JSC TRASTA KOMERCBANKA INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001

Transcription

1 JSC TRASTA KOMERCBANKA INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001

2 CONTENTS PAGE Management's report 3 Statement of executive management responsibilities 4 Management of the Bank 5 Independent auditors report 6 Financial statements: Income statements 7 Balance sheets 8 Off-balance sheet items 9 Statements of changes in shareholders' equity and reserves 10 Statements of cash flows 11 Notes to the financial statements

3 MANAGEMENT'S REPORT Another financial year of the Bank has ended, and we note with satisfaction the fact of its success. In the beginning of the year, the Bank elaborated its strategy for the period in which short-term and long-term objectives and tasks were determined. Results achieved in the first year prove that the Bank has achieved its short-term objectives - active work to develop services related to updating the bank s client base and attraction of new clients, the structure of workers of the Bank has been advanced and, as a result of the Bank s 8-th equity issue, the authorized paid capital increased to thousand lats. In 2001 as a result of development, the Bank s assets have increased 2,4 times and deposits 3,7 times. The program of medium sized and small enterprise lending, as well as our corporate clients lending has successfully begun, therefore the volume of loans granted by the Bank has increased 10 times, while maintaining the most stringent requirements and following the principle of prudency in distribution of credit resources. The Bank has completed the 2001 financial year with a profit of 24 thousand lats. Taking into account the position occupied by the Bank in the Latvian banking system and 2001 as a year of reorganization at the Bank, and resumption of complete activity, this result is evaluated positively and allows us to be sure of ourselves hereafter will be a year of updating information technologies at the Bank, thus satisfying the highest demands of our clients and offering high quality Bank services. The Bank will continue working on achievement of the purposes stated in our strategy. On behalf of the management of the Bank, we would like to thank our clients and partners and assure you that the Bank will apply its best efforts to meet your demands and wishes. We also wish to thank our shareholders and employees for their support and understanding. On behalf of the Bank s management: Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 3

4 STATEMENT OF EXECUTIVE MANAGEMENT RESPONSIBILITIES The management of Ltd Trasta Komercbanka is responsible for this annual report that was prepared, based on the primary accounting records of the Bank for the reporting period. The primary accounting records of the Bank reflect the true financial situation of the Bank as of the end of the reporting period, as well as its operational results and cash flows for the period. Herein, the management of the Bank confirms that relevant principles have been consistently applied, and that financial statements for the period January 1, 2001 to December 31, 2001, that are included in this annual report on pages 1 through 35, were prepared, using reasonable judgements and calculations. Management confirms that International Accounting Standards were applied and that financial statements of the Bank were prepared, based on the going-concern principle. Management of the Bank has the responsibility for the accuracy of the accounting records, for diligent maintenance of the Bank s assets, as well as avoiding fraud and other offences. The management also has the responsibility for all the operations of the Bank being in compliance with the Law on Credit Institutions of the Republic of Latvia and other applicable legislation in the Republic of Latvia, as well as the regulations of the Bank of Latvia and the Finance and Capital Market Commission. On behalf of the management, Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 4

5 MANAGEMENT OF THE BANK Supervisory Council of Shareholders Alfrēds Čepānis Gaidis Bērziņš Charles Edward Treherne Boriss Grigs Roman Cimmer Chairman of the Council Member of the Council Member of the Council Member of the Council Member of the Council In conformity with a resolution of the shareholders` meeting dated March 16, 2001, Vilnis Vītoliņš, Astamur Gubaz and Buhuslav Sekerka have been released from their positions as members of the Council, and Gaidis Bērziņš, Charles Edward Treherne and Roman Cimmer have been elected. Board of Management Gundars Grieze Māris Fogelis Igors Buimisters Sergejs Tarasenoks Svetlana Krasovska Chairman of the Board, President First vice-chairman of the Board Vice-chairman of the Board Vice-chairman of the Board Member of the Board In conformity with a resolution of the shareholders` meeting dated March 16, 2001, Aldis Reims and Uģis Krūmiņš have been released from their positions as members of the Board. On behalf of the management, Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 5

6 INDEPENDENT AUDITORS' REPORT To the shareholders of a/s "Trasta Komercbanka": We have audited the accompanying balance sheet of a/s "Trasta Komercbanka" (the Bank) as of December 31, 2001 and the related statements of profit and loss, changes in equity, and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Bank as of and for the year ended December 31, 2000, were audited by another auditor, whose report dated March 13, 2001 expressed an unqualified opinion on these financial statements. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2001 and the results of its operations and cash flows for the year then ended in accordance with International Accounting Standards, the requirements of the Financial and Capital Market Commission and other regulations of the Republic of Latvia. Deloitte & Touche Riga, Latvia March 15,

