Half Year Report PATRIA BANK SA. June 30, According to the FSA Regulation no. 5/2018 -

Transcription

1 Half Year Report PATRIA BANK SA June 30, According to the FSA Regulation no. 5/ This version of the accompanying documents is a translation from the original, which was prepared in Romanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views and opinions, the original language version of our report takes precedence over this translation. Report date: Company name: PATRIA BANK S.A. Registered office: Bucharest, District 1, 31 Ion Brezoianu Actor Street, floors 1, 2 and attic Actual office: Bucharest, District 2, 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10 Phone/fax: // Tax identification number: RO Trade Register number: J40/9252/2016 Issued and paid-in share capital: RON 274,165, Regulated market on which the issued shares are traded: Bucharest Stock Exchange - Premium category Main characteristics of the securities issued by the trading company: nominal value of LEI 0.1 Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 1 P a g e

2 Contents 1. Disclosure requirements Major events that took place in the first 6 months of 2018 and their impact on half-yearly reporting Description of the main risks and uncertainties for the next 6 months of the The main transactions between affiliated parties Financial and economical situation as of Activity analysis Changes that impact the company s capital and management Significant transactions Significant litigations Subsequent events after Annexes Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 2 P a g e

3 1. Disclosure requirements This Report meets the disclosure requirements of: Law no. 24/2017 on issuers of financial instruments and market operations; Regulation of the Financial Supervisory Authority (FSA) no. 5/2018 on issuers of financial instruments and market operations. 2. Major events that took place in the first 6 months of 2018 and their impact on half-yearly reporting The Bank's profitability continues to be under pressure, mainly due to the under-optimal structure of assets in the Bank's balance sheet generated by the excess of liquidity, but this pressure is decreasing as the Bank implements its credit growth strategy; thus, in line with the Budget of 2018, the loss of the second quarter of 2018 considerably decreased from LEI 19 million to LEI 4.3 million, amid the increase of the operational result, mainly based on the increase of the banking income base on all levels (income from interest, commission income, other operating income) while maintaining operating costs under control. These results are in line with the budget forecasts that hat anticipate the return of the Bank's financial results to the positive territory in the second half of the year, mainly based on the upward trend of the banking income and on the positive results from the recovery of the non-productive assets and the non-performing assets existing in the Bank s balance sheet or off balance sheet. The lending activity continues the accelerated growth trend, in the first 6 months of 2018 being granted new loans amounting to LEI 483 million. This volume ensured implementation of the forecasted loan volumes by 112%, while doubling the volume of new loans granted compared to the same period of It is also worth mentioning that in the businees line /area of legal persons, the significant increase of the new credit production is seen in all business sub-segments, both in the Micro and Agro area (120%), as well as in the SME and Small Corporate area (116%), the bank managing to gain monthly a market share related to newly granted loans significantly higher than the market share of the outstanding loans. Gross lending portfolio to corporates increased by LEI million (+7.2% versus end-2017), while the gross lending portfolio for retail sector business line has a positive evolution of LEI 18.2 million, generating a 5% increase vs. December As far as the Micro Sub-segment is concerned, expanding the cooperation with the European Investment Fund (EIF) through the EU guarantee for granting EaSI credits and diversifying alternative sales channels provides the premises for a continuous development. Through partners, brokers and direct sales agents it is generated 26% of the Micro transactions and 42% of the loans volume for this segment. An important contribution is the new platform PATRIA PARTENER an innovative project in the market, which, in the first months after launching, the partners enrolled in the Patria Partner Platform recommended to the bank 720 corporate clients and 300 credits worthing LEI 91 million. Patria partener platform demonstrates its viable value as alternative channel for legal entities lending, thus contributing to strengthening the Bank's strategic direction in relation to the needs of local Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 3 P a g e

