Key financial data Q Q International credit ratings Moody's Fitch. Ba1 Baa3 B2 BBB BBB BBB-

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2 Key financial data Key indicators Return on equity after tax (ROE a.t.) -22.2% -13.7% 4.4% -22.2%* -11.6% * 2.0% * Return on assets after tax (ROA a.t.) -1.7% -1.1% 0.4% -1.4%* -0.7% * 0.1% * Cost/income ratio (CIR) 55.8% 58.5% 34.8% 59.7% 60.2% 44.9% Capital adequacy ratio (CAR) 10.1% 12.0% 10.1% 11.1% 12.0% 11.7% Core Tier 1 ratio 6.3% 7.2% 10.1% 6.3% 6.8% 10.2% Loan/deposit ratio (LTD) 111.9% 112.5% 119.2% 105.4% 107.0% 109.0% Market share in terms of total assets 26.6% 27.5% 25.2% Income statement indicators (in million EUR) Net interest income Net non-interest income Costs Impairments and provisions Result before tax Result after tax Financial position statement indicators (in million EUR) Total assets 12,980 13,566 11,963 16,445 17,287 14,915 Loans to non-banking sector 8,462 8,719 7,975 10,749 11,212 9,971 Deposits from non-bankig sector 7,562 7,749 6,690 10,196 10,481 9,113 Equity 957 1,103 1, ,145 1,390 Equity of minority shareholders International credit ratings Moody's Fitch Q Q 2012 Ba1 Baa3 B2 BBB BBB BBB- * Without taking into account the profits of minority shareholders. 2

3 Contents Business Report 2 Introduction 3 Key events 5 Financial review of operations 5 Income statement 5 Statement of financial position 7 Capital and capital adequacy 9 Financial Statements 10 1

4 1 Report Business 2

5 Introduction is the largest Slovenian banking and financial group which as at 30 consisted of 46 banks and companies, while it also operates one subsidiary and representative offices on foreign markets. The most important activity of is banking, which is complemented by other financial activities such as leasing, factoring, forfeiting, insurance and asset management. comprises the following in 13 countries or 14 markets: 11 members and 1 subsidiary abroad in the banking sector; 7 members in the leasing sector; 9 members in the area of factoring and forfeiting; 3 members in the insurance sector; 1 member in asset management; 15 members in other activities. Illustration 1: Ownership structure of as at 30 Other shareholders 14.82% Poteza naložbe - in bankruptcy 3.94% Slovenska odškodninska družba (Slovenian remuneration fund) 9.00% Republic of Slovenia 40.21% Kapitalska družba (Slovenian pension fund) 9.99% Business Report 3 KBC Bank 22.04%

6 Southeastern Europe Western and Central Europe Table 1: Matrix of activities of members by country as at 30 Slovenia Austria Czech Republic Germany Italy Switzerland Bosnia and Herzegovina Bulgaria Croatia Banking, Ljubljana; Banka Celje, Celje*; SIB (in liquidation), Ljubljana Adria Bank, Vienna* LHB Internationale Handelsbank, Frankfurt/Main Trieste Branch, Trieste Razvojna banka, Banja Luka; banka, Tuzla Leasing Leasing, Ljubljana Leasing, Sarajevo Leasing, Sofia Optima Leasing, Zagreb Factoring and forfeiting Prvi faktor, Ljubljana** InterFinanz, Prague; Factoring, Ostrava InterFinanz, Zürich Prvi faktor, Sarajevo** Prvi faktor, Zagreb** Insurance Vita, Ljubljana**; Skupna pokojninska družba, Ljubljana* Asset manageme nt Skladi, Ljubljana Other activities Prospera Plus, Ljubljana; Propria, Ljubljana; Bankart, Ljubljana*; FIN-DO, Domžale; ICJ, Domžale**; Kreditni biro SISBON, Ljubljana*; Grušč, Nova Gorica* LHB Immobilien, Frankfurt/Main Plan, Banja Luka; CBS Invest, Sarajevo LHB Trade, Zagreb; OL Nekretnine, Zagreb Kosovo Macedonia Montenegro Prishtina, Pristina Tutunska banka, Skopje Montenegrobanka, Podgorica Lizing, Skopje Leasing, Podgorica Prvi faktor, Skopje** Nov penziski fond, Skopje Serbia banka, Belgrade Leasing, Belgrade InterFinanz, Belgrade; Prvi faktor, Belgrade** Conet (in liquidation), Novi Sad; Convest, Novi Sad; Srbija, Belgrade * Associated companies. ** Joint ventures. Business Report 4