7 INCOME STATEMENTS In thousands of lats Notes months 12 months Interest income Interest expense 4 (191) (143) Net interest income Income on securities Fees and commission income Fees and commission expense 7 (87) (60) Net gain/(loss) on financial instruments trading (88) Other operating income 10 9 Net operating income Administrative expenses 9 (1 043) (868) Depreciation and value adjustment of assets and intangibles 20 (139) (139) Other operating expenses 10 (22) (23) Provisions for doubtful debts and off balance sheet liabilities 11 (2) (20) Income from release of specific provisions Profit on revaluation of long-term financial investments Profit before taxation Corporate income tax PROFIT FOR THE YEAR EARNINGS PER SHARE (LVL) The notes are an integral part of these financial statements. The financial statements on pages 1 to 35 were approved by the Board of Directors on 18 March 2002 and by the Supervisory Council on 21 March 2002 and signed on their behalf by: Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 7

8 BALANCE SHEETS In thousands of lats Notes ASSETS Cash and balances due from the Bank of Latvia Due from credit institutions and central banks on demand other claims Loans, net Debt securities and other fixed income securities, net Government securities Equity shares and other non-fixed income securities, net Participation in share capital of related companies Intangibles, net Fixed assets, net Deferred expenses and accrued income Other assets Total assets LIABILITIES Due to credit institutions and central banks on demand term deposits - 12 Deposits on demand term deposits Deferred income and accrued expenses Provisions for liabilities and payments 1 - Other liabilities Total liabilities Subordinated liabilities SHAREHOLDERS' EQUITY Share capital Share premium Reserve capital and other reserves Retained losses from previous years (955) (985) Profit for the year Total Liabilities and Shareholders' equity ASSETS AND LIABILITIES UNDER MANAGEMENT The notes are an integral part of these financial statements. The financial statements on pages 1 to 35 were approved by the Board of Directors on 18 March 2002 and by the Supervisory Council on 21 March 2002 and signed on their behalf by: Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 8

9 OFF-BALANCE SHEET ITEMS In thousands of lats OFF-BALANCE SHEET LIABILITIES Contingent liabilities: 13 - including guarantees 13 - Commitments: including undrawn credit lines including letters of credit Total off-balance sheet liabilities The notes are an integral part of these financial statements. The financial statements on pages 1 to 35 were approved by the Board of Directors on 18 March 2002 and by the Supervisory Council on 21 March 2002 and signed on their behalf by: Alfrēds Čepānis Chairman of the Council Gundars Grieze Chairman of the Board 9

10 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND RESERVES In thousands of lats Share capital as of 1 January Issue of new shares Individuals, residents Share capital as of 31 December Share premium as of 1 January Share premium as of 31 December Reserve capital and other reserves as of 1 January Reserve capital and other reserves as of 31 December Retained losses from previous years as of 1 January (985) (1 716) Decrease in retained losses from previous years Retained losses from previous years as of 31 December (955) (985) Profit for the year TOTAL SHAREHOLDERS EQUITY AND RESERVES The notes are an integral part of these financial statements. 10

11 STATEMENTS OF CASH FLOWS In thousands of lats Notes Cash flows arising from operations: Profit before corporate income tax Depreciation and value adjustment of assets and intangibles Loss on write-off of fixed tangible and intangible assets Decrease in provisions for doubtful debts and off balance sheet liabilities 11,12 (382) (714) Foreign currency revaluation profit 8 (11) (44) Profit on revaluation of financial assets held for trading 8 (295) (210) Decrease in cash and cash equivalents used in operations (525) (799) before changes in operating assets and liabilities (Decrease)/increase in accrued expense and deferred income 25 (4) 10 Increase in accrued income and deferred expense 21 (19) (15) Decrease in other assets Increase/(decrease) in other liabilities (73) Decrease in short term equity investments and other non-fixed income securities Decrease in due from credit institutions and central banks 15-1 (Increase)/decrease in loans 16 (3 396) 972 Decrease in due to credit institutions and central banks 23 (12) (117) Increase in deposits Increase cash and cash equivalents provided by operating activities before taxation Corporate income tax paid Cash and cash equivalents provided by operating activities Cash flows arising from investing activities: Purchase of fixed assets 20 (64) (4) Sale of fixed assets 20-1 Purchase of intangible assets 20 (1) (7) Purchase of equity investments 18,19 (141) - Sale of equity investments 18, Purchase of debt securities and other fixed income securities 17 (619) (929) Sale of debt securities and other fixed income securities Increase / ecrease in cash and cash equivalents provided by/(used in) investing activities (814) Cash flows arising from financing activities: Share issue and attraction of subordinated debt 27, Cash and cash equivalents provided by financing activities Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Foreign currency revaluation profit Cash and cash equivalents at the end of the year The notes are an integral part of these financial statements. 11

