Notes on the Accounts (continued) 2 Significant Accounting Policies (continued) Co-operative joint ventures in the PRC are accounted for as subsidiari

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1 Notes on the Accounts 1 Principal Activities The Bank and its subsidiaries (the Group ) are engaged in the provision of banking and related financial services, and business, corporate and investor services. 2 Significant Accounting Policies (a) Statement of Compliance These accounts have been prepared in accordance with all applicable Statements of Standard Accounting Practice ( SSAP ) and Interpretations issued by the Hong Kong Society of Accountants, accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. In addition, these accounts comply fully with the module on Financial Disclosure by Locally Incorporated Authorized Institutions under the Supervisory Policy Manual issued by the Hong Kong Monetary Authority. These accounts also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below. (b) Basis of Preparation of the Accounts The accounts are prepared on a basis consistent with the accounting policies and methods adopted in the previous year except for the changes in accounting policies mentioned in Note 3. With effect from 1st April, 2002, First Pacific Bank Limited ( FPB ) has been merged with the Bank through The Bank of East Asia, Limited (Merger) Ordinance, under which all the assets and liabilities situated in Hong Kong and the rights and obligations of FPB as expressly governed by Hong Kong law have been transferred to the Bank. By virtue of this Ordinance, the accounts of the Bank for the year ended 31st December, 2002 were prepared as if the undertaking of FPB had vested in the Bank on 1st January, The measurement basis used in the preparation of the accounts is historical cost modified by the revaluation of certain land and buildings, and the marking to market of certain investments in securities and off-balance sheet financial instruments as explained in the accounting policies set out below (c) Basis of Consolidation (i) Subsidiaries The consolidated accounts include the accounts of the Bank and all its subsidiaries made up to 31st December each year. A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or controls the composition of the Board of Directors. In the Bank s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses (Note 2(n)). All material intercompany transactions and balances are eliminated on consolidation. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from or to the date of their acquisition or disposal, as appropriate. Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries. (i) (n)

2 Notes on the Accounts (continued) 2 Significant Accounting Policies (continued) Co-operative joint ventures in the PRC are accounted for as subsidiaries, whereby the Group bears the entire risk and liabilities and shares all the profit and loss of the co-operative joint ventures after paying the guaranteed distribution to the joint venture partners in the PRC. (ii) Associates An associate is a company in which the Group or the Bank has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. An investment in an associate is accounted for in the consolidated accounts under the equity method and is initially recorded at cost and adjusted thereafter for the post-acquisition change in the Group s share of the associate s net assets, goodwill arising on acquisition of the associate and impairment loss (Note 2(n)). The consolidated profit and loss account reflects the Group s share of the postacquisition results of the associates for the year, less any amortisation of goodwill and impairment loss charged during the year in accordance with Notes 2(m) and 2(n). The Bank accounts for the results of associates to the extent of dividends received. Investments in associates are stated at cost less any impairment losses (Note 2(n)). (ii) 2(n) 2(m) 2(n) 2(n) (d) Translation of Foreign Currencies Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The exchange differences are dealt with in the profit and loss account. The balance sheets of overseas branches, subsidiaries and associates are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date, whereas the profit and loss accounts are translated at the average rate for the period. The difference between the profit and loss account translated at an average rate and at the closing rate is recorded as a movement in reserves. Exchange differences arising from retranslation of opening net assets at the rates of exchange ruling at the balance sheet date are accounted for in reserves. On disposal of a foreign enterprise, the cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit or loss on disposal. (e) Interest, Fees and Dividend Income Interest income and expense are recognised in the profit and loss account on a timeapportioned basis on the principal outstanding and at the rate applicable, except in the case of doubtful debts (Note 2(f)). Fees and commission income and expenses are recognised in the profit and loss account when earned or incurred. Dividend income from unlisted investments is recognised when the shareholder s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. 2(f) 76 The Bank of East Asia, Limited Annual Report 2002

3 (f) Advances and Other Accounts Advances to customers, banks and other financial institutions are measured at the cash consideration at the time of acquisition and are stated in the balance sheet after deducting provisions for estimated losses at subsequent periods. Interest on doubtful loans and advances is credited to a suspense account which is netted in the balance sheet against the relevant balances. (g) Repossession of Assets Assets acquired by repossession of collateral for realisation continue to be treated as securities for loans and advances. In this regard, provision has been made on the shortfall between the carrying amount of the loans and advances and the expected net sales proceeds from realisation of the repossessed assets. (h) Provision for Bad and Doubtful Debts Provisions are made against specific doubtful debts as and when they are considered necessary by the Credit Committee with authority delegated by the Board of Directors and in addition an amount has been set aside as a general provision for advances. When there is no longer any realistic prospect of recovery, the outstanding debt is written off. (i) Properties (i) Bank premises are stated in the balance sheet at cost or at Directors valuation, by reference to an independent professional valuation, less accumulated depreciation and accumulated impairment loss (Note 2(n)). (i) 2(n) When a deficit arises on revaluation, it will be charged to the profit and loss account, if and to the extent that it exceeds the amount held in the bank premises revaluation reserve in respect of that same asset immediately prior to the revaluation; and when a surplus arises on revaluation, it will be credited to the profit and loss account, if and to the extent that a deficit on revaluation in respect of that same asset had previously been charged to the profit and loss account. In preparing these accounts, advantage has been taken of the transitional provisions set out in paragraph 80 of SSAP 17 Property, Plant and Equipment issued by the Hong Kong Society of Accountants, with the effect that bank premises have not been revalued to fair value at the balance sheet date (ii) Investment properties are stated in the balance sheet at open market value, less any accumulated depreciation. Investment properties are valued annually by persons holding a recognised professional qualification in valuing properties and at intervals of not more than three years by independent valuers. Surpluses and deficits arising on revaluation of investment properties are recognised on a portfolio basis. The net surplus is credited to the investment property revaluation reserve. The net deficit is first set off against any investment property revaluation reserve and any resulting debit balance is thereafter charged to the profit and loss account. Where a deficit has previously been charged to the profit and loss account and a revaluation surplus subsequently arises, this surplus is credited to the profit and loss account to the extent of the deficit previously charged. (ii) 3 (iii) Profit or loss on disposal of bank premises and investment properties is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss account upon disposal. Surplus that is included in the bank premises revaluation reserve of the related bank premises disposed are transferred to the general reserve. Any revaluation surplus relating to the disposal of investment properties are transferred from the investment properties revaluation reserve to the general reserve. (iii)

4 Notes on the Accounts (continued) 2 Significant Accounting Policies (continued) (j) Amortisation and Depreciation (i) Bank premises (i) Freehold land is not amortised. Leasehold land is amortised on a straight line basis over the remaining term of the lease. Buildings are depreciated on a straight line basis at rates calculated to write off the cost or valuation of each building over its estimated useful life of 50 years or the remaining lease period of the land on which it is situated, whichever is the shorter. 50 (ii) Investment properties No depreciation is provided on land where the residual lease is greater than 20 years. Buildings with either the remaining useful life or the remaining lease period of the land on which they are situated being 20 years or less are depreciated on a straight line basis at rates calculated to write off the cost or valuation of the building over the shorter of the remaining estimated useful life of the building or the remaining lease period of the land. (ii) (iii) Other fixed assets Other fixed assets are stated in the balance sheet at cost less accumulated depreciation, which is calculated on a straight line basis to write off the assets over their estimated useful lives from 4 to 20 years. (iii) 420 (k) Leased Assets (i) Assets held for use in operating leases Where the Group leases out assets under operating leases, the assets are included in the balance sheet according to their nature and, where applicable, are depreciated in accordance with the Group s depreciation policies, as set out in Note 2(j). Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(n). (i) 2(j) 2(n) (ii) Operating lease charges Where the Group has the use of assets under operating leases, payments made under the leases are charged to the profit and loss account in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the patter n of benefits to be derived from the leased asset. Lease incentives received are recognised in the profit and loss account as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the profit and loss account in the accounting period in which they are incurred. (ii) (l) Investments in Securities Investments in debt and equity securities, except those held either solely for the purpose of recovering advances or as investments in subsidiaries or associates, are accounted for as follows. Investments in securities are classified as held-to-maturity debt securities, investment securities and other investments in securities, and are recognised as assets from the date on which the Group is bound by the contract which gives rise to them. Transfer of a security between categories of investments is accounted for at fair value. The profit or loss arising from transfers between categories of investments is accounted for as if the investment had been sold and repurchased at the date of transfer. 78 The Bank of East Asia, Limited Annual Report 2002

5 The profit or loss on disposal is accounted for in the period in which the disposal occurs as the difference between the sales proceeds and the carrying amount of the investments. (i) Held-to-maturity debt securities (i) Held-to-maturity debt securities are investments in debt securities which the Group has the expressed intention and ability to hold to maturity, and are stated at amortised cost less any provisions in their value which reflects their credit risk. Provisions are made and recognised immediately as an expense when carrying amounts are not expected to be fully recovered, but are written back to income when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. The amount written back is limited to the amount of the write-downs or write-offs. (ii) Investment securities Investment securities are securities which are intended to be held on a continuing basis, and which are held for an identified long-term purpose documented at the time of acquisition or change of purpose and are clearly identifiable for the documented purpose. Investment securities are included in the balance sheet at cost less provisions for diminution in value which are other than temporary. Such provision is determined for each investment individually. Provisions are recognised as an expense immediately and are written back to income when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. The amount written back is limited to the amount of the write-downs or write-offs. (ii) (iii) Other investments in securities Other investments in securities are those securities which are not classified as held-to-maturity debt securities nor as investment securities, and are stated at fair value at the balance sheet date. Unrealised holding gains or losses arising on revaluation of securities to fair value are dealt with in the profit and loss account. (iii) (m) Goodwill The excess of the purchase consideration in relation to the acquisition of subsidiaries and associates over the Group s share of fair value ascribed to their net tangible assets and identifiable intangible assets represents the goodwill arising on acquisition. In respect of subsidiaries, goodwill is capitalised and amortised on a straight line basis over its estimated useful life not exceeding 20 years, and is stated in the consolidated balance sheet at cost less accumulated amortisation and any impairment losses (Note 2(n)). The amortisation of goodwill is recognised in the consolidated profit and loss account as an operating expense. Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable amount. The impairment of goodwill is recognised in the consolidated profit and loss account as an operating expense. On disposal of a subsidiary, any unamortised purchased goodwill is included in the calculation of the profit or loss on disposal. In respect of associates, goodwill is capitalised and amortised on a straight line basis over its estimated useful life not exceeding 20 years. The cost of goodwill less any accumulated amortisation and any impairment losses (Note 2(n)) is included in the carrying amount of the investments in associates. 20 2(n) 20 2(n)

6 Notes on the Accounts (continued) 2 Significant Accounting Policies (continued) (n) Impairment of Assets At each balance sheet date, if internal and external sources of information indicate that any property (other than investment properties), equipment, investments (including those Investments in subsidiaries and associates (Note 2(c)) but other than those accounted for as Other investments in securities under Note 2(l)) or goodwill is impaired, the asset s recoverable amount is estimated, and an impairment loss is recognised in the profit and loss account whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event. A reversal of impairment losses is limited to the asset s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the profit and loss account in the year in which the reversals are recognised. 2(c) 2(l) (o) Finance Leases The amounts due from lessees in respect of finance leases are recorded in the balance sheet as advances to customers at the amounts of net investment which represent the total rentals receivable under finance leases less unearned income. Finance income implicit in the rental receivable is credited to the profit and loss account over the lease period so as to produce an approximately constant periodic rate of return on the net cash investment for each accounting period. (p) Deferred Taxation Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which are expected with reasonable probability to crystallise in the foreseeable future. Future deferred tax benefits are not recognised unless their realisation is assured beyond reasonable doubt. (q) Insurance Reserves and Provisions for Outstanding Claims Insurance reserves, except those attributable to long term business, represent the proportion of retained premiums written in the year relating to the period of risk from 1st January in the following year to the subsequent date of expiry of policies which is carried forward as a provision for unearned premiums and calculated on a daily basis. The insurance reserve of long term business is ascertained by actuarial valuation The Bank of East Asia, Limited Annual Report 2002

