THE DEŽELNA BANKA SLOVENIJE GROUP UNAUDITED INTERIM REPORT FOR THE FIRST HALF YEAR 2014

Transcription

1 THE DEŽELNA BANKA SLOVENIJE GROUP UNAUDITED INTERIM REPORT FOR THE FIRST HALF YEAR 2014 Ljubljana, July 2014

2 CONTENTS A. BUSINESS REPORT... 2 I. FINANCIAL HIGHLIGHTS AND PERFORMANCE INDICATORS FOR THE FIRST... HALF YEAR I.1. DEŽELNA BANKA SLOVENIJE GROUP... 3 I.2. DEŽELNA BANKA SLOVENIJE d. d II. PROFILE OF THE BANK AND THE GROUP... 5 II.1. GENERAL INFORMATION ON THE BANK... 5 II.2. ID CARD OF THE BANK... 5 II.3. BANK MANAGEMENT BOARD AND SUPERVISORY BOARD... 6 II.4. CORNERSTONES OF THE FIRST HALF YEAR III. SUBSIDIARIES IN THE DEŽELNA BANKA SLOVENIJE GROUP... 7 IV. FINANCIAL RESULT AND FINANCIAL POSITION... 8 IV.1. FINANCIAL RESULT... 8 IV.1.1. DEŽELNA BANKA SLOVENIJE GROUP... 8 IV.1.2. DEŽELNA BANKA SLOVENIJE d. d IV.2. FINANCIAL POSITION... 9 IV.2.1. DEŽELNA BANKA SLOVENIJE GROUP... 9 IV.2.2. DEŽELNA BANKA SLOVENIJE d. d IV.3. SHAREHOLDERS EQUITY IV.4. OWN FUNDS AND CAPITAL ADEQUACY IV.5. RISK MANAGEMENT B. FINANCIAL STATEMENTS...14 MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS I. CONSOLIDATED FINANCIAL STATEMENTS II. SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS III. SEGMENT ANALYSIS IV. RELATED PARTY TRANSACTIONS V. FINANCIAL STATEMENTS OF DEŽELNA BANKA SLOVENIJE D. D VI. EVENTS AFTER THE REPORTING PERIOD

3 A. BUSINESS REPORT 2

4 I. FINANCIAL HIGHLIGHTS AND PERFORMANCE INDICATORS FOR THE FIRST HALF YEAR 2014 I.1. DEŽELNA BANKA SLOVENIJE GROUP 1 1. Statement of financial position (in EUR thousand) 30 June Dec Dec Total assets 891, , ,715 Total deposits by non-banking sector measured at amortised cost 693, , ,358 - Corporates 123, , ,550 - Retail 569, , ,808 Total loans to non-banking sector measured at amortised cost 628, , ,020 - Corporates 505, , ,258 - Retail 122, , ,762 Total equity 48,461 45,434 62,529 Impairments of financial assets measured at amortised cost, and provisions (98,592) (86,379) (68,843) Off-balance sheet operations (B.1. to B.4.) 78,458 63,666 64, Income statement (in EUR thousand) Net interest income 10,209 10,477 10,235 Net non-interest income* 9,641 3,084 3,417 Employee benefits cost, overhead and administrative expenses 10,914 7,738 8,459 Depreciation and amortisation 1,373 1,230 1,417 Impairments and provisions 4,965 5,572 5,225 Profit/loss on ordinary activities before tax 2,598 (979) (2,437) Income tax on ordinary activities (127) (35) 0 3. Comprehensive income after tax (in EUR thousand) Total comprehensive income for the year after tax 2,853 (1,545) (1,707) 4. No. of employees (end of period) No. of employees Shares 30 June Dec Dec No. of shareholders No. of shares** 3,743,268 3,743,268 3,743,268 Par value (in EUR) Book value (in EUR) Selected indicators 30 June Dec Dec a) Capital adequacy ratio (in %) Capital (in EUR thousand) 51,894 52,141 68,357 b) Quality of assets and commitments (in %) - Impairments of financial assets measured at amortised cost and provisions for commitments/classified active balance sheet items and classified off-balance sheet items c) Profitability (in %) Interest margin Financial intermediation margin Return on assets (ROA) before tax 0.57 (2.10) (0.89) Return on equity (ROE) before tax (31.89) (12.15) Return on equity (ROE) after tax (30.04) (11.23) d) Operating expenses (in %) Operating expenses/average assets Note: The indicators as at 30 June 2014 have been annualised, on a straight-line basis, considering six-month data. * In the period write-offs of receivables are not included. ** The number of shares is according to the records of the Slovenian Central Securities Clearing Corporation KDD. 1 Since the first half year 2014 the Deželna banka Slovenije Group ("Group") has included another subsidiary, Semenarna Ljubljana, d. d., which was consolidated as a Group company for the first time as at 30 June The consolidation of Semenarna resulted in significant increases in certain Group balance sheet items, and impacted the reported data and operating ratios for the first half year 2014, i.e. the figures reported as at 30 June

