ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF THE CAPITAL GROUP OF BANK OCHRONY ŚRODOWISKA S.A. FOR THE YEAR ENDED 31 DECEMBER 2015 WITH THE

Transcription

1 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF THE CAPITAL GROUP OF BANK OCHRONY ŚRODOWISKA S.A. FOR THE YEAR ENDED 31 DECEMBER 2015 WITH THE INDEPENDENT AUDITORS` REPORT Warsaw, March 2016

2 Contents of the annual consolidated financial statements in accordance with IFRS as endorsed by EU Page Annual consolidated income statement... 3 Annual consolidated statement of comprehensive income... 4 Annual consolidated statement of financial position of the Group... 5 Annual consolidated statement of changes in equity... 6 Annual consolidated statement of cash flows Basic information about Bank Ochrony Środowiska S.A. and the Bank Ochrony Środowiska S.A. Capital Group Information on the accounting policies adopted in the preparation of the annual consolidated financial statements Adjustments of prior period errors Significant accounting estimates and judgements Risk management Net interest income Net fee and commission income Net trading income Result on investment securities Foreign exchange result Other operating income Other operating expense Net impairment gains/losses General administrative expenses Employee benefits Income tax charges Earnings per share Cash and balances with the Central Bank Receivables from other banks Securities held for trading Loan and advances to customers Investment securities Intangible assets Property, plant and equipment Other assets Amounts due to other banks Amounts due to customers Debt securities issued

3 29. Subordinated debt Provisions Deferred income tax Other liabilities Contingent assets and liabilities Operating lease Brokerage activities Share capital Revaluation reserve Retained earnings Share based payment Additional information to the statement of cash flows Description of derivative financial instruments and foreign exchange transaction Fair value of financial assets and liabilities Breakdown of financial instruments measured at fair value by the valuation method Segment reporting Related-party transactions Acquisitions and disposals Dividends paid and declared Post balance sheet events Remuneration for the entity entitled to audit financial statements

4 Annual consolidated income statement 12 months ended Continued operations Comparative Note date Interest income and similar income Interest expense and similar charges Net interest income Fee and commission income Fee and commission expense Net fee and commission income Dividend income Net trading income Result on investment securities Result on hedge accounting Foreign exchange result Other operating income Other operating expenses Net impairment gains/losses Administrative expenses 14, Operating profit Profit/loss before tax Income tax expense current tax deferred tax Net profit/loss Attributable to: - equity holders of the parent Earnings per share attributable to equity holder of the parent during the period (in PLN) basic diluted There were no discontinued operations in 2015 and Notes on the pages 9 to 149 are an integral part of these consolidated financial statements. 3

5 Annual consolidated statement of comprehensive income Item For the year ended Comparative Note data Net profit/loss Items that may be reclassified subsequently to profit or loss Gain/loss on valuation of available for sale financial assets Valuation of cash flow hedges Deferred tax Items that will not be reclassified subsequently to profit or loss Revaluation of provisions for employee benefits Deferred tax Total comprehensive income Attributable to: - equity holders of the parent Notes on the pages 9 to 149 are an integral part of these consolidated financial statements. 4

6 Annual consolidated statement of financial position of the Group Item ASSETS Note Comparative data Comparative data Cash and balances with the Central Bank Receivables from other banks Securities held-for-trading Derivative financial instruments Derivative hedging instruments Loans and advances to customers Investment securities: available for sale held to maturity Intangible assets Property, plant and equipment Income tax assets current deferred Other assets Total assets LIABILITIES Amounts due to the Central Bank Amounts due to other banks Derivative financial instruments Derivative hedging instruments Amounts due to customers Debt securities issued Subordinated debt Provisions Income tax liabilities current deferred Other liabilities Total liabilities EQUITY Attributable to equity holders of the parent: Core capital Share capital Own shares Share Premium Revaluation reserve Retained earnings Total equity Total equity Notes on the pages 9 to 149 are an integral part of these consolidated financial statements. 5

7 Annual consolidated statement of changes in equity Attributable to shareholders of the Bank: Core capital (note 36) Retained earnings (note 38) Item Share capital Own shares Share premium Revaluation reserve (note 37) Other supplementary capital Other reserve capital General risk fund Retained earnings Total equity As at Net result Other comprehensive income Total comprehensive income Own shares purchase Management options Profit distribution, of which: Transfer of net profit to other capital Coverage of losses from previous periods As at As at Loss from previous years As at Net result Other comprehensive income Total comprehensive income Own shares purchase Management options Execution of payments of variable compensation in shares Foreign exchange differences Profit distribution, of which: Transfer of net profit to other capital Coverage of losses from previous periods As at There were no non-controlling interests in 2015 and Notes on the pages 9 to 149 are an integral part of these consolidated financial statements. 6

