amounts to W30,000 million. (i) 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, 2004 amounts to W2,820 million. (j) 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, 2004 amounts to W1,000 million. (k) Shinhan Credit Information Co., Ltd. Shinhan Credit Information Co., Ltd. ("Shinhan Credit Information") was established on July 8, 2002 as a 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, 2004 amounts to W3,000 million. On April 29, 2004, the Company decided to acquire 49% of total outstanding shares in Shinhan Credit Information from LSH Holdings LLC. As a result, the Company's percentage of ownership increased to 100% and Shinhan Credit Information will become a wholly-owned subsidiary of the Company. (l) Shinhan Private Equity Shinhan Private Equity ("Shinhan PE") was established on December 16, 2004 to provide financial advisory services and operating assistance to domestic and overseas private equity funds. Its capital stock as of December 31, 2004 amounts to W10,000 million. 4 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (1) General Description of the Company, Continued Ownerships of the Company's subsidiaries as of December 31, 2004 and 2003 are as follows:
2004 2003 -------------------------- -------------------------- Ownership Ownership Number of percentage Number of percentage Investor Investee shares (%) shares (%) ------------------- -------------------------- ----------- ----------- ----------- ---------- The Company Shinhan Bank 244,806,782 100.0 244,806,782 100.0 Chohung Bank 719,118,429 100.0 583,570,144 81.2 Goodmorning Shinhan Securities 159,399,664 100.0 94,084,384(*) 59.4 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 BNP Paribas 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 e-Shinhan 415,495 73.7 415,495 73.7 Shinhan Macquarie 102,000 51.0 102,000 51.0 Shinhan Credit Information 600,000 100.0 306,000 51.0 Shinhan PE 2,000,000 100.0 - - Shinhan Bank The Company - - 29,873,359(**) 10.2 Chohung Bank The Company 8,985,567 2.9 - - Goodmorning Shinhan Securities The Company 1,444 - - -
----------- (*) Outstanding shares; that is, less 1,047,213 shares of treasury stock. (**) Preferred stocks are excluded and 10.2% (29,873,295 shares) of shares in Shinhan Bank were sold for W627,339 million (at W21,000 per share) on March 3, 2004 through after-hour block trading. (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 non-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 non-consolidated financial statements are intended for use only by those who are informed about Korean accounting principles and practices. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company's financial position, results of operations or cash flows, is not presented in the accompanying financial statements. The accompanying non-consolidated financial statements include only the accounts of the Company, and do not include the accounts of any of its subsidiaries. 5 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued (b) Basis of Financial Statements Translation The non-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 W1,043.80 to US$1, the basic exchange rate on December 31, 2004. These translations should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate. (c) Application of the Statements of Korean Financial Accounting Standards Effective January 1, 2004, Company has adopted Statements of Korean Financial Accounting Standards (the "SKAS") No. 10 "Inventories", No. 12 "Construction-type Contracts" and No. 13 "Troubled Debt Structuring". In addition, the Company has adopted SKAS No. 15 "The Equity Method of Accounting", effective from the first fiscal year beginning after December 31, 2004 with encouraged earlier application. Except for the adoption of aforementioned accounting standards, the same accounting policies are applied for the non-consolidated financial statements both as of and for the years ended December 31, 2004 and 2003. (d) Allowance for Loan Losses Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection. (e) Investments in Securities Upon acquisition, the Company classifies certain debt and equity securities into one of the three categories: held-to-maturity, available-for-sale, or trading securities. 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 income. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in equity securities 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. 6 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued (f) 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, 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 considered as goodwill (negative goodwill) and amortized by the straight-line method over a reasonable period, generally less than 20 years. The amortization of goodwill is recorded against the equity income of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews the goodwill amount for any impairment. Under the equity method, the Company does not record its share of loss of an affiliate company when such loss would make the Company's investment in such entity less than zero. If the Company holds preferred stock or long-term debt issued by the affiliate, the Company's share of loss of the affiliate remains recorded until such investment is reduced to zero. (g) Fixed Assets i) Tangible Assets Tangible assets are stated at cost. Significant additions or improvements extending value or useful lives of assets are capitalized, where normal maintenance and repairs are charged to expense when incurred. The depreciation method and useful lives of tangible assets are as follows:
Descriptions Depreciation method Useful lives ----------------------------- --------------------- -------------- Vehicles Declining-balance Five years Furniture, fixtures and other " " Leasehold improvement Straight-line "
ii) Intangible Assets Intangible assets are stated at acquisition cost less amortization computed using the straight-line method over five years. (h) Discount on Debentures Discount on debentures issued, which represents the difference between the face value of debentures issued and the issuance price of debentures, is amortized on the effective interest method over the life of the debentures. The amount amortized is included in interest expense. 7 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued (i) Income Taxes Income tax on the income or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of income 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 income 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. (j) 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 non-consolidated 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 company. The deposit for severance benefit insurance is, therefore, reflected in the accompanying balance sheets as a deduction from the liability for retirement and severance benefits. (k) 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 W1,043.80 and W1,197.80 to US$1, the rates of exchange on December 31, 2004 and 2003, respectively, that are permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction. 8 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued (l) 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. (m) Contingent Liabilities Contingent losses are generally recognized as a liability when probable and reasonably estimable. (n) 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) Cash and Due from Banks As of December 31, 2004 and 2003, W2.5 million of cash and due from banks is restricted for guarantee deposits on bank accounts. 9 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (4) Securities Securities as of December 31, 2004 and 2003 consist solely of investment securities accounted for by the equity method and details are as follows:
(in millions of Won) 2004 ----------------------------------------------------------------------------------- Acquisition and Equity Beginning dividend method Retained Capital Ending Subsidiaries balance net gain (loss) earnings adjustments balance ------------------------------ ----------- ----------- ----------- ---------- ----------- --------- Shinhan Bank W 2,946,530 (244,807) 683,687 (1,353) 741,535 4,125,592 Chohung Bank 1,861,649 (*)308,202 378,026 (10,204) 353,346 2,891,019 Goodmorning Shinhan Securities 546,872 (*)292,116 7,992 (53,800) 50,320 843,500 Shinhan Card 163,136 - 5,572 - - 168,708 Shinhan Capital 105,448 (8,000) 23,009 - 2,068 122,525 Shinhan BNP Paribas ITMC 22,486 (2,000) 2,279 - 45 22,810 Jeju Bank 48,713 - 5,216 (38) (855) 53,036 SH&C Life Insurance 13,021 - 187 - 1,406 14,614 e-Shinhan 2,725 - 162 - - 2,887 Shinhan Macquarie 1,843 (1,730) 977 8 - 1,098 Shinhan Credit Information 1,969 1,529 1,845 - 1,519 6,862 Shinhan PE - 10,000 (212) - - 9,788 ----------- -------- --------- ------- --------- --------- W 5,714,392 355,310 1,108,740 (65,387) 1,149,384 8,262,439 =========== ======== ========= ======= ========= =========
------------- (*) Additional goodwill through additional equity acquisition, W248,736 million for Chohung Bank and W55,375 million for Goodmorning Shinhan Securities, is included. As of December 31, 2004, Shinhan Bank and Chohung Bank had loans receivable and others (including securities) in the total amounts of W173,848 million and W164,090 million, respectively, which had been provided to LG Card Co., Ltd., an entity that has been under control by creditor banks due to its liquidity crisis. For those loans, Shinhan Bank and Chohung Bank provided W13,661 million and W14,764 million, respectively, of allowance for loan losses as of December 31, 2004. Actual losses on those loans might differ materially from management's assessment. The accompanying non-consolidated financial statements did not reflect the impact of the uncertainty on the financial position of the Company when its holdings in Shinhan Bank and Chohung Bank were accounted for using the equity method. In addition, for the year ended December 31, 2004, Shinhan Bank and Chohung Bank provided W81,000 million and W73,400 million, respectively, of additional loans, and converted W162,300 million and W147,100 million, respectively, of loans to equity shares. As of December 31, 2004, Shinhan Bank and Chohung Bank had loans receivable and others (including securities and guarantees and acceptances) amounting to W357,295 million and W252,237 million, respectively, which had been provided to SK Networks Co., Ltd. The debtor company has been under control by creditor banks in accordance with the Corporate Restructuring Promotion Act of the Republic of Korea. For those loans, Shinhan Bank and Chohung Bank provided W31,025 million and W18,744 million, respectively, of allowance for loan losses as of December 31, 2004. Actual losses on those loans might differ materially from management's assessment. The accompanying non-consolidated financial statements did not reflect the impact of the uncertainty on the financial position of the Company when its holdings in Shinhan Bank and Chohung Bank were accounted for using the equity method. 10 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (4) Securities, Continued The changes in goodwill (negative goodwill) for the year ended December 31, 2004 are as follows:
(in millions of Won) Beginning Increase Amortization Ending balance (decrease) (reversal) balance --------- ---------- ------------ --------- Chohung Bank W 820,239 166,516 64,287 922,468 Goodmorning Shinhan Securities 144,538 - 17,004 127,534 Jeju Bank (5,655) - (685) (4,970) -------- ------- ------- --------- W 959,122 166,516 80,606 1,045,032 ======== ======= ======= =========
The market values of the shares of Jeju Bank owned by the Company are W34,117 as of December 31, 2004 (W3,520 per share).
