J&T BANKA, a. s. TABLE Of CONTENTs

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3 ANNUAL REPORT 2006 J&T BANKA, a. s.

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5 J&T BANKA, a. s. Table of Contents Selected Indicators 3 Foreword 5 Report of the Board of Directors Results 7 Development in the Main Business Lines 9 Goals for the Year Strategic Development 12 Management Development and Information Infrastructures 14 New Services 14 Business Goals 15 Management of the Bank 16 Organization Structure of the Bank 20 Report of the Supervisory Board 21 List of Correspondent Banks 22 Affidavit 23 Financial part Auditor s Report to the Shareholders of J&T BANKA, a. s. 26 Consolidated Income Statement 28 Consolidated Balance Sheet 29 Consolidated Statement of Changes in Equity 30 Consolidated Cash Flow Statement 31 Notes to the Consolidated Financial Statements 32 Report on Relations Between Related Parties 75 Appendix: CD-ROM

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7 J&T BANKA, a. s. Selected Indicators Consolidated data pursuant to international financial reporting standards (IFRS) in TCZK Annual outcomes Profit before taxation 233, ,179 56, , ,207 Tax (59,903) (48,538) (25,797) (14,208) (302) Total net profit Balance as of the year-end Shareholder s equity 2,594,683 2,421,081 1,246,371 1,216,021 1,076,608 Liabilities to banks 852, , , , ,744 Liabilities to clients 18,360,892 13,839,526 10,331,261 7,683,115 3,876,852 Receivables from banks 4,010,222 3,880,673 4,774,706 4,832,549 1,814,542 Receivables from clients 16,834,351 12,046,347 6,399,773 3,779,806 2,989,985 Assets 22,602,765 17,466,175 12,379,358 9,650,953 5,865,806 Ratio indicators Return of capital 6.92 % 9.47 % 2.45 % 9.80 % % Return of assets 0.87 % 1.16 % 0.25 % 1.24 % 1.90 % Capital adequacy % % % % % Total shareholder s equity/total assets % % % % %

8 PATRIK TKÁČ

9 J&T BANKA, a. s. Foreword Dear shareholders, clients, business partners, friends, We are happy to share with you our satisfaction in the successful results achieved by J&T BANKA that are displayed in this annual report, and to introduce to you our goals and vision of expansion during the upcoming years. I am pleased by the objective finding that 2006 as well as the preceding period was a year of success for J&T BANKA in terms of business, reputation and financial condition. We succeeded in building upon the remarkable outcome of the prior year and are able to report profit comparable with Total assets of the bank, as well as the volume of deposits, have grown. This is a positive development because it confirms not only our clients trust in the bank, but also their appreciation of our ability to react promptly to requests and our flexibility in finding solutions to their needs. Apart from improvement of deposits and assets under management, we have financed clients projects and investments in the amount exceeding 17 billion CZK and executed securities transactions worth more than 274 billion CZK. In 2006, after meticulous planning, we entered the Slovak market by opening the first branch of the bank. I am glad to inform you that this entry was a resounding successl. Results of the Slovak branch have exceeded our expectations and fueled additional expansion ideas. As of the end of the year, activities in Slovakia amounted to almost 20% of the bank s balance and the branch succeeded in generating a profit in its first year of its operation. At the same time we proved that in spite of an increased operational burden we were able to maintain flexibility in our services and the rapid decisionmaking ability so valued by our clients. The success of the J&T Group in banking in recent years has become a driver in the decision for J&T to expand more proactively via branches and acquisitions. The J&T Group therefore has decided to incorporate a daughter company, J&T FINANCE, and to place in it the ownership shares of J&T BANKA, the Swiss IBI BANK, J&T ASSET MANAGEMENT, J&T SECURITIES and J&T FINANCIAL SERVICES. Thus a banking group has been created which administers clients assets exceeding 27 billion CZK. We are aware of the fact that trust between the client and his/her bank is the basis of success in banking - especially with regard to private banking. We recognize that our impressive achievements in 2006 were a result of this trust and our future goals can only be accomplished by maintaining this bond with our clients. We believe we will fulfill this obligation not only by maintaining the high quality of our current services but also by introducing new services as well as additional financial opportunities that the expansion the J&T banking segment will provide. Prague, May 2, 2007 Patrik Tkáč Chairman of the Board of Directors of J&T BANKA, a. s.

