BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA

Transcription

1 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the third quarter of 2007 prepared according to the International Financial Reporting Standards

2 Selected financial statements translated into EUR in PLN ths. in EUR ths. Position 3 Quarters of Quarters of Quarters of Quarters of 2006 Net interest income Net fee and commission income Operating profit Profit before income tax Net profit (loss) Net profit (loss) attributable to equity holders of the Company Net profit (loss) attributable to minority interest Net cash from operating activities Net cash used in investing activities ( ) ( ) ( ) ( ) Net cash from financing activities ( ) ( ) ( ) ( ) Net increase / decrease in cash and cash equivalents Total assets Amounts due to the Central Bank Amounts due to other banks Amounts due to customers Minority interest Equity attributable to the Company's equity holders Share capital Number of shares Book value per share (in PLN/EUR) 51,97 50,05 13,76 12,56 Diluted book value per share (in PLN/EUR) 51,91 50,02 13,74 12,56 Earnings per 1 ordinary share (in PLN/EUR) 9,55 7,92 2,49 2,02 Diluted earnings per 1 ordinary share (in PLN/EUR) 9,54 7,91 2,49 2,02 Paid dividend per share (in PLN/EUR) 9,00 7,40 2,31 1,84 Capital adequacy ratio 13,73 17,38 x x Risk weighted assets (*) Core funds (Tier I) (*) Supplementary funds (Tier II) (*) (85 477) (21 458) (*) Data as at 30th September 2007 are disclosed in accordance with the Resolution 2/2007 The Banking Supervisory Commission 2

3 1 Summary Accounting principles adopted in the preparation of the quarterly report Financial statements Additional information The Group Achievements of Bank Pekao S.A Achievements of subsidiaries Pioneer Pekao TFI S.A Centralny Dom Maklerski Pekao S.A. (CDM) Business activity in Ukraine Results achieved in three quarters of 2007 and the factors which influenced these results Results of the Group The structure of the net profit Segment reporting Adjustments for provisions, deferred tax provision and assets Writeoffs for revaluation of assets Information on contingent assets and liabilities Post balance sheet events Seasonality or cyclical nature of the Bank s activity Issuance, redemption and repayment of debt securities Dividend paid Effects of changes in the Group s structure The position of the Management Board regarding the possibility of achieving previously published forecasts The information about the shareholders owning at least 5% of the total number of votes at the General Meeting of Bank Pekao S.A The Issuer s shares held by the Management and Supervisory Board Members Pending litigations Claims regarding the resolutions of the Bank s Shareholders Meetings Assessment of the financial credibility of Bank Pekao S.A Information about integration of Bank Pekao S.A. and Bank BPH S.A Transactions of related entities Factors which will affect the results of at least the next quarter

4 1 Summary In the third quarter of 2007 the Group achieved quarterly record net profit which amounted to PLN million. The Group s net profit generated in three quarters of 2007 amounted to PLN 1,599.0 million and was by PLN million (21.0%) higher than in three quarters of The increase in the net profit was possible through an increased commercial activity that translated into higher revenue, particularly fee and commission and interest income, with operating costs under control and lower cost of risk. In three quarters of 2007, the Group s total income amounted to PLN 3,864.4 million, PLN million (12.0%) higher than in the comparable period of the previous year. The main growth driver in this period was fee and commission income, which increased by PLN million (19.7%), primarily from commissions on investment products. In three quarters of 2007 interest income amounted to PLN 1,866.4 million, PLN million (6.9%) higher than in three quarters of 2006, mainly as a result of increasing volumes allowing to offset the impact of a lower yield on the debt securities portfolio. In three quarters of 2007, the Group noted a continued positive trend in the results of its business activity, with successful sales of key products: mutual funds, PLN mortgage loans and consumer loans Express Loan. The value of mutual funds increased by 28.1% compared with the end of Sales of PLN mortgage loans amounted to PLN 2,731.0 million (59.3% higher than in three quarters of 2006) contributing to a growth in mortgage loans stock of 39.2% in three quarters of The Bank continued its policy of offering PLN mortgage loans. Sales of the Express Loan in three quarters of 2007 amounted to PLN 1,568.6 million (8.5% higher than in comparable period of 2006) contributing to a growth in the stock of 16.1%. Total overhead costs (including depreciation) in three quarters of 2007 amounted to PLN 1,884.6 million, PLN million (8.8%) higher than in three quarters of Overhead costs were kept under control, the increase was mainly due to the increase of variable part of personnel costs and expansion in the Ukrainian market. In three quarters of 2007, the Group s cost / income ratio amounted to 48.8% and was 1.4 p.p. lower than in comparable period of Impairment losses on loans and advances in three quarters of 2007 amounted to PLN million and were PLN 28.1 million (17.5%) lower than in comparable period of the previous year, benefiting from the effective credit risk management and a good macroeconomic situation. The ratio of impaired receivables to total receivables decreased from 11.8% at the end of 2006 to 11.0% at the end of September Savings of the Group s clients (customer deposits and mutual funds) increased by PLN 8,616.3 million, up by 11.9% in three quarters of 2007 resulting from an increase both in savings of individual clients and in corporate deposits. The savings of retail clients increased by PLN 4,623.5 million in three quarters of 2007 and exceeded the level of PLN 54 billion. In this period corporate deposits increased by PLN 3,992.8 million. In three quarters of 2007, the gross loan portfolio grew by PLN 3,518.9 million, i.e. by 9.6%.This growth was driven by successful sale of PLN mortgage loans and the Express Loan, as well as an increase in the volume of corporate loans. 4