7 Full provision is made for the estimated cost of claims notified but not settled at the balance sheet date and for the estimated cost of claims incurred but not reported by that date, after deducting the amounts due from reinsurers. Provision has also been made for the estimated cost of servicing claims notified but not settled at the balance sheet date and to meet expenses on claims incurred but not reported at the balance sheet date. These reserves and provisions are classified as other accounts and provisions. (r) Provisions and Contingent Liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Bank or the Group has a legal or constructive obligation arising as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or nonoccurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (s) Employee Benefits (i) Salaries, bonuses and leave benefits Employee entitlements to salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are recognised when the absences occur. (i) (ii) Performance-related bonus plan Liabilities for performance-related bonus plan, which are due wholly within twelve months after the balance sheet date, are recognised when the Group has a present constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. (ii) 12 (iii) Retirement benefits Retirement benefits are provided to eligible staff of the Group. Hong Kong employees enjoy retirement benefits under either the Mandatory Provident Fund Exempted ORSO Scheme ( MPFEOS ) or the Mandatory Provident Fund Scheme ( MPFS ). Both are defined contribution schemes. The employer s monthly contribution to both schemes are at a maximum of 10% of an employee s monthly salary. The pension schemes covering all the Group s PRC and overseas employees are defined contribution schemes at various funding rates, and are in accordance with the local practices and regulations. The cost of all these schemes is charged to the profit and loss account for the period concerned and the assets of all these schemes are held separately from those of the Group. Under the MPFEOS, the employer s contribution is not reduced by contribution forfeited by those employees who leave the scheme prior to vesting fully in the contributions. Under the MPFS, the employer s contribution is reduced by contribution forfeited by those employees who leave the scheme prior to vesting fully in the contributions. (iii) 10%

8 Notes on the Accounts (continued) 2 Significant Accounting Policies (continued) (iv) Share options Share options are granted to employees to acquire shares of the Bank. For option schemes adopted before 2002, the option price was 95% of the average closing price of the existing shares of the Bank for the last five business days immediately preceding the date of offer. For the option scheme adopted in 2002, the option exercise price equals the fair value of the underlying shares at the date of grant. At the date of offer or the date of grant, no employee benefit cost or obligation is recognised. When the options are exercised, equity is increased by the amount of the proceeds received. (iv) % 2002 (t) Off-balance Sheet Financial Instruments Off-balance sheet financial instruments, commonly referred to as derivatives, arise from futures, forward, swap and option transactions undertaken by the Group and the Bank in the foreign exchange, interest rate and equity markets. Netting is applied where a legal right of setoff exists. Mark-to-market assets and liabilities are presented gross, and included in Advances and other accounts less provisions and Other accounts and provisions respectively. The method of accounting for these instruments is dependent upon whether the transactions are undertaken for dealing purposes, to hedge risk, or as part of the management of asset and liability portfolios. (i) Derivatives used for dealing purposes (i) Transactions undertaken for dealing purposes are marked to market and the net present value of the gain or loss arising is recognised in the profit and loss account as dealing profits or losses. (ii) Derivatives used for asset and liability management purposes Transactions designated as hedges are valued on an equivalent basis to the assets, liabilities or net positions which they are hedging. Any profit or loss is recognised on the same basis as that arising from the related assets, liabilities or positions. To qualify as a hedge, a derivative must be effective in reducing the price or interest rate risk of the asset or liability to which it is linked and be designated as a hedge at inception of the derivative contract. Interest rate swap transactions undertaken as part of the management of asset and liability portfolios are separately identified and interest income or expense arising therefrom is netted off against the related interest income or expense on the on-balance sheet items which these transactions are hedging. Any gain or loss arising on the termination of a qualifying hedging derivative is deferred and amortised to earnings over the original life of the terminated contract. Where the underlying asset, liability or position is sold or terminated, the qualifying derivative is immediately marked to market through the profit and loss account. (ii) (u) Segment Reporting A segment is a distinguishable component of the Group that is engaged either in providing services (business segment), or in providing services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format. 82 The Bank of East Asia, Limited Annual Report 2002

9 Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment and those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between Group enterprises within a single segment. The allocation of revenue reflects the benefits of capital and other funding resources allocated to the business or geographical segments by way of internal capital allocation and fund transfer mechanisms. Inter-segment pricing is based on similar terms as those available to other external parties. Segment capital expenditure is the total cost incurred during the year to acquire segment assets (both tangible and intangible) that are expected to be used for more than one year. 1 (v) Related Parties For the purposes of these accounts, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. (w) Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition including cash, balances with banks and other financial institutions, treasury bills, other eligible bills and certificates of deposit that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 3 3 Changes in Accounting Policies (a) In preparing the Group accounts in respect of the years prior to 2002, both balance sheet and profit and loss account of each overseas entity were translated at the closing rate. On adoption of the requirements of the revised SSAP 11 Foreign Currency Translation, although the balance sheet of an overseas entity remains translated at the closing rate, the profit and loss account is translated at an average rate for the year. The difference between the profit and loss account translated at an average rate and at the closing rate is recorded as a movement on reserves. The effect of this change in accounting policy has not had any significant impact on the accounts and, therefore, the opening balances have not been restated. If the profit and loss of all overseas entities for the year 2002 were translated at the closing rate, the net profit for the year would have increased by HK$2.03 million. (a) ,030,000 (b) The new SSAP 34 Employee Benefits requires an enterprise to recognise the service provided by an employee in exchange for employee benefits to be paid in the future as a liability; and when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits as expenses. The adoption of this SSAP has not had any significant impact on the accounts. (b)

10 Notes on the Accounts (continued) 4 Non-interest Income (a) Other Revenue HK$ 000 HK$ 000 Dividend income from equities listed 14,013 15,942 unlisted 10,969 5, Total dividend income from equities 24,982 21, Fees and commission income Corporate services 282, ,974 Loans, overdraft and guarantee 230, ,040 Credit card 213, ,572 Retail banking 110,304 61,915 Trade finance 106, ,583 Insurance, securities and asset management 92, ,904 Others 97,640 57, ,133,295 1,008,054 Less: Fees and commission expenses (5,428) (3,826)... Total net fees and commission income 1,127,867 1,004, Rental from safe deposit boxes 78,512 74,660 Net revenue from insurance activities 70,676 62,355 Rental income on properties 45,065 57, ,347,102 1,220, (b) Other Net Income Profit on dealing in foreign currencies 105,212 87,342 Profit/(loss) on other investments in securities / 84,217 (119,593) Profit on other dealing activities 6,431 1,811 Others 39,326 44, ,186 14, Total non-interest income 1,582,288 1,234, The Bank of East Asia, Limited Annual Report 2002

11 5 Operating Expenses HK$ 000 HK$ 000 Pension contributions 88,531 91,260 Salary and other staff costs 1,202,764 1,194, Total staff costs 1,291,295 1,285, Premises and equipment expenses excluding depreciation: Rental of premises 142, ,761 Maintenance, repairs and others 205, , Total premises and equipment expenses excluding depreciation , ,739 Depreciation on fixed assets 226, ,896 Amortisation of goodwill 117,736 98,064 Impairment of goodwill 13,350 Other operating expenses Rebates 234, ,941 Card related expenses 147, ,085 Communications, stationery and printing 144, ,273 Advertisement, business promotions and business trips 108, ,883 Legal and professional fee 81, ,680 Stamp duty and PRC business taxes 30,625 41,197 Administration expenses of secretarial business 27,839 10,348 Debt securities issue expenses 16,279 44,387 Brokerage and search fees 14,467 17,370 Audit fee 4,509 4,834 Donation 2,008 2,519 Others 78,799 74, Total other operating expenses 890, , Total operating expenses 2,886,949 2,860,

12 Notes on the Accounts (continued) 6 Charge for Bad and Doubtful Debts HK$ 000 HK$ 000 Net charge for bad and doubtful debts Specific provisions new provisions 1,085, ,106 releases (92,109) (174,184) recoveries (214,267) (343,755) , ,167 General provisions 31, , Net charge to profit and loss account 810, ,385 7 Profit for the Year before Taxation Profit for the year before taxation is arrived at after (charging)/crediting: / HK$ 000 HK$ 000 Net (loss)/profit on disposal of held-to-maturity debt securities / (388) 23,019 Write-back of impairment loss on associates 8,249 8,860 8 Taxation HK$ 000 HK$ 000 Provision for Hong Kong profits tax 60,399 3,769 Overseas taxation 47,902 45,659 Deferred taxation (Note 26) , , , ,872 Share of associates taxation 9,360 8, , ,119 The provision for Hong Kong profits tax is calculated at 16% (2001: 16%) of the estimated assessable profits for the year. Taxation for branches and subsidiaries outside Hong Kong is similarly charged at the appropriate current rates of taxation ruling in the countries in which they operate. 16% 2001 : 16% 86 The Bank of East Asia, Limited Annual Report 2002

13 9 Profit Attributable to Shareholders The consolidated profit attributable to shareholders includes a profit of HK$1,094,553,000 (2001: HK$1,481,594,000) which has been dealt with in the accounts of the Bank. Reconciliation of the above amount to the Bank s profit for the year: 1,094,553, ,481,594, HK$ 000 HK$ 000 Amount of consolidated profit attributable to shareholders dealt with in the Bank s accounts 1,094,553 1,481,594 Final dividends from subsidiaries and associates attributable to the profits of the previous financial year, approved and paid during the year... 98,468 Bank s profit for the year (Note29(i)) 29(i) 1,094,553 1,580, Dividends HK$ 000 HK$ final dividend of HK$0.33 per share 1,433,484,586 on 1,433,484,586 shares, approved and paid (2000 final dividend of HK$0.45 per share 20001,414,778,132 on 1,414,778,132 shares) , ,650 Final dividend of HK$0.33 (2001: HK$0.45) per share paid in respect of the previous financial year on shares issued under the share option schemes subsequent to the balance sheet date and before the close of 0.33 the Register of Members of the Bank ,821 Total final dividend in respect of previous year (Note 29(i)) 29(i) 473, ,471 Interim dividend paid of HK$0.21 per share 1,439,752, on 1,439,752,317 shares (2001: HK$ ,430,617,237 per share on 1,430,617,237 shares) (Note 29(i)) (i) , , , ,901 Final dividend of HK$0.35 per share on 1,446,345,070 shares (2001: HK$0.33 per share on 1,433,484,586 shares) proposed 1,446,345, after the balance sheet date, not recognised 20011,433,484,586 as a liability at the balance sheet date , ,

14 Notes on the Accounts (continued) 11 Earnings Per Share (a) Basic earnings per share The calculation of basic earnings per share is based on earnings of HK$1,288,378,000 (2001: HK$1,599,806,000) and on the weighted average of 1,440,175,619 (2001: 1,428,057,773) ordinary shares outstanding during the year. 1,288,378, ,599,806,000 1,440,175, ,428,057,773 (b) Diluted earnings per share The calculation of diluted earnings per share is based on earnings of HK$1,292,774,000 (2001: HK$1,599,806,000) and on 1,451,175,354 (2001: 1,431,632,696) ordinary shares, being weighted average number of ordinary shares outstanding during the year, adjusted for the effects of all dilutive potential shares ,292,774, ,599,806,000 1,451,175, ,431,632, Number of shares of Number of shares of HK$2.50 each HK$2.50 each Weighted average number of ordinary shares used in calculating basic earnings per share 1,440,175,619 1,428,057,773 Deemed issue of ordinary shares for no consideration 10,999,735 3,574, Weighted average number of ordinary shares used in calculating diluted earnings per share 1,451,175,354 1,431,632,696 (c) Cash earnings per share The calculation of cash earnings per share is based on earnings of HK$1,288,378,000 (2001: HK$1,599,806,000) adjusted for goodwill amortised and impaired of HK$131,086,000 (2001: HK$98,064,000) and on the weighted average of 1,440,175,619 (2001: 1,428,057,773) ordinary shares outstanding during the year. This supplementary information is considered a useful additional indication of performance. 1,288,378, ,599,806, ,086, ,064,000 1,440,175, ,428,057, Directors Remuneration Directors remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows: HK$ 000 HK$ 000 Fees 1,435 1,279 Salaries and other emoluments 15,043 13,000 Performance-related bonuses 12,622 13,941 Pension contributions 1,200 1, ,300 29,420 In addition to the above remuneration, Executive Directors were granted share options under the Bank s Staff Share Option Schemes. The details of these benefits in kind are disclosed under the paragraph Information on Share Options in the Report of the Directors and Note The Bank of East Asia, Limited Annual Report 2002