4 communities and developing the business model based on alternative distribution channels, including partnerships in the rural and small urban areas. On the operational level, in the first half of the year 2018, the bank continued its strategy of streamlining processes and significantly reducing operational costs by: - strengthening the Bank's data centers; - continuation of investments in IT infrastructure; - reviewing the process of opening accounts for legal entities and setting up POSs; - optimization of card renewal flows and ATMs supply; - automatizations to reduce operational risks; - completion of the implementation for a dedicated solution to improve the level of cyber security; - testing IT business continuity plan; - integration of PATRIA CREDIT IFN SA systems into the bank's security policies; - implementing security measures according to current standards for the new Internet Banking platform. In terms of the Bank's objectives and business plan for 2018, in the first semester of 2018 the bank improved its lending flows to individuals by automating the end-to-end process and modifying the flow of IT support to comply with EU Directive no. 92/2014. Also, regarding the implementation of the IBA Branches solution at the network level, further to the recent modifications of the legislativ framework (EU Directive 92/2014 and GDPR) the new estimated go-live deadline is September 2018, the Bank being in the process of implementing also the IBA Mobility solution that will allow the use of the IBA application at the mobile sales force level, as well as the implementation of qualified electronic signature that will allow the transformation of full-paperless flows (impacting on operational efficiency, reducing of the time to complete a transaction and, last but not least, significantly mitigating operational risks). Also, it has been initiated the project implementing a new Internet Banking and Mobile Banking solution for individuals and the Cashback project - issuance and acceptance (according to Law 209/2016, the Bank will implement the cashback functionality through EPOSs and cards, which require obtaining certificates for both payment acceptance and issuance). Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 4 P a g e

5 From the risk management perspective: The Bank began in the first half of 2018 the process of optimizing the allocation of the bank's capital in order to improve its management and use of capital to create added value based on risk-adjusted returns, diversification of asset classes, portfolio and customers. The Bank continued the process of analyzing and monitoring the cost of credit risk in order to identify in due time the higher-risk products / financing areas carrying higher risk degrees, in order to optimize the structure of the income-generating assets vs. the degree of risk and the level of associated provisions. In the liquidity and market risk area, the Bank continued to record comfortable levels of the main prudential indicators monitored. The bank continued the process of improving the quality of its loan portfolio granted to its clients, both in retail and in the corporate segment, focusing on the quality of the client portfolio attracted by the Bank, both in the funding stage as well as in the subsequent monitoring process, in order to prevent possible difficulties that clients may encounter as a result of legislative changes, economic cycles or seasonal activities. Also, the process of of valorification of the repossesed assets taken over for the receivables, as well as the process of recovery of non-performing loans from the balance sheet as well as write-offs, was continued, and this process will continue in the second semester. In the compliance area, the Bank has begun a process of improving the infrastructure and processes used to combat the money laundering and for know your customer procedures, which will continue over the next semester. Financial results as of June 30, 2018 Between the Bank recorded a net loss of LEI 23.3 million - close to the loss level budgeted for the first half of 2018 of LEI 22.3 million, a result sustained by 112% realization of the sales plan, a level of operational expenditures according to the budgeted levels. The net operating result also registered an evolution in line with the budget for the first six months of The Bank's profitability continues to be under pressure, mainly due to the under-optimal structure of assets in the Bank's balance sheet, where the significant liquidity surplus is invested in short-term government bonds, which, however, generates lower interest earnings than average yields of the loan portfolio, but this pressure is decreasing as the Bank implements its credit growth strategy. The budget for 2018 forecasted a growth rate of operating result, mainly based on the Bank s income base s growth on all levels (interest income, commission income, other operating income) amid the maintenance of operating costs under control. In addition, during the period up to the optimal level of the asset structure, in the budget for 2018 were considered actions that contribute to the Bank s financial performance consisting of recovery actions of the non-productive assets and the non-performing assets existing in its balance sheet and off balance sheet. These actions started in the second quarter of 2018 and will continue in the coming months of Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 5 P a g e