(in millions of Won) 2003 ------------------------------------------------------------------------------------- Acquisition and Equity Beginning dividend, method Retained Capital Ending Subsidiaries balance net gain (loss) earnings adjustments balance ------------------------------ ----------- ------------- ----------- ----------- ----------- --------- Shinhan Bank W 2,474,864 (182,592) 476,273 937 177,048 2,946,530 Chohung Bank - (*)2,031,471 (42,712) 621 (127,731) 1,861,649 Goodmorning Shinhan Securities 531,566 - 8,787 (12,342) 18,861 546,872 Shinhan Card 247,460 - (84,324) - - 163,136 Shinhan Capital 76,458 - 26,204 - 2,786 105,448 Shinhan BNP Paribas ITMC 22,581 (1,000) 917 (37) 25 22,486 Jeju Bank 47,386 (2,423) 5,116 - (1,366) 48,713 SH&C Life Insurance 14,630 - (1,684) - 75 13,021 e-Shinhan 3,892 - (1,166) (1) - 2,725 Shinhan Macquarie 423 - 1,446 (26) - 1,843 Shinhan Credit Information 3,121 (1,696) 544 - - 1,969 ---------- --------- ------- ------- ------- --------- W 3,422,381 1,843,760 389,401 (10,848) 69,698 5,714,392 ========== ========= ======= ======= ======= =========
------------ (*) W26,513 million of additional goodwill through additional equity acquisition is included. The changes in goodwill (negative goodwill) for the year ended December 31, 2003 are as follows:
(in millions of Won) Beginning Increase Amortization Ending balance (decrease) (reversal) balance --------- ---------- ------------ --------- Chohung Bank W - 840,245 20,006 820,239 Goodmorning Shinhan Securities 161,542 - 17,004 144,538 Jeju Bank (6,340) - (685) (5,655) -------- ------- ------- --------- W 155,202 840,245 36,325 959,122 ======== ======= ======= =========
11 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (5) Loans (a) Loans as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) -------------------------- -------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Loans in Won W 1,550,000 1,637,200 $ 1,484,959 1,568,500 Loans in foreign currencies 135,609 107,705 129,918 103,185 Privately placed bonds 73,140 200,000 70,071 191,608 ---------- ----------- ----------- ----------- 1,758,749 1,944,905 1,684,948 1,863,293 Less: allowance for loan losses (8,794) (9,725) (8,425) (9,317) ---------- ----------- ----------- ----------- W 1,749,955 1,935,180 $ 1,676,523 1,853,976 ========== =========== =========== ===========
(b) Details of loans as of December 31, 2004 and 2003 are as follows:
(in millions of Won) Borrower Interest rate (%) 2004 2003 ------------------ ----------------- ----------- --------- Loans in Won Shinhan Card 4.95 - 6.28% W 1,050,000 1,100,000 " Shinhan Capital 5.22 - 8.12% 500,000 537,200 --------- --------- 1,550,000 1,637,200 Loans in foreign currencies Shinhan Capital Libor+0.9 - 1.2 135,609 107,705 Privately placed bonds Shinhan Bank 7.42 50,000 50,000 " Goodmorning Shinhan Securities 6.23 - 130,000 " Jeju Bank 8.14 23,140 20,000 --------- --------- 73,140 200,000 --------- --------- 1,758,749 1,944,905 Less: allowance for loan losses (8,794) (9,725) --------- --------- W 1,749,955 1,935,180 ========= =========
12 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (5) Loans, Continued (c) The maturities of loans as of December 31, 2004 and 2003 are as follows:
(in millions of Won) Loans Privately Loans in foreign placed At December 31, 2004 in Won currencies bonds Total ------------------------------------ ----------- ----------- ----------- ----------- Due in 3 months or less W 180,000 31,314 - 211,314 Due in 6 months or less 160,000 - - 160,000 Due after 6 months through 12 months 230,000 31,229 - 261,229 Due after 1 years through 3 years 760,000 73,066 3,140 836,206 Thereafter 220,000 - 70,000 290,000 ---------- ---------- ---------- ---------- W 1,550,000 135,609 73,140 1,758,749 ========== ========== ========== ==========
(in millions of Won) Loans Privately Loans in foreign placed At December 31, 2003 in Won currencies bonds Total ------------------------------------ ----------- ----------- ----------- ----------- Due in 3 months or less W - - - - Due in 6 months or less 90,000 - - 90,000 Due after 6 months through 12 months 97,200 - 130,000 227,200 Due after 1 years through 3 years 1,220,000 107,705 - 1,327,705 Thereafter 230,000 - 70,000 300,000 ---------- ---------- ---------- ---------- W 1,637,200 107,705 200,000 1,944,905 ========== ========== ========== ==========
13 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (6) Fixed Assets Fixed assets as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------- --------------------- 2004 2003 2004 2003 -------- ------- -------- ------- Property and equipment: Vehicles W 425 391 $ 407 375 Furniture and fixtures 1,168 993 1,119 951 Leasehold improvements and other 1,493 1,404 1,431 1,345 ------- ------- ------- ------- 3,086 2,788 2,957 2,671 Less: accumulated depreciation (1,784) (1,182) (1,709) (1,132) ------- ------- ------- ------- 1,302 1,606 1,248 1,539 Intangible assets: Other 862 414 826 397 ------- ------- ------- ------- W 2,164 2,020 $ 2,074 1,936 ======= ======= ======= =======
As of December 31, 2004, the Company maintains insurance policies covering loss and liability arising from automobile accidents. (7) Other Assets Other assets as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------- --------------------- 2004 2003 2004 2003 -------- ------- -------- ------- Guarantee deposits paid W 7,840 7,840 $ 7,511 7,511 Accounts receivable 6,234 7,612 5,973 7,293 Accrued income 11,044 11,334 10,581 10,858 Advance payments 10 10 9 9 Prepaid expenses 12 1,667 11 1,597 Prepaid income taxes - 13,867 - 13,285 Other 1,809 1,010 1,733 968 ------- ------- ------- ------- W 26,949 43,340 $ 25,818 41,521 ======= ======= ======= =======
14 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (8) Borrowings (a) Borrowings as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) ----------------------- ----------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Borrowings in Won W 50,000 94,000 $ 47,902 90,056 Borrowings in foreign currencies 104,380 71,868 100,000 68,852 -------- --------- -------- -------- W 154,380 165,868 $ 147,902 158,908 ======== ========= ======== ========
(b) The maturities of borrowings as of December 31, 2004 and 2003 are as follows:
(in millions of Won) Borrowings Borrowings in foreign At December 31, 2004 in Won currencies Total ------------------------------------ ---------- ---------- --------- Due in 3 months or less W - 31,314 31,314 Due in 6 months or less - - - Due after 6 months through 12 months 50,000 - 50,000 Due after 1 years through 3 years - 73,066 73,066 Thereafter - - - -------- -------- -------- W 50,000 104,380 154,380 ======== ======== ========
(in millions of Won) Borrowings Borrowings in foreign At December 31, 2003 in Won currencies Total ------------------------------------ ---------- ---------- --------- Due in 3 months or less W - - - Due in 6 months or less 90,000 - 90,000 Due after 6 months through 12 months 4,000 - 4,000 Due after 1 years through 3 years - 71,868 71,868 Thereafter - - - -------- -------- -------- W 94,000 71,868 165,868 ======== ======== ========
15 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (9) Debentures (a) Debentures as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------------- --------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Korean Won debentures W 1,920,000 1,950,000 $ 1,839,433 1,868,174 Foreign currency debentures 31,314 35,934 30,000 34,426 ---------- ---------- ---------- ---------- 1,951,314 1,985,934 1,869,433 1,902,600 Less: discount on debentures (3,212) (5,391) (3,077) (5,165) ---------- ---------- ---------- ---------- W 1,948,102 1,980,543 $ 1,866,356 1,897,435 ========== ========== ========== ==========