5 2 Accounting principles adopted in the preparation of the quarterly report The interim consolidated report of the Capital Group of Bank Pekao S.A. and the stand alone report of Bank Pekao S.A. were prepared in compliance with the International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board. The presented report meets the requirements of the International Accounting Standard 34 related to interim financial reports and of the Decree of the Council of Ministers dated 19 th October 2005 on current and periodic information submitted by the issuers of securities. The consolidated financial report of the Group and enclosed financial report of the Bank have been prepared in accordance with the accounting principles applied for the purpose of asset and liabilities valuation and measurement of financial results, as disclosed in the consolidated financial statements of the Capital Group of the Bank Pekao S.A. for the first half 2007, published on 18 th September In the third quarter of 2007 no changes were made to accounting principles applied for the preparation of the financial statement of the Bank Pekao S.A. and the financial statements of the Capital Group. Data presented in this report have been prepared to a manner assuring their comparability, with the exception of the historical data of the UniCredit Bank Ltd. after the merger with the Commercial Bank HVB Ukraine S.A. (purchased by the Bank Pekao S.A. during the first quarter of 2007). 5

6 3 Financial statements CONSOLIDATED INCOME STATEMENT (in '000 PLN) III Quarter 2007 period from to Quarters 2007 period from to III Quarter 2006 period from to Quarters 2006 period from to Interest income Interest expense ( ) ( ) ( ) ( ) Net interest income Fee and commission income Fee and commission expense (80 955) ( ) (56 135) ( ) Net fee and commission income Dividend income Result on financial instruments at fair value Result on investment securities Foreign exchange result Other operating income Other operating expenses (17 010) (48 808) (17 447) (71 108) Net other operating income Net impairment losses on financial assets and net provisions for guarantees and commitments (40 233) ( ) (50 876) ( ) Overhead costs ( ) ( ) ( ) ( ) Operating profit Share of profit (loss) of associates and joint venture entities valued at the equity method Profit before income tax Income tax expense ( ) ( ) (92 641) ( ) Net profit for the period Attributable to equity holders of the Company Attributable to minority interest Earnings per share (in PLN per share) basic for the period 9,55 7,92 diluted for the period 9,54 7,91 6

7 CONSOLIDATED BALANCE SHEET (in 000 PLN) ASSETS Cash and amounts due from Central Bank Debt securities eligible for rediscounting at the Central Bank Loans and advances to banks Financial assets as held for trading Derivative financial instruments Other financial instruments at fair value through profit or loss Loans and advances to customers Net investment in the finance lease Investment securities Available for sale Held to maturity Assets of disposal group classifield as held for sale Investments in associated undertakings Intangible assets Tangible fixed assets Investment property Income taxes Current tax assets Deferred income tax assets Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank Amounts due to other banks Financial liabilities as held for trading Derivative financial instruments Amounts due to customers Debt securities in issue Liabilities directly associated with assets classified as held for sale Current income tax liabilities Provisions for deferred income tax 295 Provisions Other liabilities Total liabilities Shareholders' equity Capital and reserves attributable to the Company's equity holders Share capital Other capital and reserves Prior and current year profits Minority interest Total Shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Capital adequacy ratio Book value Number of shares Book value per share ( in PLN per share) Diluted numebr of shares Diluted book value per share (in PLN per share) 13,73 16,51 17, ,97 53,21 50, ,91 53,17 50,02 7