10 Structure of Deposits Non-financial Institutions 49.0 % Financial Institutions 18.1 % Company 9.4 % Private Clients 9.5 % J&T Group 8.8 % State Administration and Non-profit Organization 5.2 % Structure of Due from Customers Real Estate 39.0 % Other 7.0 % Trading with Claims 6.0 % Financial Markets 21.0 % Corporate Acquisitions, Restructuring 27.0 %

11 J&T BANKA, a. s. 7 Report of the Board of Directors 2006 Results In recent years, J&T BANKA has evolved into a sophisticated institution focusing on three business lines project financing, client wealth appreciation and securities trading. These three business lines, primarily targeted at private clientele, form a business model which allows for the maximization of synergic effects and the greatest supply of comprehensive services available to the client, whose interests remain at the center of all our activities. The year 2006 again successfully confirmed this strategy. The bank s total assets increased significantly and we built upon the successful economic results achieved in The past year was one of expansion into new markets. After meticulous planning we opened the bank s first branch, in Bratislava, with the aim of applying our business model to a new market. Successful Launch of the Branch The Slovak market was not unknown to J&T BANKA in the past we have financed a number of projects in the Slovak Republic and could rely on this experience as well as the knowledge and support of the J&T Group, which has successfully conducted business in Slovakia since the Group s establishment. Despite this familiarity, the entry into Slovakia indeed carried a level of risk. The Slovak banking landscape is considerably different from that of the Czech Republic and it was a question as to whether J&T BANKA s strategy could be successfully replicated outside of its home market. The past year cleared up any uncertainty. J&T BANKA s Bratislava branch was the main source of total assets growth with more than 5.7 CZK billion of assets at the end of 2006, which represents 25% of the total assets of the bank. Time deposits of the branch amounted to more than 20% of all time deposits of J&T BANKA. It was especially thanks to this rapid growth in total assets that the branch managed to report a profit within its first year of its existence. Efficiency and Performance The foundation of a foreign branch required an increase in the operational and administrative activities of the bank. The total number of employees rose to 200 and payroll expenses increased by almost 50%, to 144 million CZK. This indicator remains high above the market average. Other administrative expenses excluding human resources, increased by nearly 25%. This was mainly driven by an increase in reporting and regulatory expenses for the consolidated unit. The Bank bears one half of all expenses of the J&T Group and because of the growth of the entire Group these expenses doubled in The Bank thereby paid 20 million CZK more then it did the previous year. The consequence of increased expenses in relation to the period s income is the decline of the Cost Income indicator to 61%. We expect that in the following years an improvement in this efficiency indicator will resume, owing specifically to an increase of the share of the total assets and revenue attributable to Slovakia where the Cost Income indicator exceeded 90%. Stable Profitability and Improvement of the Income Structure The Bank opened 2006 with the goal to maintain profitability at the record setting level of the previous year. The task was difficult, all the more so because the outstanding results of 2005 were significantly influenced by healthy financial markets, from which the bank accumulated significant investment and fee income. Thanks to the growth of total assets and especially loan volume, the bank greatly augmented the income from securities with interest income and income from fees for executing capital market transactions. For the first time in the history of the bank, interest income exceeded 1 billion CZK and income from fees reached 58 million CZK (an increase of 54% compared to 2005).

12 Volume of deposits ,876,852 CZK ,683,115 CZK ,331,261 CZK ,839,526 CZK ,360,892 CZK Profit before Tax ,207 CZK ,615 CZK ,716 CZK ,179 CZK ,542 CZK