5 I.2. DEŽELNA BANKA SLOVENIJE d. d. 1. Statement of financial position (in EUR thousand) 30 June Dec Dec Total assets 850, , ,847 Total deposits by non-banking sector measured at amortised cost 693, , ,097 - Corporates 123, , ,289 - Retail 569, , ,808 Total loans to non-banking sector measured at amortised cost 630, , ,453 - Corporates 511, , ,457 - Retail 119, , ,996 Total equity 46,375 45,407 62,478 Impairments of financial assets measured at amortised cost, and provisions (85,318) (83,974) (63,935) Off-balance sheet operations (B.1. to B.4.) 80,492 65,678 64, Income statement (in EUR thousand) Net interest income 10,844 10,813 10,628 Net non-interest income* 2,713 2,665 2,760 Employee benefits cost, overhead and administrative expenses 7,299 7,322 8,072 Depreciation and amortisation Impairments and provisions 4,785 5,140 5,089 Profit/loss on ordinary activities before tax (1,750) Income tax on ordinary activities (127) (35) 0 3. Comprehensive income after tax (in EUR thousand) Total comprehensive income for the year after tax 968 (444) (1,020) 4. No. of employees (end of period) No. of employees Shares 30 June Dec Dec No. of shareholders No. of shares** 3,743,268 3,743,268 3,743,268 Par value (in EUR) Book value (in EUR) Selected indicators 30 June Dec Dec a) Capital adequacy ratio (in %) Capital (in EUR thousand) 52,154 50,749 65,886 b) Quality of assets and commitments (in %) - Impairments of financial assets measured at amortised cost and provisions for commitments/classified active balance sheet items and classified off-balance sheet items c) Profitability (in %) Interest margin Financial intermediation margin Return on assets (ROA) before tax 0.16 (2.27) (0.90) Return on equity (ROE) before tax 3.09 (32.03) (11.78) Return on equity (ROE) after tax 2.54 (28.40) (11.14) d) Operating expenses (in %) Operating expenses/average assets e) Liquidity (in %) Average liquidity assets/average short-term deposits by non-banking sector measured at amortised cost Average liquidity assets/average assets Note: The indicators as at 30 June 2014 have been annualised, on a straight-line basis, considering six-month data. * In the period write-offs of receivables are not included. ** The number of shares is according to the records of the Slovenian Central Securities Clearing Corporation KDD. 4

6 II. II.1. PROFILE OF THE BANK AND THE GROUP GENERAL INFORMATION ON THE BANK The Bank was incorporated at its founders meeting in Narodni dom in Celje on 18 January Through its continuing operations in the cooperative system, as well as through its cooperation with savings and loan undertakings, cooperatives, the agricultural and forestry sectors, and the wider agro-food sector, it has provided efficient financial support to their activities and development. At the same time, it has maintained its legal status of a joint stock company and conducted its operations in line with economic and banking principles. The Bank increased the scope of its operations and its market share. Operating with the required capital adequacy, the Bank has guaranteed its operations were safe, and has regularly monitored the development of banking operations, promptly introducing new banking and financial services and products. Until 30 June 2004 Slovenia s agricultural sector had been serviced by two financial institutions: agricultural cooperative bank Slovenska zadružna kmetijska banka d. d. Ljubljana, and the association of savings and loan undertakings Zveza hranilno kreditnih služb Slovenije, p. o. (referred to as ZHKS). In 2004 Slovenska zadružna kmetijska banka d. d. successfully acquired the assets and liabilities of ZHKS, and received a capital injection from ZHKS. After acquiring it and merging with it, the Bank changed its name from»slovenska zadružna kmetijska banka d. d. Ljubljana«to»Deželna banka Slovenije d. d.«. The Bank has made significant headway after the merger with respect to its development, operations growth, profitability, organisation, orderliness and information support, as well as with respect to its operational efficiency in general. By drawing fresh capital and allocating the generated profits, the Bank has been strengthening its capital structure ever since its incorporation. The last capital increase dates from 2007, when two share issues were placed on the market, worth EUR 35,981 thousand. In 2010 the Bank issued government-guaranteed bonds, and it has also been strengthening its capital structure by raising subordinated debt. The last issue of subordinated debt was in 2013, raising EUR 2.6 million. II.2. ID CARD OF THE BANK Firm name: Deželna banka Slovenije d. d. Short firm name: DBS d. d. Registered address: Kolodvorska ulica 9, 1000 Ljubljana, Slovenia Telephone: Fax: Website: info@dbs.si VAT identification no.: SI SWIFT: SZKBSI2X Company ID number: The company is registered at: District Court in Ljubljana Entry no. in the companies' register: 1/06238/00 Share (called-up) capital: EUR 15,786, No. of branches on 30 June 2014: 85 5

7 II.3. BANK MANAGEMENT BOARD AND SUPERVISORY BOARD Management Board In the first half of 2014 the Bank was run by a two-member Management Board with Sonja Anadolli as President of the Management Board, and Mojca Štajner as Member of the Management Board. Supervisory Board In the first half of 2014 the Bank s Supervisory Board was composed of: Peter Vrisk, Chair, Marjan Janžekovič, Deputy Chair, Ivan Lenart, Member, Nikolaj Maver, Member, and Primož Žerjav, Member. According to the share register operated by the Slovenian Central Securities Clearing Corporation KDD, the Member of the Bank Management Board held 20 shares of Deželna banka Slovenije d. d. as at 30 June 2014, which is % of the Bank's share capital, while the President of the Management Board and Supervisory Board members did not hold any shares in Deželna banka Slovenije d. d. II.4. CORNERSTONES OF THE FIRST HALF YEAR 2014 These were the more important activities in the Bank in the first half of 2014: The Bank injected new capital into its subsidiary DBS Leasing d. o. o. EUR 2,000 thousand in January and EUR 5,000 thousand in June. In January the Bank acquired Semenarna Ljubljana, d. d. and injected it with EUR 4,800 thousand of fresh capital, making the company its subsidiary. Between 24 February and 7 March external auditors Deloitte revizija, d. o. o., Ljubljana conducted the periodic operations audit of the Bank and its subsidiary DBS Leasing d. o. o. for In April the Bank founded a Croatian subsidiary, DBS Adria d. o. o., by means of a EUR 3 thousand capital injection. In June Deželna banka Slovenije d. d. held its 29 th Annual General Meeting. Also in June the Bank made an early repurchase of a proportion of its bond issue trading under DEZEL Float 06/15 (ISIN: XS ) on the Luxembourg Stock Exchange. The prematurely redeemed bonds in the total nominal value of EUR 2,050 thousand were cancelled from the Euroclear/Clearstream securities register and withdrawn from trading. 6