8 Annual consolidated statement of cash flows For the year ended Indirect method Note Comparative data CASH FLOWS FROM OPERATING ACTIVITIES Profit/loss before tax Total adjustments: Amortization and depreciation Interest on investing activities Profit/loss on investing activities - sale of fixed assets Interest on financing activities Unrealized exchange rate differences on financing activities Dividends received Dividends received from financial instruments held for trading Dividends received on securities available for sale Change in securities held-for-trading Change in assets and liabilities due to valuation of derivative financial instruments and derivative hedging instruments Change in receivables from other banks Change in loans and advances to customers Change in investment securities Change in other assets Change in amounts due to other banks and the Central Bank Change in amounts due to customers Change in provisions Change in other liabilities and income tax Income tax paid Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Inflows Disposal of tangible fixed assets Disposal of intangible assets Redemption of securities held to maturity Interests received from securities held to maturity Outflows Purchase of securities held to maturity Purchase of intangible assets Purchases of property, plant and equipment Net cash flows from investing activities

9 For the year ended Indirect method Note Comparative data CASH FLOWS FROM FINANCING ACTIVITIES Inflows Inflow from issue of bonds by the Group including subordinated bonds Outflows Purchase of own shares Redemption of bonds issued by the Group Interest paid on bonds issued by the Bank including subordinated bonds Net cash flows from financing activities TOTAL NET CASH FLOWS BALANCE SHEET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD, Including: Cash and cash equivalents with limited availability for use Notes on the pages 9 to 149 are an integral part of these consolidated financial statements. 8

10 Additional notes to the annual consolidated financial statements 1. Basic information about Bank Ochrony Środowiska S.A. and the Bank Ochrony Środowiska S.A. Capital Group 1.1. Bank Ochrony Środowiska S.A. The parent company of the is Bank Ochrony Środowiska S.A. (hereinafter the Bank, BOŚ S.A. or the parent company ). The Bank, with its registered office in Warsaw, Żelazna 32 street, was incorporated based on the decision No. 42 of the President of the National Bank of Poland ( NBP ) dated 15 September 1990 and the Notarial Deed of 28 September 1990 on the establishment of the Bank. On 4 June 2001, the Bank is entered into the National Court Register of the District Court in Warsaw, 12th Commercial Department, with the reference number KRS and the statistical number REGON According to the Polish Classification of Activities (PKD), the Bank s activities fall within the category PKD 6419Z. The Bank has an unlimited period of operation. According to BOŚ S.A. Statute, the key mission of the Bank is to support activities relating to the development of industry and services for the environmental protection, to develop the market for products and services related to environmental protection and promotion and setting up environmental attitudes and initiatives to protect environment. According to the Bank s Statutes, the Bank's area of activity is accumulating cash funds, lending, clearing, providing other banking services as well as financial advisory and consulting services. The main scope of the Bank s operations includes: accepting deposits payable on demand or on maturity and maintaining bank accounts for these deposits; maintaining other bank accounts; granting loans; issuing and confirming bank guarantees and opening and approving letters of credit; issuing bank securities; clearing cash transactions; issuing e-money instruments; granting cash loans; processing checks and bills of exchange; issuing payment cards and conducting transactions with the use of those cards; purchasing and selling cash receivables; custody services in respect of goods and securities and providing safe deposit facilities; buying and selling monetary instruments; issuing and confirming warranties; performing commissioned tasks related to issuing securities; intermediation in transferring cash and making international settlements; depositary bank services. The scope of the Bank s operations also includes: acquiring shares, rights vested in those shares or equity interests in legal entities and participation units in investment funds; incurring liabilities related to the issue of securities; trading in securities; performance of forward financial transactions; exchange of amounts due from debtors for their assets, on terms and conditions agreed with the debtors; purchasing and selling real estate; financial advisory services with respect to the environmental protection; factoring services; 9

11 reception and transmission of orders to buy or sell financial instruments with the proviso that a transaction may only be securities issued by the Treasury, or the Polish National Bank, or other admitted to organized trading financial instruments and bonds referred to in Art. 39p 1 of the Act of 27 October 1994 on Toll Motorways and the National Road Fund Act, as well as the execution of such orders on behalf of the principal; investments intermediation services; insurance intermediation services ; receivables collection services on commission of banks and entities with which the Bank concluded joint financing agreements or agreements for action under operation programs. Starting from 24 January 1997, in accordance with the decision of the Management Board of the Warsaw Stock Exchange (WSE), the Bank s shares were admitted to trading on the Warsaw Stock Exchange and classified to financial/banking sector category. The annual consolidated financial statements of Bank Ochrony Środowiska S.A. Capital Group for the year ended 31 December 2015 were authorized on 18 March 2016 by the Management Board of the parent company for publication to be made on Warsaw Stock Exchange on 21 March List of consolidated entities. The Capital Group of BOŚ S.A. as at 31 December 2015 includes Bank Ochrony Środowiska S.A., which plays a dominant role over its subsidiary Dom Maklerski BOŚ S.A., BOŚ Eko Profit S.A., BOS Finance AB, BOŚ Invest Management Sp. z o.o., BOŚ Nieruchomości Sp. z.o.o., BOŚ Capital Sp. z o.o. (previously: BOŚ Nieruchomości Sp. z o.o. Spółka Komandytowo Akcyjna), BOŚ Ekosystem Sp. z o.o. and indirectly owned subsidiary (a subsidiary of BOŚ Eko Profit S.A.) MS Wind Sp. z o. o. Dom Maklerski BOŚ S.A. operates on the capital market and in particular offers brokerage services.; BOŚ Eko Profit S.A. - capital investments in pro-ecological projects and financial and advisory services supplementary to the Bank s offer; BOS Finance AB - BOS Finance AB offers financial services, including those related to the issue of Eurobonds; BOŚ Invest Management Sp. z o.o. offers financial services, including financing of Bank Ochrony Środowiska S.A. Capital Group subsidiaries as well as financing of their rental office space demand; BOŚ Ekosystem Sp. z o.o. offers comprehensive solutions for households in respect to renewable energy sources and financial intermediation services, in particular related to financing of pro-ecological projects; BOŚ Nieruchomości Sp. z o.o. offers real estate trade and management services; BOŚ Capital Sp. z o.o. (previously: BOŚ Nieruchomości Sp. z o.o. Spółka Komandytowo-Akcyjna) provides operations regarding lease and management of own and leased real estate; MS Wind Sp. z o.o. realizes wind farm project. 10