13 J&T BANKA, a. s. 9 Development in the Main Business Lines Project Financing J&T BANKA s financing activity focuses on financing real estate projects, corporate acquisitions, restructuring and trading with claims. The main competitive advantage of the bank is the ability to rapidly evaluate a proposed project in cooperation with the expert team of the J&T Group. Thanks to our knowledge of the market and the client, we are able to detect both the potential risks and rewards of a given project. It is the swiftness of the whole process from the initial evaluation through transaction structuring that is the greatest added value for the client and enables the bank to achieve a superior interest margin. A number of loans provided are in the course of time refinanced by third entities, which are able to offer better price conditions to the client. The bank usually provides loans for one year. In case of longer term loans, the rate is tied to the PRIBOR rate. Any further extension of the loan term is dependent on both the financing conditions as well as the status of the project itself. Because of short maturities of our loans, the composition of our loan portfolio changes significantly over time. By the end of 2006 real estate financing dominated the portfolio and amounted to 39% of loans oustanding followed by financing of corporate acquisitions and resctructurings, which comprised 27% of the loans outstanding. The volume of loans provided recorded a year-on-year increase of 4.7 billion CZK and reached 17.4 billion CZK. Today, loans represent over 70% of the bank s assets compared to 68% in A significant part of the increase of the loan portfolio can be attributed to the establishment of the branch in Bratislava. The volume of financing provided by the branch reached 5.6 billion CZK as of the end of 2005, out of which 2.9 billion CZK were newly initiated loans, with the remaining 2.7 billion CZK taken over from J&T BANKA in Prague after the foundation of the Slovak branch. The loan portfolio of the headquarters scored a year-on-year increase of 18.55%. The average interest rate on provided financing reached 6.12%. With regard to the significant increase in the volume of financing resources, the bank had at its disposal at the end of the year a sufficient amount of available means for further expansion and therefore decreased its interest margins compared to preceding years. In 2006 the bank continued its conservative approach to valuation of claims. In the course of 2006 there were allowances created in the amount exceeding 45 million CZK. Despite a very conservative valuation of the loan portfolio, the overall quality of loans has improved on a year-on-year basis. According to Czech National Bank methodology, standard claims represented 94.75% of the loan portfolio; by comparison, in 2005 the figure was 91.3% Allowances on the loans provided have decreased by 60 million CZK on a year-on-year basis, which results from, inter alia, the sale of selected claims in the portfolio. Increasing the net worth of our clients Clients of J&T BANKA can grow their net worth either by using various term deposit structures offered by the bank or through comprehensive asset management services.

14 10 ANNUAL REPORT 2006 Bank Deposits J&T BANKA focuses its deposit products towards investors with a desired repayment period exceeding six months. Shorter term products are offered primarily to clients who expect to renew the deposits at maturity. As a result, the bank benefits from a stable deposit base and achieves lower liquidity management expenses. In 2006 the bank started to offer so-called structured deposits in addition to standard term deposits and deposit bills of exchange. Structured deposits are deposits lasting for more than one year with an interest rate tied to the development of select underlying assets such as shares, share indexes or commodities. The aim of this product is to offer clients interested in conservative investments the possibility to participate in investment initiatives of the J&T Group without the risk of loss. The structured two-year BRIC deposit was the first such structured product offered. The interest of this product is tied to the appreciation of a basket of currencies comprised of the Brazilian Real, Russian Ruble, Indian Rupee and Chinese Yuan. Thus far, this product has attained over 10% p.a. return. The bank expects to gradually expand its structured deposit offering in the upcoming years. J&T BANKA has recorded a year-on-year increase in the volume of bank deposits of 4.5 billion CZK to the total of 18.3 billion CZK. A significant portion in this growth is attributable to the branch in Bratislava, with more than 3.5 billion CZK in new deposits. We expect the Slovak Republic to be the main source of new deposits over the next few years. Term deposits represented 88% of the total volume of deposits, which is a moderate increase compared to 85% in 2005 and significantly more than the average of the Czech banking sector. The main target group for bank deposits are institutions which are unable to access financial markets due to regulatory reasons or investment criteria. By the end of 2006, the total volume of term deposits were comprised of 49% from nonfinancial institutions, 18% from financial sector companies, and 19% from private clients and local companies. Deposits of state institutions and municipalities represented 5% of term deposits. Perhaps the most positive development with regard to our deposit products is the increased attention received from sophisticated financial institutions seeking investment opportunities.

