Auditors’ Report to the Members We have audited the annexed consolidated financial statements comprising consolidated Balance Sheet of The Bank of Punjab (the Bank ) and its subsidiary company as at 31 December 2008 and the related consolidated Profit and Loss account, consolidated Cash Flow Statement and consolidated Statement of Changes in Equity, together with the notes forming part thereof, for the year then ended. These financial statements include unaudited certified returns from the branches, except for fifteen branches, which have been audited by us. We have also expressed a separate opinion on the financial statements of The Bank of Punjab. Its subsidiary company Punjab Modaraba Services (Private) Limited, however, was audited by another firm of Chartered Accountants, whose report has been furnished to us and our opinion in so far as it relates to the amounts included for such company is based, solely on the report of such auditors. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the International Standards on auditing as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies and significant estimates made by the management, as well as, evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements examined by us, based on fifteen branches and the returns referred to above received from the branches which have been found adequate for the purposes of our audit, present fairly the financial position of The Bank of Punjab and its subsidiary company as at 31 December 2008 and the results of their operations, their cash flows and changes in equity for the year then ended in accordance with approved accounting standards as applicable in Pakistan. Without qualifying our opinion we draw attention to Note 1 to the financial statements which fully explain actions and the undertaking of the Government of Punjab in respect of the deficiency in capital, equity injection and non-provision against certain advances. Ford Rhodes Sidat Hyder & Co. Lahore Chartered Accountants June 04, 2009 93 Consolidated Balance Sheet as at December 31, 2008 Note 2008 2007 (Rupees in ‘000) Assets Cash and balances with treasury banks 7 10,685,058 14,210,302 Balances with other banks 8 2,178,455 1,927,662 Lendings to financial institutions 9 633,333 2,450,000 Investments 10 22,689,608 73,461,693 Advances 11 131,724,113 133,899,143 Operating fixed assets 12 3,471,838 3,252,759 Deferred tax assets 13 8,388,162 - Other assets 14 6,122,406 5,816,021 185,892,973 235,017,580 Liabilities Bills payable 16 1,219,801 937,647 Borrowings 17 12,278,773 17,842,915 Deposits and other accounts 18 164,071,732 191,968,377 Sub-ordinated loans - - Liabilities against assets subject to finance lease 19 30,632 40,321 Deferred tax liabilities 13 - 2,205,530 Other liabilities 20 4,564,481 3,010,882 182,165,419 216,005,672 Net Assets 3,727,554 19,011,908 Represented By Share capital 21 5,287,974 4,230,379 Reserves 22 7,427,232 7,427,232 (Accumulated loss) / Unappropriated profit * (7,674,257) 3,468,956 5,040,949 15,126,567 (Deficit) / Surplus on revaluation of assets 23 * (1,313,395) 3,885,341 3,727,554 19,011,908 Contingencies and Commitments 24 * The above deficit on revaluation of assets include impairment loss (net of tax) of Rs 1,119,824 (thou- sand) in respect of listed equity securities / mutual funds held under ‘Available-for-sale’ category of investments as allowed under BSD Circular no. 4 dated 13 February 2009 of the SBP. The said im- pairment loss has been determined on the basis of valuation of such listed equity securities / mutual funds using the market prices quoted on the Stock Exchange / net assets values as of 31 December 2008. Had the impairment loss been fully charged to profit and loss account, loss after tax for the year would have been increased by Rs 1,119,824 (thousand) and loss per share would have been increased by Rs. 2.12. (see note 23.3) The annexed notes from 1 to 46, annexure - I & II form an integral part of these financial state- ments. Chairman President Director Director Director 94 Consolidated Profit and Loss Account for the year ended December 31, 2008 Note 2008 2007 (Rupees in ‘000) Mark-up/return/interest earned 25 17,752,652 17,539,538 Mark-up/return/interest expensed 26 16,614,000 13,939,377 Net mark-up/ interest income 1,138,652 3,600,161 Provision against non-performing loans and advances 11.5 18,863,580 1,616,421 Provision for diminution in the value of investments 10.3 388,757 24,479 Bad debts written off