15 The remuneration of the Directors is within the following bands: Number of Directors Number of Directors HK$ 0 1,000, ,000,001 5,500, ,000,001 18,500, ,500,001 19,000, Five Top-paid Employees The remuneration of the five top-paid employees, including Executive Directors, disclosed pursuant to the Listing Rules of The Stock Exchange of Hong Kong Limited is as follows: HK$ 000 HK$ 000 Salaries and other emoluments 19,742 17,700 Performance-related bonuses 14,290 14,878 Pension contributions 1,650 1, ,682 34,153 The remuneration of the five top-paid employees is within the following bands: Number of Number of Employees Employees HK$ 2,500,001 3,000, ,000,001 3,500, ,000,001 4,500, ,000,001 5,500, ,500,001 18,000, ,000,001 18,500,000 1 Included in the emoluments of the five top-paid employees were the emoluments of 3 (2001: 3) Directors. Their respective directors emoluments have been included in Note 12 above

16 Notes on the Accounts (continued) 14 Segment Reporting Segment information is presented in respect of the Group s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group s internal financial reporting. (a) Business segments The Group comprises the following main business segments: Personal banking business includes branch operations, personal Internet banking, consumer finance, property loans and credit card business. Corporate banking business includes corporate lending and loan syndication, commercial lending, community lending, securities lending, trust services, mandatory provident fund business and corporate Internet banking. Investment banking business includes treasury operations, asset based lending, securities broking and dealing, provision of Internet security trading services, and asset management. Corporate services include company secretarial services, share registration and business services, and offshore corporate and trust services. Other businesses include bancassurance, insurance business, and property-related business. Unallocated items mainly comprise the central management unit, bank premises, and any items which cannot be reasonably allocated to specific business segments. 90 The Bank of East Asia, Limited Annual Report 2002

17 2002 Personal Corporate Investment Corporate Inter-segment Banking Banking Banking Services Others Unallocated elimination Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 The Group Net interest income 2,314,000 1,133, , ,268 (62,470 ) 3,825,638 Other operating income from external customers 580, , , ,309 87,773 66,629 1,582,288 Inter-segment income 17,052 56, ,263 (216,269 )... Total operating income 2,911,668 1,415, , , , ,422 (216,269 ) 5,407,926 Operating profit/(loss) before provisions / 1,411, , ,797 97,077 (22,873 ) (300,647 ) 2,520,977 (Charge for)/write-back of bad and doubtful debts /... (640,238 ) (139,583 ) 10,029 (2,246 ) (10,092 ) (28,809 ) (810,939 ) Operating profit/(loss) after provisions / 771, , ,826 94,831 (32,965 ) (329,456 ) 1,710,038 Inter-segment transactions 180,185 (48,427 ) 6,794 (138,552 )... Contribution from operations 951, , ,620 94,831 (32,965 ) (468,008 ) 1,710,038 Write-back of/(increase in) impairment loss for the year / 7, ,354 (3,983 ) 8,249 Share of profits less losses of associates ,039 1,886 (10,725 ) (58 ) 32,656 Other income and expenses 474 (46,609 ) (2,083 ) (122,580 ) (170,798 )... Profit/(loss) before taxation / 952, , ,463 94,831 (41,419 ) (594,629 ) 1,580,145 Taxation (265,696 ) (265,696 ) Minority interests (26,112 ) 41 (26,071 )... Profit/(loss) attributable to shareholders / 952, , ,463 68,719 (41,419 ) (860,284 ) 1,288,378 Depreciation for the year (90,633 ) (37,703 ) (14,024 ) (5,464 ) (7,878 ) (70,521 ) (226,223 ) Amortisation of goodwill (34,210 ) (25,510 ) (35,335 ) (21,741 ) (940 ) (117,736 ) Impairment of goodwill (13,350 ) (13,350 ) Segment assets 52,694,959 55,905,027 66,890, ,178 1,096,412 85, ,221,552 Investments in associates 36, ,590 53, ,895 2, ,500 Unallocated assets 7,382,179 7,382, Total assets 52,731,130 56,224,617 66,944, ,178 1,323,307 7,470, ,243,231 Segment liabilities 100,511,305 41,150,584 16,123,840 33, , ,272,576 Unallocated liabilities 3,774,681 3,774, Total liabilities 100,511,305 41,150,584 16,123,840 33, ,663 3,774, ,047,257 Capital expenditure incurred during the year 47,187 54,372 55,443 8,604 4,554 10, ,

18 Notes on the Accounts (continued) 14 Segment Reporting (continued) (a) Business segments (continued) 2001 Personal Corporate Investment Corporate Inter-segment Banking Banking Banking Services Others Unallocated elimination Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 The Group Net interest income 2,675, , , ,585 (17,152 ) 3,977,418 Other operating income from external customers 485, ,156 73, , ,602 63,383 1,234,567 Inter-segment income 17,462 63, ,819 (224,133 )... Total operating income 3,178,597 1,087, , , , ,050 (224,133 ) 5,211,985 Operating profit/(loss) before provisions / 1,625, , ,760 34,064 33,296 (196,328 ) 2,351,217 (Charge for)/write-back of bad and doubtful debts / (359,429 ) (7,791 ) (25,248 ) (3,778) 664 (36,803 ) (432,385 )... Operating profit/(loss) after provisions / 1,265, , ,512 30,286 33,960 (233,131 ) 1,918,832 Inter-segment transactions 191,019 (57,528 ) 4,748 (138,239 )... Contribution from operations 1,456, , ,260 30,286 33,960 (371,370 ) 1,918,832 Write-back of/(increase in) impairment loss for the year / 16,996 (502 ) (3,412 ) (4,222) 8,860 Share of profits less losses of associates (13 ) 1,772 37,061 (51,561 ) (12,741 ) Other income and expenses (2,390 ) (29,888 ) 8,183 (24,095 )... Profit/(loss) before taxation / 1,456, , ,931 30,286 (21,013 ) (367,409 ) 1,890,856 Taxation (279,119 ) (279,119 ) Minority interests (9,680) (2,251) (11,931 )... Profit/(loss) attributable to shareholders / 1,456, , ,931 20,606 (21,013 ) (648,779 ) 1,599,806 Depreciation for the year (91,832 ) (29,035 ) (16,284 ) (2,133) (10,303 ) (56,309 ) (205,896 ) Amortisation of goodwill (33,052 ) (19,210 ) (32,222 ) (940 ) (5,300 ) (7,340) (98,064 ) Segment assets 69,058,591 37,977,985 66,309, ,439 1,222,530 12, ,745,091 Investments in associates 9, ,252 71, , ,584 Unallocated assets 6,411,258 6,411, Total assets 69,068,008 38,252,237 66,381, ,439 1,475,820 6,423, ,764,933 Segment liabilities 100,863,711 39,953,040 14,077, , , ,329,372 Unallocated liabilities 3,897,845 3,897, Total liabilities 100,863,711 39,953,040 14,077, , ,945 3,897, ,227,217 Capital expenditure incurred during the year 86,175 57,640 1,629 3,570 22, , , The Bank of East Asia, Limited Annual Report 2002

19 (b) Geographical Segments The information concerning geographical analysis has been classified by the location of the principal operations of the subsidiaries, or in the case of the Bank itself, of the location of the branches of the Bank responsible for reporting the results or booking the assets People s Other Asian Inter-segment Hong Kong Republic of China Countries Others elimination Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 The Group Total operating income 4,520, , , ,241 (104,109) 5,407,926 Profit before taxation 1,118, ,505 98, ,372 1,580,145 Total assets 162,086,049 14,358,236 13,677,966 30,422,935 (35,301,955 ) 185,243,231 Total liabilities 143,230,434 14,316,709 13,499,047 23,397,196 (32,396,129 ) 162,047,257 Contingent liabilities and commitments 29,839,713 2,923,232 1,454,676 1,610,640 35,828,261 Capital expenditure during the year 134,825 29,521 3,393 13, , People s Other Asian Inter-segment Hong Kong Republic of China Countries Others elimination Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 The Group Total operating income 4,283, , , ,014 42,024 5,211,985 Profit before taxation 1,372, ,916 74, , ,923 1,890,856 Total assets 162,843,922 11,988,383 12,290,207 28,438,365 (33,795,944 ) 181,764,933 Total liabilities 141,977,540 11,802,723 12,091,465 22,643,445 (29,287,956 ) 159,227,217 Contingent liabilities and commitments 31,659,555 4,054,355 1,119,289 1,426,172 38,259,371 Capital expenditure during the year 141, ,142 1,482 24, , Cash and Short-term Funds The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cash and balances with banks and other financial institutions 1,963,261 1,524,229 1,871,725 1,334,996 Money at call and short notice 29,492,745 38,711,780 29,213,888 32,481,140 Treasury bills (Note 25) 25 3,481,634 3,524,578 3,435,537 3,474, ,937,640 43,760,587 34,521,150 37,290,782 An analysis of treasury bills held is as follows: Unlisted, held-to-maturity, at amortised cost 160, , , ,733 Unlisted, other investments in securities, at fair value... 3,321,540 3,341,913 3,321,540 3,341,913 3,481,634 3,524,578 3,435,537 3,474,646 All treasury bills are issued by central governments and central banks

20 Notes on the Accounts (continued) 16 Investments in Securities (a) Other investments in securities The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Listed in Hong Kong equity securities 328, , , ,664 debt securities 13,137 36,492 20,458 outside Hong Kong equity securities 73,341 84,774 63,286 66,339 debt securities... 4,427, ,343 4,068, ,981 4,842,927 1,416,232 4,437,698 1,101, Unlisted equity securities 44,379 45,984 37,353 38,213 debt securities 8,367,858 2,688,002 8,273,514 2,602, ,412,237 2,733,986 8,310,867 2,640, ,255,164 4,150,218 12,748,565 3,742,150 Equity securities 446, , , ,216 Debt securities (Note 25) 25 12,808,722 3,694,837 12,341,867 3,340, ,255,164 4,150,218 12,748,565 3,742,150 Market value of listed securities equity securities 402, , , ,003 debt securities 4,440,864 1,006,835 4,068, , ,842,927 1,416,232 4,437,698 1,101,442 Issued by: Central governments and central banks 2,599, ,553 2,582, ,897 Public sector entities 2,432, ,531 2,155, ,139 Banks and other financial institutions 4,251,676 1,425,729 4,118,007 1,304,303 Corporate entities 3,937,941 1,542,149 3,868,941 1,469,350 Others... 33, ,256 23,353 27,461 13,255,164 4,150,218 12,748,565 3,742, The Bank of East Asia, Limited Annual Report 2002

21 (b) Held-to-maturity debt securities (Note 25) The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Listed in Hong Kong 43,104 55,988 outside Hong Kong 1,956,937 1,076,639 1,837, , ,000,041 1,132,627 1,837, ,644 Unlisted 1,125,645 1,301, , , ,125,686 2,433,861 2,591,727 1,651,475 Market value of listed securities 2,000,774 1,149,710 1,832, ,467 Issued by: Central governments and central banks 28,057 29,827 18,010 18,121 Public sector entities 54, ,021 Banks and other financial institutions 1,190, , , ,329 Corporate entities 1,853,006 1,441,995 1,796,282 1,007, (c) Investment securities 3,125,686 2,433,861 2,591,727 1,651,475 The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Listed equity securities 50 debt securities 67,466 67, ,516 67, Unlisted equity securities 163, , , ,226 debt securities... 22,814 20,205 18,142 9, , , , , , , , ,818 Equity securities 163, , , ,226 Debt securities (Note 25) 25 90,280 20,205 85,608 9, , , , ,818 Market value of listed securities equity securities 50 debt securities 63,880 63, ,930 63,880 Issued by: Central governments and central banks 4,211 12,398 Banks and other financial institutions 10, Corporate entities 166, , ,013 67,454 Others 72,660 82,716 72,200 76, , , , ,