12 1 REPORT OF ACTIVITIES Trasta Komercbanka is a joint stock company, incorporated in Latvia. It operates under the legislation of the Republic of Latvia and has a license from the Bank of Latvia. The Bank provides a full scope of services. The Bank's principal business activity is provision of universal banking services to companies and individuals. 2 ACCOUNTING AND MEASUREMENT POLICIES (1) General principles The Bank is subject to the Law on Credit Institutions of the Republic of Latvia and to the regulatory requirements of the Bank of Latvia and the Financial and Capital Market Commission and other. These requirements include, among other things, capital adequacy, liquidity and open foreign currency position. The Bank maintains its accounting records, under the historical cost convention, in accordance with the Law on Accounting of the Republic of Latvia, and regulations of the Bank of Latvia and Financial and Capital Market Commission. The Annual Report is prepared on the basis of accounting records, that were adjusted as necessary to conform to the Regulations on banks financial statements and International Accounting Standards (IAS). Balances disclosed as of 31 December 2001 and 2000 reflect the real position as of the close of business on that date. The unit of monetary value applied in the Annual Report of the Bank is the currency of the Latvian Republic the lat. All amounts in the Annual Report are specified in thousands. (2) Adoption of new International Accounting Standards In the reporting year, the Bank has adopted IAS 39 Financial Instruments: Recognition and Measurement (Revised 1998) for the first time. Revisions to a number of other IAS standards took effect in 2001 though these changes did not substantially alter the amounts presented in the reporting period. IAS 39 has introduced a comprehensive framework for accounting for all financial instruments. The Bank s detailed accounting policies in respect of such instruments are listed below. The principal effect of the adoption of IAS 39 has been that derivative financial instruments have been brought on-balance sheet. The effects of adoption of IAS 39 are not significant to the Bank s current year operations or the position of the Bank as of 31 December (3) Risk management For the purpose of risk management and keeping of regulations for data, characterizing the Bank s activities - capital adequacy, liquidity, foreign currency position, as well as control of the Bank operations risk, corresponding policies have been approved, including the liquidity management policy, risk management policy, currency risk management policy, state risk management policy, lending policy, trading portfolio policy and others by the Bank s Board and Council. Relevant policies are continuously updated, taking into account the development of the market and operations. The Bank follows its liquidity performance both in short-term and long-term positions, considering regulations set by Law on the Liquidity of Credit Institutions of the Financial and Capital Market Commission. According to regulations, the Bank is required to maintain liquid assets in an amount not less than 30% from the total sum of current liabilities. The actual parameter of liquidity as of the year end amounted to 86%. The proportion of weighted values of shareholder s equity, and assets and off-balance sheet liabilities of the Bank is set to be not less than 10%. As of the end of year amounted to 39%. 12

13 2 ACCOUNTING AND MEASUREMENT POLICIES (continued) (3) Risk management (continued) The Bank regularly follows its currency and state risks in order to reduce the possibility of losses related to currency fluctuation. Consequently, compliance with stated normative standards is ensured and the total open position in foreign currency has amounted to 2% of the shareholder s equity of the Bank. According to the Law on Credit Institutions the total open position of credit institution in foreign currencies can not exceed 20% of shareholder s equity. In order to meet the requirements of transaction limits, set by the country risk management policy, the Bank performs daily and monthly controls of these requirements. The limits for transaction partners and types of transaction were determined by evaluating country risks and risks of transaction partners. As a part of implementation of the trade portfolio policy, daily measurement of assets in the trading portfolio, is performed. Thus, it allows to increase efficiency of the Bank s short-term investments for purchases of shares of companies. (4) Foreign currency translation Assets, liabilities and off balance sheet items denominated in foreign currencies are translated into Latvian lats using the period end exchange rates published by the Bank of Latvia. Gains and losses, related to currency exchange fluctuations, are included in the income statement for the period. The applied rates for the principal currencies are as follows: LVL 1= USD EUR GBP RUB (5) Income and expense recognition All income earned and expenses incurred during the period are reported in the income statements for the period irrespective of the date of receipt or payment. Accrued income is included in the income statement only when there is reasonable assurance that it will be received. (6) Classification of financial assets For the purposes of standardization of methods of recognition, accounting, estimation and exclusion from the balance-sheet of financial assets, they are divided into four groups, i.e. financial assets or liabilities held for trading, loans and receivables, held-tomaturity investments and available-for-sale financial assets. Financial assets or liabilities held for trading - financial assets and liabilities, which have been acquired or which arise for the main purpose of making a speculative profit, that is profit from the effective and/or expected spread in their purchase and selling prices or other prices or interest rate fluctuations, as well as financial assets, which irrespective of the purpose of the acquisition, have been used for the realization of a short term profit. Loans and receivables - financial assets, created by the Bank through lending activities, other assets or providing services directly to the creditor or participation in credit, created by other lenders and financing it at the date, when this lender grants the credit, and which are not the financial assets, which are created for the purposes of their sale immediately or in the short run. 13