8 CONSOLIDATED STATEMENT OF CHANGES 3 Quarters Quarters 2006 IN SHAREHOLDERS' EQUITY (in PLN '000) period from to period from to period from to Shareholders equity at the beginning of the period a) adjustment related to IFRS/IAS introduction b) change of consolidation method c) adjustment due to fundamental errors Adjusted shareholders equity at the beginning of the period Share capital at the beginning of the period a) Increase new shares issue b) Decrease redemptions 1. Share capital at the end of the period Earnings from previous years at the beginning of the period a) Increase undistributed profits of prior period other b) Decrease ( ) ( ) ( ) appropriation to general banking risk fund ( ) (70 000) (70 000) appropriation to other reserve capital ( ) ( ) ( ) appropriation to reserve capital (27 856) (8 890) (8 890) dividend ( ) ( ) ( ) other (34 578) 2. Earnings from previous years at the end of the period ( ) ( ) ( ) 3. Other capital and reserves at the beginning of the period a) Increase appropriation of net profit share premium on issue of new shares valuation of securities available for sale (net) employee share option proceeds foreign exchange differences from valuation of foreign entities 159 other 219 b) Decrease ( ) ( ) ( ) valuation of securities available for sale (net) ( ) ( ) ( ) foreign exchange differences from valuation of foreign entities (243) (10 080) other ( ) (35 756) (32 271) 3. Other capital and reserves at the end of the period Net profit Shareholders' equity at the end of the period Minority interest at the beginning of the period a) Changes: (380) net profit other (3 711) (883) (435) Minority interest at the end of the period Total equity

9 CONSOLIDATED STATEMENT OF CASH FLOW III Quarter Quarters 2007 III Quarter Quarters 2006 (in PLN '000) period from to period from to period from to period from to Cash flow from operating activities indirect method Net profit (loss) Adjustments: Deprecition Share of profit (loss) associates (36 821) ( ) (27 776) (63 764) Foreign exchange differences (Profit) loss on investing activities (8 229) (29 636) (2 128) (48 869) Impariment 2 (11 530) Interest and dividend ( ) ( ) ( ) ( ) Change in loans and advances to banks (84 351) ( ) ( ) Change in financial assets as held for trading and other financial instruments at fair value through profit or loss ( ) Change in derivative financial instruments ( ) Change in loans and advances to customers ( ) ( ) ( ) ( ) Change in net investment in the finance lease (50 626) ( ) (11 855) ( ) Change in investment securities available for sale (85) (39 757) (1 330) (760) Change in deferred income tax assets (16 017) (47 966) Change in other assets ( ) ( ) Change in amounts due to banks ( ) Change in liabilities as held for trading Change in derivative financial instruments and other financial liabilitiy at fair value through profit or loss (76 226) (88 580) ( ) Change in amounts due to customers Change in debt securities in issue Change in provisions (624) Change in other liabilities (89 486) ( ) Income tax paid ( ) ( ) (69 224) ( ) Carrent tax Net cash from operating activities Cash flows from investing activities Investing activity inflows Sale of subsidiaries and associates Sale of investment securities Sale of intangible assets and tangible fixed assets Other investing inflows Investing activity outflows ( ) ( ) ( ) ( ) Purchase of subsidiaries and associates Purchase of investment securities ( ) ( ) ( ) ( ) Purchase of intangible assets and tangible fixed assets ( ) ( ) (68 705) ( ) Other investing outflows 70 (321) Net cash used in investing activities ( ) ( ) ( ) Cash flows from financing activities Financing activity inflows Proceeds from loans and advances from other banks Proceeds from other loans and advances Issue of debt securities Increase of subordinated liabilities Issue of ordinary shares Sale of own shares Other financing inflows Financing activity outflows 4 ( ) ( ) Repayments of loans and advances from other banks Repayments of other loans and advances Redemption of debt securities 4 (5) Decrease of subordinated liabilities Other financial liabilities Payments of financial lease liabilities Dividends and other payments to shareholders ( ) ( ) Other than payments to shareholders expenditures due to appropriation of profit Purchase of own shares Other financing outflows Net cash from financing activities 4 ( ) ( ) Total net cash flow (28 259) Net change in cash and cash equivalents (28 259) Cash and casch equivalents at the beginning of the period Cash and cash equivalents at the end of the period

10 QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT (in '000 PLN) III Quarter 2007 period from to Quarters 2007 period from to III Quarter 2006 period from to Quarters 2006 period from to Interest income Interest expense ( ) ( ) ( ) ( ) Net interest income Fee and commission income Fee and commission expense (73 523) ( ) (49 417) ( ) Net fee and commission income Dividend income Result on financial instruments at fair value Result on investment securities Foreign exchange result Other operating income Other operating expenses (11 296) (39 390) (15 135) (47 653) Net other operating income Net impairment losses on financial assets and net provisions for guarantees and commitments (10 624) (87 292) (47 389) ( ) Overhead costs ( ) ( ) ( ) ( ) Operating profit Profit before income tax Income tax expense ( ) ( ) (83 958) ( ) Net profit for the period Earnings per share (in PLN per share) basic for the period 9,11 7,96 diluted for the period 9,10 7,95 10