8 III. SUBSIDIARIES IN THE DEŽELNA BANKA SLOVENIJE GROUP Deželna banka Slovenije d. d. is the controlling company in the Deželna banka Slovenije Group. As at 30 June 2014 the Group included four subsidiaries: the leasing company DBS Leasing d. o. o. ("DBS Leasing"), the real estate company DBS Nepremičnine d. o. o., which trades in the Group's property ("DBS Nepremičnine"), the seed-producer Semenarna Ljubljana, proizvodnja in trgovina, d. d. ("Semenarna"), and the Croatia-based real estate company DBS Adria d. o. o. ("DBS Adria"). The Group s consolidated financial statements are drawn up by Deželna banka Slovenije d. d. Group organisation as at 30 June 2014 Status DBS's stake in % DBS d. d. Controlling company - DBS Leasing d. o. o. Subsidiary 100 DBS Nepremičnine d. o. o. Subsidiary 100 Semenarna Ljubljana, d. d. Subsidiary 96 DBS Adria d. o. o. Subsidiary 100 Semenarna has the following subsidiaries, all seed-producing companies: Sjemenarna Zagreb, Semenarna Beograd, Kalia Beograd, Semenarna Kosove and Semenarna Hungaria. They are all undergoing bankruptcy or winding-up procedures, and since the related investments have been fully impaired, Semenarna does not consolidated them. Performance indicators of the Group's subsidiaries for the first half year 2014 Company DBS Leasing d. o. o. DBS Nepremičnine d. o. o. Semenarna Lj., d. d. DBS Adria d. o. o. 30. June June June June June June June June 2013 Total assets (in EUR thousand) 20,289 31,377 9,518 9,346 33, Equity (in EUR thousand) 2,902 2,451 9,135 9,321 3, Profit/loss before tax (in EUR thousand) (979) (1,036) (95) (60) 2,613 - (0) - Income tax (in EUR thousand) Profit/loss after tax (in EUR thousand) (979) (1,036) (95) (60) 2, Return on assets (ROA) before tax (in %) (8.58) (5.43) (1.90) (0.64) Return on equity (ROE) before tax (in %) - (75.30) (2.07) (0.64) No. of employees Total assets/no. of employees (in EUR thousand) 2,254 3,

9 IV. FINANCIAL RESULT AND FINANCIAL POSITION A component part of the Group's consolidated financial statements for the six months to June 2014 are the statements of Semenarna, which have significantly increased certain balance sheet items compared to the first half year IV.1. FINANCIAL RESULT IV.1.1. DEŽELNA BANKA SLOVENIJE GROUP In the six months to June 2014 the Group reported EUR 2,471 thousand of profit after tax ( : EUR 1,014 thousand of loss). This is attributable to the Bank's reported profit, and especially to the good results of Semenarna, which the Bank acquired in January. Subsidiaries DBS Leasing and DBS Nepremičnine, on the other hand, ended the period with a loss. The share of profit for the period belonging to minority shareholders, who hold a minority interest in Semenarna, totalled EUR 103 thousand. The majority of interest income results from the Bank's operations, including loans, borrowings, deposits and securities. The Group's net interest income totalled EUR 10,209 thousand, down EUR 268 thousand from the same period last year. The consolidation of subsidiaries into Group statements has increased financing expenses and decreased net interest income by EUR 635 thousand. The figure includes EUR 351 thousand of interest expenses for liabilities with Semenarna's creditors after the consolidation, disregarding its liabilities with the Bank. The majority of fees and commissions refer to the operations of the Bank. The consolidation of Semenarna has upped fee and commission expense by EUR 450 thousand, referring mainly to financial services and payment transaction services. The Group's net fee and commission income amounted to EUR 2,425 thousand, down EUR 277 thousand from a year earlier. Net gains on the derecognition of assets other than non-current assets available for sale totalled EUR 6,977 thousand ( : EUR 13 thousand). After the consolidation this item now also includes Semenarna's sales revenues as non-financial income, and costs of material; EUR 19,035 thousand of revenues were included under gains, and EUR 12,040 thousand of expenses under losses, the net effect of which is EUR 6,995 thousand. Other net operating gains totalled EUR 201 thousand ( : EUR 82 thousand). Impairments against loans and other assets resulted in EUR 4,908 thousand of net expenses, down EUR 715 thousand compared to the same period last year. The consolidation of Semenarna in Group statements has upped loan impairments by EUR 88 thousand. Net provision expenses for off-balance sheet liabilities totalled EUR 57 thousand, an increase by EUR 108 thousand compared to the same period last year. IV.1.2. DEŽELNA BANKA SLOVENIJE d. d. In the six months to June 2014 the Bank's operations results improved compared to the same period in The realised operating profit before impairments and provisions, and before tax, totalled EUR 5,498 thousand ( : EUR 5,262 thousand). After impairments and provisions profit before tax amounted to EUR 713 thousand, profit after tax totalling EUR 586 thousand ( : EUR 87 thousand). Comprehensive income also improved, amounting to EUR 968 thousand ( : EUR 444 thousand of comprehensive loss). 8