directly 11.6 - 246,869 19,252,337 1,887,769 Net mark-up/ interest income after provisions (18,113,685) 1,712,392 Non Mark-up/interest Income Fee, commission and brokerage income 27 579,520 659,488 Dividend income 2,025,160 1,812,870 Income from dealing in foreign currencies 324,327 377,233 Gain on sale and redemption of securities 28 733,787 2,039,535 Unrealized gain / (Loss) on revaluation of investments classified as held for trading - - Other income 29 526,186 547,635 Total non-markup/interest income 4,188,980 5,436,761 (13,924,705) 7,149,153 Non Mark-up/interest Expenses Administrative expenses 30 2,808,835 2,255,342 Provision against other assets 10,101 - Provision against off balance sheet items - 292 Other charges 31 114,700 37,950 Total non-markup/interest expenses 2,933,636 2,293,584 (16,858,341) 4,855,569 Extra ordinary/unusual items - - (Loss) / Profit Before Taxation (16,858,341) 4,855,569 Taxation - Current 207,600 170,700 - Prior years 1,052,000 (19,921) - Deferred (8,033,001) 250,772 32 (6,773,401) 401,551 (Loss) / Profit After Taxation (10,084,940) 4,454,018 Unappropriated profit brought forward 3,468,956 3,226,961 Reversal of excess management fee accrued last year 27 (6,250) - Transfer from surplus on revaluation of fixed assets - net of tax 5,572 5,866 3,468,278 3,232,827 (Accumulated loss) / profit available for appropriation (6,616,662) 7,686,845 Basic (loss) / Earnings per share (after tax) - Rupees 32.2 * (19.07) 8.42 Diluted (loss) / Earnings per share (after tax) - Rupees 34 * (19.07) 8.42 * The deficit on revaluation of assets include impairment loss (net of tax) of Rs 1,119,824 (thousand) in respect of listed equity securities / mutual funds held under ‘Available-for-sale’ category of investments as allowed under BSD Circular no. 4 dated 13 February 2009 of the SBP. The said impairment loss has been determined on the basis of valuation of such listed equity securities / mutual funds using the market prices quoted on the Stock Exchange / net assets values as of 31 December 2008. Had the impairment loss been fully charged to profit and loss account, loss after tax for the year would have been increased by Rs 1,119,824 (thousand) and loss per share would have been increased by Rs 2.12. (see note 23.3) The annexed notes from 1 to 46, annexure - I & II form an integral part of these financial statements. Chairman President Director Director Director 95 Consolidated Cash Flow Statement for the year ended December 31, 2008 Note 2008 2007 (Rupees in ‘000) Cash Flow From Operating Activities (Loss)/Profit before taxation (16,858,341) 4,855,569 Less: Dividend income (2,025,160) (1,812,870) (18,883,501) 3,042,699 Adjustments: Depreciation 215,783 142,553 Amortization on intangible assets 12,671 12,283 Amortization on premium on Pakistan Investment Bonds 72,198 69,285 Provision against non-performing advances 18,863,580 1,616,421 Bad debts written-off directly - 246,869 Provision for diminution in the value of investments 388,757 24,479 Provision for employees compensated absences 27,981 22,282 Provision for gratuity 37,042 - Provision against off-balance sheet items - 292 Provison against other assets 10,101 - (Gain) / Loss on sale of fixed assets (3,152) 2,955 Gain on sale and redemption of securities (733,787) (2,039,535) Financial charges on leased assets 4,454 3,760 18,895,628 101,644 12,127 3,144,343 (Increase)/ Decrease in operating assets: Lendings to financial institutions 816,667 9,896,823 Advances (16,688,550) (35,285,749) Others assets (298,763) (1,411,991) (16,170,646) (26,800,917) Increase/ (Decrease) in operating liabilities: Bills Payable 282,154 81,199 Borrowings from financial institutions (5,463,146) 10,594,265 Deposits (27,896,645) 54,240,833 Other liabilities 1,488,576 144,991 (31,589,061) 65,061,288 (47,747,580) 41,404,714 Financial charges paid (4,454) (3,760) Income tax paid (638,253) (840,476) Net cash (used in) / generated from operating activities (48,390,287) 40,560,478 Cash Flow From Investing Activities Net investments in available-for-sale securities 42,476,027 (43,322,302) Net investments in held-to-maturity securities 165,856 69,937 Dividend income 2,041,428 1,812,870 Investments in operating fixed assets (462,157) (543,135) Sale proceeds of property and equipment disposed-off 5,367 24,609 Net cash flow generated from / (used in) investing activities 44,226,521 (41,958,021) Cash Flow From Financing Activities Payment of lease obligations (9,689) (667) Net cash used