14 2 ACCOUNTING POLICIES (continued) (6) Classification of financial assets (continued) Held-to-maturity investments - financial assets with fixed or definable payments and fixed term, which the Bank has decided to keep till expiry and is capable of doing so, except for the credits created by the Bank and similar claims. Available-for-sale financial assets - financial assets, which do not relate to the above mentioned financial assets. (7) Recognition and derecognition of financial assets Financial assets and liabilities are recognized in the balance-sheet of the Bank when the Bank becomes the contractual party, i.e. at Bank undertakes the legal claim for receiving the money or the legal obligation to pay money. Financial asset is derecognized on the balance-sheet of the Bank only in cases when the Bank loses control over the contractual rights to a financial asset, i.e. the Bank realizes the right for the benefits established in the agreement, when these rights are mature or the rights are transmitted to others. Financial liabilities are derecognised on the balance-sheet of the Bank when it is cancelled, i.e. the liability established in agreement is executed, annulled or its term has terminated. (8) Investments in fixed income debt securities Investments in fixed income securities, which are kept as held-to-maturity investments, are stated at cost value, which is corrected on the sum of specific provisions for doubtful debts. Accumulated discount or premium amounts are amortized during the period of securities operation, using the linear method, and are included in the income statements only when there is no doubt that it will be received at a specific time. The result of this method essentially does not differ from the result received when actual interest rates are accepted. For the calculation of given investments is used settling date of securities purchase. (9) Investments in securities with non-fixed income Investments in securities with non-fixed income, which are classified as available-for-sale (share, long-term investments in fixed capital) initially are recorded at cost (including securities acquisition value), further, securities are recorded at their fair value, which is based on market price. If these securities are not actively traded, their fair value is defined using alternative methods. Changes in investment value connected with the revaluation under the fair value are included in the income statement for the reporting period (10) Investments in affiliates Investments in affiliates in the annual report are stated at cost, including trade costs. In case investment value decreases and this decrease is not short run, specific provisions are formed at the amount of reduction in the investment s value. 14

15 2 ACCOUNTING POLICIES (continued) (11) Loans and receivables Loans and receivables are stated in the balance sheet at the amount of principal outstanding less any provision for doubtful loans. Accrued interest income is included in the statement of income only when there is no doubt that it will be received. The level of specific provisions is based on estimates of conformity of the loan to its real value, determined by the following factors: financial performance and solvency of the borrower, debt servicing history, adequacy of collateral, compliance with the terms of loan agreement and others. Each loan is classified into one of the following five categories: Category Percentage provision Standard 0% Close control not less than 10% Low standard not less than 30% Doubtful not less than 60% Lost 100% If a loan is deemed to be lost and unrecoverable, it is written off. (12) Depreciation and write off of fixed assets In the annual report fixed assets are stated at amortized value, i.e. purchase cost less accumulated depreciation. Depreciation is calculated and included in expenses monthly on a straight-line basis using the following depreciation rates: Buildings: Furniture and fittings: Computers and equipment: Motor vehicles: Other fixed assets: Leasehold improvements: 5% annually 10% annually 20% annually 20% annually 50% annually over period of lease Gains and losses on disposals of fixed assets are recorded in the statement of income of the period of disposal. (13) Off-balance sheet financial instruments Daily operating activities of the Bank involve off-balance sheet financial transactions related to issuance of loans and guarantees and registration of letters of credit. The given business deals are reported in the financial statements at the moment of conclusion of the relevant agreement. 15

16 2 ACCOUNTING POLICIES (continued) (14) Fair value Fair value of financial assets and liabilities is defined, using available market information and other generally accepted principles, and it indicates the amount of money, which can be accepted as the selling price of assets or the liquidation value of liabilities. If, in the opinion of the management of the Bank, the true value of assets and liabilities substantially differs from the value, indicated in the balance sheet, then the true value of these assets and liabilities is separately indicated in the appendix to the financial report. (15) Cash and cash equivalents Cash and cash equivalents represent cash on hand, demand claims and demand deposits, as well as claims and due from central banks and other financial institutions with maturity less than 3 months, and short term investments, with maturity less than 3 months. (16) Taxation Corporate income tax is calculated according to Latvian legislation. Payments of deferred taxation is provided for all temporary differences arising between treatment of income and expenses according to the accounting and taxation legislation. The deferred taxation liability is calculated based on the tax rates expected at the time when the temporary differences reverse. The principal temporary differences arise from differing rates of depreciation on intangible and tangible assets and tax losses carried forward. Recognition of deferred tax assets in the financial statements occurs only in cases when its recoverability is foreseen with reasonable certainty. (17) Earnings per share For the purpose of calculating earnings per share, the weighted average number of common shares outstanding during 2001 and 2000 was and shares respectively. (18) Use of Estimates The preparation of the financial statements in accordance with International Accounting Standards requires management to makes estimates and assumptions that affect the amounts reported in the financial statements. The possibility exists that actual results could differ from those estimates. 16