7 Key events 1st quarter: received the award of the financial magazine Euromoney for the private banking service in the category of the best overall service. received the award of the financial magazine Global Finance for the best bank in Slovenia for the fifteenth consecutive time in nd quarter: Merger of Leasing Maribor and Leasing Koper with Leasing Ljubljana. Reduced credit rating of by the rating agency Moody's to Ba2. Recall of the members and appointment of new members of the Supervisory Board of. Growth in the 's capital position by good EUR 500 million through the raising of a hybrid loan of EUR 320 million from the Republic of Slovenia, issue of new shares in the amount of EUR 61 million and restructuring of the existing subordinated instruments of the Bank. 3rd quarter: Completed procedure of voluntary liquidation of the company Penzija. Receipt of the order of the European Commission regarding the introduction of the procedure of establishing state aid. Janko Medja appointed as a new President of the Management Board of. The rating agency Moody s downgrades the 's credit rating to B2. The rating agency Fitch downgrades the 's credit rating to BBB-. received from Deutsche Bank an award for a third year in a row for the excellent level of the STP (straight through processing) in performing commercial payments to their bank. Financial review of operations In the first nine months of 2012 recorded a profit before provisions totalling EUR million and in the amount of EUR million. The profit after tax, which totalled EUR 16.2 million in and EUR 36.0 million in, was influenced by high established impairments and provisions in the amount of EUR million at the level of the Group or EUR million at the level of the Bank. Comprehensive result, which also takes into account evaluations of securities and cash flows, otherwise recognised through equity, amounted to EUR 34.5 million at the level of the Group and EUR 58.8 million at the level of the Bank. Key events and factors influencing the operations of in the first nine months of 2012 were the following: - The activities for assuring capital adequacy ratios (issue of a new hybrid loan, capital increase and restructuring of the existing subordinated instruments of the Bank). - Reduction of the volume of loans extended to the non-banking sector and continued deterioration of portfolio quality both in and the subsidiaries. - Outflow of deposits in all segments, particularly the state segment. - Final redemption of the bond with state guarantee. - Improvement of cost efficiency. Income statement In the first nine months of 2012, net interest income of totalled EUR million, which is a decrease of 10% compared to the same period of the previous year. The similar trend can be noticed also at the level of the Bank which generated net interest income in the amount of EUR million or 6% less than in the same period of the previous year. Business Report 5

8 The largest share in the structure of net non-interest income is net revenues from financial operations, arising from early redemption of capital instruments at discounts which amount to EUR million at the level of the Group and EUR million at the Bank level. Net non-interest income of the Group total EUR million and that of the Bank EUR million. The costs at the level of and the Bank are by 2% and 4% lower, reaching EUR million and EUR million, respectively. Employee costs which account for more than one half of all costs increased by 1% at the Group level and decreased by 3% at the Bank level compared to last year. Operative costs also decreased compared to the last year, namely by 5% at the Group and Bank level and the costs of depreciation by 7% and 5% at the Group and Bank level, respectively. The cost/income ratio (CIR) stood at 44.9% for, i.e. by 15.3 p.p. more favourable compared to the same period last year, while the same indicator for improved by 23.7 p.p. to 34.8%. A significant improvement in the ratio is the result of extraordinary revenues from the redemption of capital instruments at discounts. In spite of economic recovery, credit risk still had a considerable impact. Consequently, Group established EUR million of additional impairments and provisions in the first nine months of 2012, which is 10% less than in the same period of the previous year, while additional impairments and provisions in totalled EUR million, which is 9% less than in the same period of the previous year. Table 2: Key income statement items Grow th in million EUR in million EUR in million EUR in million EUR Net interest income % % Net non-interest income % % Net fees and commissions % % Dividend revenues % % Net income from financial transactions % % Net other revenues % % Total net income % % Costs % % Employee costs % % Operating costs % % Depreciation and amortisation % % Result from equity investments in associates and joint ventures (equity method) % Result before provisions % % Impairments and provisions % % Impairments of financial assets available for sale through equity % % Credit impairments and provisions % % Other impairments and provisions % % Result before tax % % Income tax expense Result of minority shareholders % Result after tax % % Effects recognised through equity % % - from cash-flow hedges % % - from financial assets available for sale % % - other % % Comprehensive result % % Grow th Business Report 6

9 Financial markets (Slovenia) Retail banking (Slovenia) Other activities Strategic foreign markets Non-strategic markets and activities Corporate banking (Slovenia) Illustration 2: Result before tax structure in the first nine months of 2012 in million EUR Statement of financial position At the end of the third quarter of 2012, the total assets of amounted to EUR 14,915.4 million, which is 9% less than at the end of last year, while the total assets of decreased by 8%, reaching EUR 11,962.9 million. The operations of are still marked by the stagnation of credit growth. The results of the recession in the real sector were seen in deterioration of the Group s asset portfolio and the resulting need for reprogramming the loans in the segments most affected by the recession. increased the requirements for collaterals and made the criteria on project feasibility stricter, and at the same time accelerated the process of establishing impairments and provisions, since the quality of collaterals deteriorated in the uncertain economic situation. Loans to non-banking sector thus totalled EUR 9,970.5 million at the end of the third quarter of 2012 for the Group and EUR 7,974.6 million for the Bank, which means that they dropped by 7% and 6% at the Group and Bank level, respectively. On the other hand, non-banking deposits in decreased by 11% to EUR 9,112.7 million and at the Bank level they dropped by 12%, amounting to EUR 6,690.5 million. Lower deposits from the non-banking sector are primarily the consequence of the fall of state deposits. The coverage of loans to non-banking sector by deposits from non-banking sector (LTD) rose by 3.6 p.p at the Group level in the first nine months of 2012, reaching 109.0%, while at the Bank level it increased by 7.3 p.p., standing at 119.2% at the end of September. Business Report 7