15 J&T BANKA, a. s. 11 Asset Management The bank partially succeeded in achieving its strategic goal of growing clients assets under management. Client s interest focused mainly on investments in the J&T INVESTMENT POOL and in mutual funds managed by J&T Group, the latter of which were featured in the top ranks of Crown Mutual Funds performance charts. The excellent track-record of our funds, did not bring about any growth of discretionary mandates, which stagnated at 2005 levels. This is despite excellent performance of many of our discretionary mandate portfolios, some of which reached returns of 24% p.a. The bank does not receive any fee income from the sale of the unit trusts of the J&T Group or the sale of J&T INVESTMENT POOL shares. The management fees from discretionary mandates dropped to 16 million CZK in 2006 a significant decrease compared to the record setting year 2005 where, thanks to favorable domestic markets, our income was enhanced by performance fees. The continued development of asset management services is one of the strategic priorities for J&T BANKA. This is especially so in the Czech Republic where there is an increasing client appetite for investments in capital markets and a continued roll out of new investment products catering to this trend is essential for growth. For the next year, the bank is preparing, in cooperation with other members of the J&T Group, changes in its asset management model and also plans to introduce several new investment strategies. We firmly believe that in 2007 these initiatives will be the main sources of growth for assets under management. Securities Trading Services In the past, J&T BANKA has been proactive in trading on its own account. For instance in 2005 it generated profits from investments in shares exceeding 100 million CZK. At the beginning of 2006 the Board of Directors decided to limit the potential risks of exposure to equity markets. The bank instead focused its activities on developing services for private clients who desire to manage their own investments. Apart from executing capital markets transactions we also provide margin lending services. Margin lending is an attractive segment for the bank as it offers attractive interest margins at a low level of risk. In the past year, the bank executed securities transactions exceeding 270 billion CZK, which translates into a year-onyear increase of 37%. The growth of trading volume may be attributed not only to a growing number of clients, but also to the relative volatility on the financial markets. The bank s income from trading fees recorded a year-onyear increase of more than 50%, reaching 57 million CZK. Apart from a higher trading volume, this increase resulted from a growing share of mediated transactions with foreign markets, which is more lucrative for the bank with regard to fees. The share of the volume of transactions on foreign markets (without repo operations) increased from 10.1% in 2005 to more than 20% in As of year end, the bank provided financing of more than CZK 3,6 billion to clients investing in capital markets.

16 12 ANNUAL REPORT 2006 Other Banking Services Apart from its core services J&T BANKA provides a full range of general banking services including current accounts, domestic and foreign payments, bank custody and escrow accounts. The development of these services reflects the growth of the bank as a whole. The total number of client accounts has increased by almost 44% and the number of issued payment cards by 41%. The number of cash transactions and payments grew similarly. These services are not the primary source of revenue of the bank, but we consider them to be the standard offering of a full service financial institution and any related fees are aimed at covering the operating costs connected with the service rather than driving profits. The bank does not plan to change this price policy for the foreseeable future. Any eventual changes will only be driven by an effort of the bank to regulate the number of conducted transactions and thereby ensure, that the excellent quality of our services and clients comfort is maintained. Because of an increasing number of payment transactions and growing demand from our clients, J&T BANKA has started preparatory works on ebanking solution. J&T BANKA ebanking services will be introduced to clients in the first half of Goals for the Year 2007 The bank has set several goals for We would like to diversify our sources of financing by entering the fixed income markets. Our aim is to finance a significant part of our assets through bond issues. We also plan to develop additional project financing services. With regard to management, further development of financial reporting and management tools is our priority. We shall also optimize our own capital structure and continue the recent growth of total assets. Strategic Development In the course of its existence, J&T BANKA has built a strong position on the market with deposits. We have managed to attract significant deposits from the ranks of institutions which appreciate our flexibility and price conditions. The year-on-year significant increases in deposit volume validate this assertion. It is also on the interbank market that we are gaining a strong position and financial institutions have been continuously increasing their exposure limits to J&T BANKA. Diversification of the Sources of Financing Despite the fact, that term deposits represent a significant share of our liabilities. The average duration of the bank s liabilities is still rather short. Our assets liabilities management model is based on a rule that we do not provide loans with maturities longer than the expected maturities of our funding base. When facing longer-term projects which the bank would like to finance, we must look for resources with a longer term of payment. Issuing bonds is one possibility. Apart from extending the maturity of our funding and thus our ability to engage in longer-term projects, a well functioning bond issue program also brings about a natural diversification of our sources of financing. The aim of the bank in the course of 2007 is to successfully conclude a first issue of its own bonds, and make a first step towards our goal of generating at least 20% of our liabilities on financial markets.

17 J&T BANKA, a. s. 13 New Services in the Area of Project Financing In the area of project financing the bank has so far financed the great majority of projects by itself or in syndication with other banks. In future years we intend to widen the range of possibilities of project financing by funding projects by bond issue where the bank shall manage the issue for the client. We are convinced that the domestic bond market has an unoccupied segment for high yield bonds and J&T BANKA can, thanks to its extensive experience in project financing, play an important role in developing this segment in the following years. Our first steps towards the fulfillment of this strategic goal is applying for the necessary licensing, identification of projects suitable for the first issues and initiation of the technical and legal preparations for these new services. Increasing the Net Worth of Our Clients The above mentioned intention to engage in the issuance of high yield crown-denominated bonds is also an opportunity to offer new investment strategies for our asset management clients. We are aware of our clients interest in participating in project financing and believe that high yield bonds may be the right solution to meet this demand. Clients should have the opportunity to either investment directly in such bonds, or invest via a high yield fund managed J&T ASSET MANAGEMENT, or choose a high yield discretionary asset management strategy. With regard to deposit products we expect to further develop our structured deposit offerings. Apart from structured deposits based on the bank s own investment recommendations, we are prepared to provide customized structured products catering specifically to client requirements when there is sufficient volume to justify the move.