(b) The maturities of debentures as of December 31, 2004 and 2003 are as follows:
(in millions of Won) Foreign Korean Won currency At December 31, 2004 debentures debentures Total ------------------------------------ ----------- ----------- ----------- Due in 3 months or less 180,000 - 180,000 Due in 6 months or less W 160,000 - 160,000 Due after 6 months through 12 months 230,000 31,314 261,314 Due after 1 years through 3 years 1,130,000 - 1,130,000 Thereafter 220,000 - 220,000 ---------- ---------- ---------- W 1,920,000 31,314 1,951,314 ========== ========== ==========
(in millions of Won) Foreign Korean Won currency At December 31, 2003 debentures debentures Total ------------------------------------ ----------- ----------- ----------- Due in 3 months or less W - - - Due in 6 months or less - - - Due after 6 months through 12 months 230,000 - 230,000 Due after 1 years through 3 years 1,590,000 35,934 1,625,934 Thereafter 130,000 - 130,000 ---------- ---------- ---------- W 1,950,000 35,934 1,985,934 ========== ========== ==========
16 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (10) Retirement and Severance Benefits Changes in retirement and severance benefits for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------- --------------------- 2004 2003 2004 2003 ------- ------- ------- ------- Estimated severance liability at beginning of year W 530 570 $ 508 546 Provision (259) (180) (248) (172) Payment 505 140 484 134 ------ ------ ------ ------ Estimated severance liability at end of year 776 530 744 508 Less: deposit for severance benefit insurance (552) (530) (529) (508) ------ ------ ------ ------ Net balance at end of year W 224 - $ 215 - ====== ====== ====== ======
(11) Other Liabilities Other liabilities as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) ----------------------- ----------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Withholding taxes W 464 1,176 $ 445 1,127 Dividends payable 937 928 897 889 Accounts payable 180,980 14,492 173,386 13,884 Accrued expenses 14,627 12,189 14,013 11,678 Income tax payable 25,329 - 24,266 - Unearned revenue - 1,679 - 1,608 -------- -------- -------- -------- W 222,337 30,464 $ 213,007 29,186 ======== ======== ======== ========
17 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (12) Related Party Transactions (a) Details of transactions Significant transactions with the related parties for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) Revenue earned Expense incurred Account 2004 2003 ------------------------------ ------------------------------ -------------------------- ----------- ----------- The Company Shinhan Bank Interest income W 4,352 4,340 " Goodmorning Shinhan Securities Interest income 5,941 8,099 " Shinhan Card Interest income 63,146 54,006 " Shinhan Capital Interest income 39,066 29,714 " Jeju Bank Interest income 1,759 1,628 ---------- ---------- 114,264 97,787 ---------- ---------- Shinhan Bank The Company Rental income 32 - " Chohung Bank Interest income 54 - " " Gain on derivatives 2,277 1,838 " " Rental income 59 - " Goodmorning Shinhan Securities Interest income 2,237 3,121 " " Rental income 253 29 " Shinhan Card Interest income 3,463 4,445 " " Fees and commission income 35,516 57,941 " " Rental income 883 859 " Shinhan Capital Interest income 2,529 3,136 " " Rental income 309 309 " " Gain on derivatives 587 361 " Jeju Bank Interest income 75 237 " Shinhan Credit Information Rental income 244 - " SH&C Life Insurance Fees and commission income 12,677 2,723 Chohung Bank Shinhan Bank Interest income 316 996 " " Gain on derivatives 7,208 139 " " Rental income 163 - " Shinhan Capital Interest income 80 - " " Gain on derivatives 732 - " Shinhan Card Interest income 1,047 - " Goodmorning Shinhan Securities Interest income 47 26 " " Fees and commission income 4 - " SH&C Life Insurance Fees and commission income 12,565 744 Goodmorning Shinhan Securities Shinhan Bank Interest income 532 1,391 " " Rental income 301 - " " Fees and commission income - 466
18 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (12) Related Party Transactions, Continued
(in millions of Won) Revenue earned Expense incurred Account 2004 2003 ------------------------------ ------------------------------ -------------------------- ----------- ----------- Goodmorning Shinhan Securities Chohung Bank Interest income 411 136 " Shinhan Card Rental income 294 242 " " Fees and commission income 572 - " Shinhan BNP Paribas ITMC Rental income 204 201 " SH&C Life Insurance Fees and commission income 15 - Shinhan Card Shinhan Bank Interest income 69 7 " " Fees and commission income 87 29 " Goodmorning Shinhan Securities Fees and commission income 6 - " Jeju Bank Fees and commission income - 81 " SH&C Life Insurance Fees and commission income 3,980 338 " Shinhan Credit Information Fees and commission income 35 - Shinhan Capital Shinhan Bank Interest income 1,463 437 " " Gain on derivatives 2,216 1,111 " Chohung Bank Interest income 642 690 " " Gain on derivatives 3,881 - Shinhan BNPParibas ITMC Shinhan Bank Interest income 446 393 Jeju Bank Shinhan Bank Interest income 3 99 " Chohung Bank Interest income 13 - " SH&C Life Insurance Fees and commission income 182 - SH&C Life Insurance Shinhan Bank Interest income 207 498 " " Insurance income 1,020 514 " Jeju Bank Insurance income 1 - e-Shinhan Shinhan Bank Interest income 65 132 " " Fees and commission income 635 - " Shinhan Card Fees and commission income - 22 " The Company Fees and commission income 179 62 " Goodmorning Shinhan Securities Fees and commission income 100 - " Chohung Bank Fees and commission income 600 - Shinhan Macquarie Shinhan Bank Interest income 22 - Shinhan Credit Information " Fees and commission income 2,804 2,614 " " Interest income 74 35 " Chohung Bank Fees and commission income 3,816 - " Goodmorning Shinhan Securities Fees and commission income 13 31 " Shinhan Card Fees and commission income 8,333 8,646 " Shinhan Capital Fees and commission income 113 61 " Jeju Bank Fees and commission income 203 623 ----------- ---------- 116,894 95,763 ----------- ---------- W 231,158 193,550 =========== ==========
19 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (12) Related Party Transactions, Continued (b) Account balances Significant balances with the related parties as of December 31, 2004 and 2003 are as follows:
(in millions of Won) Creditor Debtor Account 2004 2003 ------------------------------ ------------------------------ -------------------------- ----------- ----------- The Company Shinhan Bank Due from banks W 31,145 5,327 " " Loans 50,000 50,000 " " Other assets 13,251 14,644 " Goodmorning Shinhan Securities Loans - 130,000 " " Other assets - 134 " Shinhan Card Loans 1,050,000 1,100,000 " " Other assets 6,661 6,541 " Shinhan Capital Loans 635,609 644,905 " " Other assets 4,739 5,066 " Jeju Bank Loans 23,140 20,000 " " Other assets 186 186 " Shinhan Credit Information Other assets 89 38 ---------- ---------- 1,814,820 1,976,841 Shinhan Bank Chohung Bank Securities 21,332 132,708 " " Other assets 587 797 " Goodmorning Shinhan Securities Loans - 30,000 " " Other assets 5,753 4,418 " Shinhan Card Loans 7,500 28,500 " " Other assets 2,474 87 " Shinhan Capital Loans 63,823 75,933 " " Derivative assets - 97 " " Other assets 310 136 " Jeju Bank Loans - 3,140 " " Other assets - 561 " SH&C Life Insurance Other assets 1,199 1,455 Chohung Bank Shinhan Bank Securities - 96,515 " " Other assets 8,373 4,324 " Shinhan Capital Loans 732 392 " SH&C Life Insurance Other assets 1,956 - Goodmorning Shinhan Securities Shinhan Bank Due from banks 5,640 53,064 " " Other assets 7,747 6,791 " Chohung Bank Due from banks 7,195 2,011 " " Other assets 2,075 8 " SH&C Life Insurance Other assets 1 -