12 The list of entities belonging to the Capital Group BOŚ S.A. subject to consolidation as at 31 December 2015: No. Subordinated entities Registered office Type of activity % Share in capital of the Company as at % Share in the voting rights as at Consolidation method Direct subsidiaries 1. Dom Maklerski BOŚ S.A. Warsaw 2. BOŚ Eko Profit S.A. Warsaw Brokerage services Capital investments, financial and advisory 100% 100% 100% 100% 3. BOS Finance AB Stockholm Financial services 100% 100% BOŚ Invest Management Sp. z o. o. BOŚ Nieruchomości Sp. z o.o. BOŚ Capital sp. z o.o. (previously: BOŚ Nieruchomości Sp. z o.o. S.K.A.) BOŚ Ekosystem Sp. z o.o. Warsaw Financial services 100% 100% Warsaw Warsaw Warsaw Trading activities of real estate Operations regarding lease and management of own and leased real estate Activities supporting financial services Subsidiary dependent in an indirect way (subsidiary of BOŚ Eko Profit S.A.) 100% 100% 100% 100% 100% 100% MS Wind Sp. z o. o. Poznań Wind farm project 100% 100% Full consolidation method Full consolidation method Full consolidation method Full consolidation method Full consolidation method Full consolidation method Full consolidation method Full consolidation method In the corresponding period in 2014, the Bank s interest in the share capital and in the voting rights equaled to: in Domu Maklerskim BOŚ S.A. 100%, in BOŚ Eko Profit S.A. 100%, in BOS Finance AB 100%, in BOŚ Invest Management Sp. z o.o. 100%, in BOŚ Nieruchomości Sp. z o.o. 100%, in BOŚ Capital Sp. z o.o. (previously: BOŚ Nieruchomości Sp. z o.o. S.K.A.) 100%, in Ekosystem Sp. z o.o. 100%, in MS Wind Sp. z o.o. 100%. 11

13 Additional information concerning Companies: No. Subordinated entities Revenue* \ Number of employees vacancies people Profit or loss before taxation (in PLN thousand) Income tax (in PLN thousand) Received financial support **\ Direct subsidiaries 1. Dom Maklerski Banku Ochrony Środowiska S.A ***\ BOŚ Eko Profit S.A BOS Finance AB BOŚ Invest Management Sp. z o. o BOŚ Nieruchomości Sp. z o.o BOŚ Capital Sp. z o.o. (former: BOŚ Nieruchomości Sp. z o.o. S.K.A.) BOŚ Ekosystem Sp. z o.o Subsidiary dependent in an indirect way (subsidiary of BOŚ Eko Profit S.A.) MS Wind Sp. z o. o *\ Income understood as net interest income + net commission income + net result on financial instruments + other operating income in thousands PLN. **\ Financial support from public funds, in particular on the basis of the act from 12 February on the State Treasury support to financial institutions (Journal of Laws 2014 item 158). ***\ The result before tax of DM BOŚ S.A. does not include consolidation adjustment in the amount of PLN 14 million on provision recognized in the Financial Statements of the Company in