17 In thousands of lats months 12 months 3 INTEREST INCOME Due from other credit institutions Loans to customers Debt securities and other fixed income securities Other interest income Interest Income Analysis for the year 2001 Average investment Interest income Yield at the end of the month rate (% p.a.) Due from other credit institutions Loans to customers Debt securities and other fixed income securities Other interest income Interest Income Analysis for the year Average investment Interest income Yield at the end of the month rate (% p.a.) Due from other credit institutions Loans to customers Debt securities and fixed interest securities Other interest income

18 In thousands of lats months 12 months 4 INTEREST EXPENSE Due to other credit institutions (89) (10) Customer deposits (27) (33) Subordinated loan capital (69) (67) Other interest expense (6) (33) (191) (143) Interest Expense Analysis for the year 2001 Average balance Interest expense Interest at the end of the month rate (% p.a.) Due to other credit institutions (89) 4.83 Customer deposits (27) 0.52 Subordinated loan capital 848 (69) 8.14 Other interest expense - (6) - Interest Expense Analysis for the year (191) 2.41 Average balance Interest expense Interest at the end of the month rate (% p.a.) Due to other credit institutions 285 (10) 3.51 Customer deposits (33) 1.24 Subordinated loan capital 820 (67) 8.17 Other interest expense - (33) (143)

19 In thousands of lats months 12 months 5 INCOME ON SECURUTIES Dividend income on shares and other non-fixed interest securities 9 7 Dividend income on investments in related companies FEE AND COMMISSION INCOME Cash operations Letters of credit 5 1 Money transfers Travelers cheques and credit cards Securities 2 7 Loans operations 10 - Trust operations Other commission income FEE AND COMMISSION EXPENSE Nostro accounts (54) (24) Cash operations (9) (6) Securities (6) (17) Other commission expenses (18) (13) (87) (60) 8 NET GAIN/(LOSS) ON FINANCIAL INSTRUMENTS TRADING Gain from foreign currency dealing, net Loss on forward contracts revaluation - (4) Foreign currency revaluation profit Loss on trading with financial assets held for trading (336) (377) Profit on revaluation of financial assets held for trading (88) 19

20 In thousands of lats months 12 months 9 ADMINISTRATIVE EXPENSES Staff costs (528) (489) salaries of Council and Board (70) (79) other wages and salaries (349) (308) social security costs (109) (102) Professional services (14) (25) Communications (118) (112) Rent & maintenance (153) (144) Office supplies (4) (3) Travel and entertainment (30) (5) Advertising and marketing (15) (4) Security (12) (26) Insurance (160) (54) Real estate tax - (1) Other administrative expenses (9) (5) (1 043) (868) During the reporting year 1 January to 31 December 2001 The Bank had an average number of 78 employees (2000: 65). Employees category Managers Other OTHER OPERATING EXPENSES Member charges (4) (5) Fines - (1) Other expenses (18) (17) (22) (23) 11 PROVISIONS FOR DOUBTFUL DEBTS AND OFF BALANCE SHEET LIABILITIES Specific provisions for loans (2) (20) (2) (20) The following breakdown shows changes in the specific and general provisions for doubtful debts during the reporting period. Specific and general provisions as of 1 January Additional provisions 2 20 Loans written off (14) (17) Release of specific provisions (6) (75) Foreign exchange revaluation - 4 Specific and general provisions as of 31 December

21 In thousands of lats months 12 months 12 PROFIT ON REVALUATION OF LONG-TERM FINANCIAL INVESTMENTS Income from release of specific provisions for debt securities with fixed income The following breakdown shows changes in the specific provisions. Specific and general provisions as of 1 January Release of specific provision (365) (684) Foreign exchange revaluation 1 38 Specific and general provisions as of 31 December The main part of income from release of provisions relates to investments that were sold in the current year. 13 CORPORATE INCOME TAX Corporate income tax Deferred tax calculation Temporary Tax Temporary Tax differences effect differences effect Deferred tax assets Accumulated taxable loss Loss from the sale of securities Securities revaluation loss/(profit) 6 1 (210) (53) Deferred tax assets Deferred tax liabilities Difference in depreciation rates Deferred tax liabilities DEFERRED TAX ASSETS, NET