10 Net interest income amounted to EUR 10,844 thousand, an increase by EUR 31 thousand from the same period last year. Interest income from retail loans and loans to the government was up, with interest income from corporate loans and from securities down. Net fee and commission income totalled EUR 2,874 thousand in the six months, up EUR 184 thousand compared to Fee and commission expense was down EUR 64 thousand, mainly due to the lower commission for the Republic of Slovenia guarantees on issued bonds. This was the result of the Bank's early delisting of a proportion of it bonds issue. 2 Net impairments amounted to EUR 4,873 thousand, a slight decrease compared to the same period the previous year ( : EUR 5,184 thousand). The majority of impairments against loans refer to corporate loans. Reversed provisions for off-balance sheet liabilities contributed EUR 88 thousand of net income ( : EUR 44 thousand). The investment in DBS Leasing was impaired by EUR 248 thousand net. Other net operating losses totalled EUR 261 thousand ( : EUR 304 thousand).the majority of operating gains is represented by denationalisation income, in the amount of EUR 213 thousand, and leases, which total EUR 111 thousand. Operating losses amounted to EUR 645 thousand, and constituted of EUR 261 thousand of charged balance sheet tax and EUR 277 thousand of financial services tax. By cutting costs the Bank improved the cost efficiency of its operations in the first half of the year, reporting EUR 8,059 thousand of operating costs, down EUR 157 thousand from The largest item in this segment is employee benefits cost, which amounted to EUR 5,045 thousand in the first six months, up EUR 109 thousand compared to the first half of 2013, mainly on account of the slight increase in employee numbers. The second largest item under operating costs is the costs of materials and services, which were down EUR 132 thousand to EUR 2,254 thousand. Depreciation and amortisation costs are slightly decreasing: at EUR 760 thousand in the first half year they were down EUR 134 thousand from IV.2. FINANCIAL POSITION IV.2.1. DEŽELNA BANKA SLOVENIJE GROUP The Group's total assets amounted to EUR 891,193 thousand at the end of June 2014, an increase by EUR 21,623 thousand since the beginning of the year. The total assets of subsidiaries amounted to EUR 63,409 thousand, and represent 7.1% of the Group's total assets (31 December 2013: 4%). After the elimination of inter-company relationships, the Group's total assets exceed the Bank's total assets by EUR 40,311 thousand, i.e. by 4.7%. The consolidation of Semenarna has increased Group assets by EUR 32,260 thousand. Loans and advances at Group level amounted to EUR 641,875 thousand at the end of June, down EUR 3,881 thousand, with loans and advances to banks up EUR 7,722 thousand to EUR 9,288 thousand, and loans and advances to customers (including the government) down EUR 14,870 thousand to EUR 628,314 thousand. The consolidation of Semenarna has increased loans and advances at Group level by 2,498 thousand, mainly attributable to trade receivables. Property, plant and equipment at Group level increased significantly with the consolidation of Semenarna, by EUR 19,264 thousand, their carrying amount as at 30 June 2014 totalling EUR 33,157 thousand. This increase was reflected in higher depreciation and amortisation costs. 2 In the second half of 2013 and in June 2014 the Bank made an early delisting of bonds in total nominal value of EUR 26,550 thousand. 9

11 Due to the consolidation process, investments decreased by EUR 16,322 thousand of long-term investments in subsidiaries. Semenarna's goodwill, totalling EUR 2,767 thousand, was included under intangible assets. Consolidation resulted in a major increase of the item Other Assets, which totalled EUR 37,654 thousand as at 30 June 2014, to which the consolidation of DBS Leasing and DBS Nepremičnine contributed EUR 19,657 thousand worth of real estate inventories. The consolidation of Semenarna increased the inventories of materials by EUR 6,819 thousand. Financial liabilities measured at amortised cost (including deposits, loans, bonds, certificates of deposit, subordinated liabilities and other financial liabilities) were up EUR 66,708 thousand and amounted at the end of June to EUR 837,992 thousand. The consolidation of Semenarna increased the Group's liabilities measured at amortised cost by EUR 28,212 thousand, which includes financing sources outside the Group borrowings from banks and trade payables. Deposits and borrowings from banks were up EUR 11,120 thousand by the end of June, to EUR 44,218 thousand. Deposits from customers, including government deposits (but excluding bonds, certificates of deposit and subordinated liabilities) totalled EUR 693,381 thousand, while borrowings from customers totalled EUR 1,477 thousand at the end of June, an increase by this same amount. IV.2.2. DEŽELNA BANKA SLOVENIJE d. d. The Bank's total assets at the end of June 2014 amounted to EUR 850,882 thousand, down EUR 5,112 thousand, or 1%. The decrease was mainly due to the lower requirements of the European Central Bank (ECB). Corporate and government deposits were down EUR 5,571 thousand in the six months, mainly attributable to lower government deposits, with corporate deposits up EUR 1,562 thousand, mainly due to the increase in long-term deposits by non-financial institutions (up EUR 2,361 thousand) and short-term deposits by other financial institutions (up EUR 2,284 thousand). Under investments, loans and advances in this segment were down EUR 23,310 thousand, with loans to the government down EUR 3,210 thousand, and corporate loans down EUR 20,100 thousand. This was mainly due to the decrease in short- and long-term loans to non-financial institutions, which were down EUR 16,161 thousand. Retail deposits increased by EUR 53,176 thousand in the first half of the year, chiefly due to subsidies 3. Retail loans were up EUR 7,267 thousand, mainly attributable to the increase in longterm loans to individuals (up EUR 3,186 thousand) and to sole traders (up EUR 4,380 thousand). Under liabilities, deposits and borrowings from banks decreased by EUR 3,869 thousand, and liabilities with the central bank by EUR 50,645 thousand 4. Under investments, deposits with the central bank were down EUR 31,027 thousand and deposits with banks up EUR 7,677 thousand. Securities investments were up EUR 19,776 thousand in the reported period, mainly attributable to the increase in securities held to maturity. 3 Inflows from subsidies totalled EUR 83,406 thousand. 4 At its June 2014 meeting, the Governing Council of the ECB lowered the main refinancing interest rate to 0.15%, eliminated fine-tuning operations with which the Bank used to adjust its excess liquidity, and introduced the negative interest rate of 0.10% on all reserve holdings in excess of the minimum reserve requirements. For this reason, on 18 June 2014 the Bank had prematurely repaid the EUR 50 million borrowing under a long-term refinancing operation. 10