22 Notes on the Accounts (continued) 17 Advances and Other Accounts less Provisions (a) Advances to customers and other accounts The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Advances to customers (Note 25) ,408, ,174, ,316,862 89,475,189 Advances to banks and other financial institutions (Note 25) 25 1,088, ,649 1,088, ,649 Accrued interest and other accounts 4,087,042 3,037,584 4,861,850 3,687, ,584, ,772, ,267,274 93,723,440 Less: Provisions for bad and doubtful debts Specific 426, , , ,679 General 1,333,257 1,320,087 1,222,872 1,029, ,824, ,851, ,764,730 92,255,970 (b) Provision against advances and other accounts for 2002 The Group Advances to customers Suspended and other accounts Trade bills and others Total interest* Specific General Specific General Specific General HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st January ,150 1,320,087 3, ,150 1,323, ,646 New provisions charged to profit and loss account 1,082,952 70,381 2,716 1,990 1,085,668 72,371 Provisions released back to profit and loss account (304,524) (37,182) (1,852 ) (3,542 ) (306,376) (40,724) Amounts written off (1,196,148) (3,571 ) (2,716 ) (1,198,864 ) (3,571 ) (144,986) Recoveries 212, , , Interest suspended during the year 203,424 Suspended interest recovered (68,267 ) Other movements 28,901 (23,536) (419) 28,901 (23,955) Exchange adjustments 1,967 6, ,967 6,446 2, At 31st December ,713 1,333,257 1, ,713 1,334, , The Bank of East Asia, Limited Annual Report 2002

23 The Bank Advances to customers Suspended and other accounts Trade bills and others Total interest* Specific General Specific General Specific General HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st January ,679 1,029, ,420 2, ,099 1,032, ,001 Addition through merger with FPB 48, ,489 48, ,489 49,733 New provisions charged to profit and loss account 1,022,599 62, ,640** 1,990 1,145,239 64,960 Provisions released back to profit and loss account (290,837) (33,423) (1,894 ) (3,542 ) (292,731) (36,965) Amounts written off (1,173,635) (1,155 ) (3,493 ) (1,177,128 ) (1,155 ) (144,060) Recoveries 205, , , Interest suspended during the year 202,429 Suspended interest recovered (67,695 ) Other movements 27,923 (22,559) 2,140 (122) 30,063 (22,681) Exchange adjustments 1,933 6, ,933 6,317 2, At 31st December ,672 1,222, ,665 1, ,337 1,224, ,167 * Relating only to Advances to customers and other accounts ** Included provisions for amounts due from subsidiaries of HK$121,304,000 * ** 121,304,000 Provision against advances and other accounts for 2001 The Group Advances to customers Suspended and other accounts Trade bills and others Total interest * * Specific General Specific General Specific General HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st January ,226 1,270,573 4, ,226 1,275, ,039 New provisions charged to profit and loss account 739, , , , ,289 Provisions released back to profit and loss account (517,715 ) (116,468 ) (224 ) (3,603) (517,939 ) (120,071) Amounts written off (638,055 ) (156,643 ) (339 ) (638,394 ) (156,643) (495,408 ) Recoveries 343, ,755 Interest suspended during the year 424,329 Suspended interest recovered (101,827 ) Additions through acquisition of subsidiaries 727 4, , Other movements 5,598 (5,126) (60) 5,598 (5,186) Exchange adjustments (3,929 ) (4,772) (131) (3,929 ) (4,903) (2,138 )... At 31st December ,150 1,320,087 3, ,150 1,323, ,

24 Notes on the Accounts (continued) 17 Advances and Other Accounts less Provisions (continued) The Bank Advances to customers Suspended and other accounts Trade bills and others Total interest* * Specific General Specific General Specific General HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st January , ,710 65,000 4, , , ,677 Addition through merger with UCB 12,026 42,015 12,026 42,015 23,529 New provisions charged to profit and loss account 579, ,439 44,759** 1, , ,315 Provisions released back to profit and loss account (457,006 ) (112,344 ) (224 ) (3,278) (457,230 ) (115,622) Amounts written off (530,218 ) (113,148 ) (339 ) (530,557 ) (113,148) (361,441 ) Recoveries 316, ,979 Interest suspended during the year 389,445 Suspended interest recovered (91,076) Other movements (739) (59) (798) Exchange adjustments (3,780 ) (4,142) (132) (3,780 ) (4,274) (2,133 )... At 31st December ,679 1,029, ,420 2, ,099 1,032, ,001 * Relating only to Advances to customers and other accounts ** Included a provision for an amount due from a subsidiary of HK$44,420,000 * ** 44,420,000 (c) Non-performing advances to customers Non-performing advances to customers are advances on which interest is being placed in suspense or on which interest accrual has ceased. The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Gross advances to customers 3,108,001 3,320,032 3,059,308 2,974,193 As percentage of total advances to customers 2.87% 3.07% 2.96% 3.32% Specific provisions 279, , , ,890 Suspended interest 559, , , ,001 There were no advances to banks and other financial institutions on which interest is being placed in suspense or on which interest accrual has ceased as at 31st December, 2002 and 31st December, 2001, nor were there any special provisions made for them on these two dates The Bank of East Asia, Limited Annual Report 2002

25 18 Advances to Customers Net Investment in Finance Leases Advances to customers include equipment leased under finance leases. The total minimum lease payments receivable under finance leases and their present values are as follows: The Group Present value of Interest Present value of Interest the minimum income relating Total minimum the minimum income relating Total minimum lease payments to future periods lease payments lease payments to future periods lease payments HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amounts receivable: Within one year 1 526, , , , , ,826 After one year but within 1 five years 5 1,022, ,163 1,328,948 1,040, ,550 1,390,095 After five years 5 1,649, ,349 2,033,822 1,664, ,887 2,105, ,199, ,757 4,013,875 3,198, ,702 4,129,329 Less: Provisions for bad and doubtful debts... (10,520)... (4,262 ) Net investment in finance leases* * 3,188,598 3,194,365 * This is the amount that is carried on the balance sheet as a receivable. No accrual is made for the interest income relating to future periods. The cost of assets acquired by the Group for the purpose of letting under finance leases amounted to HK$4,741,727,000 (2001: HK$4,789,090,000). * 4,741,727, ,789,090,000 The Bank Present value of Interest Present value of Interest the minimum income relating Total minimum the minimum income relating Total minimum lease payments to future periods lease payments lease payments to future periods lease payments HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amounts receivable: Within one year 1 149,811 51, ,504 After one year but within 1 five years 5 350, , ,295 After five years 5 750, , , ,250, ,393 1,637,698 Less: Provisions for bad and doubtful debts... (730)... Net investment in finance leases* * 1,249,575 * This is the amount that is carried on the balance sheet as a receivable. No accrual is made for the interest income relating to future periods. The cost of assets acquired by the Bank for the purpose of letting under finance leases amounted to HK$2,003,756,000 (2001: NIL). * 2,003,756,

26 Notes on the Accounts (continued) 19 Investments in Subsidiaries The Bank HK$ 000 HK$ 000 Unlisted shares, at cost 2,046,273 6,025,563 Less: impairment loss (169,850) (47,265 )... 1,876,423 5,978,298 Acquisition of subsidiaries: The Group acquired 71.3% interest of Tengis Holding Limited on 15th January, 2002 for a cost of HK$422,500,000. Tengis Holding Limited was renamed as Tricor Holdings Limited on 22nd January, The Group also acquired additional 40% interest in Asia Strategic Capital Limited, an investment holding company, for a cost of US$2,050,000 on 1st December, ,500,000 Tengis Holdings Limited 71.3% Tengis Holdings Limited Tricor Holdings Limited ,050,000 Asia Strategic Capital Limited 40% Asia Strategic Capital Limited Details of subsidiaries are as follows: Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Abacus Share Registrars Limited Hong Kong HK$ % Share registration services Acheson Limited Hong Kong HK$2 71.3% Nominee shareholder Asia Strategic Capital Limited BVI US$400,000 70% Investment holding Asia Strategic Investment Hong Kong HK$13,100,000 70% Investment advisory Management Limited services Bank of East Asia (Trustees) Limited Hong Kong HK$150,000, % Trustee BEA Pacific Asia Limited Hong Kong US$13,000, % Investment holding ( formerly BEA Pacific Limited) BEA Pacific Bank (Vanuatu) Limited Vanuatu US$100, % Offshore banking BEA Pacific Holding Company Limited Bermuda HK$1,248,000, % Investment holding company BEA Pacific Limited Hong Kong HK$1, % Inactive (formerly First Pacific Bank Limited) 100 The Bank of East Asia, Limited Annual Report 2002

27 Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business BEA Pacific Nominee Limited Hong Kong HK$10, % Dormant BEAC Limited Hong Kong HK$2 100% Dormant (formerly Tung Shing Futures Limited) BEAF Limited Hong Kong HK$2 100% Dormant (formerly Tung Shing Securities Company Limited) Becmac Limited Hong Kong HK$2 71.3% Nominee shareholder Blue Cross (Asia-Pacific) Insurance Limited Hong Kong HK$189,000, % Insurance Branford Investments Limited BVI US$1 71.3% Nominee director/ shareholder / Camceb Limited Hong Kong HK$2 71.3% Nominee shareholder Cane Garden Bay Limited BVI US$1, % Nominee services Cheam Holdings Limited BVI US$1 71.3% Nominee director/ shareholder / Cheam Nominees Limited BVI US$1 71.3% Nominee director/ shareholder / Clancy Limited Hong Kong HK$2 71.3% Nominee shareholder Delanez Limited Hong Kong HK$2 71.3% Nominee director/ shareholder / Denroy Nominees Limited Hong Kong HK$ % Nominee director Dersale Limited Hong Kong HK$2 71.3% Nominee director/ shareholder / Digex Limited Hong Kong HK$2 71.3% Inactive EA China Finance Limited BVI US$5,650, % Investment holding EA Nominees Limited Hong Kong HK$1, % Investment holding

28 Notes on the Accounts (continued) 19 Investments in Subsidiaries (continued) Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business EA Securities Limited Hong Kong HK$2 100% Investment holding East Asia Asset Management Hong Kong HK$10,000, % Asset management Company Limited East Asia Corporate Services BVI US$250, % Corporate services (BVI) Limited East Asia Corporate Services BVI US$1, % Nominee services (Nominees) Ltd. East Asia Credit Company Limited Hong Kong HK$75,000, % General financial services East Asia Electronic Data Processing PRC US$450, % Servicing (Guangzhou) Limited (Note 1(a)) 1(a) East Asia Facility Management Limited Hong Kong HK$10, % Facility management East Asia Finance Company, Limited Hong Kong HK$100,000, % General financial services East Asia Financial Holding (BVI) Limited BVI US$1 100% Issuer of subordinated notes East Asia Financial Services (BVI) Ltd. BVI US$19,820, % Investment holding East Asia Futures Limited Hong Kong HK$7,000, % Options and futures trading East Asia Holding Company, Inc. U.S.A. US$5 100% Holding company East Asia Holdings (BVI) Limited BVI US$2 100% Nominee services East Asia Indonesian Holdings Ltd. Mauritius US$2 100% Investment holding East Asia Investment Holdings Limited Hong Kong HK$100,000, % Securities trading 102 The Bank of East Asia, Limited Annual Report 2002

29 Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business East Asia Investments Holdings (BVI) Ltd. BVI HK$186,038, % Investment holding East Asia Liquidators Ltd. BVI US$1 100% Provision of liquidation services East Asia Marketing Limited BVI US$1 100% Marketing services East Asia Media Services Limited Hong Kong HK$100, % Inactive East Asia Properties Holding Hong Kong HK$10, % Investment holding Company Limited East Asia Properties Investment Hong Kong HK$10, % Property holding Company Limited East Asia Properties (US), Inc. U.S.A. US$5 100% Property holding East Asia Property Agency (China) Hong Kong HK$1,000, % Property agency Company Limited East Asia Property Agency Hong Kong HK$1,000, % Property agency Company Limited East Asia Property Agency PRC US$200, % Property agency (Shanghai) Limited (Note 1(a)) 1(a) East Asia Property Development Hong Kong HK$1, % Investment holding (Shanghai) Limited East Asia Property Holdings Jersey STG 9 100% Property holding (Jersey) Limited East Asia Property Management Hong Kong HK$10, % Property management (China) Limited East Asia Secretarial Services Ltd. BVI US$1 100% Secretarial services