11 BALANCE SHEET (in PLN '000) ASSETS Cash and amounts due from Central Bank Debt securities eligible for rediscounting at the Central Bank Loans and advances to banks Financial assets held for trading Derivative financial instruments Other financial instruments at fair value through profit or loss Loans and advances to customers Investment securities Available for sale Held to maturity Noncurrent assets held for sale Shares in subsidiaries Shares in associates Intangible assets Tangible fixed assets Investment property Income taxes Current tax assets 2. Deferred income tax assets Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank Amounts due to other banks Financial liabilities held for trading Derivative financial instruments Amounts due to customers Debt securities in issue Current income tax liabilities Provisions for deferred income tax Provisions Other liabilities Total liabilities Shareholders' equity Share capital Profit for the year and retained earnings Other capital and reserves TOTAL SHAREHOLDERS' EQUITY TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES Capital adequacy ratio ,04 14,74 15,54 11

12 STATEMENT OF CHANGES IN EQUITY 3 Quarters Quarters 2006 (in PLN '000) period from period from period from to to to Shareholders equity at the beginning of the period a) adjustment related to IFRS/IAS introduction b) adjustment due to fundamental errors Adjusted shareholders equity at the beginning of the period Share capital at the beginning of the period a) Increase new shares issue b) Decrease redemptions 1. Share capital at the end of the period Retained earnings (loss) from previous years at the beginning of the period a) Increase profit for previous year b) Decrease ( ) ( ) ( ) appropriation to legal capital (15 000) appropriation to general banking risk fund ( ) (70 000) (70 000) appropriation to reserve capital ( ) ( ) ( ) dividends ( ) ( ) ( ) 2. Retained earnings (loss) at the end of the period 3. Other capital at the beginning of the period a) Increase appropriation of net profit issue of shares under its' nominal value valuation of securities available for sale (net); in which: gains and losses from valuation of securities available for sale provision for deferred income tax valuation of management options foreign exchange differences on branches abroad 220 b) Decrease ( ) ( ) ( ) valuation of securities available for sale (net); in which: ( ) ( ) ( ) gains and losses from valuation of securities available for sale ( ) ( ) ( ) provision for deferred income tax of the securities portfolio valuation foreign exchange differences on branches abroad (247) (329) 3. Other capital at the end of the period Net profit Shareholders' equity at the end of the period

13 CASH FLOW STATEMENT III Quarter Quarters 2007 III Quarter Quarters 2006 (in PLN '000) period from 07 period from period from period from 0701 to to to to Cash flow from operating activities indirect method Net profit (loss) Adjustments: Depreciation Foreign exchange differences (Profit) loss on investing activities (7 845) (28 703) (1 684) (66 226) Impairment Interest and dividend ( ) ( ) ( ) ( ) Change in loans and advances to banks (83 838) ( ) ( ) Change in financial assets as held for trading and other financial instruments at fair value through profit or loss ( ) Change in derivative financial instruments ( ) Change in loans and advances to customers ( ) ( ) ( ) ( ) Change in investment securities available for sale (262) (4 241) (1 347) (782) Change in deferred income tax assets (15 472) (50 444) Change in other assets ( ) ( ) ( ) Change in amounts due to banks ( ) ( ) Change in liabilities as held for trading Change in derivative financial instruments (76 249) (88 627) ( ) Change in amounts due to customers Change in debt securities in issue Change in provisions (939) Change in other liabilities (7 638) ( ) Income tax paid (92 163) ( ) (59 733) ( ) Current tax Net cash from operating activities Cash flows from investing activities Investing activity inflows Sale of subsidiaries and associates Sale of investment securities Sale of intangible assets and tangible fixed assets Other investing inflows Investing activity outflows ( ) ( ) ( ) ( ) Purchase of subsidiaries and associates ( ) ( ) ( ) Purchase of investment securities ( ) ( ) ( ) ( ) Purchase of intangible assets and tangible fixed assets ( ) ( ) (54 914) ( ) Other investing outflows Net cash used in investing activities ( ) ( ) ( ) ( ) Cash flows from financing activities Financing activity inflows Loans received from banks Loans received from other financial institutions Issue of debt securities Increase in subordinated liabilities Issue of ordinary shares Sale of own shares Other inflows Financing activity outflows ( ) ( ) Repayment of bank loans Repayment of loans received from other financial institutions Redemption of debt securities (4) (5) Decrease of subordinated liabilities Repayment of other financial liabilities Repayment of pricipal amounts under finance lease agreements Dividends and other payments to shareholders ( ) ( ) Outflows from profi appropriation other than payments to shareholders Purchase of own shares Other financing outflows Net cash from financing activities ( ) ( ) Total net cash flow (23 935) Net change in cash and cash equivalents (23 935) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