10 Table 3: Key financial position statement items ASSETS Grow th in million EUR in million EUR in million EUR in million EUR Cash % % Loans to banks % % Loans to non-banking sector 8, , % 10, , % Gross loans to non-banking sector 9, , % 12, , % - corporate 7, , % 9, , % - state % % - retail 2, , % 2, , % Impairments 1, , % 1, , % Financial assets 2, , % 3, , % - held for trading % % - available for sale and held to maturity 2, , % 2, , % Investments in subsidiaries, associates and joint ventures % % Property and equipment % % Intangible assets % % Other assets % % Total assets 12, , % 16, , % LIABILITIES Deposits from non-banking sector 7, , % 10, , % - corporate 1, , % 2, , % - state % 1, % - retail 5, , % 6, , % Deposits form banks % % Debt securities in issue 1, % 1, % Borrow ings 2, , % 2, , % Other liabilities % % Subordinated debt % % Equity , % , % Equity of minority shareholders % Total liabilities 12, , % 16, , % OFF-BALANCE SHEET 7, , % 7, , % Guarantees and accepted bills 1, , % 1, , % Letters of credit - risk bearing % % Commitments for extended credit and limits 1, % 1, , % Derivatives 4, , % 4, , % Grow th Business Report 8

11 Illustration 3: Total assets structure as at 30 Retail banking (Slovenia) 30.1% Financial markets (Slovenia) 24.1% Other activities 1.1% Strategic foreign markets 18.8% Non-strategic markets and activities 7.6% Corporate banking (Slovenia) 18.4% Capital and capital adequacy Regulatory capital of as at 30 was estimated at EUR 1,430.7 million and was EUR 69.3 million lower than at the end of The estimated capital adequacy ratio (CAR) on the same date was 11.7%, which is 0.6 p.p. higher than at the end of the previous year, while the Core Tier 1 ratio was assessed at 10.2%, thus increasing by 3.9 p.p. compared to the end of As at 30 the regulatory capital of was EUR million, which is EUR 82.9 million less than at the end of On the same date, the capital adequacy ratio (CAR) was 10.1% or 0.04 p.p. less than at the end of last year, while the Core Tier 1 ratio was 10.1%, thus increasing by 3.8 p.p. compared to the end of Business Report 9

12 2 Statements Financial

13 Condensed Interim Financial Statements of d.d. and prepared in accordance with IAS 34 Interim financial reporting 11

14 Contents CONDENSED INCOME STATEMENT CONDENSED INCOME STATEMENT BY QUARTER CONDENSED STATEMENT OF COMPREHENSIVE INCOME CONDENSED STATEMENT OF COMPREHENSIVE INCOME BY QUARTER CONDENSED STATEMENT OF FINANCIAL POSITION CONDENSED STATEMENT OF CHANGES IN EQUITY CONDENSED STATEMENT OF CASH FLOWS NOTES TO THE CONDENSED FINANCIAL STATEMENTS GENERAL INFORMATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance Accounting policies CHANGES IN SUBSIDIARY HOLDINGS EVENTS AFTER THE END OF THE REPORTING PERIOD NOTES TO THE CONDENSED INCOME STATEMENT Interest income and expenses Net fee and commission income Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss Gains less losses from financial assets and liabilities held for trading Other operating income Other operating expenses Administrative expenses Provisions for other liabilities and charges Impairment charge Earnings per share NOTES TO THE CONDENSED STATEMENT OF FINANCIAL POSITION Cash and balances with central banks Trading assets Available for sale financial assets Loans and advances Loans and advances to banks Loans and advances to customers Other financial assets Movements in allowance for impairment of banks, loans and advances to customers and other financial assets Significant transfers of financial instruments between levels of valuation Deferred income tax Deposits, borrowings and debt securities in issue Subordinated liabilities Provisions Effects relating to each component of other comprehensive income Book value per share Capital adequacy ratios Off-balance sheet liabilities OTHER DISCLOSURES Related-party transactions Analysis by segment Subsidiaries