6 The financial result for the first half of 2018 (loss of LEI 23.3 million) shows a reduction of 11% (LEI 3 million) compared to the same period of The quarterly component of financial result recorded in the first half of 2018 is presented in the table below: FINANCIAL PERFORMANCE STATEMENT -thousand LEI- Q1' 2018 Q2 ' 2018 H1' 2018 Δ Q2 / Q1 (abs.) Δ Q2 / Q (%) Net interest income 21,658 24,404 46,062 2,745 13% Net fees and commission income 5,252 5,868 11, % Net gains from financial activity & other inc 3,966 8,922 12,888 4, % Net banking Income 30,877 39,193 70,070 8,317 27% Staff costs (19,727) (18,766) (38,493) 961-5% Depreciation and amortization (3,790) (4,085) (7,875) (295) 8% Other operating and administrative expens (17,055) (16,298) (33,353) 757-4% Total operating expense (40,572) (39,149) (79,721) 1,423-4% Operating Result (9,695) 44 (9,651) 9, % Net impairment of financial assets (9,319) (4,329) (13,648) 4,989-54% Loss before tax (19,014) (4,285) (23,299) 14,728-77% Expense from deffered tax Loss for the year (19,014) (4,285) (23,299) 14,728-77% Cost to Income 131% 100% 114% Patria Bank records a positive evolution as evidenced by the results of the second quarter of 2018, which shows a reduction of the loss of 77% compared with the first quarter of 2018 (LEI 14.7 milllion), coming both from the increase in operating revenues and from the decrease of operational expenses. Thus, the second quarter of 2018 brings the marginal operational result indicator to the positive range. The total operating income of LEI 70.1 million is in line with the budgeted level (+0,8%, + LEI 0,6 mil.) and compared to the same period of 2017, the net interest income shows a slight decrease (due to a higher level of incomes from the fair value adjustments recorded in Q related to the credit portfolio taken over from ex- BCC) and net fees income records an increase of 3%, although the number of branches was reduced by 27 units during The positive evolution is also recorded on the revenues from the financial activity and other revenues where it was recorded an increase of 5% (LEI 597 thousand). Operating expenses: LEI 79.7 mil. with an economy of 1.5% compared to the budgeted level, decreased by 7.8% compared to the first quarter of 2017, due to the reorganization of the Bank in the context of merger and Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 6 P a g e

7 optimization of territorial units network at the end of 2017, but also due to the process of cost optimization and efficiency. The cost of risk: during the first half of 2018, the negative influence of some exposures related to the SME & Small Corporate and Agro sub-segment, exposures from receivables from installment sales and rental of real estate was manifested. The collection activities have been intensified and will take effect in the next period. The Bank s capital base increase actions continued in the first half of 2018 when the Bank and EEAF Financial Services BV, the main Bank s shareholder, signed two subordinated loan contracts. Thus: - in February 2018 a subordinated loan agreement amounting to EUR 4,300,000, this new subordinated loan was converted in share capital equity within the process of capital infusion concluded in June in March 2018, a subordinated loan agreement amounting to EUR 5,000,000 (disbursement of funds on this contract being made during April 2018). This new subordinated loan will be converted in share capital within the capital increase process that will be concluded in the second half of Also on June 26, 2018 the share capital increase process was completed, through which a number of 470,439,609 new shares, at a price of LEI 0.1 per share, were subscribed by exercising the preemptive rights. The total amount resulting from subscription is LEI 47,043, Out of the total amount subscribed, LEI 40,309,000 resulted from the exercising of the preemptive rights corresponding to the conversion of the amount of EUR 8,638, (at an exchange rate of LEI / EUR valid on the subscription day) of the total amount of subordinated loans in an amount of EUR 8,650,000 granted to the Bank by EEAF Financial Services BV under the subordinated loan agreements from 2016 and respectively February 2018; the remaining difference of LEI 6,734, was subscribed in cash. As presented on section 9 Subsequent events after , on August 2, 2018, the Extraordinary General Shareholders Meeting decided the increase of the share capital of the Bank with the maximum amount of LEI 100,000,000, from LEI 274,165, up to maximum LEI 374,165, lei. 3. Description of the main risks and uncertainties for the next 6 months of the 2018 The main important risks and uncertainties which could influence the Bank s activity for the next 6 months of 2018 are mainly generated by the risks related to the Romanian banking system 1 : Future evolutions of the macroeconomic framework as well as the potential continuation of the cycle of tightening monetary policy conduct in the context of maintaining inflationary pressures could lead to an increase in the default rate of corporate clients in Romania; Increasing the current account deficit, which continued the unfavorable evolution - acceleration of internal consumption remains a major concern, as it can put pressure on external balance and, implicitly, on financial stability, by sending the negative effects on debtors' payment capacity, or by pressure on interest rates, or on the exchange rate; 1 According to the Financial Stability Report, drafted for June 2018 by the National Bank of Romania Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 7 P a g e