14 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 30 th September 2007 consists of Bank Pekao S.A as the parent entity and 11 subsidiary entities. The following entities are included in the consolidated financial report as at 30 th September 2007: No Company s name Core activity % of shareholder s share capital Status Consolidation method 1. Bank Pekao S.A. banking parent 2. UniCredit Bank Ltd. ( before Bank Pekao (Ukraina) Ltd. ) banking subsidiary full 3. Centralny Dom Maklerski Pekao S.A. brokerage subsidiary full 4. Pekao Fundusz Kapitałowy Sp. z o.o. financial subsidiary full 5. Pekao Leasing Sp. z o.o. leasing subsidiary full 6. Pekao Faktoring Sp. z o.o. financial subsidiary full 7. Pekao Pioneer Powszechne Towarzystwo Emerytalne S.A. financial subsidiary full 8. Drukbank Sp. z o.o. no activities performed subsidiary full 9. Centrum Kart S.A. financial subsidiary full 10. Pekao Financial Services Sp. z o.o. financial subsidiary full 11. BDK Consulting Sp. z o.o. consulting, hotels, transportation subsidiary full 12. SARL Pekao Immobilier real estate management subsidiary non consolidated SARL Pekao Immobilier was not consolidated with the use of the full method, due to immateriality of it s financial data in comparison to the size of the operations of the whole Group. Company in consolidated financial statement was recognized at the cost of purchase. Other listed below exposures of the Group constitute investments in the associated entities and are recognized in the consolidated report of the Group with the use of the equity method. Company CPF Management due to immateriality of it s financial data was recognized at the cost of purchase. 1. Central Poland Fund LLC financial intermediary associated Equity 2. Xelion. Doradcy Finansowi Sp. z o.o. auxiliary, financial and insurance associated Equity 3. Pioneer Pekao Investment Management S.A. financial intermediary associated equity 4. Pirelli Pekao Real Estate Sp. z o. o. real estate management associated equity 5. Krajowa Izba Rozliczeniowa S.A. chamber of settlement associated equity 6. CPF Management mutual funds managementdoes not operate associated not valuated under equity method In the third quarter of 2007 there were the following changes in the structure of the related parties of the Bank in relation to the presented one for the second quarter of 2007: Subsidiary entities: disposal of the whole participation in Pekao Access Sp. z o.o. owned by the Bank, change in the Group structure deriving from the merger of the UniCredit Bank Ltd. (acquirer) with the Commercial Bank HVB Ukraine S.A. (merged). Associated entities: disposal of the whole participation in Anica System S.A. owned by the Bank. 14

15 The table below presents information on disposal of subordinated entities : (PLN thousand) Company s name Proceeds on sale Cost of sale Gross profit on sale Pekao Access Sp. z o.o Anica System S.A. 22,598 5,554 17,044 Total 23,418 6,053 17,365 On 3 rd September 2007 the merger of the UniCredit Bank Ltd (acquirer) with the Commercial Bank HVB Ukraine S.A. (merged) took place. The above merger transaction, as a business combination of the entities under common control was accounted for in accordance with the accounting policy adopted consistently in the Group; the acquirer entity has disclosed the assets and liabilities of the merged entity using their book values only adjusted for the standardization of the accounting principles of the merged entity, while the comparative data regarding the historical periods were presented without restatements. Net assets acquired during the business combination are the following (in PLN* ths.): No. Item name Amount 1. Cash and cash balance due from banks 361, Receivables due from customers 1,179, Financial assets as held for trading 144, Financial assets held for sale 12, Tangible fixed assets and intangible assets 3, Other assets 1, Liabilities due to banks (914,463) 8. Liabilities due to customers (563,945) 9. Debt securities in issue (43,557) 10. Other liabilities (14,801) 11. Total net assets 167,169 * The following exchange rate of 1 UAH for PLN was applied in accordance with the Table no: 170/A/NBP/2007 as at published by the National Bank of Poland. 4.2 Achievements of Bank Pekao S.A. Commercial activity Bank Pekao S.A. is a universal, commercial bank, offering a full range of banking services to both individual and corporate clients, operating in Poland and abroad. Pekao Group s subsidiary financial institutions operate in banking, asset management, pension funds, brokerage, leasing and factoring markets. Good performance in three quarters of 2007 was primarily the result of a further development in Bank s business activity. The continuous efforts were focused on offering key products, in particular PLN mortgage loans, consumer loans and mutual funds. 15