14 1.3. Composition of the Management Board and the Supervisory Board of BOŚ S.A. (a) Composition of the Bank s Management Board The composition of the Management Board of the Bank as at 31 December 2015 was as follows: Dariusz Daniluk Stanisław Kolasiński Piotr Bolesław Lisiecki - President of the Board, - Vice-President, the first deputy of the President, - Vice-President of the Board. On 29 May 2015 r. Supervisory Board of the Bank dismissed: Mr. Mariusz Klimczak from the position of the President of the Board of the Bank, Mr. Adam Grzebieluch from the position of the Vice-President of the Board of the Bank and Entrusted the duties of the President of the Board to Mr. Dariusz Daniluk, Vice-President of the Board. On 2 July 2015 the Supervisory Board decided to appoint Mr. Dariusz Daniluk - former Vice-President, acting President of the Board, as President of the Board of BOŚ S.A., subject to the approval of the Polish Financial Supervision Authority. On 15 September 2015 the Supervisory Board of BOŚ S.A., dismissed Mr. Paweł Lemańczyk from the position of Vice-President of the Board and appointed Mr. Piotr Lisiecki as Vice-President of the Board. On 22 September 2015 Financial Supervision Authority approved the appointment of Mr. Dariusz Daniluk as President of the Management Board of Bank Ochrony Środowiska S.A. On 7 January 2016 the Supervisory Board supplemented the composition of the Management Board with two members: Mr. Paweł Adam Pitera as Vice-President of the Board, Mr. Sławomir Wojciech Zawadzki as Vice-President of the Board, The newly appointed Board members took office on 11 January On 15 February 2016 the Supervisory Board of BOŚ S.A. dismissed Mr. Dariusz Daniluk from the position of President of the Board and Mr. Piotr Lisiecki from the position of Vice-President of the Board. At the same time the Supervisory Board entrusted duties of the President of the Management Board to Mr. Sławomir Zawadzki, Vice-President of the Management Board of BOŚ S.A. and delegated member of the Supervisory Board of BOŚ S.A., Mr. Oskar Kowalewski to temporarily perform the duties of Vice-President of the Management Board for a period of three months. As a result of the above the composition of the Management Board of the Bank as at 18 March 2016 was as follows: Sławomir Wojciech Zawadzki Stanisław Kolasiński Paweł Adam Pitera Oskar Marek Kowalewski - Vice-President acting as President of the Board, - Vice-President, the first deputy of the President of the Management Board, - Vice-President of the Board, - Member of the Supervisory Board delegated to temporarily perform the duties of Vice-President. The composition of the Supervisory Board of the Bank as at 31 December 2014 was as follows: Mariusz Klimczak - President Stanisław Kolasiński - Vice-President first deputy of the President of the Board, Dariusz Daniluk - Vice-President of the Board, Adam Zbigniew Grzebieluch - Vice-President of the Board, Paweł Kazimierz Lemańczyk - Vice-President of the Board, 13

15 (b) Composition of the Bank s Supervisory Board The composition of the Supervisory Board of the Bank as at 31 December 2015 was as follows: Jacek Czesław Ciepluch Piotr Bogdan Kaczyński Adam Grzegorz Wasiak Members of the Board: Bartosz Zbigniew Januszewski, Józef Kozioł, Marek Ignacy Mielczarek, Ryszard Ochwat, Adam Aleksander Wojtaś. President of the Board, Vice-President of the Board, Secretary of the Board. On 10 June 2015, during the Ordinary General Shareholders Meeting of BOŚ S.A. Mr. Marcin Likierski, President of the Supervisory Board, resigned from the Supervisory Board of BOŚ S.A. Reason of the resignation was published by the Bank in the current report No. 24/2015 on 10 June On 10 June 2015, the Ordinary General Shareholders Meeting: - passed a resolution on the dismissal of Mr. Mariusz Roman Karpiński and Mr. Andrzej Kazimierz Kraszewski from the Supervisory Board, and - passed a resolution on the appointment of Mr. Bartosz Zbigniew Januszewski and Mr. Marek Ignacy Mielczarek to the Supervisory Board. On 2 July 2015 the Supervisory Board of the Bank appointed Mr. Jacek Czesław Ciepluch as President of the Board. On 15 February 2016 during the Extraordinary General Meeting of BOŚ S.A. Mr. Jacek Ciepluch, President of the Supervisory Board, resigned from the Supervisory Board of BOŚ S.A. On 15 February 2016 the Extraordinary General Meeting of BOŚ S.A. adopted the following resolutions on: dismissal from the Supervisory Board: Mr. Bartosz Zbigniew Januszewski, Mr. Piotr Bogdan Kaczyński, Mr. Józef Kozioł, Mr. Marek Ignacy Mielczarek, Mr. Ryszard Ochwat, Mr. Adam Grzegorz Wasiak and Mr. Adam Aleksander Wojtaś, appointment to the Supervisory Board: Mr. Oskar Marek Kowalewski, Mr. Andrzej Kurnicki, Mr. Andrzej Grzegorz Matysiak, Mrs. Anna Stanisława Milewska, Mr. Paweł Wojciech Mzyk, Mr. Piotr Sadownik, Mr. Marian Szołucha, Mr. Emil Stanislaw Ślązak, Mr. Wojciech Piotr Wardacki. On 15 February 2016 the Supervisory Board appointed Mr. Wojciech Piotr Wardacki as the President of the Board, Mr. Andrzej Grzegorz Matysiak as Vice-President of the Board and Mr. Andrzej Kurnicki as Secretary of the Board. Simultaneously, the Supervisory Board of BOŚ S.A. delegated Mr. Oskar Kowalewski, acting as a Member of the Supervisory Board to temporarily perform the duties of Vice-President of the Management Board for a period of three months. 14