30 Notes on the Accounts (continued) 19 Investments in Subsidiaries (continued) Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business East Asia Secretaries Limited Hong Kong HK$20 100% Secretarial services East Asia Secretaries (BVI) Limited BVI HK$300,000, % Investment holding East Asia Securities Company Hong Kong HK$25,000, % Securities broking Limited East Asia Securities Inc. Canada C$150, % Mutual fund East Asia Services (Holdings) Limited Hong Kong HK$10, % Holding company East Asia Strategic Holdings Limited BVI US$50,000, % Investment holding Elemen Limited Hong Kong HK$ % Nominee shareholder Equity Trustee Limited BVI US$1, % Trustee and trust administration services Essex Nominees Limited BVI US$1 100% Nominee services Far East Bank Nominees Limited Hong Kong HK$4 100% Dormant FEB (1989) Limited Hong Kong HK$689,000,050 * 100% Investment holding HK$269,384,950 ** Friendly Registrars Limited Hong Kong HK$10, % Share registration services Full Length (T) Co., Ltd. Samoa US$1 71.3% Trustee company Gainsville Limited BVI US$1 71.3% Nominee shareholder Gladwood Limited BVI US$1 71.3% Nominee director Global Crest Trustee Limited BVI US$250, % Trust administration services 104 The Bank of East Asia, Limited Annual Report 2002

31 Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Global Strategic Enterprises Limited BVI US$1 71.3% Nominee director/ shareholder / Global Success Ltd. BVI US$4,360, % Investment holding Golden Empire International Inc. BVI US$10, % Property investment Golden Properties Finance Ltd. BVI HK$78, % Mortgage financing Golden Queen International Ltd. BVI US$10, % Property investment Golden Wings International Ltd. BVI US$10, % Property investment Goldmond Company Limited BVI US$10, % Property investment Hi-Score Corporation Limited BVI US$1 71.3% Nominee director/ shareholder / Innopark Limited Hong Kong HK$2 71.3% Name reservation service International Holdings Corporation Nauru A$1 71.3% Settlor Kaliwood Corporation BVI US$1 71.3% Nominee director/ shareholder and liquidator / Leader One Limited BVI US$1 100% Investment holding Linkwall Investments Limited Hong Kong HK$4 71.3% Trustee and nominee shareholder Maccabee (Nominees) Limited Hong Kong HK$2 71.3% Nominee director Mache Holdings Limited Hong Kong HK$ % Nominee director/ shareholder / Mache Nominees Limited Hong Kong HK$ % Nominee director/ shareholder /

32 Notes on the Accounts (continued) 19 Investments in Subsidiaries (continued) Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Mactors Limited Hong Kong HK$2 71.3% Nominee director Maintex Limited BVI US$1 71.3% Nominee director Malplaquet Limited Hong Kong HK$ % Nominee director/ shareholder and secretary / Menroy Registrars Limited Hong Kong HK$ % Nominee director Modern Times International Limited BVI US$1 71.3% Nominee director/ shareholder / Nola Company Limited Hong Kong HK$ % Trustee services Norpac Holdings Limited BVI US$2 71.3% Custodian services Premier Dragon Development Limited Hong Kong HK$2 71.3% Name reservation service Prime Role Company Limited BVI US$1 71.3% Nominee director/ shareholder / Progressive Registration Limited Hong Kong HK$2, % Share registration services Radstock Holdings Ltd. Liberia US$1 71.3% Specified beneficiary Ramillies Limited Hong Kong HK$ % Nominee director/ shareholder and secretary / Red Phoenix Limited Hong Kong HK$2 100% Car renting Rontors Limited Hong Kong HK$2 71.3% Nominee director 106 The Bank of East Asia, Limited Annual Report 2002

33 Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Rosland Corporate Management Hong Kong HK$2 71.3% Nominee director/ Limited shareholder / Royrich Investment Limited Hong Kong HK$2 71.3% Name reservation service Secretaries Limited Hong Kong HK$2 71.3% Secretarial, share registration and business services Secretaries.com Limited Hong Kong HK$2 71.3% Dormant Shanghai Dong Yan Property PRC RMB 500, % Property management Management Limited (Note 1(b)) 1(b) Standard Registrars Limited Hong Kong HK$1,000 * 71.3% Share registration HK$2 ** services Sunshine Dynamic Company Limited Hong Kong HK$2 71.3% Name reservation service Swan Nominees Limited Hong Kong HK$ % Nominee shareholder Tabernacle Assets Limited Hong Kong HK$2 71.3% Protector of trust and nominee shareholder Teeroy (C.I.) Limited Jersey STG % Nominee shareholder Teeroy Limited Hong Kong HK$ % Trustee Tengis Financial Services Limited Hong Kong HK$ % Service company Tengis International Limited BVI US$1 71.3% Authorised signatories services Tengis Limited Hong Kong HK$ % Secretarial, share registration and business services

34 Notes on the Accounts (continued) 19 Investments in Subsidiaries (continued) Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Tengis Services Limited BVI US$1 71.3% Business services Tengis Servicos De Gestao, Limitada Macau MOP25, % Business services The Bank of East Asia (BVI) Limited BVI US$1,000, % Banking services The Bank of East Asia (Canada) Canada C$38,000, % Banking services The Bank of East Asia (Nominees) Hong Kong HK$10, % Nominee services Limited The Bank of East Asia (Nominees) Singapore S$10, % Nominee services Private Limited The Bank of East Asia Nominees U.K. STG 2 50% 100% Nominee services (UK) Limited The Bank of East Asia (U.S.A.) U.S.A. US$4,000, % Banking N.A. (formerly Grand National Bank) Time (T) No.1 Ltd. Samoa US$1 71.3% Trustee company Time (T) No.2 Ltd. Samoa US$1 71.3% Trustee company Top Cyber Profits Limited BVI US$1 100% Investment holding Toursafe Limited Hong Kong HK$20 100% Inactive Travelguard Limited Hong Kong HK$2 100% Inactive Travelsafe Limited Hong Kong HK$20 100% Insurance Tricor Group Limited Cayman Islands US$1 71.3% Investment holding Tricor Holdings Limited BVI US$7, % Investment holding (formerly Tengis Holding Limited) 108 The Bank of East Asia, Limited Annual Report 2002

35 Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Tricor Services Limited Hong Kong HK$2 71.3% Corporate services Trident Corporate Management Hong Kong HK$2 71.3% Nominee director/ Limited shareholder / Trident Nominees Limited Hong Kong HK$2 71.3% Trustee company Tristan Company Limited BVI US$1 71.3% Nominee director/ shareholder and liquidator / Triumphant State Limited Hong Kong HK$2 71.3% Name reservation service Tung Shing Holdings (BVI) Limited BVI US$2 100% Investment holding Turquandia Limited Hong Kong HK$ % Nominee shareholder UCB Limited Hong Kong HK$ % Inactive United Chinese (Nominee) Limited Hong Kong HK$10, % Dormant Vanceburg Limited BVI US$1 71.3% Nominee shareholder, secretary and appointor Virtual Success Limited Hong Kong HK$2 71.3% Name reservation service W.T. (Secretaries) Limited Hong Kong HK$2 71.3% Secretarial services Wai Chiu Company Limited Hong Kong HK$2, % Nominee director/ shareholder / Wai Hop Company Limited Hong Kong HK$2, % Nominee director/ shareholder / Walker St. Land Corp. U.S.A. US$ % Property holding West Gateway Limited Hong Kong HK$2 71.3% Name reservation service

36 Notes on the Accounts (continued) 19 Investments in Subsidiaries (continued) Place of incorporation Issued and % of ordinary shares held by Name of company and operation paid-up capital The Bank The Group Nature of business Westboro Limited BVI US$1 71.3% Nominee director/ shareholder / Winner Business Limited BVI US$1 71.3% Nominee director/ shareholder / * Ordinary Shares ** Non-voting Deferred Shares Notes: 1. (a) Represents a wholly foreign owned enterprise. (b) Represents an equity joint venture. 2. BVI denotes the British Virgin Islands and PRC denotes the People's Republic of China. The accounts of the subsidiaries not audited by KPMG reflect total net assets and total turnover constituting approximately 0.1% and 5.1% respectively of the related consolidated totals. 1. (a) (b) 0.1% 5.1% Co-operative Joint Ventures Place of establishment Issued/Contributed Profit sharing Percentage by Name of company and operation registered capital The Bank The Group Nature of business / East Asia Property Agency PRC HK$1,000, % Property agency (Guangzhou) Limited (Note) East Asia Property Management PRC HK$600, % Property management (Guangzhou) Limited (Note) Note: Represents a sino foreign co-operative joint venture. 110 The Bank of East Asia, Limited Annual Report 2002

37 20 Investments in Associates Details of associates are as follows: : The Group The Bank HK$'000 HK$'000 HK$'000 HK$'000 Unlisted shares, at cost 380, ,277 Share of net assets 673, ,078 Goodwill unamortised 736 1, , , , ,277 Less: impairment loss (34,399) (42,648 ) (192,373) (295,788 ) , , , ,489 Place of % of preference incorporation % of ordinary shares held by shares held by Name of company and operation The Bank The Group The Group Nature of business Asian Capital Equities, Inc. Philippines 27% Stock dealings Cementhai Trading (Hong Kong) Hong Kong 20% Trading Limited China International Finance PRC 25% General financial Company Limited (Shenzhen) services DaimlerChrysler Services China Hong Kong 20% Financing and leasing Limited services DaimlerChrysler Services Korea Republic of Korea 20% Financial services Limited East Asia (AEA) Capital Corporation Philippines 35% Investment banking East Asia Heller Limited Hong Kong 50% Factoring East Asia MBK Limited BVI 50% 50% Investment holding Hainan International Finance PRC 35% General financial Company Limited services ICEA Finance Holdings Limited BVI 25% Investment holding Platinum Holdings Company Limited Cayman Islands 30% Investment holding

38 Notes on the Accounts (continued) 20 Investments in Associates (continued) Place of % of preference incorporation % of ordinary shares held by shares held by Name of company and operation The Bank The Group The Group Nature of business PT Bank Daiwa Perdania Indonesia 24.9% Banking & related financial services Shanghai International PRC 25% In liquidation Finance Company Limited Summit Securities (S) Pte. Ltd. Singapore 24% In liquidation Sunfire Enterprises Limited BVI 20% Property development Transatlantic Trust Corporation Canada 20% Administration of trusts Trans-Ocean Insurance Company, Hong Kong 48.7% Insurance Limited Trilease International Limited Hong Kong 20% Leasing Note: BVI denotes the British Virgin Islands and PRC denotes the People's Republic of China. 21 Goodwill The Group The Bank HK$ 000 HK$ 000 Cost At 1st January 1 1 2,035, ,593 Addition through merger with FPB 1,630,019 Additions through acquisition of subsidiaries 332,461 Exchange adjustments At 31st December ,368,083 1,788,612 Accumulated amortisation and impairment losses At 1st January ,615 51,543 Addition through merger with FPB 87,268 Amortisation for the year 117,736 89,431 Impairment charge 13, At 31st December , ,242 Carrying amount at 31st December, ,087,382 1,560,370 Carrying amount at 31st December, ,885, , The Bank of East Asia, Limited Annual Report 2002

39 22 Fixed Assets The Group Investment Furniture, Fixtures Properties Bank Premises and Equipment Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost or valuation At 1st January, ,490 4,172,061 1,524,945 6,172,496 Additions 4, , ,225 Additions through acquisition of subsidiaries 7,723 7,723 Revaluation (218,745) (218,745) Transfers 172,706 (172,706) Disposals (114,107) (46,772) (159,645) (320,524) Exchange adjustments 3,956 1,545 5,660 11, At 31st December, ,300 3,958,888 1,547,148 5,825,336 Accumulated depreciation At 1st January, , , ,387 1,343,620 Charge for the year 1,163 57, , ,223 Additions through acquisition of subsidiaries 3,249 3,249 Written back on revaluation (18,147) (18,147) Transfers 26,595 (26,595) Written back on disposals (10,754) (2,900) (129,189) (142,843) Exchange adjustments 1, ,416 6, At 31st December, , ,913 1,044,693 1,418,279 Net book value at 31st December, ,627 3,595, ,455 4,407,057 Net book value at 31st December, ,852 3,837, ,558 4,828,876 The gross amounts of the above assets are stated: At cost 41,250 2,569,087 1,547,148 4,157,485 At Directors valuation ,228,225 1,228, , ,576 At professional valuation , , ,300 3,958,888 1,547,148 5,825,336 Investment properties in Hong Kong were valued at HK$278,050,000 by an independent valuer, DTZ Debenham Tie Leung Limited, Chartered Surveyors, as at 21st December, 2002 and the valuation has been incorporated in the accounts as at 31st December, The valuation was performed on an open market value basis. Investment properties outside Hong Kong were not stated at professional valuation as they are considered immaterial to the Group. The Group leases out investment properties under operating lease. The leases typically run for an initial period from 1 to 10 years, with an option to renew the leases after that date at which time all terms are renegotiated. None of the leases includes contingent rentals ,050,