16 Sales of PLN mortgage loans amounted to PLN 2,731.0 million (59.3% higher than in three quarters of 2006) contributing to a growth in the stock of 39.2% in three quarters of The Bank continued its policy of offering PLN mortgage loans. Sales of the Express Loan in three quarters of 2007 amounted to PLN 1,568.6 million (8.5% higher than in three quarters of 2006) contributing to a growth in the stock of 16.1% in three quarters of Pioneer Pekao TFI S.A. mutual funds were distributed through the network of Bank Pekao S.A., CDM Pekao S.A. and Xelion. Doradcy Finansowi Sp. z o.o. branches. Total assets of Pioneer Pekao TFI S.A. mutual funds increased in three quarters of 2007 by PLN 6,537.9 million (28.1%). The Pekao Group confirmed its leading position in the mutual funds market at the end of September 2007 market share of mutual funds managed by PPIM S.A. amounted to 21.2% Change Total number of PLN current accounts (in thousand) * 3, , of which packages 2, , Number of mortgage loans accounts (in thousand) Number of Express Loans accounts (in thousand) Number of mutual fund registers (in thousand)** 1, Payment cards (in thousand)*** 2, , Credit Charge (23.3) Debit (including Maestro) 2, ,287.9 (5.9) * Number of accounts including accounts of prepaid cards. ** Sold in Bank s network. *** The number of cards is calculated according to the definition used by international payment organizations Visa and MasterCard. The Bank makes the superior physical distribution available to its clients, with the most convenient network footprint countrywide. Distribution network is supplemented with teams of Relationship Managers and a network of Private Banking offices. The number of customers using alternative distribution channels such as call centre and internet banking platform is systematically growing. Pekao24 Service (for retail and SME clients) and PekaoBiznes 24 (for corporate clients) facilitate the management of financial assets, and scope of services is being systematically extended. The Bank cares for increasing the security of using the services by modern logging systems as well as supporting the customers with the knowledge of safe usage of internet and internet banking Change Total number of outlets (in items) (8) Total number of ATMs (in items) 1,272 1, Number of customers actively using Pekao24 (in thousand) Retail clients SME segment Number of customers actively using PekaoBiznes 24 (in thousand)

17 4.3 Achievements of subsidiaries Pioneer Pekao TFI S.A. As at 30 th September 2007, the net assets value of mutual funds under management of Pioneer Pekao TFI S.A., a company managed by Pioneer Pekao Investment Management S.A. (in which the Bank holds a 49% share), amounted to PLN 29,801.3 million and was higher by PLN 6,537.9 million compared with the end of As at 30 th September 2007, the Company had 1,217.3 thousand open accounts (an increase by 24.9% since the beginning of 2007). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A. is presented in the table below: (PLN million) Change Net assets value of Pioneer Pekao TFI 29, , ,537.9 bond and money market funds 4, ,584.7 (935.4) equity funds 11, , ,215.3 balanced funds 14, , , Centralny Dom Maklerski Pekao S.A. (CDM) CDM (Central Brokerage House) provides the full scope of permitted brokerage services excluding asset management. In three quarters of 2007, the Company continued its successful performance despite challenging market conditions. At the end of September 2007, CDM maintained over thousand investment accounts and its market share was 15.3%. CDM also offered online access to investment accounts, allowing its customers to buy and sell all instruments listed on the Warsaw Stock Exchange and on the OTC market (CeTO) through the Internet. As at 30 th September 2007, CDM maintained 26.0 thousand online accounts, 6.3 thousand more than at the end of In order to further focus on the company s core business, organizational and legal changes are being analysed Business activity in Ukraine On 3 rd September 2007 the legal and operational merger of UniCredit Bank and HVB Ukraine took place resulting from the acquisition of 100% shares of HVB Ukraine on 30 th March The joint bank operates under the name UniCredit Bank Ltd. At the end of September 2007 UniCredit Bank operated through a network of 35 branches, serving over 47 thousand individual clients and almost 1.5 thousand corporate clients. Additionally the company developed its network of sale points for payment cards and consumer loans, increasing the number to 140 points as at the end of the third quarter of According to information provided by UniCredito Italiano on 5 th July 2007 Bank Austria Creditanstalt AG, a member of UniCredit Group, has signed an agreement to acquire approximately 95% of the share capital of Ukrsotsbank from the group of investors represented by Interpipe Group. The structure of the Ukrainian operations belonging to the UniCredit Group will be finally assessed following the transaction completion expected in last quarter of 2007 and after completion of the Spinoff transaction and of the transfer of control of Bank BPH. 17