15 Condensed Interim Financial Statements of d.d. and Condensed income statement Notes Interest and similar income Interest and similar expenses 5.1. ( ) ( ) ( ) ( ) Net interest income ======== ======== ======== ======== Dividend income Fee and commission income Fee and commission expenses 5.2. (20.672) (19.858) (35.705) (35.092) Net fee and commission income ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (4.753) (3.291) Gains less losses from financial assets and liabilities held for trading (6.386) (882) Gains less losses from financial assets and liabilities designated at fair value through profit or loss - (1.186) 128 (1.327) Fair value adjustments in hedge accounting Foreign exchange translation gains less losses (469) Gains less losses on derecognition of assets other than held for sale (3) (43) Other operating income Other operating expenses 5.6. (4.680) (3.305) (11.997) (6.828) Administrative expenses 5.7. ( ) ( ) ( ) ( ) Depreciation and amortization (22.561) (23.843) (39.025) (41.921) Provisions for other liabilities and charges (23.180) (67) (23.598) Impairment charge 5.9. ( ) ( ) ( ) ( ) Share of profits of associates and joint ventures accounted for using the equity method Net (loss)/gain from non-current assets held for sale (25) (2.292) (225) PROFIT/(LOSS) BEFORE INCOME TAX ( ) ( ) ======== ======== ======== ======== Income tax (40.892) (47.914) PROFIT/(LOSS) FOR THE PERIOD ( ) (96.714) ======== ======== ======== ======== Attributable to: Owners of the parent ( ) (96.325) Non-controlling interests - - (809) (389) Basic profit/(loss) per share (in EUR per share) ,14 (11,28) 1,42 (9,54) Diluted profit/(loss) per share (in EUR per share) ,49 (11,28) 1,12 (9,54) Financial Statements 13

16 Condensed Interim Financial Statements of d.d. and Condensed income statement by quarter three months ended September June 2012 March three months ended September June 2011 March Interest and similar income Interest and similar expenses (61.366) (77.796) ( ) (84.368) (86.386) ( ) Net interest income ======== ======== ======== ======== ======== ======== Dividend income Fee and commission income Fee and commission expenses (7.453) _ (7.760) _ (5.459) _ (6.921) _ (6.981) _ (5.956) _ Net fee and commission income ======== ======== ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (3.340) (234) (4.649) 130 Gains less losses from financial assets and liabilities held for trading (2.220) 127 (9.896) Gains less losses from financial assets and liabilities designated at fair value through profit or loss (1.206) Fair value adjustments in hedge accounting (67) Foreign exchange translation gains less losses (6.300) (6.325) (2.422) Gains less losses on derecognition of assets other than held for sale 34 (29) (8) Other operating income Other operating expenses (1.785) (1.532) (1.363) (1.954) (832) (519) Administrative expenses (47.848) (51.213) (47.963) (46.685) (54.282) (51.733) Depreciation and amortization (7.439) (7.541) (7.581) (7.929) (7.962) (7.952) Provisions for liabilities and charges (11.618) (35.994) Impairment charge (93.825) (87.541) (73.319) ( ) (61.295) (3.705) Net (loss)/profit from non-current assets held for sale (108) (9) 92 (1.891) (401) - PROFIT/(LOSS) BEFORE INCOME TAX (42.965) ( ) ======== ======== ======== ======== ======== ======== Income tax (9.205) (38.201) (3.017) (331) PROFIT/(LOSS) FOR THE PERIOD (36.451) ( ) (2.171) ======== ======== ======== ======== ======== ======== Financial Statements 14

17 Condensed Interim Financial Statements of d.d. and three months ended September June 2012 March three months ended September June 2011 March Interest and similar income Interest and similar expenses (82.831) ( ) ( ) ( ) ( ) ( ) Net interest income ======== ======== ======== ======== ======== ======== Dividend income Fee and commission income Fee and commission expenses (12.674) (12.495) (10.536) (12.673) (11.901) (10.518) Net fee and commission income ======== ======== ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (3.036) 562 (4.475) 622 Gains less losses from financial assets and liabilities held for trading (696) (8.409) Gains less losses from financial assets and liabilities designated at fair value through profit or loss 70 (22) 80 (111) 1 (1.217) Fair value adjustments in hedge accounting (67) (188) Foreign exchange translation gains less losses (9.402) (9.064) (3.273) Gains less losses on derecognition of assets other than held for sale (20) 321 (288) (76) Other operating income Other operating expenses (7.101) (2.445) (2.451) (2.774) (2.455) (1.599) Administrative expenses (74.944) (85.370) (75.228) (74.161) (84.191) (80.396) Depreciation and amortization (12.858) (13.010) (13.157) (13.798) (14.071) (14.052) Provisions for liabilities and charges (13.173) (690) (35.925) Impairment charge ( ) (73.725) (84.851) ( ) (85.538) (18.014) Share of profits of associates and joint ventures accounted for using the equity method Net (loss)/profit from non-current assets held for sale (109) _ (7) _ (109) _ _ (82) _ 38 _ (LOSS)/PROFIT BEFORE INCOME TAX (842) (39.798) ( ) (35) ========= ========= ========= ========= ========= ========= Income tax (16.278) (36.969) (1.967) (2.867) (LOSS)/PROFIT FOR THE PERIOD (17.120) (34.465) (98.863) (2.002) ======== ======== ======== ======== ======== ======== Attributable to: Owners of the parent (16.034) (34.616) (97.274) (2.956) Non-controlling interests (1.086) (1.589) Financial Statements 15