22 In thousands of lats CASH AND BALANCES DUE FROM THE BANK OF LATVIA Cash on hand Balances due from the Bank of Latvia DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS Due from other Latvian credit institutions Due from OECD credit institutions Due from credit institutions of other countries LOANS, NET Loans to employees 87 7 Loans to individuals Loans to companies Loans to private financial institutions Specific provisions for doubtful debts (2) (20) Loans classification by loan type: Commercial loans Overdrafts Consumer loans Bills Mortgage loans 70 1 Credit card loans Credits for settlement documents (factoring) 19 - Industrial loans 12 - Other Loans to customers according to prior terms of agreements: Due within one year Due after one year

23 In thousands of lats LOANS, NET (continued) Loan classification by industries Hotels and restaurants 25 - Construction 45 - Manufacturing Trading Transport, warehousing and communication Financial intermediation Consumer loans Other services DEBT SECURUTIES AND OTHER FIXED INCOME SECURITIES, NET Latvian government debt securities Ukrainian government debt securities in USD Russian government debt securities issued in USD Specific provisions for Ukrainian government debt securities issued in USD - (364) All the government debt securities and other securities with fixed income are purchased for investment purposes and classified as held-to-maturity investments. The purchased cost of debt securities includes paid coupon in the amount of 16 thousand lats, which will be cancelled by the next coupon receipt. The nominal value of these securities amounts to 619 thousand lats. The amount of the residual discount, which is not included in the income statement as of the end of the year comprises 11 thousand lats. 18 EQUITY SHARES AND OTHER NON-FIXED INCOME SECURITIES, NET Investments in equity shares and other non-fixed income securities shares quoted on Stock Exchange shares not quoted on Stock Exchange Loss on revaluation of equity investments (6) (289) Gain on revaluation of equity investments All Banks investments in equity shares and other securities with non-fixed income have been purchased for investment purposes and classified as available-for-sale. 23

24 In thousands of lats 18 EQUITY SHARES AND OTHER NON-FIXED INCOME SECURITIES, NET (continued) The Bank has the following long-term investments: Company Industry 2001 Investment and participation 2000 Investment and participation Net assets of the company Historical cost % Book value Historical cost % Book value JSC Jewellery factory Jewellery Riga Stock Exchange Stock Exchange JSC Rebir Electronic JSC Lauma Light manufacturing JSC Druva Food production Lietuvos Dujos PVA Other investments in share equity Import and sale of natural gas Medical services PARTICIPATION IN SHARE CAPITAL OF RELATED COMPANIES In thousands of lats Participation in share capital of related companies Company Industry 2001 Investment and participation 2000 Investment and participation Net assets of Historical % Book value Historical % Book value the company cost cost JSC Rebir Electronics Total Participation in share capital of related companies is calculated, taking into account the essential influence of the Bank in the planning of the activities of the company, and not the part of Bank participation in share capital of the company. 24

25 In thousands of lats 20 FIXED ASSETS AND INTANGIBLES, NET (1) Changes in fixed assets and intangibles in 2001 Land and Machinery & Leasehold Intangible buildings Vehicles Equipment improvement assets Total Historical cost At 31 December Additions Disposals - (9) (15) - - (24) including write-off - - (11) - - (11) At 31 December Accumulated depreciation At 31 December Charge for the reporting period Disposals - (9) (13) - - (22) including write-off - - (9) - - (9) At 31 December Residual value at 31 December (2) Changes in fixed assets and intangibles in 2000 Land and Machinery & Leasehold Intangible Tangible assets buildings Vehicles Equipment improvement assets Total Historical cost At 31 December Additions Disposals - - (14) - - (14) At 31 December Accumulated depreciation At 31 December Charge for the reporting period Write-off - - (13) - - (13) At 31 December Residual value at 31 December

26 In thousands of lats DEFERRED EXPENSES AND ACCRUED INCOME Accrued interest income Deferred expenses Other accrued income OTHER ASSETS Travelers cheques 10 7 Due from financial institutions Other assets DUE TO CREDIT INSTITUTIONS AND CENTRAL BANKS Due to other countries credit institutions During the reporting year and as of period end the Bank was not engaged in any repo transactions. 24 DEPOSITS Individuals Private enterprises Private financial institutions State enterprises - 5 Local government 2 2 Public and religious organizations 9 10 Items in transit Deposits maturity profile according to prior terms of agreements: Demand Up to 3 months From 3 months to 6 months 13 - From 6 months to 12 months Over 1 year

27 In thousands of lats DEFERRED INCOME AND ACCRUED EXPENSES Accrued interest expenses 3 9 Other accrued expenses OTHER LIABILITIES Undefined amounts Other liabilities SUBORDINATED LIABILITIES As of 31 December 2001 the balance of subordinated non-convertible liabilities is 861 thousand lats (2000: 828 thousand lats) deposited with maturity in 2004 and List of subordinated liabilities Name Amount and Currency Date of conclusion Maturity Interest % Edgars Pīgoznis USD Ligita Šmeile USD Ligita Šmeile USD Ligita Šmeile USD The above mentioned amount of subordinated liabilities is included in excess capital for the purposes of calculation of the capital adequacy ratio (see Note 36). 27