18 4.4 Results achieved in three quarters of 2007 and the factors which influenced these results Results of the Group In the third quarter of 2007 the Group achieved quarterly record net profit which amounted to PLN million. The Group s net profit generated in three quarters of 2007 amounted to PLN 1,599.0 million and was PLN million (21.0%) higher than in three quarters of The increase in the net profit was possible through an increased commercial activity that translated into higher revenue, particularly fee and commission and interest income, with operating costs under control and lower cost of risk. The results confirm high efficiency of the Pekao Group. Return on average equity (ROE) increased from 21.0% in three quarters of 2006 to 24.7% in three quarters of Good results of Bank Pekao S.A. were accompanied by positive results of the Group s other subsidiary companies. The consolidated profit and loss account for three quarters of 2007 and three quarters 2006 is presented below: (PLN million) 3 Q Q 2006 Change Net interest income * 1, , % Fee and commission income 1, , % Dividend income % Trading income (21.1%) FX income % Other operating income / cost net % Total income 3, , % Overhead costs (including depreciation) (1,884.6) (1,732.0) 8.8% Operating income 1, , % Impairment losses on loans and advances (132.6) (160.7) (17.5%) Share in net profit (loss) of the associates % Pretax profit 1, , % Tax charge (363.3) (300.4) 20.9% Net profit 1, , % Attributable to equity holders of the Company 1, , % Attributable to minority interest % * Including income on SWAP transactions. The Group s income In three quarters of 2007, the Group s total income amounted to PLN 3,864.4 million, PLN million (12.0%) higher than in the comparable period of the previous year. The main growth driver in this period was fee and commission income, which increased by PLN million (19.7%), primarily from commissions on investment products. 18

19 (PLN million) 3 Q Q 2006 Change Fee and commission income 1, , % of which commissions on investment products % Another factor influencing the total income was interest income, which amounted to PLN 1,866.4 million, PLN million (6.9%) higher than in three quarters of 2006, mainly as a result of increasing volumes allowing to offset the impact of a lower yield on the debt securities portfolio. 3 Q Q 2006 Change Net interest income * (PLN million) 1, , % Net interest margin %** (0.2 p.p.) * Including income on SWAP transactions. ** Excluding BSB and SBB transactions. The Group s overhead costs (including depreciation) Total overhead costs (including depreciation) in three quarters of 2007 amounted to PLN 1,884.6 million, PLN million (8.8%) higher than in three quarters of (PLN million) 3 Q Q 2006 Change Overhead costs (including depreciation) (1,884.6) (1,732.0) 8.8% Personnel costs (998.1) (905.1) 10.3% Nonpersonnel costs (643.3) (588.3) 9.3% Depreciation (243.2) (238.6) 1.9% Overhead costs were kept under control, the increase was mainly due to the increase of variable part of personnel costs and expansion in the Ukrainian market. In three quarters of 2007, the Group s cost / income ratio amounted to 48.8% and was 1.4 p.p. lower than in comparable period of As at the end of September 2007, the Bank had 14,259 employees, a reduction of 103 employees compared with the end of 2006, and the Group had 16,117 employees, 470 employees more than at the end of The increase in the number of employees came mainly from increased employment in Ukraine also including the effect of consolidation of HVB Ukraine. Impairment losses on loans and advances In three quarters of 2007, impairment losses on loans and advances amounted to PLN million and were PLN 28.1 million (17.5%) lower than in comparable period of the previous year, benefiting from the effective credit risk management and a good macroeconomic situation. (PLN million) Change Gross credit and loans 39, , % not impaired 35, , % impaired 4, , % 19

20 Impairment losses (3,912.3) (3,830.2) 2.1% Interest % Total net value 36, , % The ratio of impaired receivables to total receivables decreased from 11.8% at the end of 2006 to 11.0% at the end of September 2007 as a result of an increase in the total volume of receivables (including the effect of the consolidation of HVB Ukraine). Loans In three quarters of 2007 the gross loans portfolio grew by PLN 3,518.9 million, i.e. by 9.6%. (PLN million) Change Gross loans (principal)* 40, , % corporate (principal) 27, , % retail (principal) 12, , % * Including debt securities eligible for rediscounting at the Central Bank and net investment in the finance lease, excluding non quoted securities and BSB transactions. The growth of loans in three quarters of 2007 was driven by growth of PLN mortgage loans (by PLN 1,879.2 million) and Express Loan (by PLN million), as well as growth of corporate loans (by PLN 1,577.6 million) which includes the effect of consolidation of HVB Ukraine. Savings Savings of the Group s clients (customer deposits and mutual funds) increased by PLN 8,616.3 million, up by 11.9% in three quarters of 2007 resulting from an increase both in savings of individual clients and in corporate deposits. Higher volume of savings of the Group s clients reported as at 30 th September 2007 is also influenced by consolidation of HVB Ukraine. The savings of retail clients increased by PLN 4,623.5 million in three quarters of 2007 as a result of a dynamic increase in mutual funds (by PLN 6,537.9 million). At the end of September 2007 total retail savings exceeded the level of PLN 54 billion. Corporate deposits increased in three quarters of 2007 by PLN 3,992.8 million. (PLN million) Change Deposits (principal) 51, , % corporate (principal) 27, , % retail (principal) 24, ,314.5 (7.3%) Pioneer Pekao TFI mutual funds 29, , % incl. distributed through the Group s network 26, , % Total savings 81, , % incl. retail 54, , % 20