8 The total debt of the population continued to increase, its evolution being mainly determined by the important increase of the mortgage bank credit (with pressure on the future payment capacity and the sustainability of the debt payment, on the debtors who register low income); The upward dynamics of the consumer credit granted by banks and non-bank financial institutions - the credit increase was mainly determined by the increase in the average value of a loan, irrespective of its destination, the number of contracted loans being even lower; Implementation of a capital buffer for systemic risk, to be applied to all exposures starting with June 30, 2018, with effects on the minimum required capital requirements required by credit institutions; Legislative proposals (the transfer of non-performing loans and the tax deductibility for banks - which influence the continuation of the resolution process of non-performing loans - and the intention to cap the interest rates according to criteria that would affect the market mechanisms) at the banking sector level aimed to protect debtors, could affect the financial stability as a result of the inherent uncertainty in the legal framework in which banks operate. The Bank's management is constantly preoccupied with the assessment of the risks to which the Bank is or may be exposed and shall take appropriate measures regarding any change in the conditions in its operations. Risk management functions ensure that all material risks are properly identified, measured and reported and play a key role at the Bank level, being involved in developing and reviewing strategies as well as in decision-making processes, in material risk management decisions with which the Bank is confronted in its operations and commercial activities. The Bank ensures that all risks are managed and reported in a coordinated manner through the risk management processes. The Bank's material risk assessment is an essential condition for the risk coverage analysis. 4. The main transactions between affiliated parties 2 a) Transactions between affiliated parties that took place during the first 6 months of 2018 and have significantly affected the financial position or results of the bank All transactions with affiliated parties at both individual and consolidated levels are presented in the Interim Financial Statements on June 30, 2018 in note 35. b) Changes of the transactions between affiliates described in the Annual Report for 2017 that may have a significant material effect on the bank's financial position or results in the first 6 months of 2018 Not applicable. 2 It has the same meaning as in International Financial Reporting Standards (IFRS), adopted in accordance with the provisions of Regulation (EC) / 2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 8 P a g e

9 5. Financial and economical situation as of Presentation of the actual economic and financial situation analysis compared with the same period of the previous year: a) Balance sheet items: Situation of the bank's financial position at the end of Sem. I of 2018, compared to Sem. I 2017 and the Budget is as follows: FINANCIAL POSITION -thousands LEI- ASSETS Jun.18/ Dec.17 (abs.) Jun.18/ Dec.17 (%) Budget Actual / Budget (abs.) Actual / Budget (%) Cash and cash equivalents 562, ,562 (48,465) (7.9%) 420, , % Loans and advances to banks 108,335 31,039 77, % 320,758 (212,423) (66.2%) Securities 928,775 1,287,407 (358,632) (27.9%) 1,145,134 (216,359) (18.9%) Investments in subsidiaries 30,770 27,505 3, % 26,816 3, % Loans and advances to customers, net 1,452,829 1,325, , % 1,515,479 (62,650) (4.1%) Other assets 360, ,664 (3,024) (0.8%) 356,790 3, % Total ASSETS 3,443,446 3,645,393 (201,947) (5.5%) 3,785,503 (342,057) (9.0%) LIABILITIES Jun.18/ Dec.17 (abs.) Jun.18/ Dec.17 (%) Budget Actual / Budget (abs.) Actual / Budget (%) Due to banks & REPO 69,841 95,967 (26,126) (27.2%) 160,697 (90,856) (56.5%) Due to customers 3,054,779 3,256,296 (201,517) (6.2%) 3,273,794 (219,015) (6.7%) Borrowings and other liabilities (including subordinated loans) 63,187 61,579 1, % 86,087 (22,900) (26.6%) Total Liabilities 3,187,807 3,413,842 (226,035) (6.6%) 3,520,578 (332,771) (9.5%) Total Equity 255, ,551 24, % 264,924 (9,285) (3.5%) Total LIABILITIES AND EQUITY 3,443,446 3,645,393 (201,947) (5.5%) 3,785,503 (342,057) (9.0%) On June 30, 2018, the total assets amounted to RON 3,444,446 thousand, slightly decreasing (5.5%) as compared to the end of 2017, but with a change in the structure of the assets by increasing commercial credits and diminishing liquidity in excess, together with a decrease in commercial resources on the legal entities segment; The net value of Loans and advances to customers increased by 10%, + LEI 128 million compared to the December 31, 2017 level, the positive evolution being the result of the sales teams' efforts on all lines of activity: MICRO, Agro, SMEs & Small Corporate and Retail that generated new loans in the first 6 months of 2018 amounting to LEI 484 million. There is a redirection of the liquidity surplus in the lending activity. The optimisation of the balance sheet structure is an activity competing to achieve strategic goals redistributing part of the excess liquidity in loans and advances to customers, managing to increase the share of net loans in total assets from 36% at 31 December 2017 to 42% on 30 June 2018; During H1 2018, the Bank executed a write-off operation of non-performing loans fully covered by depreciation adjustments in order to improve the non-performing loans ratio (for a gross value of 30 mil. LEI); Deposits attracted from bank customers recorded a 6% drop on June 30, 2018 compared to the beginning of the year, this decline being mainly concentrated in few counterparties from the Corporate & Financial lnstitutions segment; the financing sources were diversified through REPO operations with government bonds with market s counterparties and the subordinated loan of EUR 5 million received in March The Bank The Bank has paid more attention to commercial resources by maintaining a high duration of the deposit portfolio, as well as the share of current accounts in total. By contrast, by comparing the share of deposits made by individuals (79% at the end of the first half of 2018 versus 74% at the end of 2017), with those of legal entities (21% at the end of the first half of 2018 versus 26% at the end of 2017), we find a high degree Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 9 P a g e