20 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (12) Related Party Transactions, Continued
(in millions of Won) Creditor Debtor Account 2004 2003 ------------------------------ ------------------------------ -------------------------- ----------- ----------- Shinhan Card The Company Other assets - 906 " Shinhan Bank Cash and due from banks 427 102 " " Other assets 1,189 1,189 " Chohung Bank Cash and due from banks 1 - " Goodmorning Shinhan Securities Other assets 4,635 4,635 " SH&C Life Insurance Other assets 431 338 Shinhan Capital The Company Other assets - 773 " Shinhan Bank Short-term financial instruments 72,105 58,231 " " Other assets 3,293 2,341 " Chohung Bank Securities 5,743 6,714 " " Other assets 3,577 173 Shinhan BNP Paribas ITMC Shinhan Bank Cash and due from banks 12,626 4,436 " " Other assets 360 105 " Goodmorning Shinhan Securities Other assets 3,496 3,496 Jeju Bank Shinhan Bank Other assets - 561 " SH&C Life Insurance Other assets 26 - SH&C Life Insurance Shinhan Bank Cash and cash equivalents 853 33,563 " " Other assets 3 46 " Chohung Bank Cash and cash equivalents 873 - e-Shinhan Shinhan Bank Cash and cash equivalents 980 2,158 " " Other assets 7 - " " Loans 1,850 - Shinhan Macquarie Shinhan Bank Cash and cash equivalents 4,027 1,187 Shinhan Credit Information Shinhan Bank Cash and cash equivalents 900 1,686 " " Other assets 1,041 1,146 " Chohung Bank Other assets 435 - " Goodmorning Shinhan Securities Other assets 1 - " Shinhan Card Other assets 702 892 " Jeju Bank Other assets 71 161 Shinhan PE Shinhan Bank Cash and cash equivalents 9,412 - ---------- ---------- 265,761 565,776 ---------- ---------- W 2,080,581 2,542,617 ========== ==========
21 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (12) Related Party Transactions, Continued (c) Guarantees and acceptances The guarantees and acceptances provided between the related parties as of December 31, 2004 are as follows:
(in millions of Won) Amount Creditor Debtor Account guaranteed ------------ ------------------------------ ------------------------------- ---------- The Company Goodmorning Shinhan Securities Lease guarantee W 50,000 Shinhan Bank Shinhan Capital Letter of credit 13,601 " Shinhan Finance Guarantees for loans 11,515 Chohung Bank Chohung Finance Guarantees for letter of credit 731 -------- W 75,847 ========
(13) Assets and Liabilities Denominated in Foreign Currency Assets and liabilities denominated in foreign currency as of December 31, 2004 and 2003 are as follows:
(in millions of Won and thousands of U.S. dollars) Foreign currency Won equivalent ----------------------- ----------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Assets: Loans $ 129,919 89,919 W 135,609 107,705 Other assets 853 426 890 510 --------- --------- --------- --------- $ 130,772 90,345 W 136,499 108,215 ========= ========= ========= ========= Liabilities: Borrowings $ 100,000 60,000 W 104,380 71,868 Debentures 30,000 30,000 31,314 35,934 Discount on debentures (20) (51) (21) (60) Other liabilities 791 382 825 457 --------- --------- --------- --------- $ 130,771 90,331 W 136,498 108,199 ========= ========= ========= =========
22 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (14) Commitments and Contingencies (a) 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 in Chohung Bank. Additionally, in accordance with the agreement, 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: o Asset Indemnity Payment Amount: W652,284 million - asset indemnity amount for corporate loans, returned KAMCO loans and credit card loans 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 o General Indemnity Payment Amount: W166,516 million (may be offset by any amounts due and payable by the KDIC to the Company in connection with the breach of representation or warranty) Payment date: the second anniversary date of cash portion closing date Interest: 4.3% per annum o Earn Out Payment Amount: 20% of the total excess amount, which means net income of Chohung Bank for fiscal years of 2004, 2005 and 2006 in excess of W1,800 billion Payment date: within 30 days after the date excess amount is determined for the fiscal year of 2006 As regards General Indemnity, eligibility of most of indemnifiable items, as provided for in a stock purchase agreement, expired during the year ended December 31, 2004. As for the remaining such items, indemnification appeared unlikely as of December 31, 2004. Accordingly, the Company made adjustment to reflect the aforementioned General Indemnity Payment as an addition to goodwill. The other two contingent considerations are not included in the acquisition cost, for the amount is not determinable. (b) Indemnification on contingent loss Pursuant to the sale agreement of 50% shares in Shinhan ITMC, entered into between BNP Paribas Asset Management Group and the Company, the Company agreed to compensate BNP Paribas Asset Management Group for contingent loss arising from lawsuit in which Bumin Mutual Savings Bank filed against Shinihan BNP Paribas ITMC totaling W100 million. As of December 31, 2004, the lawsuit is in the first trial however, the ultimate outcome of this lawsuit cannot be presently determined. 23 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (15) Capital Stock (a) The Company issued new preferred stock for the year ended December 31, 2003, and the details are as follows:
Predetermined Number of dividend rate shares (%) (*) 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 ==========
------------ (*) Based on issue price (**) Convertible period : August 19, 2004 - August 18, 2007 Conversion ratio : 1 common share to 1 preferred share Conversion price in Won : W18,086 Details of changes in capital stock for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) ------------------------------------------------------ 2004 ------------------------------------------------------ Number of shares Capital stock Capital surplus ---------------- ------------- --------------- Balance at beginning of the period 391,705,864 1,958,530 3,316,380 Share exchange 24,917,711 124,588 402,184 Disposition of treasury stock - - 59 ----------- --------- --------- Balance at end of the year 416,623,575 2,083,118 3,718,623 =========== ========= =========
(in millions of Won) ------------------------------------------------------ 2003 ------------------------------------------------------ Number of shares Capital stock Capital surplus ---------------- ------------- --------------- Balance at beginning of the year 292,361,125 1,461,806 1,976,625 Redeemable preferred stock issued: Series 1 to 5 46,583,961 232,920 237,784 Series 6 to 8 6,000,000 30,000 855,530 Redeemable convertible preferred stock issued: Series 9 44,720,603 223,603 228,271 Common stock issued 1,864,065 9,320 18,183 Share exchange 176,110 881 (13) ----------- --------- --------- Balance at end of the year 391,705,864 1,958,530 3,316,380 =========== ========= =========
24 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (16) Retained Earnings Retained earnings as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------------- --------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Legal reserve W 118,692 82,469 $ 113,711 79,008 Retained earnings before appropriation 1,489,493 782,922 1,426,991 750,069 ----------- ----------- ----------- ----------- W 1,608,185 865,391 $ 1,540,702 829,077 =========== =========== =========== ===========