16 As a result of the above the composition of the Supervisory Board of the Bank as at 18 March 2016 was as follows: Wojciech Piotr Wardacki Andrzej Grzegorz Matysiak Andrzej Kurnicki - President of the Board - Vice-President of the Board - Secretary of the Board Members of the Board: Anna Stanisława Milewska, Paweł Wojciech Mzyk, Piotr Sadownik, Marian Szołucha, Emil Stanisław Ślązak. The composition of the Supervisory Board of the Bank as at 31 December 2014 was as follows: Marcin Likierski Piotr Bogdan Kaczyński Adam Grzegorz Wasiak - President of the Board - Vice-President of the Board - Secretary of the Board Members of the Board: Jacek Czesław Ciepluch, Józef Kozioł, Andrzej Kazimierz Kraszewski, Mariusz Roman Karpiński, Ryszard Ochwat, Adam Aleksander Wojtaś. 15

17 2. Information on the accounting policies adopted in the preparation of the annual consolidated financial statements 2.1. Basis for the preparation of financial statements The annual consolidated financial statements of the Bank Ochrony Środowiska S.A. Capital Group (the, the Group, the Capital Group ) include: consolidated statement of profit or loss for the period of 12 months ended 31 December 2015 and comparative data for the period of the 12 months ended 31 December 2014, consolidated statement of comprehensive income for the period of 12 months ended 31 December 2015 and comparative data for the period of 12 month ended 31 December 2014, consolidated statement of the financial position as at 31 December 2015 and comparative data as at 31 December 2014 and 1 January 2014, consolidated statement of changes in equity for the period of 12 months ended 31 December 2015 and comparative data for the period of 12 months ended 31 December 2014, consolidated statement of cash flows for the period of 12 months ended 31 December 2015 and comparative data for the period of 12 months ended 31 December 2014, additional explanatory notes. These annual consolidated financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) as endorsed by the European Union ( EU ) in force as at 31 December 2015 and have been prepared under the same accounting policies for each period. IFRSs comprise standards and interpretations accepted by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). Dom Maklerski BOŚ S.A., BOŚ Eko Profit S.A., BOS Finance AB, BOŚ Invest Management s. z o.o. BOŚ Nieruchomości Sp. z o. o., BOŚ Capital Sp. z o.o. (formerly: BOŚ Nieruchomości Sp. z o. o. S.K.A.), BOŚ Ekosystem Sp. z o.o. and MS Wind Sp. z o.o. prepare financial statements in accordance with International Financial Reporting Standards ( IFRS ) as endorsed by the European Union ( EU ). The annual consolidated financial statements of the Capital Group were prepared under the historical cost convention, except for the valuation of the available for sale financial assets and trading securities, and all the derivative contracts measured at the fair value. The accounting policies applied by the Group are described in detail in the Note of these financial statements. The annual consolidated financial statements have been prepared in Polish zloty (PLN) and all the values are presented, unless stated otherwise. The annual consolidated financial statements have been prepared based on the assumption that the Bank and the companies of the Group will continue as going concern in the foreseeable future, at least 12 months from the balance sheet date. The following one-off events had impact on the net loss recognized by the Bank for the year 2015: additional payment for the Bank Guarantee Fund in the amount of PLN 28.2 million as a consequence of the bankruptcy of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin and the resulting payoff of guaranteed funds; payment for the Borrowers Support Fund in the amount of PLN 9.0 million. Borrowers Support Fund was established in order to aid individual debtors in difficult financial situation. In relation to the Article 142 of the Banking Law, which requires the banks, who have incurred a net loss, to inform Polish Financial Supervision Authority and to present the Recovery Program. The Management Board of the Bank has already commenced preparation of the Recovery Program. The main goal of the program is to establish conditions for the increase of effectiveness of the Bank s operations, understood as reaching constant profitability and allowing meeting capital requirements. The Bank s Management Board took actions leading to the increase of share capital of BOŚ S.A. On 15 February 2016 the Extraordinary Shareholders Meeting of BOŚ S.A. adopted a resolution concerning 16