10 of "stickiness" of the liabilities of Patria Bank SA, which confirms the stable character of the base of the attracted sources from the clients; the evolution of the balance of credits and deposits led to an improvement in Gross Loans / Deposits ratio as of June 30, 2018 to 52% compared to December 31, 2017 when its level was 45%; The Tier 1 Own Funds Rate on June was 10.39% above the TSCR (6.12%) and OCR (10%) for this capital adequacy ratio. The Total Equity Rate on June 30, 2018 was 11.94%, exceeding the TSCR limit (10.93%), but below the OCR level of 14.81% (TSCR plus 1.88% capital buffer and systemic buffer 2% applicable starting with June 30, 2018) and registering a slight increase compared to 11.61% level at the end of 2017, amid the share capital increase process completed in June 26, 2018, with the mention that the impact of the share capital increase is not fully incorporated in the Own Funds as at (the amount of LEI 6.7 million representing the cash contribution to be included in the Tier 1 Own Funds in July based on the approval received from the National Bank of Romania). The Total Own Funds TSCR has been increased since February 2018 from 10.57% to 10.93% following the completion of the Surveillance and Evaluation Process (SREP) conducted by the National Bank of Romania in b) Profit and Loss: The main elements of the separate Profit and Loss Account compared to the same period last year and to the Budget are as follows: FINANCIAL PERFORMANCE STATEMENT thousands RON- Δ 2018/ 2017 (abs.) Δ 2018/ 2017 (%) Budget Actual / Budget (abs.) Actual / Budget (%) Net interest income 46,062 47,480 (1,418) (3.0%) 47,919 (1,857) (3.9%) Net fees and commission income 11,120 10, % 12,699 (1,579) (12.4%) Net gains from financial activity & other income 12,888 12, % 8,863 4, % Net banking Income 70,070 70,550 (480) (0.7%) 69, % Staff costs (38,493) (41,592) 3,099 (7.5%) (38,575) 82 (0.2%) Depreciation and amortization (7,875) (7,779) (96) 1.2% (34,906) 27,031 (77.4%) Other operating and administrative expenses (33,353) (37,074) 3,721 (10.0%) (7,481) (25,872) 345.9% Total operating expense (79,721) (86,445) 6,724 (7.8%) (80,962) 1,241 (1.5%) Operating Result (9,651) (15,895) 6,244 (39.3%) (11,481) 1,830 (15.9%) Net impairment of financial assets (13,648) (10,250) (3,398) 33.2% (10,452) (3,196) 30.6% Loss before tax (23,299) (26,145) 2,846 (10.9%) (21,933) (1,366) 6.2% Expense from deffered tax (382) 382 (100%) Loss for the year (23,299) (26,145) 2,846 (10.9%) (22,315) (984) 4.4% Net interest income: + 1%, +0.7 LEI million LEI versus S of which: - from commercial credits increased by + 10%, + LEI 5 million, excluding the impact of the resumption of fair value adjustments for the loan portfolio taken over from the former BCC which shows a decrease of LEI 5.6 million compared to the same the previous year. This evolution is justified by the evolution of the balance of credits taken OVER at the acquisition of the former BCC, as well as by the change in treatment for the POCI ( Purchased or Originated Credit-Impaired) exposures under IFRS 9 (reversal of value adjustments related to POCI loans is recognized in the cost of risk starting with ); Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 10 P a g e