12 The Bank's investments in the subsidiaries DBS Leasing, DBS Nepremičnine, Semenarna and DBS Adria, totalled EUR 16,322 thousand in the first half of the year, an increase by EUR 7,092 thousand; the value of the investment in Semenarna was up EUR 3,456 thousand and the investment in DBS Adria up EUR 3 thousand. The investment in DBS Leasing was up EUR 3,633 thousand and amounted to EUR 3,633 thousand at the end of June Risk off-balance sheet items (guarantees, letters of credits, unspent granted loans, limits) totalled EUR 80,492 thousand at the end of June 2014, up 23% since the beginning of the year. IV.3. SHAREHOLDERS EQUITY As at 30 June 2014 shareholders equity amounted to EUR 46,375 thousand, up EUR 968 thousand compared to the year-end of Unaudited share book value as at 30 June 2014 amounted to EUR It is calculated as follows: own shares are deduced from share capital, and the resulting amount is divided by the number of shares recorded in the KDD securities register, less own shares. The Bank s ten largest shareholders according to the KDD securities register as at 30 June 2014 Shareholder Number of shares Stake in %, considering all shares recorded in KDD Kapitalska zadruga, z. b. o., Ljubljana 1,734, KD Kapital d. o. o., Ljubljana 377, Banca Popolare di Cividale S.C.p.A., Cividale del Friuli 210, ČZD Kmečki glas, d. o. o., Ljubljana 200, SRC.SI d. o. o., Ljubljana 188, KB1909 S.p.A., Gorizia 185, KD Group d. d., Ljubljana 179, Zadružna zveza Slovenije, z.o. o., Ljubljana 131, Adriatic Slovenica d. d. Koper, Kritno premoženje 88, Zveza bank RZZOJ, Celovec 82, Total 3,375, The Bank's share capital amounts to EUR 15,786, and is divided into 3,783,000 ordinary no par value shares of the same class. The KDD securities register has on record 3,772,235 no par value DBS shares. The different numbers are due to the fact that certain shareholders have not yet changed their paper stock into dematerialised securities. As at 30 June 2014 the Bank held 28,967 repurchased own shares, which is 0.77% of all issued shares. IV.4. OWN FUNDS AND CAPITAL ADEQUACY As at 30 June 2014 the Group s 5 own funds totalled EUR 51,894 thousand, down EUR 247 thousand from 31 December 2013 when they amounted to EUR 52,141 thousand. The calculation of own funds as at 30 June 2014 involved the following deduction items from common equity tier 1 capital: a total of EUR 671 thousand worth of own shares, EUR 245 thousand of the Group's loss, EUR 6 1,066 thousand worth of intangible assets, and EUR Prudential consolidation includes DBS d. d., DBS Leasing d. o. o. and DBS Nepremičnine d. o. o. 6 They are deduced from common equity tier 1 capital in full because the Bank does not have additional tier 1 capital. 7 In 2014 they are being deduced from common equity tier 1 capital at the rate of 20% (EUR 3,472 thousand) in 2015 they will be at the rate of 40%, in 2016 at the rate of 60%, and in 2017 at the rate of 80%. 11

13 thousand of deferred tax assets related to future profits and not arising out of temporary differences. As at 30 June 2014 the investment in DBS Adria d. o. o. totalled EUR 3 thousand. It was not included in prudential consolidation and was not deduced from own funds due to a threshold exemption under Article 48 of the Regulation. This investment was therefore included in the calculation of the capital requirement for credit risk. The Group's capital adequacy as at 30 June 2014 was 10.55%. The Bank s own funds as at 30 June 2014 amounted to EUR 52,154 thousand, up EUR 1,405 thousand from 31 December 2013, when they totalled EUR 50,749 thousand. The largest increase in own funds at the half year compared to the year-end of 2013 was due to excess qualifying holdings outside the financial sector; the Bank had to deduce EUR 1,407 thousand of these holdings from own funds on 31 December 2013, and as at 30 June 2014 it no longer reports them. The calculation of own funds as at 30 June 2014 involved the following deduction items from common equity tier 1 capital: a total of EUR 671 thousand worth of own shares, EUR 1,031 thousand worth of intangible assets, and EUR 694 thousand of deferred tax assets related to future profits and not arising out of temporary differences. The Bank's profit in the amount of EUR 586 thousand was not included in the calculation as it was unaudited. The investment in DBS Leasing d. o. o. totalled EUR 3,633 thousand as at 30 June 2014; consistent with Article 2(49) of the Regulation it was not deduced from own funds, but was included in the calculation of the capital requirement for credit risk. The investment in DBS Nepremičnine d. o. o. totalled EUR 9,230 thousand as at 30 June 2014; consistent with the provisions of Article 4(1) and 4(18) of the Regulation, DBS Nepremičnine is considered an ancillary services undertaking and therefore one of the financial sector entities under Article 4(1) and 4(27c) of the same. In the calculation of own funds and capital requirements for credit risk, Article 2(49) of the Regulation applies to DBS Nepremičnine the same as to DBS Leasing. As at 30 June 2014 the investment in DBS Adria d. o. o. was the same, and with respect to own funds and capital requirements treated in the same manner as at the level of the entire Group. At the end of June the Bank's capital adequacy was 10.31%. IV.5. RISK MANAGEMENT In the first half of 2014 the Bank's risk management focused to a large extent on monitoring and managing credit risk. The severe economic situation forced the Bank to adopt a series of measures to offset the negative effects on its operations results. It was thus very careful in granting funds to new customers, while it mitigated potential risks related to existing customers by obtaining additional collateral and applying diligent supervision. With respect to market risk, the Bank limited its investments especially in the domestic market, which keeps stagnating and does not follow global trends, and it remained a cautious investor for the most part of the first half year in developed foreign markets as well. The Bank s investment activities are increasing the portfolio of government bonds with good credit ratings. Exposure to foreign exchange risk is low. Interest rate risk was monitored applying the Bank s in-house system, and it was managed by complying with the policy of closing interest rate gaps. The largest interest rate gap remains the 6-month Euribor, since the majority of the Bank s assets depend on this key interest rate. The Bank calculates its internal capital requirements for the purpose of offsetting unexpected losses due to interest rate risk in the banking book on a monthly basis, in compliance with its internal 12