18 14 ANNUAL REPORT 2006 Management Development and Information Infrastructures J&T BANKA is the responsible entity within the J&T Group for the consolidated reporting to the Czech National Bank. The bank has gained extensive expertise in processing the necessary economic data for reporting purposes and therefore takes the leading role in the financial management of the whole J&T group. In the last several years we have developed our own information systems for these purposes. Because of the dynamic expansion of J&T Group and the growing demands on functionality of the system, Group management made the decision together with the Board of Directors of the bank to invest in a new information system from an external supplier. It is our aim in the course of 2007 to implement the new solution so that all consolidated reports at the end of the year 2007 are already processed by the new system. In the following years we shall further develop this new tool and utilize it for financial planning, management and controlling. The implementation of the new information system will be a demanding task from the perspective of personnel capacity and expenses. The depreciation costs of the initial investment should amount to million CZK per year in the following four years. We are convinced that these costs are not only necessary but will also generate indirect benefits to the Group through better financial management and provide investors with better information about the financial performance of the Group and thus strengthen investors confidence. Another important project of J&T BANKA is the preparation for euro adoption at the J&T BANKA branch in Slovakia. The planned introduction of the single currency in Slovakia on January 1, 2009 means not only adoption of a new currency but also integration of the branch into the TARGET 2 payment system. The bank plans to begin with necessary preparations in the second quarter of The total costs connected with the EUR conversion within the scope of the Slovak branch are estimated at 5 million CZK. The single currency adoption will be accompanied by decentralization of foreign payment services, which has thus far been managed centrally from headquarters of J&T BANKA in Prague. This will result in a moderate increase of operating costs for the bank. New Services ebanking J&T BANKA caters most of its banking services to private clients, many of whom are also interested in utilizing the bank s services for their companies. We have responded to this demand by preparing an ebanking solution. The ebanking project is divided into two phases. The first phase, available to a limited number of clients, will be made available in the first half of the year 2007, followed by a second phase available to all clients at the end of the third quarter of The aim of introducing ebanking services is above all to streamline the execution of payment orders and more efficiently manage the accounts of client companies. We do not expect a significant increase in fee income from this service. The investment costs for ebanking are estimated to reach a total amount of 15 million CZK. Trading Services in the Slovak Republic With regard to the successful development of the branch in Slovakia and the effort to customize financing and banking services for Slovak clients, J&T BANKA has decided to broaden the scope of services offered to its clients in Slovakia. Chief among these are securities trading services. The scope of trading services shall include both executing transactions and asset management services. Providing these services is conditional upon obtaining the necessary banking license for Slovakia and implementing the necessary information systems infrastructure. We expect that the branch will be ready to offer securities trading services at the beginning of 2008.

19 J&T BANKA, a. s. 15 Launch of New Branches Historically, we have provided all banking services from our Prague headquarters. This centralized operation has enabled us to offer flexible service and suited our focus on large clients and the sufficient number of business opportunities that could be serviced from Prague. As the bank has grown, we have begun to look at new opportunities further afield and therefore have chosen to bring our services closer to prospective new clients who require a local presence. Correspondingly, we have decided to alter our structure and open an additional branch in the Czech Republic this year and possibly another one in the Slovak Republic. If our branch concept proves successful, we will open additional branches in major cities in both countries in the following years. Business Goals Our main business goal for this coming year is the growth of the bank s total assets and client s assets under management. The main source of this growth is expected to be our branch in Slovakia. Additional growth will captured by a planned bond issue. We expect the bank s assets to reach 25.5 billion CZK by the end of With regard to fee income, we expect further growth in trading volume and a resulting CZK 10 million increase in trading fees. We further expect to grow assets under management, through new products with guarantees on initial investment. It is our aim to increase assets under management by at least 0.5 billion CZK and generate management fees of at least CZK 20 million. Despite the expected roll-out costs associated with the implementation of new services as well as preparation for accession to the EMU and more expensive financing through bond issues, we still aim at maintaining the bank s profitability at current levels. We believe that our strategic plans for the upcoming years, together with our new services and continued outstanding economic results will deepen the interest of clients and business partners in the private and investment banking services of J&T and will thus strengthen the confidence in the bank and the whole J&T Group. It is the clients interest in our services that should enable us to reach our business goals and maintain continued growth in the years to come.