21 4.4.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) 3 Q Q 2006 Net profit of Bank Pekao S.A. 1, ,327.0 Entities consolidated under full method Centralny Dom Maklerski Pekao S.A Pekao Fundusz Kapitałowy Sp. z o.o.* Pekao Leasing Sp. z o.o Pekao Financial Services Sp. z o.o Pekao Pioneer PTE S.A Pekao Faktoring Sp. z o.o Centrum Kart S.A Drukbank Sp. z o.o. ** Pekao Access Sp. z o.o. (0.1) 1.1 UniCredit Bank Ltd.*** (9.5) (3.3) Pekao Development Sp. z o.o. **** 6.5 Entities valued under equity method Pioneer Pekao Investment Management S.A Pirelli Pekao Real Estate Sp. z o.o. **** 12.9 (1.3) Krajowa Izba Rozliczeniowa S.A Central Poland Fund LLC Xelion. Doradcy Finansowi Sp. z o.o. (5.7) (8.2) Exclusions and consolidation adjustments ****** (241.0) (211.6) Net profit (loss) of the Group 1, ,321.1 * The result of the company includes valuation of entities under equity method as well as the influence of sale of shares of Anica System S.A. ** The result does not include the effect of sale of shares of UniCredit Bank Ltd. inside the Group. *** The result of the company for three quarters of 2007 includes the result of UniCredit Bank and the result of Bank HVB Bank Ukraine S.A. since the beginning of the second quarter up till the integration with UniCredit Bank. **** Equity valuation of the subsidiary since the second quarter 2006 due to sale of 75% of shares which took place on 3 rd April ***** Includes transactions within the Group, including dividends from subsidiaries for the year 2006 paid in 2007 (of which PLN million from CDM) and associates and opening balance amendments. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank for three quarters of 2007 and three quarters of 2006 are as follows: (PLN million) 3 Q Q 2006 Change Net interest income* 1, , % Noninterest income 1, , % Total income 3, , % Overhead costs (including depreciation) (1,683.8) (1,597.7) 5.4% Operating income 1, , % Impairment losses on loans and advances (87.3) (148.3) (41.1%) Pretax profit 1, , % Net profit 1, , % * Including income on SWAP operations 21

22 The main items of the Bank s balance sheet at the end of September 2007 in comparison with the end of 2006 are as follows: Change Total gross loans in PLN million* 37, , % Impaired receivables to total receivables in % (0.2 p.p.) Total deposits in PLN million* 50, , % Total assets in PLN million 73, , % Mutual funds distributed through the Bank s network in PLN million 24, , % Capital adequacy ratio in % (2.7 p.p.) * The nominal value. 4.5 Segment reporting Segment reporting of the Pekao Group covers following areas: Retail banking area fullrange of banking activity related to retail clients and small and micro companies with annual turnover not exceeding PLN 10 million, and also income of companies consolidated under the full method and assigned to retail activity, Corporate banking area fullrange of banking activity related to medium and large companies, and also income of companies consolidated under the full method and assigned to corporate activity, Treasury and Investment activities area Bank s involvement on interbank market, in debt securities and capital investments in companies, which are not a part of other segments, and also income of companies consolidated under the full method and assigned to this activity. Information on main segments results for three quarters of 2007: Retail activity Corporate activity Treasury and Investment activity (PLN million) Total Group External interest income , , ,177.7 External interest expense ,321.2 Net external interest income ,856.5 Internal interest income (1,847.5) 0.0 Internal interest expense (1,246.0) 0.0 Net internal interest income (601.5) 0.0 Net interest income 1, ,856.5 Non interest income 1, ,007.9 Total income 2, ,864.4 Allocated assets 14, , , ,228.2 Unallocated assets 6,531.7 Total assets 75,759.9 Allocated liabilities 29, , , ,947.5 Unallocated liabilities 11,812.4 Total liabilities 75,