28 28 SHAREHOLDERS' EQUITY The Bank has authorized share capital of thousand lats consisting of 100 thousand shares of 50 LVL each. The paid share capital as of 31 December 2001 constituted thousand lats consisting of 71 thousand ordinary shares of 50 LVL each (In 2000 share capital was thousand lats consisting of 61 thousand ordinary shares). In 2001 the Bank additionally issued 10 thousand ordinary shares of 50 LVL each. There are 48 shareholders: 14 - corporate and 34 -individuals. There were no changes in reserve capital during the reporting year. Changes in equity positions of shareholders, who during the reporting year have made significant investments in the share equity of the Bank or have considerably decreased their investments (thousand LVL): I.Vītoliņa -252 V.Vītoliņš -200 A.Vītoliņš -52 I.Buimisters +504 S.Tarasenoks +502 List of shareholders and mutually related shareholder groups which directly or indirectly control 10% and more percent of share capital: Shareholder Shareholding Country % LVL 000 I.Buimister Latvia S.Tarasenok Latvia Powerplus LLC US C.E.Treherne GB Rikam S.A.H Luxembourg Earnings per share: In lats Net earnings Weighted average number of common stock outstanding Earnings per share

29 29 ASSETS AND LIABILITIES UNDER MANAGEMENT Assets under management on behalf of clients are included in financial statements if the Bank holds the legal title to these assets. The assets are included at historic cost. The bank receives fees based on amounts managed. The amount of these assets and liabilities do not show in the balance sheet. Assets and liabilities under management are composed by their type as follows: In thousands of lats Assets under management Due from other credit institutions outside Latvia Shares and other non-fixed income securities Liabilities under management Individuals 41 8 Private enterprises Private financial institutions Credit institutions The Bank does not carry credit, interest rate or any other risks in respect of the managed trust assets as well as liabilities. 30 LIGITATION AND CLAIMS On 31 December 2001 and 2000 the Bank was not involved in any legal proceeding that might have a material effect on the financial statements. 29

30 31 CASH AND CASH EQUIVALENTS In thousands of lats Cash and balances due from the Bank of Latvia Due from other credit institutions Due to other credit institutions (655) (571) TRANSACTIONS WITH RELATED PARTY Related parties are defined as shareholders of the Bank who have a significant interest, their close members of the family, members of the supervisory council and management board and other employees of the Bank, which are authorized to perform planning, management and control of the Bank s activities or are in charge of these activities, as well as their spouses, parents, children and companies in which above-mentioned persons have a controlling interest. The Bank offered standard services to related parties, such as settlement of accounts, purchase and sale of securities, security management on behalf of clients, brokerage etc. These transactions are conducted on normal business terms, except for cases when terms are changed due to market structure. Presented below are the transactions with related parties: In thousands of lats Loans to and credit commitments including council and board Deposits from related parties including council and board

31 In thousands of lats 33 MATURITY ANALYSIS OF ASSETS, LIABILITIES AND OFF-BALANCE SHEET ITEMS (according to terms of the payments to maturity) Up to 1 month to 3 months to 6 months to 1 year to Over 1 month 3 months 6 months 12 months 5 years 5 years Total ASSETS Cash and balances due from the Bank of Latvia Due from credit institutions and central banks Loans, net Debt securities and other fixed income securities, net Equity shares and other non-fixed income securities, net Participation in share capital of related companies Intangibles, net Fixed assets, net Deferred expenses and accrued income Other assets Total assets LIABILITIES Due to credit institutions and central banks Deposits Deferred income and accrued expenses Provisions for liabilities and payments Other liabilities Subordinated liabilities Total liabilities OFF-BALANCE SHEET ITEMS Off-balance sheet commitments Contingent liabilities including collateralized by deposits, placed in the Bank Commitments including collateralized by deposits, placed in the Bank ¹ Total off-balance sheet commitments Net position at 31 December 2001 ¹ (1 611) Under the Rules of capital adequacy calculation, Off-balance sheet liabilities secured by deposits are not required for inclusion in calculation. 31