14 methodology. Interest rate risk was under control, as the calculated risk-based capital requirement never exceeded 2% of the Bank's capital in the six-month period. The Bank s liquidity situation was good in terms of the liquidity ratio and stress test survival, with the critical limit being defined internally at one-month's survival. Liquidity reserves are substantially higher from liquidity shortages in liquidity stress scenarios. In addition to stress testing, the primary purpose of which is to establish the operative liquidity coverage, the Bank calculates certain structural liquidity risk ratios in order to determine its structural liquidity position. In monitoring structural liquidity risk ratios the Bank watches trends and monitors their movement relative to the limits set for the respective ratios in the system of limits. 13

15 B. FINANCIAL STATEMENTS 14

16 MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Management Board hereby approves the financial statements of the Deželna banka Slovenije Group for the half year ended 30 June The Management Board hereby reaffirms their responsibility for the Interim Report, which gives a true and fair presentation of the Group s financial standing as at 30 June 2014, and of its operations results for the half year ended on the same day. The Bank's Management Board confirms that suitable accounting policies were consistently adhered to, and that accounting estimates were conducted in accordance with fair value. The financial statements were drawn up on the assumption of going concern and in accordance with the legislation and stipulations of International Financial Reporting Standards as adopted by the European Union. The Management Board is responsible for the appropriate management of accounts, for the adoption of the measures required to safeguard company assets, and for the detection and prevention of fraud and other irregularities and illegal activities. The Tax Authority may conduct a tax inspection of the current reporting period at any time within the following five years, and in this connection impose additional tax assessments and penalties. The Management Board knows of no circumstances that could give rise to a potential material liability in this regard. Ljubljana, 28 July

17 I. CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE HALF YEAR ENDED 30 JUNE 2014 in EUR thousand Code Items Interest income 16,833 17,871 2 Interest expense 6,624 7,394 3 Net interest income (1-2) 10,209 10,477 4 Dividends Fee (commission) income 3,920 3,826 6 Fee (commission) expense 1,495 1,124 7 Net fee (commission) income (5-6) 2,425 2,702 8 Realised gains/losses from financial assets and liabilities not measured at fair value through profit or loss Net gains (losses) from financial assets and liabilities held for trading Foreign exchange translation (79) (8) 11 Net gains/losses on derecognition of assets other than non-current assets held for sale 6, Other net operating gains/losses Administrative expenses 10,914 7, Depreciation and amortisation 1,373 1, Provisions 57 (51) 16 Impairment charge 4,908 5, PROFIT/LOSS FROM CONTINUOUS OPERATIONS BEFORE TAX ( ) 2,598 (979) 18 Tax PROFIT/LOSS FROM CONTINUOUS OPERATIONS AFTER TAX (17-18) 2,471 (1,014) 20 PROFIT/LOSS FOR THE YEAR (19) 2,471 (1,014) a) Attributable to owners of the parent 2,368 (1,014) b) Attributable to non-controlling interests The accompanying notes form an integral part of these financial statements. UNAUDITED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2014 in EUR thousand Code Items PROFIT/LOSS FOR THE YEAR AFTER TAX 2,471 (1,014) 2 OTHER COMPREHENSIVE INCOME AFTER TAX (3) 382 (531) 3 ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS ( ) 382 (531) 3.1 Net gains/losses in revaluation surplus, associated with available-for-sale financial assets ( ) 460 (625) Gains/losses in revaluation surplus 460 (639) Transferred to profit/loss Tax on items that may be reclassified to profit or loss (78) 94 4 TOTAL COMPREHENSIVE INCOME FOR THE YEAR AFTER TAX (1 + 2) 2,853 (1,545) a) Attributable to owners of the parent 2,750 (1,545) b) Attributable to non-controlling interests The accompanying notes form an integral part of these financial statements. 16

18 UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 in EUR thousand Code Items 30 June Dec Cash and balances at central bank 21,248 49,831 2 Financial assets held for trading Available-for-sale financial assets 26,391 30,151 4 Loans and advances 641, ,756 - Loans and advances to banks 9,288 1,566 - Loans and advances to customers 628, ,184 - Other financial assets 4,273 1,006 5 Held-to-maturity investments 114,183 91,047 6 Non-current assets held for sale, and discontinued operations 1, Property, plant and equipment 33,157 14,541 8 Investment property 4,181 3,881 9 Intangible assets 4,145 1, Income tax assets 5,883 5,597 - Deferred tax assets 5,883 5, Other assets 37,654 26, TOTAL ASSETS (from 1 to 11) 891, , Financial liabilities with central bank 0 50, Trading liabilities Financial liabilities measured at amortised cost 837, ,284 - Deposits by banks Deposits by customers 693, ,811 - Borrowings from banks 43,698 32,184 - Borrowings from customers 1, Debt securities 73,288 75,245 - Subordinated liabilities 14,462 14,541 - Other financial liabilities 11,166 2, Provisions 2,247 1, Income tax liabilities Current tax liabilities Deferred tax liabilities Other liabilities 1, TOTAL LIABILITIES (from 13 to 18) 842, , Share capital 15,786 15, Share premium 28,915 28, Revaluation surplus 1, Revenue reserves Own interest (683) (671) 25 Retained earnings (including profit/loss for the year) 2, EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT (from 20 to 25) 48,329 45, Equity attributable to non-controlling interests TOTAL EQUITY ( ) 48,461 45, TOTAL EQUITY AND LIABILITIES ( ) 891, ,570 The accompanying notes form an integral part of these financial statements. 17