The Korean Financial Holding Company Act requires the Company to appropriate a minimum of 10% of annual net income as legal reserve whenever dividends are paid until such reserve equals its paid-in capital. This reserve is not available for payment of cash dividends. However, subject to the stockholders' approval, it may be transferred to common stock in connection with stock dividends or used to reduce any accumulated deficit. (17) Capital Adjustment Capital adjustments as of December 31, 2004 and 2003 consist of the following:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) ------------------------- ------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Unrealized gain on investment securities W 383,437 13,871 $ 367,347 13,289 accounted for by the equity method Unrealized loss on investment securities (53,932) (640,388) (51,669) (613,516) accounted for by the equity method Stock options (note 18) 8,178 9,626 7,835 9,222 ---------- ---------- ---------- ---------- W 337,683 (616,891) $ 323,513 (591,005) ========== ========== ========== ==========
25 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (18) Stock Options (a) Details of stock options as of December 31, 2004 and 2003 are as follows:
(in Won) Grant date March 25, 2004 May 15, 2003 May 22, 2002 ------------------------------------ ------------------ ------------------ ----------------- Shares granted 1,301,600 shares 1,156,300 shares 1,004,200 shares Share expired or exercise to date 64,421 shares 157,868 shares 139,610 shares ------------------ ------------------ ----------------- Shares outstanding 1,237,179 shares 998,432 shares 864,590 shares Type of stock options Stock grant or Stock grant or price compensation price compensation Price compensation Exercise price W 21,595 W 11,800 W 18,910 Within three years Within four years Within four years Exercise period after two years after two years after two years from grant date from grant date from grant date Forfeited period After five years After six years After six years from grant date from grant date from grant date Assumptions used to determine the fair value of options: Risk-free interest rate 4.39% 4.25% - Expected exercise period 3.5 years 4 years - Expected stock price volatility 19.85% 22.11% - Expected dividend yield 0% 0% - Expected ratios of no-exercise 0% 0% - Weighted average fair value W 7,696 W 5,292 -
With respect to the stock options granted on May 22, 2002, the Company decided to pay the difference between the market price and the exercise price in cash for the year ended December 31, 2004. As a result, the Company determined to apply the intrinsic value method to those stock options, stock options, accounts receivable and stock compensation costs decreased by W7,694 million, W6,113 million and W1,581 million, respectively, for the year ended December 31, 2004. 26 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (18) Stock Options, Continued (b) Changes in stock compensation costs for the year ended December 31, 2004 are as follows:
(in millions of Won) Personnel of ---------------------------- Grant date Stock compensation cost The Company Subsidiaries Total -------------- ------------------------------------ ----------- ------------ ------- March 25, 2004 Recorded at beginning of the period W - - - Incurred during the period 935 2,850 3,785 To be recorded in subsequent periods 1,394 4,343 5,737 May 15, 2003 Recorded at beginning of the period 442 1,489 1,931 Incurred during the period 593 1,871 2,464 To be recorded in subsequent periods 213 676 889 May 22, 2002 Recorded at beginning of the period 1,581 6,113 7,694 Incurred during the period (917) (3,730) (4,647) To be recorded in subsequent periods - - -
For stock options granted at March 25, 2004 and May 15, 2003, the difference between the exercise price and the fair value on the date of exercise would be assumed by the subsidiaries of the Company. Therefore, in relation to those stock options, stock compensation costs have been recorded as long-term payables by the subsidiaries and as accounts receivable by the Company. (19) General and Administrative Expenses Details of general and administrative expenses for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won and thousands of U.S. dollars) Won U.S. dollars (Note 2) --------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Salaries and wages W 13,363 9,821 $ 12,802 9,409 Provision for retirement and severance benefits 505 140 484 134 Other employees benefits 866 601 830 576 Rental 497 142 476 136 Entertainment 663 1,455 635 1,394 Depreciation 652 568 625 544 Amortization 111 109 106 104 Bad debts - 5,879 - 5,632 Taxes and dues 835 361 800 346 Advertising 28 22 27 21 Fees and commission 3,600 1,374 3,449 1,316 Other 3,104 3,430 2,974 3,286 -------- -------- -------- -------- W 24,224 23,902 $ 23,208 22,898 ======== ======== ======== ========
27 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (20) Income Taxes (a) The Company is subject to income taxes based on taxable earnings, which results in the normal tax rate of 29.7%. The Korean government reduced the corporate income tax rate beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate will be reduced from 29.7% to 27.5%. As a result, the statutory income tax rate of 29.7% is applied for deferred income tax assets (liabilities) that will be realized before 2005 and statutory income tax rate of 27.5% is applied for deferred income tax assets (liabilities) that will be realized after 2004, reflecting the corporate tax rate cut from 2005. The components of income taxes for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 2003 --------- --------- Current income taxes W 17,032 - Changes in deferred taxes: temporary differences - - --------- --------- W 17,032 - ========= =========
(b) The reconciliation of accounting income and taxable income for the years ended December 31, 2004 and 2003 is as follows:
(in millions of Won) Temporary difference Permanent difference ----------------------------- ----------------------------- Description 2004 2003 2004 2003 ------------------------------------------------ ------------ ------------ ------------ ------------ Additions: Dividends received W 256,536 186,896 - - Accrued income earned in prior year 11,334 4,332 - - Investment securities accounted for - 10,848 956,752 - by the equity method Retirement and severance benefits 215 - - - Entertainment expense in excess of tax limit - - 569 1,434 Retained earnings 91,066 - 834 - Other - 20 48,326 1,415 ------------ ------------ ------------ ------------ 359,151 202,096 1,006,481 2,849 ------------ ------------ ------------ ------------ Deductions: Dividends received - - 217,640 186,058 Investment securities accounted for 956,643 - 26,513 10,848 by the equity method Retained earnings - - 65,497 20 Accrued income earned in current period 299 11,334 - - Deposit for retirement and severance benefits 215 198 - - insurance Gain from equity method 1,108,740 388,641 - - Other 5 - - - ------------ ------------ ------------ ------------ 2,065,902 400,173 309,650 196,926 ------------ ------------ ------------ ------------ W (1,706,751) (198,077) 696,831 (194,077) ============ ============ ============ ============