18 the approval of the schedule of share capital increase. Deadlines of actions taken, covered by the schedule of raising share capital of the Bank Ochrony Środowiska S.A., were proposed by the Management Board, under the assumption of increasing the capital via private placement of shares. On 26 February 2016 the Supervisory Board of BOŚ S.A., realizing the timetable of raising share capital of BOŚ S.A adopted by the Extraordinary Shareholders Meeting of BOŚ S.A., issued a positive opinion about conditions of raising share capital via the issue of series U shares, presented by the Management Board. Planned issue of new shares amounts between PLN 300 million and PLN 600 million. Management Board aims to raise capital of not less than PLN 400 million, which will allow the Bank to grow organically, generate funds to fulfil Bank s mission of financing ecological and sustainable growth investments. Increase of the share capital will allow the Bank to meet the requirements of additional capital requirements imposed on the Bank by the Polish Financial Supervision Authority since 1 January Taking into account the above factors, as at the date of the authorization of these annual financial statements, the Management Board is not aware of any facts or circumstances that would indicate a threat to the going concern of the Bank and its subsidiaries within a least 12 months from the balance sheet date due to an intended or compulsory abandonment or limitation of the current activity. In the present annual consolidated financial statements, the same accounting policies have been adopted as in the annual financial statements for the year 2014, with the exception of the adoption of the new or amended standards or interpretations obligatory for the annual periods beginning on or after 1 January 2015: 1) Amendments to IFRSs , including: Amendments to IFRS 3 Business combinations, The amendments clarify that not only the projects, but also a common contractual arrangements are outside the scope of IFRS 3. This exception applies only to the preparation of financial statements in common the contractual arrangement. The amendment is applied prospectively. Amendments to IFRS 13 Fair Value Measurement The amendments clarify that the exception relating to the investment portfolio does not apply to financial assets and financial liabilities only, but also to the other contracts included in IAS 39. Changes to be applied prospectively. Amendments to IAS 40 Investment Property Specification of additional services described in IAS 40 distinguishes investment property from owneroccupied property (fixed assets). The change is applied prospectively and explains that it is IFRS 3 instead of definition of the services contained in IAS 40, is used to determine whether the transaction is a purchase of assets or projects. 2) IFRIC 21 Levies The interpretation clarifies that an entity recognizes public payables when the obligating event occurs, or action that triggers the payment of fees in accordance with regulations. In the case of the fees owed exceeding the minimum threshold, the entity recognizes a liability until this threshold is reached. IFRIC 21 is applied retrospectively. Taking into account the position of the Ministry of Finance and the Polish Financial Supervision Authority concerning application of the requirements of IFRIC 21 in relation to the fees payable to the Bank Guarantee Fund (BFG), the Bank decided to use linear recognition of BGF costs incurred for the year 2015, similar as in previous years. The adoption of these amendments did not have any effect on the financial position or performance of the Group or data presented in these interim condensed consolidated financial statements. The Group did not choose an early adoption of any other standard, interpretation or change, which has been published, but is not yet binding in the light of EU regulations. 17

19 2.2. New standards and interpretations have been issued but have not come into force The following standards and interpretations have been issued by the International Accounting Standards Board or International Financial Reporting Interpretations Committee, but did not come into force: - Changes to IFRS (published on 12 December 2013) - some of the changes have application for annual periods beginning on 1 July 2014 or later and some prospectively for transactions occurring on July 1, 2014 or later in the EU applicable at the latest for the annual periods beginning on or after February 1, 2015 or later, - Amendments to IFRS 11 Settlement of purchase of a share in a common activity (published on 6 May 2014) - effective for annual periods beginning on or after January 1, 2016 or later, - Amendments to IAS 19 Defined benefit plans: Staff contributions (published on 21 November 2013) - effective for annual periods beginning on or after 1 July 2014 or later, the EU applicable at the latest for the annual periods beginning on 1 February 2015 years or later, - Amendments to IAS 16 and IAS 38 Explanation of allowable depreciation methods (published on 12 May 2014) - effective for annual periods beginning on or after January 1, 2016 or later - Amendments to IAS 16 and IAS 41 Agriculture: plant production (published June 30, 2014) - effective for annual periods beginning on or after January 1, 2016 or later, - Amendments to IAS 27, equity method in the separate financial statements (published August 12, 2014) - effective for annual periods beginning on or after January 1, 2016 or later, - Improvements to IFRS (published 25 September 2014) - effective for annual periods beginning on or after January 1, 2016 or later, - Amendments to IAS 1 Disclosures (published 18 December 2014) - effective for annual periods beginning on or after 1 January 2016 or later, Standards and Interpretations adopted by the IASB, but not yet approved for use in the UE IFRS as adopted by the EU do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), with the exception of the following standards, amendments to standards and interpretations, which as of the date (the date of publication of the financial statements) have not yet been adopted for use in the EU (following dates of entry into force relate to the standards in the full version): - IFRS 9 Financial Instruments (published 24 July 2014) - the date of approval of these financial statements approved by the EU - effective for annual periods beginning on or after January 1, 2018 or later, - IFRS 14 Regulatory accruals (published January 30, 2014) - according to the decision of the European Commission approval process standard pre-release will not be initiated before the release of the standard in the final - the date of approval of these financial statements approved by the EU - applicable to annual periods beginning on or after January 1, 2016 or later, - IFRS 15 Revenue from Contracts with Customers (published 28 May 2014), including the amendments to IFRS 15 Effective date IFRS 15 (published on 11 September 2015) - the date of approval of these financial statements approved by the EU - effective for annual periods beginning on or after January 1, 2018 or later, - Amendments to IFRS 10 and IAS 28 sales transactions or transfers of assets between the investor and the associate or joint venture (published 11 September 2014) - no decision as to the date on which EFRAG will carry out the various stages of work leading to the approval of these changes - the date of approval of these financial statements approved by the EU - the date of entry into force was deferred by the IASB for an indefinite period, - Amendments to IFRS 10, IFRS 12 and IAS 28 Investment units: The use of the exception for consolidation (published 18 December 2014) - the date of approval of these financial statements approved by the EU - effective for annual periods beginning on or after 1 January 2016 or later, - IFRS 16 Leasing (published on 13 January 2016) - no decision as to the date on which EFRAG will carry out the various stages of work leading to the approval of these amendments to the date of 18