40 Notes on the Accounts (continued) 22 Fixed Assets (continued) Rental income receivable from bank premises and investment properties held for use under operating leases amounted to HK$45,065,000 in 2002 (2001: HK$57,367,000). There was no contingent rental recognised during the year 2002 (2001: Nil). The cost or valuation of bank premises and investment properties held for use under operating leases and the related accumulated depreciation charge as at 31st December, 2002 were HK$745,100,000 (2001: HK$931,322,000) and HK$47,591,000 (2001: HK$43,025,000) respectively. The total future minimum lease payments of bank premises and investment properties held for use under non-cancellable operating leases are receivable as follows: 45,065, ,367, ,100, ,322,000 47,591, ,025,000 The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Within one year 1 39,905 44,832 22,049 15,207 After one year but within five years 15 62,536 40,953 26,679 13,617 After five years 5 6,808 4,857 1,930 4, ,249 90,642 50,658 33,681 The Group Investment Bank Investment Bank Properties Premises Properties Premises HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank premises and investment properties comprise: Freeholds Held outside Hong Kong 30, ,782 28, ,775 Leaseholds Held in Hong Kong On long lease (over 50 years) ,500 2,549, ,187 2,595,100 On medium-term lease (10 50 years) , ,196 25, ,913 On short lease (below 10 years) Held outside Hong Kong On long lease (over 50 years) , ,342 On medium-term lease (10 50 years) , , ,627 3,595, ,852 3,837, The Bank of East Asia, Limited Annual Report 2002

41 The Bank Investment Bank Furniture, Fixtures Properties Premises and Equipment Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost or valuation At 1st January, ,286 3,180,002 1,224,985 4,458,273 Addition through merger with FPB 199, , , ,929 Additions 3, , ,651 Revaluation (114,673) (114,673) Transfers 172,706 (172,706) Disposals (114,107) (45,010) (153,458) (312,575) Exchange adjustments 774 1,499 5,430 7, At 31st December, ,926 3,420,523 1,396,859 5,015,308 Accumulated depreciation At 1st January, , , ,799 1,067,792 Addition through merger with FPB 5, , ,054 Charge for the year , , ,090 Written back on revaluation (18,147) (18,147) Transfers 26,595 (26,595) Written back on disposals (10,754) (2,816) (123,945) (137,515) Exchange adjustments ,216 4, At 31st December, , , ,657 1,260,199 Net book value at 31st December, ,678 3,113, ,202 3,755,109 Net book value at 31st December, ,447 2,899, ,186 3,390,481 The gross amounts of the above assets are stated: At cost 12,376 2,192,298 1,396,859 3,601,533 At Directors valuation ,228,225 1,228,225 At professional valuation , , ,926 3,420,523 1,396,859 5,015,

42 Notes on the Accounts (continued) 22 Fixed Assets (continued) The Bank Investment Bank Investment Bank Properties Premises Properties Premises HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank premises and investment properties comprise: Freeholds Held outside Hong Kong 10,128 12,793 9,727 12,808 Leaseholds Held in Hong Kong On long lease (over 50 years) ,000 2,269,716 14,674 1,976,615 On medium-term lease (10 50 years) , ,196 25, ,747 On short lease (below 10 years) Held outside Hong Kong On long lease (over 50 years) , ,342 On medium-term lease (10 50 years) , , ,678 3,113,229 49,447 2,899, Convertible Bonds Issued The 2 per cent Convertible Bonds were issued on 19th July, 1996 and listed on the Luxembourg Stock Exchange. The Bonds will mature on 19th July, The Bonds may be converted on or after 19th September, 1996 up to the close of business on 7th July, 2003 into fully-paid ordinary shares of the Bank at an adjusted conversion price of HK$26.16 per share with a fixed rate of exchange on conversion of HK$ to US$1.00. The Bonds may be redeemed by the Bank at any time on or after 19th July, 1998 at their principal amount if, inter alia, the closing price of the shares exceeds 130 per cent of the conversion price for each of 30 consecutive trading days on The Stock Exchange of Hong Kong Limited. In 2002, an amount of HK$197,315,000 (US$25,300,000) were repurchased from the market by the Bank and such Bonds were cancelled upon settlement. Interest expense for the year amounted to HK$5,352,000 (2001: HK$82,063,000). 2% % ,315,00025,300,000 5,352, ,063, The Bank of East Asia, Limited Annual Report 2002

43 24 Amounts Due from and Due to Subsidiaries During the year, the Bank entered into transactions with certain subsidiaries in the ordinary course of its banking business. Details of the amounts due from and due to subsidiaries are as follows: (a) Amounts due from subsidiaries The Bank HK$ 000 HK$ 000 Financial institutions 956, ,447 Others 1,205,073 1,044, ,161,098 1,410,752 (b) Amounts due to subsidiaries The Bank HK$ 000 HK$ 000 Financial institutions 6,749,249 6,879,172 Others 4,730,845 4,610, ,480,094 11,490,

44 Notes on the Accounts (continued) 25 Maturity Profile Maturity Profile for The Group 1 year or 5 years or Repayable 3 months less but over less but over After on demand or less 3 months 1 year 5 years Undated Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Assets Treasury bills (Note 15) 15 3,357, ,181 3,481,634 Placements with banks and other financial institutions 10,281,796 1,388,856 11,670,652 Certificates of deposit held 984, , ,440 35,338 2,370,751 Advances to customers (Note 17(a)) 17(a) 5,132,933 12,215,605 11,119,301 38,567,348 39,420,916 1,952, ,408,574 Advances to banks and other financial institutions (Note 17(a)) 17(a) 45,239 32,886 96, , ,005 1,088,562 Debt securities included in: Held-to-maturity debt securities (Note 16(b)) 16(b) 120, ,237 1,762, ,526 11,260 3,125,686 Investment securities (Note 16(c)) 16(c) 67,466 22,814 90,280 Other investments in securities (Note 16(a)) 16(a) 147, ,273 10,692,486 1,314,886 12,808, ,132,933 27,151,510 15,026,595 51,795,909 41,156,364 2,781, ,044,861 Liabilities Deposits and balances of banks and other financial institutions 306,208 4,255,199 1,171,983 21,447 5,754,837 Deposits from customers 36,895,482 97,869,207 6,622, , ,661,889 Demand deposits and current accounts 7,044,517 7,044,517 Savings deposits 27,747,379 13,372 8, ,769,116 Time, call and notice deposits 2,103,586 97,855,835 6,614, , ,848,256 Certificates of deposit issued 7,502,440 2,655,317 10,157,757 Convertible bonds issued* * 119, , ,201, ,124,406 15,416,860 2,951, ,694, The Bank of East Asia, Limited Annual Report 2002

45 The Bank 1 year or 5 years or Repayable 3 months less but over less but over After on demand or less 3 months 1 year 5 years Undated Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Assets Treasury bills (Note 15) 15 3,357,453 78,084 3,435,537 Placements with banks and other financial institutions 10,149,059 1,349,882 11,498,941 Certificates of deposit held 971, , ,590 1,950,272 Advances to customers (Note 17(a)) 17(a) 4,871,272 11,226,044 10,178,867 37,306,946 38,069,885 1,663, ,316,862 Advances to banks and other financial institutions (Note 17(a)) 17(a) 45,239 32,886 96, , ,005 1,088,562 Debt securities included in: Held-to-maturity debt securities (Note 16(b)) 16(b) 27, ,214 1,596, ,579 11,260 2,591,727 Investment securities (Note 16(c)) 16(c) 67,466 18,142 85,608 Other investments in securities (Note 16(a)) 16(a) 131, ,042 10,402,887 1,257,533 12,341, ,871,272 25,907,516 13,431,634 49,986,004 39,624,695 2,488, ,309,376 Liabilities Deposits and balances of banks and other financial institutions 305,905 4,244,054 1,147,479 5,697,438 Deposits from customers 36,051,243 89,557,841 5,701, , ,438,933 Demand deposits and current accounts 6,660,762 6,660,762 Saving deposits 27,636,599 13,372 8, ,658,336 Time, call and notice deposits 1,753,882 89,544,469 5,693, ,542 97,119,835 Certificates of deposit issued 7,502,440 2,655,317 2,200,000 12,357,757 Convertible bonds issued* * 119, , ,357,148 93,801,895 14,471,551 2,783,171 2,200, ,613,765 * Maturity based on expected Bondholders option as mentioned in Note 23. *

46 Notes on the Accounts (continued) 25 Maturity Profile (continued) Maturity Profile for The Group 1 year or 5 years or Repayable 3 months less but over less but over After on demand or less 3 months 1 year 5 years Undated Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Assets Treasury bills (Note 15) 15 2,945, ,002 3,524,578 Placements with banks and other financial institutions 8,018,078 3,027,432 11,045,510 Certificates of deposit held 696, ,075 1,027,925 29,941 2,419,445 Advances to customers (Note 17(a)) 17(a) 7,240,490 10,763,128 10,131,823 38,022,095 39,495,857 2,521, ,174,562 Advances to banks and other financial institutions (Note 17(a)) 17(a) 8,963 14,043 51, , ,649 Debt securities included in: Held-to-maturity debt securities (Note 16(b)) 16(b) 58, ,677 1,554, ,073 2,433,861 Investment securities (Note 16(c)) 16(c) 50 20,155 20,205 Other investments in securities (Note 16(a)) 16(a) 58, ,675 2,693, ,125 3,694, ,240,490 22,549,121 15,388,727 43,348,710 40,318,996 3,027, ,873,647 Liabilities Deposits and balances of banks and other financial institutions 191,331 3,611,383 1,361,638 3,899 5,168,251 Deposits from customers 32,409, ,041,885 6,902, , ,816,751 Demand deposits and current accounts 6,237,604 6,237,604 Saving deposits 23,684,608 7,656 25,961 9,638 23,727,863 Time, call and notice deposits 2,487, ,034,229 6,876, , ,851,284 Certificates of deposit issued 7,485,600 1,100,000 8,585,600 Convertible bonds issued* * 316, , ,600, ,653,268 15,749,689 1,883, ,887, The Bank of East Asia, Limited Annual Report 2002

47 The Bank 1 year or 5 years or Repayable 3 months less but over less but over After on demand or less 3 months 1 year 5 years Undated Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Assets Treasury bills (Note 15) 15 2,895, ,002 3,474,646 Placements with banks and other financial institutions 7,631,462 2,988,380 10,619,842 Certificates of deposit held 605, , ,845 1,741,145 Advances to customers (Note 17(a)) 17(a) 5,572,868 9,263,245 8,374,664 32,955,232 31,405,678 1,903,502 89,475,189 Advances to banks and other financial institutions (Note 17(a)) 17(a)) 8,963 14,043 51, , ,649 Debt securities included in: Held-to-maturity debt securities (Note 16(b)) 16(b) 57, ,169 1,020, ,505 1,651,475 Investment securities (Note 16(c)) 16(c) 9,592 9,592 Other investments in securities (Note 16(a)) 16(a) 49, ,675 2,455, ,517 3,340, ,572,868 20,512,010 13,161,850 37,184,671 32,042,700 2,399, ,873,472 Liabilities Deposits and balances of banks and other financial institutions 176,972 3,601,013 1,349,591 5,127,576 Deposits from customers 28,945,973 77,013,660 5,626,680 46, ,632,681 Demand deposits and current accounts 5,452,476 5,452,476 Saving deposits 21,898,192 21,898,192 Time, call and notice deposits 1,595,305 77,013,660 5,626,680 46,368 84,282,013 Certificates of deposit issued 7,384,233 1,100,000 2,200,000 10,684,233 Convertible bonds issued* * 316, , ,122,945 80,614,673 14,360,504 1,463,259 2,200, ,761,381 * Maturity based on expected Bondholders option as mentioned in Note 23. *