19 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2014 Equity attributable to owners of the parent Equity attributable to non-controlling in EUR thousand Share Share Revaluation Retained earnings Revenue (including profit/loss Own interest Total equity Code Items capital premium surplus reserves for the year) (deduction) (from 3 to 8) interests (9 + 10) OPENING BALANCE FOR THE PERIOD 15,786 28, (671) 45, ,434 2 Comprehensive income for the year (net of tax) , , ,853 3 Other (12) CLOSING BALANCE FOR THE PERIOD ( ) 15,786 28,915 1, ,552 (683) 48, ,461 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2013 in EUR thousand Equity attributable Retained earnings Own to owners of Total Code Items Share capital Share premium Revaluation surplus Revenue reserves (including profit/loss for the year) interest (deduction) the parent (from 3 to 8) equity (9) OPENING BALANCE FOR THE PERIOD 15,786 38, , (671) 62,529 62,529 2 Comprehensive income for the year (net of tax) 0 0 (531) 0 (1,014) 0 (1,545) (1,545) 3 CLOSING BALANCE FOR THE PERIOD (1 + 2) 15,786 38,930 (75) 7,977 (963) (671) 60,984 60,984 The accompanying notes form an integral part of these financial statements. 18

20 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE HALF YEAR ENDED 30 JUNE 2014 in EUR thousand Code Items 30 June June 2013 A. CASH FLOWS FROM OPERATING ACTIVITIES a) Interest received 20,500 21,475 Interest paid (7,857) (8,063) Dividends received 0 10 Fee and commission received 3,920 3,829 Fee and commission paid (1,495) (1,126) Realised gains on financial assets and liabilities not measured at fair value through profit or loss Realised losses on financial assets and liabilities not measured at fair value through profit or loss (6) (9) Net trading income Cash payments to employees and suppliers (13,836) (8,274) Other income Other expenses (773) (595) Cash flows from operating activities before changes in operating assets and liabilities 1,403 8,254 b) (Increases)/decreases in operating assets (no cash equivalents) 21,500 (22,726) Net (increase)/decrease in financial assets held for trading (433) 33 Net (increase)/decrease in available-for-sale financial assets 3,752 19,069 Net (increase)/decrease in loans and advances 7,808 (42,705) Net (increase)/decrease in other assets 10, c) Increases/(decreases) in operating liabilities (19,058) (24,534) Net increase/(decrease) in liabilities with central bank (50,000) 0 Net increase/(decrease) in trading liabilities Net increase/(decrease) in deposits and borrowings measured at amortised cost 30,267 (18,848) Net increase/(decrease) in issued debt securities measured at amortised cost (1,951) (5,601) Net increase/(decrease) in other liabilities 2,183 (104) č) Cash flows from operating activities (a + b + c) 3,845 (39,006) d) Income taxes (paid)/received 0 90 e) Net cash from operating activities (č + d) 3,845 (38,916) B. CASH FLOWS FROM INVESTING ACTIVITIES a) Investing inflows 24,070 33,510 Proceeds from sale of property, plant and equipment, and investment property Proceeds from sale of held-to-maturity investments 24,000 32,980 b) Investing outflows (48,095) (29,997) (Purchase of property, plant and equipment, and investment property) (930) (193) (Purchase of intangible long-term assets) 0 (3) (Investments into associates, joint ventures and subsidiaries) (3) 0 (Purchase of held-to-maturity investments) (47,162) (29,801) c) Net cash from investing activities (a - b) (24,025) 3,513 D. Effects of exchange rates on cash and cash equivalents (34) (21) E. Net increase in cash and cash equivalents (Ae + Bc) (20,180) (35,403) F. Opening balance of cash and cash equivalents 50,750 47,944 G. Closing balance of cash and cash equivalents (D + E + F) 30,536 12,520 The accompanying notes form an integral part of the consolidated financial statements. The Management Board of Deželna banka Slovenije d. d. hereby approves the consolidated financial statements and the notes to the statements. Ljubljana, 28 July

21 II. SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial statements for the first half year 2014 were drawn up using the same accounting policies as for the 2013 annual report. Financial statements have been prepared under IFRS as adopted by the EU. The policies set out below were consistently applied in the financial statements for all the periods presented. Financial statements were prepared under the historical cost convention, as adjusted to the valuation of available-for-sale financial assets, investment property, and financial assets and liabilities measured at fair value through profit or loss. The 2014 consolidation of the acquired company Semenarna has temporarily been conducted under the simplified approach using carrying amounts, for the purpose of the Group's interim statements as of 30 June The Interim Report of Deželna banka Slovenije d. d. and the Deželna banka Slovenije Group for the First Half Year 2014 is unaudited. III. SEGMENT ANALYSIS Equity and liabilities, and investments are allocated into business segments as they were obtained or made, and the relevant interest and non-interest income and expense is recognised in the same way. Opportunity income and expense is allocated into segments using transfer pricing. Income effects among business segments were calculated using inter-company methodologies for the transfer of assets and overheads (indirect costs). Tax assets and liabilities are not allocated into segments and are given at Group level. There is no separate account of operations analysis according to geographical segments. The main geographical segment is Slovenia, which is where the Group generates the vast majority of its revenue. The Group is organised into three business divisions (segments): Corporate banking: lending, guarantees and documents, deposits for companies and organisations, transactional accounts, payments. Retail banking: lending, transactional accounts for individuals, sole traders, non-profit institutions serving households, and foreign entities, limits (overdrafts), bank cards, payments and ATM operations, foreign exchange, deposits, and savings. Financial markets: the Bank's liquidity management, trading in financial instruments, investment banking, operations with other banks. The Group's administrative, IT and banking technology activities are allocated into the relevant business segments, while the business of Semenarna, leasing operations and real estate transactions are reported under the item Other. 20