20 approval of these financial statements approved by the EU - effective for annual periods beginning on or January 1, 2019 or later, - Amendments to IAS 12 Recognition of deferred tax assets arising from unused tax losses (published on 19 January 2016) - the date of approval of these financial statements approved by the EU - effective for annual periods beginning on or after January 1, 2017 years or later, - Amendments to IAS 7 Initiative on disclosure of information (published on 29 January 2016) - the date of approval of these financial statements approved by the EU - effective for annual periods beginning on or after January 1, 2017 or later Consolidation These consolidated financial statements include the financial statements of Bank Ochrony Środowiska S.A. and the financial statements of the companies controlled by the Bank or its subsidiaries for the year ended 31 December The financial statements subsidiaries are prepared based on consistent accounting policies applied to transactions and events of a similar nature as well as for the same reporting period except for the BOŚ Capital Sp. z o.o. (previously: BOŚ Nieruchomości Sp. z o.o. S.K.A.) of which financial statements will be prepared as at 31 December 2016, however the company prepared consolidation package as of 31 December In order to eliminate any divergences in the applied accounting principles, consolidation adjustments have been implemented. All significant balances and transactions between the entities belonging to the Group, including unrealized gains arising from transactions within the Group have been fully eliminated. Unrealized losses are eliminated unless they present evidence of impairment. Subsidiaries are consolidated in the period starting from the date of the acquisition of control over them by the Group and cease to be consolidated at the date such control terminates. The control of a parent company takes place when: - it holds control directly or indirectly through its subsidiaries, - is exposed to variable returns or is entitled to variable returns for its engagement in the company, - has a possibility to use a power to impact level of generated returns. The Group verifies its control over other companies, if a change in one or more conditions of control mentioned above occurred. If the Group holds less than a half of the voting rights but holding rights are enough to guide company s relevant actions, it shall exercise authority over the company. When assessing whether the rights to vote in the company are enough to exercise authority, the Group analyze all the relevant circumstances, including: - proportion of voting power held, in comparison to other shareholders shares and a level of their voting power dispersion, - a level of potential voting power held by the Company, other shareholders or third parties; - rights resulting from other contractual agreements, - additional exceptional circumstances, which may prove that the Company has or has not a possibility to guide company s relevant actions at the time the decision is adopted, including voting patterns Changes in the share of parent's ownership over a subsidiary that do not result in the loss of control are recognized as equity transactions. In such cases, the Group adjusts the carrying amount of controlling and non-controlling interests in order to reflect the changes in the relative share of the Group in the subsidiary. Any difference between the amount of adjustment of non-controlling interests and the fair value of the amount paid or received are recognized in equity and attributed to the dominant entity's shareholders. In case the Group lost control over subsidiary, profit or loss shall be recognized in the statement for profit or loss, calculated as the difference between sum of aggregated amount of received payment, the fair value of the preserved shares and the initial carrying value of assets (including goodwill) and the subsidiary s liabilities as well as non-controlling interests. All amounts connected to this subsidiary, 19

21 originally recognized as other comprehensive income, shall be settled as the Group had directly disposed corresponding assets or liabilities of the subsidiary (e.g. presents in the financial result or in other category of equity, in accordance with the relevant IFRS). The fair value of any investment retained in the former subsidiary, at the date when control is lost, is treated as the fair on initial recognition of a financial asset in accordance with IAS 39 in order to allow settlement of cost, which was incurred at the moment of initial investment recognition in associate or joint venture Operational segment reporting An operating segment is a component of, engaged in business activities from which it may earn revenues and incur expenses, the operating results of which are reviewed regularly by the Bank s Management Board. Furthermore, the results are taken into account in the process of making decisions about resources to be allocated to the segment and assessing its performance. Separate financial information is available for each operating segment. Operational segments reporting has similar basis as the one adopted for the purposes of the internal reporting purposes. In compliance with IFRS 8, the following operating segments have been distinguished within the Group: corporate client and public finance segment, retail client segment, treasury and investment activity, brokerage activity, other (non-allocated in segments). The Group does not conduct geographically diversified business. The detailed description of the reporting policy according to segments is presented in the Note Measurement of items denominated in foreign currencies (a) Functional currency and presentation currency Items included in the financial statements of entities of the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The annual consolidated financial statements are presented in Polish zloty which is both the functional currency and the currency of presentation. (b) Transactions and balances Transactions denominated in foreign currencies are translated into the functional currency at the rate prevailing at the transaction date. Gains and losses on settlements of these transactions and on the balance sheet valuation of assets and liabilities denominated in foreign currencies are recognized in the income statement. Foreign exchange differences on non-monetary assets, like financial assets priced at fair value through profit and loss statement, are reported as gains and losses from fair value changes. Foreign exchange differences on non-monetary items such as equity instruments classified as financial assets available for sale are included in other comprehensive income. Change in the fair value of monetary financial assets available for sale include foreign exchange differences arising from the valuation at amortized cost and are recognized in profit and loss statement. Balance sheet assets and liabilities denominated in foreign currencies are translated into Polish zloty at the average exchange rate set by the President of the NBP prevailing as at the balance sheet date, which amounted to: PLN for 1 EUR PLN for 1 USD PLN for 1 CHF