11 - from debt securities portfolio (investments at depreciated cost & valuated at fair value through other global result items) increased by 16%, + LEI 1 million in line with the liquidity management strategy by identifying the best investment options and amid the rise in interest rates in the market. Interest rates expenses + 13%, (LEI 2.1 million LEI) versus S are influenced by the financing strategy: REPO operations, increase in interbank deposits, new subordinated loans received by Patria Bank SA, and deposits attracted from customers where the cost of financing in the second half of 2018 increased on RON over the same period of 2017; for the resources attracted in foreign currency from customers, the Bank reduced the interest rates in line with the objectives of optimizing the cost of financing and of the foreign currency balance sheet structure. The Bank has achieved a higher Net Comission Income in the first semester of 2018 compared to the first semester of 2017 with 3%, although the number of territorial units was 27 lower than in As a part of the financing strategy for the loan portfolio s growth in the first semester of 2018, the Bank realized sales from the government bonds portfolio where the excess liquidity was invested, which generated a materialization of the negative market value of these instruments (the negative value being influenced by the upward trend in interest rates since the fourth quarter of 2017). Other operating income - recorded a significant increase of Lei 6.1 million (from LEI 5.7 million in S to LEI 11.8 million in S1 2018), out of which: + LEI 3.9 million income from dividends, + LEI 2.8 million income from the capitalization of reposed assets and other assets of the Bank's patrimony. Operating expenses decreased by 7.8% - LEI 6.7 mill. compared to the same period of the previous year, being 1.5% below the budgeted level; the Bank continues to identify new opportunities to optimize operational processes in order to maximize the synergies resulting from the merger process. (Net) expense for credit impairment adjustments increased by LEI 3,4 million LEI compared to the same period last year, amid the implementation of the IFRS 9 starting with 1st of January 2018 and the growth of the loan portfolio. In the first 6 months of 2018, the recovery of non-performing loans was intensified, the Bank recovering aproximatively LEI 27 million from its legacy portfolio coming from the former BCC and LEI 3.7 mil. coming from of writte-offs. c) Cash-flow: The situation of changes in the level of cash in the main activity, investments and financial activity, the level of cash at the beginning and at the end of the period, is as follows: Th. LEI Cash at the beginning of period 636, ,497 ± Operating activities (370,754) (110,979) ± Investment activities 349, ,981 ± Financing activities 50,087 (4,877) Effect of the exchange rate variation Cash at the end of period 665, ,622 Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 11 P a g e