48 Notes on the Accounts (continued) 26 Tax and Deferred Taxation The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Hong Kong profits tax provision 76,649 37,481 55,942 28,783 Overseas taxation 46,886 30,480 41,084 29,366 Deferred taxation (Note) 450, , , , , , , ,512 Note: Movement of deferred tax during the year is as follows: The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st January , , , ,528 Arising during the year (Note 8) 8 148, , , ,418 Amount written off on investments in leasing partnerships (51,313) (140,400 ) (51,313) (140,400 ) Addition through merger with FPB 24,167 Addition through merger with UCB 10,817 Additions through acquisition of subsidiaries 400 Other movement (8,693)... At 31st December , , , ,363 Comprising: Leasing transactions 431, , , ,939 Others 19,393 33,223 20,495 25, , , , ,363 The revaluation surpluses arising on the revaluation of bank premises and investment properties are not subject to deferred taxation as the disposal of these assets at their carrying value would result in capital gains which are not subject to any tax liability. There is no significant deferred taxation liability not provided for. 27 Loan Capital Loan capital of face value of HK$4,289,450,000 (US$550,000,000) and carrying amount of HK$4,276,227,000 (US$548,305,000) represents 7.5% subordinated notes qualifying as tier 2 capital which were issued on 30th January, 2001 by East Asia Financial Holding (BVI) Limited, a single purpose wholly owned finance subsidiary of the Bank. The Bank unconditionally and irrevocably guarantees all amounts payable under the notes which are listed on the Luxembourg Stock Exchange. The notes will mature on 1st February, ,289,450,000550,000,000 4,276,227, ,305,000 East Asia Financial Holding (BVI) Limited % The Bank of East Asia, Limited Annual Report 2002

49 28 Share Capital No. of shares Nominal value No. of shares Nominal value 000 HK$ HK$ 000 Authorised: Ordinary shares of HK$2.50 each ,600,000 6,500,000 2,600,000 6,500,000 Issued and fully paid: At 1st January 1 1 1,433,485 3,583,711 1,414,778 3,536,945 Shares issued in lieu of dividends 11,923 29,809 12,822 32,055 Shares issued under Staff Share Option Schemes ,343 5,885 14,711 At 31st December ,446,345 3,615,863 1,433,485 3,583,711 Pursuant to the approved Staff Share Option Schemes (the Schemes ), options to purchase ordinary shares in the Bank were granted to eligible Executive Directors and employees. The option price of the Schemes granted prior to the year 2002 was 95% of the average closing price of the existing shares of the Bank on The Stock Exchange of Hong Kong Limited on the five business days immediately preceding the date of offer of such options. For the Scheme adopted in 2002, the exercise price is determined at the date of grant being not less than the highest of: (a) the closing price on the date of grant; (b) the average closing price for the five business days immediately preceding the date of grant; and (c) the nominal value. The options granted under the Schemes will be exercisable between the first and the fifth anniversaries of the date of grant. At 31st December, 2002, the outstanding options were: %2002 (a)(b) 5(c) Date of options granted Option price Number of shares 20/4/1998 HK$ ,361,200 21/4/1999 HK$ ,510,000 20/4/2000 HK$ ,128,000 19/4/2001 HK$ ,360,000 18/4/2002 HK$ ,505,

50 Notes on the Accounts (continued) 29 Reserves 2002 The Group The Bank Associates HK$ 000 HK$ 000 HK$ 000 (a) Share premium (undistributable) (a) At 1st January , ,694 Net premium on shares issued under Staff Share Option Schemes 10,335 10,335 Shares issued in lieu of dividends (29,809) (29,809) Capital fee (10) (10)... At 31st December , ,210 (b) General reserve (b) At 1st January ,418,601 10,457,693 30,508 Transfer from retained profits 8,662 8,662 Shares issued in lieu of dividends 177, ,809 Realised surplus on disposals transferred from revaluation reserve on investment properties 14, ,922 bank premises 3, , At 31st December ,623,411 10,909,359 39,170 (c) Revaluation reserve on bank premises (c) (undistributable) At 1st January 1 1 1,257,509 1,262,909 Realised surplus on disposals transferred to general reserve (3,363) (167,935) Transfer to revaluation reserve on investment properties (4,994) (4,994)... At 31st December ,249,152 1,089,980 (d) Revaluation reserve on investment properties (d) (undistributable) At 1st January , ,323 Revaluation deficit (108,341) (17,395) Realised surplus on disposals transferred to general reserve (14,976) (105,922) Transfer from revaluation reserve on bank premises... 4,994 4,994 At 31st December (e) Statutory reserves (undistributable) (e) At 1st January and 31st December ,532 5,532 (f) Capital reserve (undistributable) (f) At 1st January and 31st December ,436 (g) Exchange revaluation reserve (undistributable) (g) At 1st January 1 1 (49,712) (6,377) (29,478) Exchange adjustments 31,807 17,932 17, At 31st December (17,905) 11,555 (12,271) 124 The Bank of East Asia, Limited Annual Report 2002

51 2002 The Group The Bank Associates HK$ 000 HK$ 000 HK$ 000 (h) Other revaluation reserve (undistributable) (h) At 1st January 1 1 (763) (763) Revaluation At 31st December (i) Retained profits (i) At 1st January 1 1 1,452, , ,494 Addition through merger with FPB 18,084 Net profit for the year (Note 9) 9 1,288,378 1,094,553 23,296 Transfer to general reserve (8,662) (8,662) Dividends (Note 10) 10 Interim dividend (302,348) (302,348) Final dividend in respect of previous year (473,198) (473,198) Disposal of associates 88,004 Change of status from an associate to a subsidiary... 15,419 At 31st December ,956,340 1,146, ,551 (j) Total reserves (j) 15,259,176 13,513, ,

52 Notes on the Accounts (continued) 29 Reserves (continued) 2001 The Group The Bank Associates HK$ 000 HK$ 000 HK$ 000 (a) Share premium (undistributable) (a) At 1st January , ,071 Net premium on shares issued under Staff Share Option Schemes 69,708 69,708 Shares issued in lieu of dividends (32,055 ) (32,055 ) Capital fee (30 ) (30 )... At 31st December , ,694 (b) General reserve (b) At 1st January ,693,195 9,673,225 6,570 Addition through merger with UCB 155,000 Transfer from current year profits 462, ,000 Transfer from retained profits 23,938 23,938 Shares issued in lieu of dividends 229, ,837 Realised surplus on disposals transferred from revaluation reserve on investment properties... 9,631 9,631 At 31st December ,418,601 10,457,693 30,508 (c) Revaluation reserve on bank premises (c) (undistributable) At 1st January and 31st December ,257,509 1,262,909 (d) Revaluation reserve on investment properties (d) (undistributable) At 1st January , ,954 Realised surplus on disposals transferred to general reserve... (9,631 ) (9,631 ) At 31st December , ,323 (e) Statutory reserves (undistributable) (e) At 1st January 1 1 5,534 5,534 Exchange adjustments (2 ) (2 )... At 31st December ,532 5,532 (f) Capital reserve (undistributable) (f) At 1st January and 31st December ,436 (g) Exchange revaluation reserve (undistributable) (g) At 1st January 1 1 (20,573 ) 10,296 (23,565 ) Exchange adjustments (29,139 ) (16,673 ) (5,913 )... At 31st December (49,712 ) (6,377 ) (29,478 ) (h) Other revaluation reserve (undistributable) (h) At 1st January Exchange adjustments (839 ) (839 )... At 31st December (763 ) (763 ) 126 The Bank of East Asia, Limited Annual Report 2002

53 2001 The Group The Bank Associates HK$ 000 HK$ 000 HK$ 000 (i) Retained profits (i) At 1st January 1 1 1,281, , ,166 Addition through merger with UCB 14,120 Net profit for the year (Note 9) 9 1,599,806 1,580,062 (20,989 ) Transfer to general reserve (462,000 ) (390,000 ) Transfer to general reserve (23,938 ) (23,938 ) Dividends (Note 10) 10 Interim dividend (300,430 ) (300,430 ) Final dividend in respect of previous year (638,471 ) (638,471 ) Exchange and other adjustments (4,745 ) (4,745 )... At 31st December ,452, , ,494 (j) Total reserves (j) 14,663,790 13,017, ,293 The application of the share premium account is governed by Section 48B of the Hong Kong Companies Ordinance. General reserve was set up from the transfer of retained earnings, the realised revaluation surplus on disposal of properties and the value of shares issued in lieu of dividend. Revaluation reserve on bank premises, revaluation reserve on investment properties and exchange revaluation reserve have been set up and are dealt with in accordance with the accounting policies adopted for the revaluation of bank premises, investment properties and foreign currency translation. Capital reserve represents the capitalisation of subsidiaries reserves. Statutory reserves are set up to supplement the paid-up capital until the sum of paid-up capital and the statutory reserves are equal to the registered capital for certain associates. Total distributable reserves of the Bank amounted to HK$12,055,422,000 (2001: HK$11,266,665,000). 48B 12,055,422, ,266,665,

54 Notes on the Accounts (continued) 30 Off-Balance Sheet Exposures (a) Contingent liabilities and commitments The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments: The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Direct credit substitutes 4,125,735 3,717,540 4,097,553 3,609,603 Transaction-related contingencies 519, , , ,349 Trade-related contingencies 2,152,000 2,197,335 2,133,553 2,029,647 Note issuance and revolving underwriting facilities 23,178 23,178 Other commitments with an original maturity of: under 1 year or which are unconditionally 1 cancellable 20,615,082 24,391,868 20,353,725 15,623,232 1 year and over 1 8,416,217 7,469,282 8,429,717 7,474, ,828,261 38,259,371 35,533,775 29,105,970 (b) Derivatives Derivatives refer to financial contracts whose value depends on the value of one or more underlying assets or indices. The following is a summary of the notional amounts of each significant type of derivative for the Group and the Bank: The Group Trading Hedging Total Trading Hedging Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Exchange rate contracts Forwards and futures 4,732, ,628 5,091,740 5,881, ,077 6,207,330 Swaps 5,649,654 7,916,316 13,565,970 9,025,817 5,101,619 14,127,436 Options purchased 1,202,429 1,202, , ,908 Options written 1,202,429 1,202, , ,908 Interest rate contracts Forwards and futures 200, , ,000 16, ,710 Swaps 722,758 10,405,074 11,127, ,383 5,460,940 6,250,323 Options purchased 19,498 19,498 19,493 19,493 Equity contracts Options purchased 186, ,131 19,365 19,365 Options written 186, ,131 19,365 19, ,081,644 18,700,516 32,782,160 16,216,999 10,924,839 27,141, The Bank of East Asia, Limited Annual Report 2002

55 The Bank Trading Hedging Total Trading Hedging Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Exchange rate contracts Forwards and futures 4,979,811 4,979,811 6,107,463 8,743 6,116,206 Swaps 5,649,654 7,916,316 13,565,970 9,025,817 4,672,756 13,698,573 Options purchased 1,202,429 1,202,429 Options written 1,202,429 1,202,429 Interest rate contracts Forwards and futures 200, , , ,000 Swaps 722,758 10,405,074 11,127, ,383 5,460,940 6,250,323 Options purchased 19,498 19,498 19,493 19,493 Equity contracts Options purchased 186, ,131 Options written 186, , ,329,343 18,340,888 32,670,231 16,068,663 10,161,932 26,230,595 The replacement costs and credit risk weighted amounts of the aforesaid off-balance sheet exposures are as follows. These amounts do not take into account the effects of bilateral netting arrangements. The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Replacement costs Exchange rate contracts 191, , , ,365 Interest rate contracts 232,654 55, ,654 55,192 Options purchased equity contracts exchange rate contracts , , , ,557 Credit risk weighted amounts Contingent liabilities and commitments 8,559,065 7,789,246 8,538,585 7,650,961 Exchange rate contracts 149, , , ,823 Interest rate contracts 61,098 18,597 61,098 18,595 Equity contracts 8,000 8, ,778,016 7,933,662 8,756,215 7,790,