32 Net position at 31 December 2000 (741) (14) (48) In thousands of lats 34 CURRENCY ANALYSIS OF ASSETS, LIABILITIES AND OFF-BALANCE SHEET ITEMS Other LVL USD EUR currencies Total ASSETS Cash and balances due from the Bank of Latvia Due from credit institutions and central banks Loans, net Debt securities and other fixed income securities, net Equity shares and other non-fixed income securities, net Participation in share capital of related companies Intangibles, net Fixed assets, net Deferred expenses and accrued income Other assets Total assets LIABILITIES Due to credit institutions and central banks Deposits Deferred income and accrued expenses Provisions for liabilities and payments Other liabilities Subordinated liabilities Total liabilities OFF-BALANCE SHEET ITEMS Off-balance sheet commitments Contingent liabilities Commitments Total off-balance ¹ Net position at 31 December 2001: Total amount of the long/(short) position¹ (62) (28) Net position - (62) (28) 46 (90) % of regulatory capital Net position at 31 December 2000: Total amount of the long position Net position % of regulatory capital ¹ Under the Rules of capital adequacy calculation, Off-balance sheet liabilities are not required for inclusion in calculation of items, if the Bank does not have substantiation for believing that fulfillment of the liabilities will be demanded and the paid means will not be retrievable. 32

33 In thousands of lats 35 GEOGRAPHICAL ANALYSIS OF ASSETS, LIABILITIES AND OFF-BALANCE SHEET ITEMS Other Latvia USA Russia countries Total ASSETS Cash and balances due from the Bank of Latvia Due from credit institutions and central banks Loans, net Debt securities and other fixed income securities, net Equity shares and other non-fixed income securities, net Participation in share capital of related companies Intangibles, net Fixed assets, net Deferred expenses and accrued income Other assets Total assets LIABILITIES Due to credit institutions and central banks Deposits Deferred income and accrued expenses Provisions for liabilities and payments Other liabilities Subordinated liabilities Total liabilities OFF-BALANCE SHEET ITEMS Off-balance sheet commitments Contingent liabilities Commitments Total off-balance Net position at 31 December (2 401) 118 (2 915) 477 Net position at 31 December (1 225) 311 (684)

34 In thousands of lats CALCULATION OF CAPITAL ADEQUACY According to the regulations of capital adequacy (1) Summary calculation Tier 1 equity items Share capital Share premium Reserve capital Accumulated deficit (955) (985) Intangibles (18) (27) Profit for the period Total Tier 2 equity items Subordinated liabilities including remaining period more than 5 years (with 100% adjustment) to 5 years (with 80% adjustment) to 4 years (with 60% adjustment) to 3 years (with 40% adjustment) Total Total equity items Summary of calculation of weighted value of assets risk 20% risk assets % risk assets % risk assets Total assets Summary of calculation of weighted value of off-balance sheet items Off-balance sheet items with credit risk depending on their cost 50% adjustment off-balance sheet items Total off-balance sheet liabilities Weighted value of assets and off-balance sheet items Claim on credit risk of Bank s portfolio ¹ Claim on foreign currency risk capital ² 1 5 Coverage of claim on capital by regulatory capital Capital adequacy ratio ³ 39% 104% ¹ In accordance with regulations of capital adequacy claim on credit risk, the capital of Bank s portfolio is calculated as 10% from total amount of off-balance sheet items and Bank s portfolio risk weighted assets items. ² Claim on foreign currency risk capital is calculated as 10% from total amount of Bank s total foreign currency net position and gold net position, which is decreased by 2% from the total amount of first level capital and second level capital. ³ The ratio of capital adequacy is calculated as the percentage value of equity items to the total amount of claims on credit risk of Bank s portfolio and the claims on foreign currency risk capital multiplied by

35 In thousands of lats CALCULATION OF CAPITAL ADEQUACY (continued) (2) Assets and off balance sheet items according to their credit risk 0% credit risk assets (Group 1) Cash and balances due from the Bank of Latvia Due from Latvian government Claims collateralized by term deposits, placed in the Bank Group 1 total assets % credit risk assets (Group 2) Claims on credit institutions of A-zone countries Claims on demand from credit institutions of Latvia Group 2 total assets Group 2 assets weighted value % credit risk assets (Group 3) Due from credit institutions of Latvia, excluding claims on demand Accrued income and deferred expense if not related to specific business partner Loans, completely secured by mortgage registered in land book 1 - Group 3 total assets Group 3 assets weighted value % credit risk assets (Group 5) Claims on central governments of B-zone countries Claims on credit institutions of B-zone countries Claims on borrowers which are not banks, central governments, central banks, local governments, European community, international development banks, except claims with lower risk rankings, considering guarantees they have Fixed tangible assets Other assets Group 5 assets weighted value % adjustment off-balance sheet items (Group 1) Guarantees to the third parties, including 0% risk weighted partner's liabilities Group I total off-balance sheet items Group I weighted value - 50% adjustment off-balance sheet items (Group 2) Irrevocable letters of credit which don t substitute loans, including 100% risk weighted partner's liabilities Agreements on getting loans, opening credit line etc agreements, which bank, can t terminate solely, including 0% risk weighted partner's liabilities % risk weighted partner's liabilities Group II total off-balance sheet items Group II weighted value Total off-balance sheet items * * * * * 35