12 6. Activity analysis 6.1. Presenting and analyzing trends, elements, events or uncertainty factors that affect or could affect the company's liquidity, as compared to the same period last year The factors of uncertainty that affect or could affect the liquidity of the bank derive mainly from the conditions of the economic environment where the bank is carrying on its activity, as follows: Uncertainties and associated risks deriving from the external and internal environment externally, remains relevant the uncertainties and the risks related to the economic growth in the Euro area and on global level due to the pressure of the increase in import taxes between different regions of the world; internally, they are mainly generated by tax policy behavior in the context of legislative initiatives related to the salaries area. Domestic economy - this recorded a relatively constant increase in the first half of 2018 due to the positive dynamics of domestic consumption and very good export performance. These things have been offset by a significant reduction in public sector investment. Annual inflation rate - this recorded the level of 5.4% at the end of June 2018, influenced by the strong increase in wage incomes, which is calling for an increase in interest rates. At the same time, higher interest rates diminish pressure over the exchange rate by maintaining a differential to attract portfolio investment inflows. Also, lower liquidity or a liquidity shortage makes it more difficult / costly to close open positions on the Leu depreciation. Fiscal policy - there are significant risks in terms of an excessive deficit, with negative consequences on GDP growth in the years to come. Monetary policy interest rate - In order to avoid a start of economy s overheating, the NBR increased this year the key interest in three steps of 25 basis points from a historical minimum of 1.75% to 2.5% at the end of June Mandatory minimum reserves remained unchanged at 8% for both LEI and foreign currency liabilities. Loans - At the end of June 2018, gross loans increased by + 5.1% in annual dynamics (nominal variation and constant exchange rate) with individual loans up by + 9.0% being influenced both by mortgages loan growth (+ 12.2%) and consumer credit growth (+ 5.5%). Corporate lending remained flat, recording a slow growth rate of + 1.3%, with a high corporate liquidity and continued low investment. Deposits - the growth of deposits in the banking system remained strong, up by % (nominal variation and constant exchange rate), driven by growth in both segments: individuals +9.6% and companies %. Non-performing loans - Banks continued to improve the quality of their loan portfolios as reflected in a 306 basis point decline in NPL, from 9.04% at the end of May 2017 to 5.98% at end of May 2018 (in line with the ABE definition) as a result of the sale and off-balance sheet business of non-performing loan portfolios but also due to the increasing lending base. Liquidity The liquidity level at the banking system level is continuing decreasing. Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 12 P a g e

13 6.2. Financial and economical ratios Bank s liquidity position The liquidity indicator on is comfortably above the statutory limits, as follows: Date <= 1 month 1-3 months 3-6 months 6-12 months >12 months Statutory limit >= 1 >= 1 >= 1 >= 1 - *Liquidity indicator calculated for all values, in RON equivalent (according to the NBR Regulation 25/2011) The Bank maintains a high level of liquid assets on the balance sheet (47%). The Loan / Deposits ratio was of 52% in June 2018 (up compared with the level of the end of %), well below the banking system's average of 75.30% (according to data provided by the National Bank of Romania for March 2018), which indicates that the liquidity reserves needed to increase lending are still very high, well above the market level. Main indicators - Bank Total Own Funds Rate % 11.93% 10.61% Loans (gross) / Customer deposits % 52% 45% Liquid Assets / Total Assets % 45% 52% Liquidty Coverage Ratio (LCR) % 625% 393% Immediate Liquidity 1 % 47% 52% 1 Cash and deposit to banks (net values) + free government bonds / sources attracted and borrowed 6.3. Presenting and analyzing the effects on the financial position of the company of all capital expenditures, current or anticipated (specifying the purpose and sources of financing of these expenditures), compared to the same period of the last year. Capital expenditures were made in accordance with the approved income and expenses budget. EUR thousands Actual Budgeted ,740 2,137 Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 13 P a g e

14 6.4. Presenting and analyzing events, transactions, and economic changes that significantly impact core business revenues. The extent to which the revenues of each identified item has been affected. Comparison with the corresponding period of 2017 The details were presented in Chapter V, point b. Profit and loss account. We mention that the core business was performed under normal conditions. The legal obligations regarding the correct and up-to-date organization and management of accounting, compliance with the accounting principles, accounting rules and methods provided by the regulations in force have been fulfilled. The individual financial statements of the bank were prepared in accordance with the International Financial Reporting Standards adopted by the European Union, in force on the reporting date, June 30, The presented data for the first semester of 2018 concern the organization and management of accounting according to the Law No. 82/1991 republished with subsequent modifications and completions, NBR Order no. 27/2010 for the approval of the accounting regulations in compliance with the International Financial Reporting Standards adopted by the European Union, modified and completed by the NBR Order no. 29 / , Order no. 2 / , Order 7 / , Order 7 / and other NBR instructions in this area. 7. Changes that impact the company s capital and management 7.1. Description of cases in which the company was unable to meet its financial obligations during that period. The Bank was not in the position to meet its financial obligations in no way during the first half of Description of any change in the rights of the securities holders issued by the company During the reporting period there were no changes regarding the rights of the securities holders. On June 30, 2018, shareholders whose voting rights are suspended under orders NBR held a total of 245,490,909 shares representing 8.95% of the total number of shares and the total number of voting rights. On the Financial Supervisory Authority ordered, as a precautionary measure, to lock the transfer of 470,439,609 package of shares issued following the share capital increase of Patria Bank SA based on EGSM Resolution dated , for a period of two weeks from the date of registration of those shares with the Central Depository ( ). Subsequently, on , following the analysis of the information published by the bank, the Financial Supervisory Authority announced the bank that it was not necessary a new decision to extend for another two weeks the period of locking the transfer of the shares package being object of dispute, period calculated from the end of the first lock period, respectively The measure was taken as a result of the litigation (action for annulment of the EGSM Resolution no. 1 / ) for which the court not issued a final decision. Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 14 P a g e