18 Condensed Interim Financial Statements of d.d. and Condensed statement of comprehensive income Note Net profit/(loss) for the period after tax ( ) (96.714) Other comprehensive income/(loss) after tax (18.987) (16.812) Hedge of a net investment in a foreign operation Net valuation gains taken to equity Foreign currency translation - - (9.180) Translation (losses)/gains taken to equity - - (9.180) Cash flow hedges (effective portion) (6) (259) (6) (259) Valuation losses taken to equity (1.252) (2.441) (1.252) (2.441) Transferred to income statement Available for sale financial assets (23.468) (22.905) Valuation gains/(losses) taken to equity (41.644) (39.619) Transferred to income statement Share of other comprehensive income of entities accounted for using the equity method (5.243) Income tax relating to components of other comprehensive income (6.400) (8.432) Total comprehensive income/(loss) for the period after tax ( ) ( ) Attributable to owners of the parent ( ) ( ) Attributable to non-controlling interests - - (811) (428) Financial Statements 16

19 Condensed Interim Financial Statements of d.d. and Condensed statement of comprehensive income by quarter three months ended September June 2012 March three months ended September June 2011 March Net profit/(loss) for the period after tax (36.451) ( ) (2.171) Other comprehensive (loss)/income after tax (468) (7.374) (10.916) (697) Cash flow hedges (effective portion) (249) (1.779) (182) Valuation (losses)/gains taken to equity (476) (457) (319) (2.414) (942) 915 Transferred to profit Available for sale financial assets (7.439) (13.411) (2.618) Valuation (losses)/gains taken to equity (2.529) (13.407) (6.499) (27.993) (7.152) Transferred to profit (940) Income tax relating to components of other comprehensive income (672) (725) (5.003) Total comprehensive income/(loss) for the period after tax (16.451) ( ) (13.087) three months ended September June 2012 March three months ended September June 2011 March Net profit/(loss) for the period after tax (17.120) (34.465) (98.863) (2.002) Other comprehensive (loss)/income after tax 540 (2.040) (11.883) (4.318) (611) Hedge of a net investment in a foreign operation Net valuation gains taken to equity Foreign currency translation (3.193) (910) (5.077) (2.829) Translation (losses)/gains taken to equity (3.193) (910) (5.077) (2.829) Cash flow hedges (effective portion) (249) (1.779) (182) Valuation (losses)/gains taken to equity (476) (457) (319) (2.414) (942) 915 Transferred to profit Available for sale financial assets (7.601) (13.362) (1.942) Valuation (losses)/gains taken to equity (1.618) (13.810) (5.865) (27.770) (5.984) Transferred to profit (1.736) Share of other comprehensive income of entities accounted for using the equity method 228 (756) (2.613) (1.363) (1.267) Income tax relating to components of other comprehensive income (1.139) (725) (6.568) Total comprehensive income/(loss) for the period after tax (16.580) (14.696) ( ) (6.320) Attributable to owners of the parent (15.263) (14.909) ( ) (7.370) Attributable to non-controlling interests (1.317) (1.511) Financial Statements 17

20 Condensed Interim Financial Statements of d.d. and Condensed statement of financial position Financial Statements 18 Notes Cash and balances with central banks Trading assets Financial assets designated at fair value through profit or loss Available for sale financial assets Derivatives - hedge accounting Debt securities Loans and advances to banks Loans and advances to customers Other financial assets Held to maturity investments Fair value changes of the hedged items in portfolio hedge of interest rate risk Non-current assets and disposal group classified as held for sale Pledged assets 6.7.c) Property and equipment Investment property Intangible assets Investments in subsidiaries Investments in associates and joint ventures Current income tax assets Deferred income tax assets Other assets TOTAL ASSETS ========== ========== ========== ========== Deposits and borrowings from central banks Trading liabilities Financial liabilities designated at fair value through profit or loss Derivatives - hedge accounting Deposits from banks 6.7.a) Borrowings from banks 6.7.b) Due to customers 6.7.a) Borrowings from other customers 6.7.b) Debt securities in issue 6.7.d) Subordinated liabilities Other financial liabilities 6.7.e) Financial liabilities associated to transferred assets 6.7.c) Fair value changes of the hedged items in portfolio hedge of interest rate risk Provisions Current income tax liabilities Deferred income tax liabilities Other liabilities TOTAL LIABILITIES ========== ========== ========== ========== CAPITAL AND RESERVES ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital Share premium Equity component of compound financial instruments Revaluation reserve (18.488) (41.226) (34.671) (52.942) Profit reserves Retained earnings Treasury shares (2.048) (2.048) (2.048) (2.048) Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY ========== ========== ========== ==========