56 Notes on the Accounts (continued) 30 Off-Balance Sheet Exposures (continued) (b) Derivatives (continued) The tables above give the contractual or notional amounts, replacement cost and credit risk weighted amounts of off-balance sheet transactions. The replacement cost is calculated for the purposes of deriving the credit risk weighted amounts. These are assessed in accordance with the Hong Kong Monetary Authority's guidelines which implement the Basle agreement on capital adequacy and depend on the status of the counterparty and the maturity characteristics. The risk weights used range from 0% to 100% for contingent liabilities and commitments, and from 0% to 50% for exchange rate, equity and interest rate contracts. Replacement cost represents the cost of replacing all contracts which have a positive value when marked to market. Replacement cost is a close approximation of the credit risk for these contracts as at the balance sheet date. The credit risk weighted amount refers to the amount as computed in accordance with the Third Schedule to the Hong Kong Banking Ordinance. Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of credit, guarantees and commitments to extend credit. The contractual amounts represent the amounts at risk should the contract be fully drawn upon and the client default. Since a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the contract amounts is not representative of future liquidity requirements. Derivatives arise from futures, forward, swap and option transactions undertaken by the Group and the Bank in the foreign exchange, interest rate and equity markets. The notional amounts of these instruments indicate the volume of transactions outstanding at the balance sheet date; they do not represent amounts at risk. 0% 100% 0% 50% (c) Capital commitments Capital commitments outstanding at 31st December not provided for in the accounts were as follows: The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Expenditure authorised and contracted for* * 1,257,317 65,694 1,249,488 64,657 Expenditure authorised but not contracted for ,169 3,089 6,168 2,739 1,589,486 68,783 1,255,656 67,396 * The amount as at 31st December, 2002 included the capital commitments amounted to HK$1,133,768,000 in relation to the Bank's acquisition of a portion of Millennium City 5, a proposed new building to be erected in Kwun Tong. Details of the transaction are disclosed in the Report of Directors on Page 52. * ,133,768, The Bank of East Asia, Limited Annual Report 2002

57 (d) Operating lease commitments At 31st December, 2002, the total future minimum lease payments under noncancellable operating leases are payable as follows: The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Premises Leases expiring: within one year 1 83, , , ,970 after one year but within five years 15 84,958 82,479 67,920 70,222 after five years 5 32,066 29,934 25,894 27, , , , ,574 (e) Obligations under mortgage loans sold Included in the captions set out below are the following balances which are established as reserve funds for mortgage loan purchasers pursuant to the terms of mortgage sale agreements. The reserve funds are available to the purchasers to cover any losses or cash flow shortfalls that result from both credit risk and basis risk with respect to the loans sold and to protect the purchasers in the event that they have to appoint a substitute servicer. These reserve funds are either set up in the name of the Bank and are charged in favour of the purchaser as security for the Bank's obligations to the purchaser or, in the name of the loan purchaser who retains absolute ownership, title, right and interest in the reserve funds, pursuant to the terms of the mortgage sale agreements. The Group The Bank HK$ 000 HK$ 000 HK$ 000 HK$ 000 Held-to-maturity debt securities 39,815 39,786 39,815 Accrued interest and other accounts 68,805 70,482 68, , , ,

58 Notes on the Accounts (continued) 31 Notes on Consolidated Cash Flow Statement (a) Reconciliation of profit for the year before taxation to net cash used in operating activities HK$ 000 HK$ 000 Profit for the year before taxation 1,580,145 1,890,856 (Increase)/decrease in interest receivable and other accounts / (1,043,832) 55,679 Decrease in interest payable and other accounts (135,751) (72,428 ) Charge for bad and doubtful debts 810, ,385 (Profit)/loss on revaluation of other investments in securities / (23,702) 10,321 Provisions on held-to-maturity debt securities, investment securities and associates 39,581 45,049 Share of profits less losses of associates (32,656) 12,741 Net profit on disposal of held-to-maturity debt securities, investment securities and associates (456) (21,445 ) Net profit on disposal of other investments in securities (190) (705) Net loss/(profit) on disposal of fixed assets / 31,167 (8,369) Interest expense on certificates of deposit and bonds issued 544, ,415 Depreciation on fixed assets 226, ,896 Amortisation and impairment of goodwill 131,086 98,064 Dividend income from equity securities (24,982) (21,753 ) Amortisation of premium/discount on certificates of deposit and loan capital issued / 32,793 Revaluation deficit on investment properties 92, Net cash generated from trading activities 2,227,081 3,505,706 Net decrease/(increase) in placements with banks and other financial institutions 3 maturing beyond three months / 1,367,626 (167,282) Net increase in trade bills (93,727) (16,135 ) Net increase in certificates of deposit held 3 with original maturity beyond three months (191,844) (153,230) Net decrease in other investments in securities 63, ,882 Net increase in advances to customers (1,215,229) (4,064,986 ) Net increase in advances to banks and other financial institutions (527,913) (50,024 ) Net decrease in treasury bills with original 3 maturity beyond three months 555,589 Net increase in debt securities with original 3 maturity beyond three months (9,951,650) (1,510,356 ) Net increase in deposits and balances of banks and other financial institutions 586, ,124 Net increase in deposits from customers 845,138 1,122,179 Exchange adjustments 21,735 (32,226 )... Net cash used in operating activities (6,312,897) (978,348) 132 The Bank of East Asia, Limited Annual Report 2002

59 (b) Purchase of subsidiaries HK$ 000 HK$ 000 Net assets acquired Placements with banks and other financial institutions maturing between one and twelve months , ,775 Other investments in securities 125,213 Advances and other accounts less provisions 5, ,648 Held-to-maturity debt securities 6,397 Investment securities 2,667 2,854 Fixed assets 4,479 11,876 Deposits and balances with banks and other financial institutions (7,798) Deposits from customers (947,322) Deferred tax (400) Other accounts and provisions (6,567) (11,576 ) Minority interest (3,050) Share of net assets under equity accounting (1,980)... 5, ,067 Purchase of remaining net assets of a subsidiary owned by its former minority shareholders 433,289 Goodwill arising on consolidation 332, , , ,334 Investment cost payable as at 1st January 1 1 1, ,894 as at 31st December (1,682)... Total amount satisfied by cash 339,891 1,316,546 (c) Net cash outflow from acquisition of subsidiaries HK$ 000 HK$ 000 Cash consideration 339,891 1,316,546 Less: Cash and cash equivalents acquired (5,414) (337,775) , ,

60 Notes on the Accounts (continued) 31 Notes on Consolidated Cash Flow Statement (continued) (d) Analysis of the balances of cash and cash equivalents HK$ 000 HK$ 000 Cash and balances with banks and other financial institutions 1,963,261 1,524,229 Money at call and short notice 28,442,335 35,510,396 Placements with banks and other financial 3 institutions with original maturity within three months 2,319,674 2,477,880 Treasury bills and debt securities with original 3 maturity within three months 3,373,137 2,860,492 Certificates of deposit held with original 3 maturity within three months 226, , ,325,022 42,841,676 (e) Major non-cash transaction In January, 2002, Tengis Holdings Limited (subsequently renamed as Tricor Holdings Limited ( THL ) in January, 2002), a subsidiary in which the Group holds 71.3%, increased its interest in Secretaries Limited to 100% by entering into a share swap agreement with East Asia Secretaries (BVI) Limited, a subsidiary in which the Group holds 75.6%, and Deloitte Investments (Hong Kong) Limited for a total consideration of HK$165 million to be satisfied by the allotment and issue of shares by THL % Tengis Holdings Limited Tricor Holdings Limited Deloitte Investments (Hong Kong) Limited 75.6%East Asia Secretaries (BVI) Limited 165,000,000 Tricor Holdings Limited 32 Loans to Officers The aggregate of loans to officers of the Bank disclosed pursuant to Section 161B(4B) and (4C) of the Hong Kong Companies Ordinance is as follows: 161B (4B) (4C) HK$ 000 HK$ 000 Aggregate amount of relevant loans outstanding at 31st December By the Bank 699, ,684 By subsidiaries 15,597 16, , ,490 The maximum aggregate amount of relevant loans outstanding during the year By the Bank 1,023,528 2,172,210 By subsidiaries 16,806 17,781 There was no interest due but unpaid nor any specific provision made against these loans at 31st December, The Bank of East Asia, Limited Annual Report 2002

61 33 Material Related Party Transactions The Group maintains certain retirement benefit schemes for its staff as per Note 2(s)(iii). In the year 2002, the total amount of contributions the Group made to the schemes was HK$64 million (2001: HK$59 million). The Group acquired a portion of Millennium City 5, a proposed new building to be erected in Kwun Tong, from subsidiaries of Sun Hung Kai Properties Limited ("SHKP") in June Thomas KWOK Ping-kwong, an Independent Non-executive Director of the Bank, is also an executive director of SHKP. Mr. Kwok, together with his family interests taken together, is directly or indirectly interested in more than 30% of the voting powers of SHKP and therefore the transaction constitutes a related party transaction for the Bank. Details of the transaction are disclosed in the Report of the Directors on Page 52. The Group enters into a number of transactions with the Group's related parties, including its associates, and key management personnel and their close family members and companies controlled or significantly influenced by them. The transactions include accepting deposits from and extending credit facilities to them. Except that there is an interest free shareholder's advance extended to one associate amounting to HK$32 million at 31st December, 2002 (2001: HK$33 million), all interest rates in connection with the deposits taken and credit facilities extended are under terms and conditions normally applicable to customers of comparable standing. The interest received from and interest paid to the Group's related parties for the year, and the outstanding balances of amounts due from and due to them at the year end are aggregated as follows: 2(s)(iii) ,000, ,000, % ,000, ,000, % to Group total % to Group total Interest income Interest expense Amount due from related parties (Note a) a Amount due to related parties (Note b) b Notes: (a) Based on total assets excluding cash and short-term funds, placements with banks and other financial institutions maturing between one and twelve months, investments in associates and fixed assets. (a) 1 12 (b) Based on deposits from customers and debt instruments issued. (b)

62 Notes on the Accounts (continued) 34 Equity Compensation Plans The Bank has adopted Staff Share Option Schemes whereby the Board of the Bank may at its discretion grant to any employees, including Executive Directors and Chief Executive, of the Group options to subscribe for shares of the Bank. The options may be exercised during the period beginning on the first anniversary of the Date of Grant and ending on the fifth anniversary of the Date of Grant. All options were granted for nil consideration. 15 (a) Particulars of share options Date of Grant Vesting Period Exercise Period Exercise Price Per Share HK$ 29/4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ (b) Movement of share options Number of Share Options Outstanding Outstanding Date of Grant at 1/1/2002 Granted Exercised Lapsed at 31/12/ /4/ ,395,000 13,395,000 20/4/1998 5,783, , ,800 5,361,200 21/4/1999 5,063, ,000 4,510,000 20/4/ ,700,000 98, ,000 11,128,000 19/4/2001 5,520, ,000 5,360,000 18/4/2002 5,625, ,000 5,505, Total 41,461,200 5,625, ,200 14,284,800 31,864,200 Number of Share Options Outstanding Outstanding Date of Grant at 1/1/2001 Granted Exercised Lapsed at 31/12/ /4/ ,267, ,974 9,831,438 29/4/ ,149, ,400 13,395,000 20/4/1998 7,730,600 1,947,400 5,783,200 21/4/1999 7,852,000 2,789,000 5,063,000 20/4/ ,798, , ,000 11,700,000 19/4/2001 5,615,000 95,000 5,520, Total 52,797,412 5,615,000 5,884,374 11,066,838 41,461,200 (c) No share options were cancelled during the years ended 31st December, 2001 and The Bank of East Asia, Limited Annual Report 2002

63 (d) Details of share options exercised Number of Share Options Exercise Period Date of Grant January 1 23/4/ ,332 20/4/ ,000 1,217,000 21/4/ ,000 1,628,000 20/4/ ,000 February 2 23/4/ ,642 20/4/ , ,000 21/4/ , ,000 March 3 20/4/1998 9,000 21/4/1999 6,000 97,000 April 4 20/4/ ,600 21/4/ ,000 12,000 May 5 20/4/ , ,400 21/4/ , ,000 20/4/ , ,000 June 6 20/4/ , ,000 21/4/ , ,000 20/4/ ,000 July 7 20/4/ ,400 21/4/ ,000 25,000 20/4/ ,000 August 8 20/4/ ,000 21/4/ ,000 20/4/ ,000 September 9 21/4/ ,000 25,000 20/4/ ,000 November 11 21/4/ ,000 December 12 21/4/ , Post Balance Sheet Events On 10th January, 2003, Tricor Holdings Limited, a 71.3% owned subsidiary of the Group, completed the acquisition of the company secretarial and client accounting business owned by PricewaterhouseCoopers in Hong Kong % Tricor Holdings Limited 36 Comparative Figures The comparative figures of the consolidated cash flow statement have been restated to conform with the current year s presentation due to the revision of SSAP15 Cash Flow Statements