20 16 ANNUAL REPORT 2006 Management of the Bank PATRIK TKÁČ CHAIRMAN OF THE BOARD OF DIRECTORS Mr. Tkac graduated from the Faculty of Economics of the University of Economics in Bratislava. In 1994 he obtained a broker s licence from the Ministry of Finance of the Slovak Republic and in the same year became a co-founder of the J&T Securities, s. r. o., a securities trader. He is a leading representative of the financial group: until 1997 he was a member of the Board of Directors of J&T FINANCE GROUP, a. s., and since 1998 he has been the Chairman of the Board of Directors of J&T BANKA, a. s. JOZEF SPIŠIAK MEMBER OF THE BOARD OF DIRECTORS In 1973 he graduated from the Faculty of Economics of the Military Academy and in 1982 from the Faculty of Law of the Comenius University in Bratislava. He has been working in the financial segment since the beginning of his professional career: in the 1980s he worked as the head of the budget department of the Ministry of Defense of the Czechoslovak Socialist Republic and as the deputy director, from 1991 as the director of a branch of the Czechoslovak State Bank (since 1993 Czech National Bank). Since 1998 he has worked for the J&T Group. He is responsible for the administrative department in J&T BANKA, a. s. Supervisory Board Jozef Tkáč, Chairman of the Supervisory Board Ivan Jakabovič, Member of the Supervisory Board Peter Korbačka, Member of the Supervisory Board Dušan Palcr, Member of the Supervisory Board Milan Jordán, Member of the Supervisory Board Petr Suk, Member of the Supervisory Board

21 J&T BANKA, a. s. 17 KAMIL BENDÁK MEMBER OF THE BOARD OF DIRECTORS Mr. Bendak graduated from the Faculty of Building of the Czech Technical University in Prague. After graduation in 1982 he worked in finance management and investment in the building sector. He has worked in the banking sector since 1992, especially in the field of assets and liabilities management and risk management. Since joining J&T in 1998 he has held the position of the director of the treasury department of the bank. He has been a member of the Board of Directors of the bank since ŠTĚPÁN AŠER, MBA MEMBER OF THE BOARD OF DIRECTOR He graduated from the School of Business and Public Management at George Washington University in Washington with a specialization in finance and financial markets. Subsequently he graduated from the MBA program at the Rochester Institute of Technology. He has been working in the finance sector in the Czech Republic since 1997, first as an analyst, later as a portfolio manager for Credit Suisse Asset Management. From 1999 to 2002 he was a member of the Board of Directors of Commerz Asset Management, responsible for portfolio management and sales. He also specialized in institutional clients asset management for Česká spořitelna. Since 2003 he has worked at J&T BANKA, charged with management of the department of management and trade.

22 18 ANNUAL REPORT 2006 J&T BANKA, a. s., Prague ŠTĚPÁN AŠER, MBA Managing Director of the Bank He graduated from the School of Business and Public Management at the George Washington University in Washington with a specialization on finance and financial markets. Subsequently he graduated from the MBA program at the Rochester Institute of Technology. He has been working in the finance sector in the Czech Republic since 1997, first as an analyst, later as a portfolio manager in Credit Suisse Asset Management. From 1999 to 2002 he was a member of the Board of Directors of Commerz Asset Management, responsible for portfolio management and sales. He has briefly specialized in institutional clients in the asset management in Česká spořitelna. Since 2003 he has worked in J&T BANKA, charged with management of the department of management and trade.

23 J&T BANKA, a. s. 19 J&T BANKA, a. s., branch of a foreign bank Bratislava MONIKA CÉREOVÁ DIRECTOR OF THE BRANCH OF A FOREIGN BANK She graduated from the Faculty of Business of the University of Economics in Bratislava. She started working for the company J&T SECURITIES (SLOVAKIA), o. c. p., a. s., in 1996 on the position of the head of the securities trading department and participated in the introduction of the clearing system for transactions with domestic securities. In 1999 she became a Vice-chairwoman of the Board of Directors and at the same time deputy director of the company. She is a member of the Top management, responsible for management of the branch of J&T BANKA in Bratislava and banking in Slovakia.