21 Condensed Interim Financial Statements of d.d. and Condensed statement of changes in equity Share capital Share premium Equity component of compound financial instruments Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, (41.226) (2.048) Net profit for the period Other comprehensive income Total comprehensive income after tax New share capital subscribed (and paid in) Other* - (1.714) (7.978) - - (1.714) Balance at September 30, (18.488) (2.048) Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, (2.048) Net loss for the period ( ) - ( ) - Other comprehensive loss - - (18.987) (18.987) Total comprehensive loss after tax - - (18.987) - ( ) - ( ) New share capital subscribed Balance at September 30, (14.062) ( ) (2.048) * Other relates to costs directly attributable to the issuance of new shares and other equity instruments and accrued income from issued convertible bonds (note 6.12.). Share capital Share premium Equity component of compound financial instruments Revaluation reserves Profit reserves Retained earnings Treasury shares Equity attributable to owners of the parent Equity attributable to noncontrolling interests Balance at January 1, (52.942) (2.048) Net profit for the period (809) Other comprehensive income (2) Total comprehensive income after tax (811) New share capital subscribed (and paid in) Other* - (1.714) (7.978) (1.156) (558) (1.714) Balance at September 30, (34.671) (2.048) Total equity Share Share capital premium Revaluation reserves Profit reserves Retained earnings Treasury shares Equity attributable to owners of the parent Equity attributable to non-controlling interests Total equity Balance at January 1, (9.724) (2.048) Net loss for the period (96.325) - (96.325) (389) (96.714) - Other comprehensive loss - - (16.773) (16.773) (39) (16.812) Total comprehensive loss after tax - - (16.773) - (96.325) - ( ) (428) ( ) New share capital subscribed (paid) Dividends paid (3) (3) Other** (2.627) - (2.627) (451) Balance at September 30, (26.497) (59.450) (2.048) * Other relates to costs directly attributable to the issuance of new shares and other equity instruments, accrued income from issued convertible bonds and transactions with non-controlling interest. **Other relates to transactions with non-controlling interest. Financial Statements 19

22 Condensed Interim Financial Statements of d.d. and Condensed statement of cash flows CASH FLOWS FROM OPERATING ACTIVITIES Interest received Interest paid ( ) ( ) ( ) ( ) Dividends received Fee and commission receipts Fee and commission payments (24.961) (34.199) (40.146) (50.062) Realized gains from financial assets and financial liabilities not at fair value through profit or loss Realized losses from financial assets and financial liabilities not at fair value through profit or loss (2.901) (10.055) (9.602) (10.057) Gains/(losses) from financial assets and liabilities held for trading (3.347) Payments to employees and suppliers ( ) ( ) ( ) ( ) Other income Other expenses (5.695) (2.710) (14.014) (5.007) Income tax (paid)/received (102) 615 (1.128) (2.010) Cash flows from operating activities before changes in operating assets and liabilities Decreases in operating assets Net decrease/(increase) in trading assets (82.712) (81.264) Net (increase)/decrease in financial assets and liabilities designated at fair value through profit or loss (383) (557) Net decrease in available for sale financial assets Net decrease in loans and advances Net decrease in non-current assets held for sale Net (increase)/decrease in other assets (732) 590 (6.634) (762) Decreases in operating liabilities ( ) ( ) ( ) ( ) Net increase in deposits and borrowings from central banks Net (decrease)/increase in deposits and borrowings measured at amortized cost ( ) ( ) ( ) Net decrease in securities measured at amortized cost ( ) ( ) ( ) ( ) Net (decrease)/increase in other liabilities (1.390) (1.985) (25) Net cash used in operating activities (85.031) ( ) CASH FLOWS FROM INVESTING ACTIVITIES Receipts from investing activities Proceeds from sale of property and equipment and investment property Proceeds from liquidation of subsidiaries Proceeds from disposal of held to maturity investments Other receipts Payments from investing activities (81.652) ( ) (41.225) ( ) Purchase of property and equipment and investment property (3.182) (7.271) (8.429) (27.407) Purchase of intangible assets (4.469) (5.745) (5.549) (7.065) Purchase of subsidiaries and increase in subsidiaries' equity (46.754) (34.631) - - Purchase of associates (3) - (3) - Purchase of held to maturity investments (27.244) ( ) (27.244) ( ) Net cash used in investing activities (23.499) (87.789) (76.978) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from financing activities Issue of subordinated debt Issue of ordinary shares and other equity instruments Payments from financing activities ( ) (5.006) ( ) (24.009) Dividends paid (3) Repayments of subordinated debt ( ) (5.000) ( ) (24.000) Other payments related to financing activities (1.714) (6) (1.714) (6) Net cash from financing activities Effects of exchange rate changes on cash and cash equivalents (298) (5.964) Net increase/(decrease) in cash and cash equivalents (18.145) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Financial Statements 20