22 Balance at 30 June 2014 in EUR thousand Financial markets Retail banking Corporate banking Other Total Net income from customers* 4,001 2,711 6,845 6,293 19,850 Segment result (1,856) 3,583 (1,014) 1,885 2,598 Operating profit 2,598 Gross profit 2,598 Tax (127) Net profit 2,471 Segment assets 329, , ,709 66, ,726 External assets ,467 31,467 Total assets 329, , ,709 97, ,193 Segment liabilities 94, , ,347 47, ,837 External liabilities ,895 5,895 Total liabilities 94, , ,347 53, ,732 Depreciation and amortization ,373 Net impairment charges and provisions 250 (49) 1,217 3,547 4,965 * Includes: Interest income 5,718 4,335 6,829 (49) 16,833 Interest expense (1,296) (3,883) (859) (586) (6,624) Fee and commission income 72 2,737 1, ,920 Fee and commission expense (452) (559) (14) (470) (1,495) Realized gains/losses from financial assets and liabilities not measured at fair value through profit or loss Net gains/losses from financial assets and liabilities held for trading Foreign exchange translation (17) - - (62) (79) Net gains/losses from derecognition of assets other than non-current assets held for sale ,977 6,977 Other net operating gains/losses (75) 20 (206) Balance at 30 June 2013 in EUR thousand Financial markets Retail banking Corporate banking Other Total Net income from customers* 3,734 2,035 7, ,561 Segment result (2,002) 3,990 (1,866) (1,101) (979) Operating loss (979) Gross loss (979) Tax (35) Net loss (1,014) Segment assets 304, , ,070 64, ,387 External assets ,759 23,759 Total assets 304, , ,070 88, ,146 Segment liabilities 151, , ,129 33, ,403 External liabilities ,080 4,080 Total liabilities 151, , ,129 37, ,483 Depreciation and amortization ,230 Net impairment charges and provisions , ,572 * Includes: Interest income 5,553 4,100 8, ,871 Interest expense (1,461) (4,356) (1,081) (496) (7,394) Dividends Fee and commission income 73 2, ,826 Fee and commission expense (604) (474) (11) (35) (1,124) Realized gains/losses from financial assets and liabilities not measured at fair value through profit or loss 283 (6) Net gains/losses from financial assets and liabilities held for trading (18) Foreign exchange translation (17) (8) Net gains/losses from derecognition of assets other than non-current assets held for sale Other net operating gains/losses (85) 17 (236)

23 IV. RELATED PARTY TRANSACTIONS In the half-year period ended 30 June 2014, the Group did not enter into any transactions with related parties under market conditions different than ordinary. 22

24 V. FINANCIAL STATEMENTS OF DEŽELNA BANKA SLOVENIJE D. D. UNAUDITED INCOME STATEMENT FOR THE HALF YEAR ENDED 30 JUNE 2014 in EUR thousand Code Items Interest income 16,882 17,711 2 Interest expense 6,038 6,898 3 Net interest income (1-2) 10,844 10,813 4 Dividends Fee (commission) income 3,899 3,779 6 Fee (commission) expense 1,025 1,089 7 Net fee (commission) income (5-6) 2,874 2,690 8 Realised gains/losses from financial assets and liabilities not measured at fair value through profit or loss Net gains (losses) from financial assets and liabilities held for trading Foreign exchange translation (17) (17) 11 Net gains/losses on derecognition of assets other than non-current assets held for sale Other net operating gains/losses (261) (304) 13 Administrative expenses 7,299 7, Depreciation and amortisation Provisions (88) (44) 16 Impairment charge 4,873 5, PROFIT/LOSS FROM CONTINUOUS OPERATIONS BEFORE TAX ( ) Tax PROFIT/LOSS FROM CONTINUOUS OPERATIONS AFTER TAX (17-18) PROFIT/LOSS FOR THE YEAR (19) in EUR 21 Basic profit/loss per share Diluted profit/loss per share The accompanying notes form an integral part of these financial statements. UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2014 in EUR thousand Code Items PROFIT/LOSS FOR THE YEAR AFTER TAX OTHER COMPREHENSIVE INCOME AFTER TAX (3) 382 (531) 3 ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS ( ) 382 (531) 3.1 Net gains/losses in revaluation surplus, associated with available-for-sale financial assets ( ) 460 (625) Gains/losses in revaluation surplus 460 (639) Transferred to profit/loss Tax on items that may be reclassified to profit or loss (78) 94 4 TOTAL COMPREHENSIVE INCOME AFTER TAX (1 + 2) 968 (444) The accompanying notes form an integral part of these financial statements. 23

25 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 in EUR thousand Code Items 30 June Dec Cash and balances at central bank 19,023 49,830 2 Financial assets held for trading Available-for-sale financial assets 26,391 30,151 4 Loans and advances 641, ,805 - Loans and advances to banks 9,243 1,566 - Loans and advances to customers 630, ,727 - Other financial assets 1, Held-to-maturity investments 114,183 91,047 6 Non-current assets held for sale, and discontinued operations Property, plant and equipment 12,461 12,810 8 Investment property 2,824 1,845 9 Intangible assets 1,031 1, Long-term equity participation in subsidiaries, associates and joint ventures, accounted for using the equity method 16,322 9, Income tax assets 5,817 5,597 - Deferred tax assets 5,817 5, Other assets 10,773 4, TOTAL ASSETS (from 1 to 12) 850, , Financial liabilities with central bank 0 50, Trading liabilities Financial liabilities measured at amortised cost 801, ,663 - Deposits by banks Deposits by customers 693, ,810 - Borrowings from banks 15,290 18,721 - Debt securities 73,288 75,245 - Subordinated liabilities 14,462 14,541 - Other financial liabilities 4,692 2, Provisions 1,549 1, Income tax liabilities Current tax liabilities Deferred tax liabilities Other liabilities TOTAL LIABILITIES (from 14 to 19) 804, , Share capital 15,786 15, Share premium 28,915 28, Revaluation surplus 1, Revenue reserves Own interest (671) (671) 26 Retained earnings (including profit/loss for the year) TOTAL EQUITY (from 21 to 26) 46,375 45, TOTAL EQUITY AND LIABILITIES ( ) 850, ,994 The accompanying notes form an integral part of these financial statements. 24