24 20 ANNUAL REPORT 2006 Organization Structure of the Bank Valid as of 31 December 2006 BOARD OF DIRECTORS OF THE BANK IT SECURITY DIVISION TOP DIVISION INTERNAL AUDIT AND INSPECTION DIVISION FINANCIAL MARKETS AND MARKETING SECTOR MANAGEMENT AND SALES SECTOR ECONOMY SECTOR INFORMATION SECTOR PB SECTOR CONTROLLING SECTOR BANKING OPERATIONS AND RISKS MANAGEMENT SECTOR ADMINISTRATIVE SECTOR BANK S BRANCH IN THE SR Financial Markets Division Human Resources Division Consolidation Division Information Systems Division PB Services Division Controlling Division Treasury Division Legal and Compliance Division Active Transactions and Claims Management Division Department of Trading on Other Person s Account Private Banking Division Information Technologies Division Risks Management Division Bank Operations Division Department of Trading on Own Account PB Department Credit Risks Management Division Private Banking Division Marketing Division Back Office Department Back Office Financial Markets Division Economy Division Client Portfolio Management Department Accounting Department Logistics and Services Division Accounts Department Active Transactions and Claims Management Division Marketing Division Banking Operations Division Legal and Compliance Division IS banking Division IT Division Economy Division Human Resources Division Accounting Department Logistics and Services Division Accounts Department Controlling Division

25 J&T BANKA, a. s. 21 REPORT OF THE SUPERVISORY BOARD In 2006 the Supervisory Board of the joint stock company J&T BANKA, a. s., had six members. The Supervisory Board exercised its duties in compliance with the respective provisions of the Commercial Code, the Articles of Association of the Bank and its Rules of Procedure. In the course of 2006 the Supervisory Board was convened four times for regular meetings and once for an extraordinary meeting when one member of the Board of Directors was elected. At its meetings, the Supervisory Board dealt especially with the regular reports of the Board of Directors of the bank on the activities of the company and its financial situation. The consolidated final accounts of the bank were drafted in accordance with the International Financial Reporting Standards (IFRS). The non-consolidated final accounts were drafted too, prepared in accordance with Act on Accounting and with the applicable generally binding laws of the Czech Republic. The consolidated final accounts were audited by an external auditor of the company KPMG Česká republika, s. r. o. On the basis of the executed audit, the auditor expressed his unqualified opinion. The full text of the audit report is provided on page 25 of this annual report. The non-consolidated final accounts were also approved without reservations by the auditing company. The full text of the audit is recorded on the CD-ROM enclosed with this annual report. The Supervisory Board reviewed the annual financial statements for 2006 including the proposal for distribution of profit for 2006 and recommended to the sole shareholder with the competence of the general meeting to express approval thereof. The Supervisory Board has further declared that the business activity of the bank was conducted in compliance with the legal regulations and the Articles of Association of the bank. Prague, May 2, 2007 Jozef Tkáč Chairman of the Supervisory Board

26 22 ANNUAL REPORT 2006 LIST OF Correspondent Banks American Express Bank Ltd. New York, USA SWIFT: AEIB US 33 Currency: USD ING Belgium SA/NV Brussels, Belgium SWIFT: BBRU BE BB Currency: EUR UBS AG Zurich, Switzerland SWIFT: UBSW CH ZH 80A Currency: CHF CALYON S.A. Prague, Czech Republic SWIFT: CRLY CZ PP Currency: CZK, EUR, SKK, USD ING Bank N. V. Prague, Czech Republic SWIFT: INGB CZ PP Currency: CZK, EUR, CHF, GBP, SKK, USD HVB Bank Slovakia a. s. Bratislava, Slovak Republic SWIFT: BACX SK BA Currency: SKK Poštová banka, a. s. Bratislava, Slovak Republic SWIFT: POBN SK BA Currency: SKK HVB Bank Czech Republic a. s. Prague, Czech Republic SWIFT: BACX CZ PP Currency: CZK, EUR, SKK, USD Československá obchodní banka, a. s. Prague, Czech Republic SWIFT: CEKO CZ PP Currency: CZK, EUR, SKK, USD

27 J&T BANKA, a. s. 23 Affidavit J&T BANKA, a. s., declares that all information and data provided in this annual report are correct and truthful and no substantial circumstances have been omitted. Prague, May 2, 2007 Patrik Tkáč Chairman of the Board of Directors