28 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (20) Income Taxes, Continued (c) Changes in significant accumulated temporary differences and tax effects for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 --------------------------------------------------------------- Beginning Ending balance (*) Increase Decrease balance ------------ ------------ ------------ ------------ Temporary differences: Securities W 12,199 91,066 - 103,265 Retirement and severance benefits 251 215 - 466 Gain from equity method (268,310) (1,108,740) (256,536) (1,120,514) Accrued income (11,334) (299) (11,334) (299) Deposit for severance benefit insurance (251) (215) - (466) Other 10 - 6 5 ------------ ------------ ------------ ------------ (267,435) (1,017,973) (267,864) (1,017,543) Unrealizable temporary differences on gain from equity method 263,171 1,017,503 ------------ ------------ Net temporary differences W (4,264) (40) ============ ============ Tax effects of temporary differences (1,172) (11) Tax effects of tax loss carryforwards 13,706 - ------------ ------------ Net tax effects W 12,534 (11) ============ ============ Tax effects recorded in financial statements W - - ============ ============
------------ (*) Amount resulting from prior year tax return is reflected in the current year. 29 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (20) Income Taxes, Continued
(in millions of Won) 2003 --------------------------------------------------------------- Beginning Ending balance Increase Decrease balance ------------ ------------ ------------ ------------ Deductible temporary differences: Securities W 1,351 10,848 - 12,199 Retirement and severance benefits 342 - - 342 ------------ ------------ ------------ ------------ 1,693 10,848 - 12,541 ------------ ------------ ------------ ------------ Taxable temporary differences: Gain from equity method 203,714 388,641 186,896 405,459 Accrued income 4,332 11,334 4,332 11,334 Deposit for severance benefit insurance 332 198 - 530 Other 4 - 20 (16) ------------ ------------ ------------ ------------ 208,382 400,173 191,248 417,307 ------------ ------------ ------------ ------------ Net (206,689) (389,325) (191,248) (404,766) Unrealizable temporary differences on gain from equity method 191,135 386,200 ------------ ------------ Net temporary differences W (15,554) (18,566) ============ ============ Tax effects of temporary differences (4,619) (5,106) Tax effects of tax loss carryforwards 6,295 13,706 ------------ ------------ Net tax effects W 1,676 8,600 ============ ============ Tax effects recorded in financial statements (*) W - - ============ ============
------------ (*) Tax effects on temporary differences and tax loss carryforwards are not recognized due to uncertainty of realization. Total amount of tax loss carryforwards which are not recognized as deferred taxes, is W49,842 million, with the tax benefit maturity of W5,553 million in 2006, W14,363 million in 2007 and W29,926 million in 2008. (d) Effective tax rates for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won, except income tax rate) 2004 2003 ----------- ----------- Earnings before income taxes W 1,067,327 362,988 Income taxes W 17,032 - Effective income tax rate (%) 1.60 -
30 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (21) Earnings Per Share (a) Earnings per share Earnings per common share is calculated by dividing net income less preferred stock dividend requirement by the weighted average number of shares of common stock outstanding. The Company's ordinary income and net earnings per share for the years ended December 31, 2004 and 2003 are computed as follows:
(in millions of Won, except share) 2004 2003 (*) ------------- ------------- Net income for year W 1,050,295 362,988 Less: extraordinary gain (loss) - - dividends on preferred stock 115,141 83,397 ------------- ------------- Ordinary income available for common stock 935,154 279,591 Weighted average number of common shares outstanding (**) 292,467,357 262,983,207 ------------- ------------- Ordinary income per share in Won W 3,197 1,063 ============= ============= Net earnings per share in Won W 3,197 1,063 ============= =============
------------ (*) The effect arising from the adoption of SKAS No. 15 "The Equity Method of Accounting" is reflected. (**) Shares held by subsidiaries are considered. (b) Diluted earnings per share For the year ended December 31, 2004, if convertible preferred stock and stock options were exercised, 46,956,214 shares of common stock would be issued, and if preferred stock were converted into common stock on issue date, weighted average number of common shares outstanding would be 337,600,441. Details of diluted ordinary/net earnings per share due to dilutive effect for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won, except share) 2004 2003 ------------- ------------- Ordinary income available for common stock W 935,154 279,591 Add: dividends on convertible preferred stock 16,338 6,043 stock compensation costs 583 - ------------- ------------- Diluted ordinary income/net earnings 952,075 285,634 Weighted average number of common shares outstanding 337,600,441 279,523,704 ------------- ------------- Diluted ordinary income per share in Won W 2,820 1,022 ============= ============= Diluted net earnings per share in Won W 2,820 1,022 ============= =============
------------ (*) The effect arising from the adoption of SKAS No. 15 "The Equity Method of Accounting" is reflected. (**) Shares held by subsidiaries are considered. 31 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (21) Earnings Per Share, Continued (c) Securities applicable to common shares
Number of shares Convertible period to be issued --------------------------------- ---------------- Redeemable convertible preferred stock August 19, 2004 - August 18, 2007 44,720,603 Stock options May 15, 2005 - June 15, 2009 998,432 Stock options March 26, 2006 - March 25, 2009 1,237,179 ---------- 46,956,214 ==========
(d) (Diluted) earnings per share for each quarters in 2004 are as follows:
(in Won) Quarter ended ------------------------------------------------------------------ March 31, June 30, September 30, December 31, 2004 2004 2004 2004 ------------- ------------- ------------- ------------- Earnings per share in Won W 429 1,003 984 753 Diluted earnings per share in Won 381 881 867 669
32 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (22) Dividends (a) Dividends for the years ended December 31, 2004 and 2003 are calculated as follow:
(in millions of Won, except per share) 2004 ---------------------------------------------------- Common Preferred shares shares Total -------------- -------------- -------------- Total number of share issued and outstanding 319,319,011 97,304,564 416,623,575 Shares excluded (*) 8,987,011 - 8,987,011 -------------- -------------- -------------- 310,332,000 97,304,564 407,636,564 Face value per share in Won 5,000 5,000 5,000 Dividend per share in Won (rate per share) (**) W 750 (15%) 1,183 (23.66%) 853 (17.06%) -------------- -------------- -------------- Dividends W 232,749 115,141 347,890
------------ (*) Dividends on shares held by subsidiaries as of December 31, 2004 are not paid. (**) Dividends per share on preferred stock are weighted average amount and details are as follows:
(in millions of Won, except per share) Number of Dividends per Dividend rate shares share in Won per share (%) Dividends ---------- ------------- ------------- --------- Redeemable preferred stock: Series 1 9,316,792 730.674 14.61 6,807 Series 2 9,316,792 " " 6,807 Series 3 9,316,792 " " 6,807 Series 4 9,316,792 " " 6,807 Series 5 9,316,793 " " 6,808 Series 6 3,500,000 10,500 210.00 36,750 Series 7 2,433,334 11,190 223.80 27,230 Series 8 66,666 11,790 235.80 786 ---------- ------- 52,583,961 98,802 Redeemable convertible preferred stock: Series 9 44,720,603 365.337 7.31 16,339 ---------- ------- 97,304,564 115,141 ========== =======
33 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (22) Dividends, Continued