23 Condensed Interim Financial Statements of d.d. and STATEMENT OF MANAGEMENT'S RESPONSIBILITY The Management Board hereby confirms its responsibility for the preparation of the financial statements of the and the consolidated financial statements of the for the September 30, The Management Board is responsible for the preparation and presentation of these interim financial statements in accordance with the IAS 34 Interim financial reporting. The Management Board also confirms that the appropriate accounting policies were consistently applied, and that the accounting estimates were prepared according to the principles of prudence and good management. The Management Board further confirms that the interim financial statements of the and have been prepared on a going-concern basis for the and and in line with valid legislation and the IAS 34 Interim financial reporting. The Management Board is also responsible for appropriate accounting practices, for the adoption of appropriate measures for the safeguarding of assets, and for the prevention and identification of fraud and other irregularities or illegal acts. Management Board Guy Snoeks Marko Jazbec David Benedek Janko Medja Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board &CEO Financial Statements 21

24 Condensed Interim Financial Statements of d.d. and Notes to the condensed financial statements 1. GENERAL INFORMATION Nova Ljubljanska banka d.d. Ljubljana (hereinafter: ) is a joint stock entity providing universal banking services. The operates in twelve countries. The is incorporated and domiciled in Slovenia. The address of its registered office is Trg Republike 2, Ljubljana. The s shares are not listed on the stock exchange. The s largest shareholders as at September 30, 2012 are the Republic of Slovenia, owning 40.21% of shares (December 31, 2011: 45.62%), and KBC Bank N.V. Brussels, owning 22.04% of shares (December 31, 2011: 25.00%). Republic of Slovenia together with its related companies presents an ultimate controlling party of the as at September 30, 2012 (December 31, 2011: Republic of Slovenia). All amounts in the financial statements and in the notes to the financial statements are expressed in thousands of euros unless otherwise stated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Statement of compliance These condensed interim financial statements have been prepared in accordance with IAS 34 Interim financial reporting and should be read in conjunction with the annual financial statements of the and for the year ended December 31, 2011, which have been prepared in accordance with International Financial Reporting Standards (hereinafter: IFRS) as adopted by the European Union Accounting policies Except as described below, the same accounting policies and methods of computation were followed in the preparation of these consolidated condensed interim financial statements as for the year ended December 31, Interim period tax measurement Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period. Exchange differences from allowance for impairment of financial and other assets measured at amortized cost Exchange differences from allowance for impairment of financial and other assets measured at amortized cost were in previous periods reported in profit or loss statement in line impairment charge. In 2012 the changed the accounting policy and before mentioned exchange differences shows in line foreign exchange translation gains less losses. In positive exchange differences from allowance for impairment of financial and other assets measured at amortized amount to EUR 2,785 thousand (nine months ended 2011: EUR 1,257 thousand negative exchange differences) and to EUR 2,162 thousand in the Group ( 2011: EUR 1,306 thousand positive exchange differences). Accounting standards and amendments to existing standards endorsed by EU but not early adopted by the - IAS 1 (amendment) - Presentation of Financial Statements (effective for annual periods beginning on or after July 1, 2012, with earlier application permitted). - IAS 19 (amendment) - Employee Benefits (effective for annual periods beginning on or after January 1, 2013, with earlier application permitted). Financial Statements 22

25 Condensed Interim Financial Statements of d.d. and Accounting standards and amendments to existing standards issued but not endorsed by EU - IFRS 9 - Financial Instruments. Adoption of IFRS 9 is mandatory from January 1, 2015, while earlier adoption is permitted, but the EU has not yet endorsed it. The is considering the implications of the standard, the impact on the and the timing of its adoption. - IAS 32 (amendments) - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013). - IFRS 7 (amendments) - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013). - IFRS 10 - Consolidated Financial Statements, IFRS 11 - Joint Arrangements, IFRS 12 - Disclosures of Interests in Other Entities, a revised version of IAS 27 - Separate Financial Statements, which has been amended for the issuance of IFRS 10 but retains the current guidance for separate financial statements, and a revised version of IAS 28 - Investments in Associates and Joint Ventures, which has been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11. In June 2012 amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to ease transition to new standards. Standards are effective for annual periods beginning on or after January 1, 2013, with earlier application permitted as long as each of the other standards is also applied early. However, entities are permitted to include any of the disclosure requirements in IFRS 12 into their consolidated financial statements without the early adoption of IFRS 12. The is currently evaluating the potential impact that the adoption of the standards will have on its consolidated financial statements. - IFRS 13 (new standard) - Fair Value Measurement (effective for annual periods beginning on or after January 1, 2013, with earlier application permitted). - Other revised standards and interpretations: amendments to IFRS 1 - Fist time Adoption of IFRS, relating to severe hyperinflation and removal of fixed dates for first-time adopters, amendment to IAS 12 - Income Taxes, relating to the recovery of underlying assets investment property measured at fair value, amendment to IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine and IFRS 1- Fist time Adoption of IFRS, relating to prospective application related to government loans are not expected to affect the s financial statements. - IFRS 1 (amendments) Fist time Adoption of IFRS (effective for annual periods beginning on or after January 1, 2013). - Annual improvements to IFRS cycle. The improvements consist of a mixture of substantive changes and clarifications and are effective for annual periods beginning on or after January 1, Improvements include IFRS 1 Fist time Adoption of IFRS, IAS 16 Property, Plant and Equipment, IAS 32 Financial instruments: presentation and IAS 34 Interim financial reporting. Financial Statements 23