22 Statement of comprehensive income for the periods from 1 January 2015 to 31 December 2015 and from 1 January 2014 to 31 December 2014 denominated in foreign currencies are translated into Polish zloty using arithmetic averages set by the President of the NBP for the last day of the month in the periods from 1 January 2015 to 31 December 2015 and from 1 January 2014 to 31 December 2014, which amounted to: PLN for 1 EUR PLN for 1 USD PLN for 1 CHF Interest income and expense Interest income is recognized in the consolidated income statement for all financial instruments measured at amortized cost using the effective interest rate method, financial assets available for sale and financial instruments at fair value through profit or loss. The effective interest rate method is a method for calculating the amortized cost of a financial asset or a financial liability and for allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options not being separated from the host contract) but does not consider potential future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset, or a group of similar financial assets, has been written down as a result of an impairment loss, interest income is recognized at the interest rate used to discount the future cash flows for the purpose of impairment loss measurement Hedge accounting Hedge accounting recognizes the effects of offsetting changes in fair value and cash flows from hedging instrument and from hedged item affecting the income statement. The Group applies hedge accounting, if all the following criteria as defined in IAS 39 are met: at the inception of the hedge there is a formal designation and documentation of the hedging relationship, risk management objective of the Group and strategy for the hedge, documentation identifies the hedging instrument, hedged item, the nature of the risk being hedged and how the Group will evaluate the effectiveness of the hedging instrument in offsetting the risk of changes in fair value of the hedged item's or cash flows attributable to the hedged risk, it is expected that the hedge will be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship, for cash flow hedges, a forecast transaction that is the subject of a hedge must be highly probable and must be subject to the risk of changes in cash flows which a result may impact the profit and loss account, effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of the hedged the hedge is constantly evaluated and found to have been highly effective throughout the reporting periods for which the security has been established. The Group applies cash flow and fair value hedge accounting. 21

23 Cash flow hedge is a hedge against variability of cash flows that are attributable to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and which could affect profit or loss. Securing the future cash flows, meeting the conditions for hedge accounting, the Bank recognized as follows: gain or loss on the hedging instrument for the effective part of the security are recognized in equity through the statement of comprehensive income during the hedging relation, gain or loss on the hedging instrument for the security of any ineffective portion are recognized in the consolidated profit and loss account in Result on hedge accounting, interest on hedging derivatives are presented in the same line of the income statement in which the interest on the hedged instrument, i.e. the net interest income is presented. When the cash flow hedge stops meeting the criteria of hedge accounting, the valuation of hedged instrument comprised directly in the capital at the day of the last effective test remains in capital till the cash flow from hedged transaction. Transfer of valuation, which is mentioned above, to the income statement to the line Result on hedge accounting occurs in periods, in which the hedged transaction influences the income statement. A fair value hedge is a hedge against changes in the fair value of a recognized asset, liability or probable future liability or an identified portion of this recognized asset, liability or probable future liability which can be attribute to a particular risk and can affect the income statement. Fair value hedge which meets the requirements of hedge accounting is recognized by the Group as follows: 1) Changes of fair value of hedging instrument (i.e. derivative instrument designed as fair value hedge) is recognized in the consolidated income statement, in result on hedge accounting, 2) The gain or loss on the hedged item attributable to the hedged risk adjust the carrying amount of the hedged item and are recognized in the consolidated income statement, in result on hedge accounting, 3) Interests on hedging derivatives are presented in the same line of the income statement as the interest on hedging instruments which means in the net interest income, 4) The valuation of hedged financial assets classified as available for sale, resulting from factors other than hedged risk, is recognized in the revaluation reserve till the disposal of maturity of asset. If the fair value hedge does not longer meet the criteria of hedge accounting, the valuation adjustment of the carrying amount of the hedged instrument measured by the effective interest rate is charged to the income statement in the time remaining to maturity. The valuation of hedged financial, resulting from factors other than hedged risk, is recognized in the revaluation reserve till the disposal or maturity of this asset Fee and commission income and cost Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with the related direct costs) and recognized as an adjustment to the effective interest rate on the loan upon recognition of the amount due. Costs of fees and commissions related to loans adjusted for effective interest rate are recognized according to the effective interest rate and presented in the interest result. Loan syndication fees are recognized as revenue when the syndication has been completed and the Bank retained no part of the credit risk for itself or retained a part at the same effective interest rate for the other participants. Fees and commissions from the negotiating or the participation in the negotiating of a transaction on behalf of a third party such as acquisition of shares or other securities or the acquisition or sale of a company are recognized when the transaction is 22