(in millions of Won, except per share) 2003 ------------------------------------------------- Common Preferred shares shares Total ------------- ------------- ------------- Total number of share issued and outstanding 294,401,300 97,304,564 391,705,864 Shares excluded (*) (29,873,359) - (29,873,359) ------------- ------------- ------------- 264,527,941 97,304,564 361,832,505 Face value per share in Won 5,000 5,000 5,000 Dividend per share in Won (rate per share) (**) W 600 (12%) 857(17.14%) 669 (13.38%) ------------- ------------- ------------- Dividends W 158,717 83,397 242,114 ============= ============= =============
------------ (*) Dividends on shares held by subsidiaries as of December 31, 2003 are not paid. (**) Dividends per share on preferred stock are weighted average amount and details are as follows:
(in millions of Won, except per share) Number of Dividends 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 ========== ======
34 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (22) Dividends, Continued (b) Payout ratios for the years ended December 31, 2004 and 2003 are calculated as follows:
(in millions of Won, except payout ratio) Common Preferred Common Preferred shares shares Total shares shares Total ------------- ----------- ----------- ----------- ----------- ----------- Dividends in Won W 232,749 115,141 347,890 158,717 83,397 242,114 Net earning in Won W (*) 935,154 115,141 1,050,295 279,591 83,397 362,988 Payout ratios (%) 24.89 33.12 56.77 66.70
(c) Dividend yields on common shares for the years ended December 31, 2004 and 2003 are calculated as follows:
(in Won, except dividends yields) 2004 2003 --------- --------- Dividends per share in Won W 750 600 Stock price in Won at the balance sheet date (*) W 22,840 18,513 Dividends yields (%) 3.28 3.24
(23) Statements of Cash Flows Significant transactions not involving cash inflows or outflows for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 2003 --------- --------- Acquisition of investment securities accounted for by the equity method through shares exchange W 526,798 929,559 Contingent liabilities recorded as accounts payable 166,516 - Changes in capital adjustments due to application of the equity method 956,022 69,698 Changes in retained earnings due to application of the equity method 65,387 10,848 Stock options recorded as accounts receivable 1,393 5,241 Changes in unrealized gain on available-for-sale securities - 668 Amortization charged to retained earnings due to accounting change - 20 Shares exchange - 881
35 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (24) Application of New Accounting Standards Effective January 1, 2004, Company has adopted Statements of Korean Financial Accounting Standards (the "SKAS") No. 10, 12 and 13, in addition, the Company has adopted SKAS No. 15, effective from the first fiscal year beginning after December 31, 2004 with encouraged earlier application. As a result, the effect from application of those accounting standards was to decrease investment securities accounted for by the equity method and capital adjustments by W226,808 million and W227,622 million, and increase retained earnings and net income by W814 million and W1,821 million, respectively, as of December 31, 2004. Additionally, non-consolidated financial statements as of and for the year ended December 31, 2003, which are presented for comparative purposes, were retroactively restated, as a result, investment securities accounted for by the equity method, retained earnings and capital adjustments decrease by W594,146 million, W1,007 million and W593,139 million, respectively, as of December 31, 2003. If the Company adopted the aforementioned accounting standards retroactively to prior years, the following amounts would be changed:
(in millions of Won) 2003 2002 2001 ----------- ----------- ----------- Investment securities accounted for by the equity method W 5,714,392 3,622,124 3,277,296 Net income 362,988 602,163 220,763 Net earnings per share 1,063 2,294 875 Capital adjustments (616,892) (468,713) (394,810)
(25) Financial Performance Financial performance for the quarters ended December 31, 2004 and 2003 are as follows:
(in millions of Won, except net earnings per share) Quarter ended December 31, -------------------------- 2004 2003 (*) --------- --------- Operating revenue W 314,541 141,207 Operating income 282,648 106,422 Net income 255,714 104,756 Net earnings per share in Won 753 132
------------ (*) Financial performance for the quarter ended December 31, 2003 reflected the adoption of new accounting standards, as presented in Note 24. 36 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (26) Condensed Financial Statements of Subsidiaries (a) Balance sheets Condensed balance sheets of subsidiaries as of December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 ----------------------------------------------------------- Total stockholders' Subsidiaries Total assets Total liabilities equity ------------------------------ ------------- ----------------- ------------------- Shinhan Bank W 70,125,920 66,000,578 4,125,342 Chohung Bank 65,389,100 62,778,172 2,610,928 Goodmorning Shinhan Securities 2,956,183 2,277,868 678,315 Shinhan Card 1,469,925 1,306,467 163,458 Shinhan Capital 1,320,929 1,201,582 119,347 Shinhan BNP Paribas ITMC 49,463 3,845 45,618 Jeju Bank 1,872,414 1,763,877 108,537 SH&C Life Insurance 286,304 257,077 29,227 e-Shinhan 4,813 893 3,920 Shinhan Macquarie 11,307 9,154 2,153 Shinhan Credit Information 9,228 2,366 6,862 Shinhan PE 9,844 57 9,787 ------------- ----------- --------- W 143,505,430 135,601,936 7,903,494 ============= =========== =========
(in millions of Won) 2003 ----------------------------------------------------------- Total stockholders' Subsidiaries Total assets Total liabilities equity ------------------------------ ------------- ----------------- ------------------- Shinhan Bank W 70,066,189 66,550,821 3,515,368 Chohung Bank 59,227,864 57,289,224 1,938,640 Goodmorning Shinhan Securities 2,928,017 2,290,044 637,973 Shinhan Card 1,778,191 1,620,555 157,636 Shinhan Capital 1,153,907 1,051,683 102,224 Shinhan BNP Paribas ITMC 47,461 2,489 44,972 Jeju Bank 1,785,961 1,682,328 103,633 SH&C Life Insurance 114,012 87,970 26,042 e-Shinhan 3,924 225 3,699 Shinhan Macquarie 11,255 7,642 3,613 Shinhan Credit Information 13,588 9,726 3,862 ------------- ----------- --------- W 137,130,369 130,592,707 6,537,662 ============= =========== =========
37 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (26) Condensed Financial Statements of Subsidiaries, Continued (b) Statements of Earnings Condensed statements of earnings of subsidiaries for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 --------------------------------------------------------------------------------- Operating Operating Operating Ordinary Net income Subsidiaries revenue expense income (loss) income (loss) (loss) ---------------------------- ------------ ------------ ------------- ------------- ------------ Shinhan Bank W 5,917,768 4,881,890 1,035,878 1,201,938 844,113 Chohung Bank 6,782,762 6,459,908 322,854 267,736 265,238 Goodmorning Shinhan Securities (*) 658,328 614,709 43,619 44,113 43,576 Shinhan Card 423,829 417,407 6,422 5,822 5,822 Shinhan Capital 221,072 187,764 33,308 32,738 23,056 Shinhan BNP Paribas ITMC (*) 13,950 7,402 6,548 6,551 4,557 Jeju Bank 131,659 123,982 7,676 7,366 6,334 SH&C life Insurance (*) 36,489 37,850 (1,362) 182 373 e-Shinhan 3,487 3,293 194 220 220 Shinhan Macquarie (*) 14,556 11,633 2,923 3,098 1,984 Shinhan Credit Information 29,367 28,972 395 610 3,000 Shinhan PE - 212 (212) (212) (212) ------------ ------------ ------------ ------------ ------------ W 14,233,267 12,775,022 1,458,243 1,570,162 1,198,061 ============ ============ ============ ============ ============
------------ (*) For the period from January 1, 2004 to December 31, 2004 reflected.