26 Condensed Interim Financial Statements of d.d. and 3. CHANGES IN SUBSIDIARY HOLDINGS NINE MONTHS ENDED SEPTEMBER 30, 2012 Capital increase: - The increase of share capital by cash in total amount of EUR million was registered in LHB Internationale Handelsbank, Frankfurt and in Banka, Beograd. - The increase of share capital by cash in total amount of EUR 26.5 million has not yet been registered in Montenegrobank. Other changes: - Tuzlanska Banka, Tuzla was renamed to Banka, Tuzla. - Leasing Koper, Koper and Leasing Maribor, Maribor are merged with Leasing, Ljubljana. Merger is formally registered on 3rd May 2012 with accounting date of merger as at December 31, Grušč, Nova Gorica was founded and has 40.30% ownership interest. - Leasing, Ljubljana sold its 100% ownership interest in Leasing, Podgorica to. Transfer of ownership has not yet been registered. CHANGES IN THE YEAR 2011 a) Capital increase: - The increase of share capital by cash in total amount of EUR 44,696 thousand was registered in Leasing, Ljubljana, Leasing, Sarajevo, Optima Leasing, Zagreb, LHB International Handelsbank, Frankfurt, Factoring, Ostrava, Leasing Maribor, Maribor, Nov penziski fond, Skopje and LHB Trade Zagreb. - The increase of share capital by loan conversion in total amount of EUR 9,216 thousand was registered in Srbija, Beograd and Factor, Bratislava. b) Other changes: - Leasing, Ljubljana sold its 100% ownership interest in Leasing, Sarajevo to. - Interfinanz, Zürich sold its 26.72% ownership interest in Tutunska banka, Skopje to. - Nova Penzija, Beograd, Factor, Bratislava and Tutunskabroker, Skopje were liquidated. - sold its 97.10% ownership interest in Bank Sofia, Sofija. - Kreditni biro Sisbon, Ljubljana was established. The cost of establishing the company amounted to EUR 3.5 thousand. Ownership interest in Kreditni biro Sisbon, Ljubljana is 29.68%. 4. EVENTS AFTER THE END OF THE REPORTING PERIOD After September 30, 2012 there were no significant events. Financial Statements 24

27 Condensed Interim Financial Statements of d.d. and 5. NOTES TO THE CONDENSED INCOME STATEMENT 5.1. Interest income and expenses Interest and similar income Loans and advances to customers Derivatives - hedge accounting Financial assets held for trading Held to maturity investments Available for sale financial assets Loans and advances to banks Deposits with central banks TOTAL ======= ======= ======= ======= Interest and similar expenses Due to customers Borrowings from banks Derivatives - hedge accounting Financial liabilities held for trading Debt securities in issue Subordinated liabilities Borrowings from other customers Deposits from banks Other liabilities TOTAL ======= ======= ======= ======= NET INTEREST INCOME ======= ======= ======= ======= Financial Statements 25

28 Condensed Interim Financial Statements of d.d. and 5.2. Net fee and commission income Fee and commission income Credit cards and ATMs Customer transaction accounts Payments Guarantees Investment banking Banking insurance Investment funds Other services TOTAL ======= ======= ======= ======= Fee and commission expenses Credit cards and ATMs Investment banking Payments Deposit insurance Other services TOTAL ======= ======= ======= ======= NET FEE AND COMMISSION INCOME ======= ======= ======= ======= 5.3. Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss Financial liabilities measured at amortized cost (4.503) (4.503) Available for sale financial assets Held to maturity investments (1.253) (4.144) (1.253) (4.144) Loans and receivables - - (14.482) - TOTAL (4.753) (3.291) ======== ======== ======== ======== Gains less losses from financial liabilities measured at amortized cost in amount of EUR 179,946 thousand represent gains from repurchasing subordinated instruments with discount (note 6.8.). Financial Statements 26