15 7.3. Changes in the shareholders capital In accordance with the details presented at section 2. Patria Bank SA is a company whose shares are currenntly traded on the securities market, subject to the provisions of Law 24/2017 and the FSA Regulation no. 5/2018. At present, the shares of the Bank are listed on the Bucharest Stock Exchange, Category I. Thus, the consolidated synthetic structure of the holders of financial instruments holding at least 10% of the bank's share capital as at is the following: Name Shares % EEAF FINANCIAL SERVICES BV 2,192,140, Individuals - Ilie Carabulea - Other individuals 472,190, ,490, ,699, Legal entities 77,325, Total 2,741,656, Changes in the company s management As of , the management of the bank is ensured by the following: a) The Board of Directors: o o o o o Mr. Horia Dragos Manda - chairman Mrs. Daniela Elena Iliescu - member Mr. Bogdan Merfea - executive member Mr. Nicolae Surdu - member Mr. Vasile Iuga - independent member b) The Management Committee: o o o o o Mr. Bogdan Merfea - General Manager Mrs. Lucica Cristina Pitulice - Deputy General Manager - Financial Division (mandate starting with , approved by the NBR on ) Mr. Grigore Valentin Vancea - Deputy General Manager - Operations and IT Division Mr. Bogdan Constantin Neacsu - Deputy General Manager - Risk Division Mr. Stefan Codrut Nicolau - Deputy General Manager - Commercial Division (mandate starting with the , subject to obtaining the approval of the NBR). 8. Significant transactions Excepting the share capital increase transaction mentioned at section 2 and those with affiliated parties mentioned at section 4, there were no other significant contracts concluded by Patria Bank S.A. in the first half of Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 15 P a g e

16 2018 on acquisitions, mergers, divisions, etc. or significant transactions with persons with whom they would act concertedly or in which such persons were involved. 9. Significant litigations 9.1. Information on the litigations concerning the withdrawal of minority shareholders from the company following the merger process is detailed in the Interim Financial Statements on 30 June 2018 in Note In connection with the appeal filled in by Mr. Ilie Carabulea, as plaintiff, against Patria Bank SA, as defendant, within the file no /3/2018, which seeks the anullment of the Extraordinary General Meeting of the Shareholders the decision of dated March 12, 2018, having on its agenda the operation of increasing the share capital of the bank, we specify that the applicant filed with the application file giving up the trial and that the next trial date is set for Subsequent events after On the Ordinary General Meeting of the Shareholders and the Extraordinary General Meeting of Patria Bank Shareholders took place, the main item approved being the operation for increasing the share capital of the Bank with a maximum of RON 100,000,000, from 274,165, lei to a maximum of 374,165, lei. 11. Annexes Individual and consolidated interim financial statements as at : o o o o o The position of the financial position; The overall result statement; The statement of changes in equity; Cash Flow Statement; Explanatory notes. Statement of the bank s management regarding the undertaken of the responsibility for the preparation of the financial statements for the first half of NOTE: The financial statements for the first six months of 2018 have not been audited by an independent financial auditor. Chairman of the Board of Directors Horia Manda General Director Bogdan Merfea Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 16 P a g e

17 ANNEXES Patria Bank S.A. Head Office: 31 Brezoianu, Actor str, floors 1, 2, and attic, Bucharest, Romania, postal code ; Actual Office: 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10, district 2, Bucharest Participant to the Bank Deposit Guarantee Fund in the Banking System (FGDB);: J40/9252/2016, Fiscal Code , No. RB-PJR / ; Share capital (paid up and subscribed) RON 274,165,692.20; Operator code for personal data Register of ANSPDCP no. 753; Tel: , Fax: , info@patriabank.ro; 17 P a g e