(in millions of Won) 2003 --------------------------------------------------------------------------------- Operating Operating Operating Ordinary Net income Subsidiaries revenue expense income (loss) income (loss) (loss) ---------------------------- ------------ ------------ ------------- ------------- ------------ Shinhan Bank W 4,851,995 4,180,640 671,355 685,756 476,023 Chohung Bank 5,416,552 6,103,681 (687,129) (918,764) (968,940) Goodmorning Shinhan Securities (*) 649,701 619,693 30,008 68,616 35,813 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 BNP Paribas ITMC (*) 12,728 10,604 2,124 2,629 1,834 Jeju Bank 137,162 137,005 157 727 4,751 SH&C life Insurance (*) 44,986 47,478 (2,492) (3,369) (3,369) 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 ------------ ------------ ------------ ------------ ------------ W 11,729,067 11,757,277 (28,210) (228,586) (526,240) ============ ============ ============ ============ ============
------------ (*) For the period from January 1, 2003 to December 31, 2003 reflected. 38 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (27) Financing and Operating Status of the Company and Subsidiaries (a) The financing status of the Company and its subsidiaries as of December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 ------------------------------------------------------------------- Deposits Borrowings Debentures(*) Total ------------- ------------- ------------- ------------- The Company W - 154,380 1,948,102 2,102,482 Shinhan Bank 40,668,095 9,164,921 10,835,048 60,668,064 Chohung Bank 41,313,073 5,057,559 7,115,575 53,486,207 Goodmorning Shinhan Securities 614,473 290,508 - 904,981 Shinhan Card - 1,232,500 - 1,232,500 Shinhan Capital - 805,718 195,595 1,001,313 Jeju Bank 1,527,788 83,871 35,000 1,646,659 Shinhan Macquarie - 6,471 - 6,471 ------------- ------------- ------------- ------------- W 84,123,429 16,795,928 20,129,320 121,048,677 ============= ============= ============= =============
------------ (*) Net of discount on debentures
(in millions of Won) 2003 ------------------------------------------------------------------- Deposits Borrowings Debentures(*) Total ------------- ------------- ------------- ------------- The Company W - 165,868 1,980,543 2,146,411 Shinhan Bank 41,991,839 10,621,963 9,115,997 61,729,799 Chohung Bank 40,030,091 5,711,922 6,424,165 52,166,178 Goodmorning Shinhan Securities 1,032,769 657,838 161,000 1,851,607 Shinhan Card - 1,318,182 259,991 1,578,173 Shinhan Capital - 787,433 114,814 902,247 Jeju Bank 1,438,284 83,299 35,000 1,556,583 ------------- ------------- ------------- ------------- W 89,492,983 19,346,505 18,091,510 121,930,998 ============= ============= ============= =============
------------ (*) Net of discount on debentures 39 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (27) Financing and Operating Status of the Company and Subsidiaries, Continued (b) The operating status of the Company and its subsidiaries as of December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 ------------------------------------------------------------------- Cash and due Loans (*) Securities from banks Total ------------- ------------- ------------- ------------- The Company W 1,749,955 8,250,648 31,145 10,031,748 Shinhan Bank 51,028,772 11,706,747 2,386,837 65,122,356 Chohung Bank 41,586,846 11,499,243 1,754,215 54,840,304 Goodmorning Shinhan Securities 1,001,505 1,852,357 636,049 3,489,911 Shinhan Card 790,320 1,643 880 792,843 Shinhan Capital 993,143 77,548 103,405 1,174,096 Shinhan BNP Paribas ITMC 454 20,101 22,198 42,753 Jeju Bank 1,366,068 303,688 31,574 1,701,330 SH&C Life Insurance 294 56,819 2,704 59,817 e-Shinhan 36 74 2,832 2,942 Shinhan Macquarie - - 4,027 4,027 Shinhan Credit Information - - 4,213 4,213 Shinhan PE - - 9,412 9,412 ------------- ------------- ------------- ------------- W 98,517,393 33,768,868 4,989,491 137,275,752 ============= ============= ============= =============
------------ (*) Net of allowance for loan losses and present value discounts
(in millions of Won) 2003 ------------------------------------------------------------------- Cash and due Loans (*) Securities from banks Total ------------- ------------- ------------- ------------- The Company W 1,935,180 6,308,538 5,353 8,249,071 Shinhan Bank 47,783,925 15,592,202 2,697,780 66,073,907 Chohung Bank 42,701,666 9,208,341 548,249 52,458,256 Goodmorning Shinhan Securities 397,354 1,020,131 1,154,647 2,572,132 Shinhan Card 1,058,667 682,841 3,886 1,745,394 Shinhan Capital 899,140 54,388 58,232 1,011,760 Shinhan BNP Paribas ITMC 176 680 29,498 30,354 Jeju Bank 1,326,103 243,024 21,122 1,590,249 SH&C Life Insurance 44 38,650 38,511 77,205 e-Shinhan 36 107 2,160 2,303 Shinhan Macquarie - - 1,187 1,187 Shinhan Credit Information - - 1,691 1,691 ------------- ------------- ------------- ------------- W 96,102,291 33,148,902 4,562,316 133,813,509 ============= ============= ============= =============
------------ (*) Net of allowance for loan losses and present value discounts 40 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (28) Contribution of Subsidiaries to the Company's Net Income Effects under the equity method on the Company's net income for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won, except ratio) 2004 2003 --------------------------- --------------------------- Amount Ratio (%) Amount Ratio (%) ----------- ----------- ----------- ----------- Gain (loss) from equity method on: Shinhan Bank W 683,687 61.66 W 476,273 122.31 Chohung Bank 378,026 34.10 (42,711) (10.97) Goodmorning Shinhan Securities 7,992 0.72 8,787 2.26 Shinhan Card 5,572 0.50 (84,324) (22) Shinhan Capital 23,009 2.08 26,204 6.73 Shinhan BNP Paribas ITMC 2,278 0.21 917 0.24 Jeju Bank 5,216 0.47 5,116 1.31 SH&C Life Insurance 187 0.02 (1,684) (0.43) e-Shinhan 162 0.01 (1,166) (0.30) Shinhan Macquarie 977 0.09 1,446 0.37 Shinhan Credit Information 1,846 0.17 544 0.14 (212) (0.02) - - ----------- ----------- ----------- ----------- 1,108,740 100.00 389,402 100.00 =========== =========== Other income 134,183 98,210 Other expense (192,628) (124,624) ----------- ----------- Net income for year W 1,050,295 W 362,988 =========== ===========
41 Shinhan Financial Group Co., Ltd. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED December 31, 2004 and 2003 (29) Allowance for Loan Losses of the Company and its Subsidiaries Changes in allowance for loan losses of the Company and its subsidiaries for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Won) 2004 ------------------------------------------------------------ Beginning balance Increase (decrease) Ending balance ----------------- ------------------- -------------- The Company W 9,725 (931) 8,794 Shinhan Bank 866,428 (122,922) 743,506 Chohung Bank 1,686,350 (679,629) 1,006,721 Goodmorning Shinhan Securities 43,048 (13,632) 29,416 Shinhan Card 118,609 (70,778) 47,831 Shinhan Capital 17,899 9,122 27,021 Shinhan BNP Paribas ITMC 14 (1) 13 Jeju Bank 35,270 (3,125) 32,145 SH&C Life Insurance 1 14 15 e-Shinhan 8 - 8 Shinhan Macquarie 98 (45) 53 Shinhan Credit Information 36 (36) - ----------- ----------- ----------- W 2,777,486 (881,963) 1,895,523 =========== =========== ===========
(in millions of Won) 2003 ------------------------------------------------------------ Beginning balance Increase (decrease) Ending balance ----------------- ------------------- -------------- The Company W 3,846 5,879 9,725 Shinhan Bank 565,844 300,584 866,428 Chohung Bank (**) 1,604,607 81,743 1,686,350 Goodmorning Shinhan Securities (*) 87,442 (44,394) 43,048 Shinhan Card 96,074 22,535 118,609 Shinhan Capital (*) 33,787 (15,888) 17,899 Shinhan BNP Paribas ITMC 8 6 14 Jeju Bank (*) (**) 29,318 5,952 35,270 SH&C Life Insurance - 1 1 e-Shinhan 1 7 8 Shinhan Macquarie 22 76 98 Shinhan Credit Information - 36 36 ----------- ----------- ----------- W 2,420,949 356,537 2,777,486 =========== =========== ===========
------------ (*) W12,952 million of additional allowance for loan losses is included in beginning balance. (**) W28,170 million of additional allowance for loan losses is included in ending balance. (30) Effective Date for Financial Statements The accompanying non-consolidated financial statements are to be approved at the Board of Directors' meeting on February 2, 2005.