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29 FINANcial part

30 26 ANNUAL REPORT 2006 Auditor s report to the shareholders of J&T BANKA, a. s. Financial statements On the basis of the audit carried out, on 6 April 2007 KPMG Česká republika, s.r.o. issued an auditor s report on the Company s financial statements, which are included in this annual report, and our report was as follows: Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of J&T BANKA, a. s., and its subsidiary which comprise the consolidated balance sheet as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and the notes to these consolidated financial statements including a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of J&T BANKA, a. s. and its subsidiary as at 31 December 2006, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

31 J&T BANKA, a. s. 27 Report on relations between related parties We have also reviewed the factual accuracy of the information disclosed in the report on relations between related parties of J&T BANKA, a. s., for the year ended 31 December This report on relations between the related parties is the responsibility of the Company s management. Our responsibility is to express our view on the report on relations based on our review. We conducted our review in accordance with International Standards on Auditing and the relevant guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the review to obtain moderate assurance that the report on relations is free of material factual misstatement. A review is limited primarily to inquiries of Company personnel and analytical procedures and examination, on a test basis, of the factual accuracy of information, and thus provides less assurance than an audit. We have not conducted an audit of the report on relations and, accordingly, we do not express an audit opinion. Nothing has come to our attention based on our review that indicates that the information disclosed in the report on relations between related parties of J&T BANKA, a. s., for the year ended 31 December 2006 contains material factual misstatements. Annual report We have audited the consistency of the annual report with the audited financial statements. This annual report is the responsibility of Company s management. Our responsibility is to express our opinion on the consistency of the annual report with the audited financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing and the relevant guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance that the information disclosed in the annual report describing matters that all also presented in the financial statements is, in all material respects, consistent with the audited financial statements. We believe that our audit provides a reasonable basis for the auditor s opinion. In our opinion, the information disclosed in the annual report is, in all material respects, consistent with the audited financial statements. Prague, 11 May 2007 KPMG Česká republika Audit, s.r.o. Licence number 71 Vladimír Dvořáček Partner pavel Závitkovský partner Licence number 69

32 28 ANNUAL REPORT 2006 Consolidated Income Statement for the year ended 31 December 2006 in TCZK Note Interest income 4 1,002, ,047 Interest expense 4 (402,925) (267,005) Net interest income 599, ,042 Fee and commission income 5 94,776 86,768 Fee and commission expense 5 (62,768) (46,975) Net fee and commission income 32,008 39,793 Net trading income (expense) 6 (21,401) 140,676 Negative goodwill Other operating income 8 31,048 22,084 Operating profit 641, ,595 Personnel expenses 9 (144,278) (96,298) Depreciation (27,765) (24,364) Other operating expenses 10 (200,336) (145,932) Profit before loan impairment losses and income taxes 269, ,001 Net change in loan impairment losses 11 (35,788) (133,822) Profit before income tax 233, ,179 Income tax 12 (59,903) (48,538) Profit for the period 173, ,641 Attributable to: Shareholders 173, ,599 Minority interest Profit for the period 173, ,641 The accompanying notes, set out on pages 32 to 74, are an integral part of these financial statements.

33 J&T BANKA, a. s. 29 Consolidated Balance Sheet Assets in TCZK Note 31 December December 2005 Cash and balances with the central bank , ,747 Financial instruments at fair value through profit or loss , ,757 Financial instruments available-for-sale , ,458 Derivative financial instruments 18 34,418 5,765 Due from financial institutions 15 4,010,222 3,880,673 Loans and advances to customers, net 17 16,834,351 12,046,347 Property, plant and equipment , ,871 Intangible fixed assets 21 28,778 27,471 Goodwill 7 Deferred tax asset Prepayments, accrued income and other assets 19 79,807 89,086 Total assets 22,602,765 17,466,175 Liabilities in TCZK Note 31 December December 2005 Amounts owed to financial institutions , ,537 Amounts owed to customers 24 18,360,892 13,839,526 Derivative financial instruments 18 60,198 13,107 Deferred tax liability 12 5,404 3,309 Income tax liability 22,502 29,909 Accruals, provisions and other liabilities , ,273 Total liabilities 20,008,082 15,044,661 Shareholders equity in TCZK Note 31 December December 2005 Share capital 26 1,513, ,701 Retained earnings and translation reserve 1,080,982 1,487,380 Total shareholders equity 2,594,683 2,421,081 Minority interest 433 Total equity 2,594,683 2,421,514 Total liabilities, minority interests and shareholders equity 22,602,765 17,466,175 The accompanying notes, set out on pages 32 to 74 are an integral part of these financial statements. The Board of Directors approved these financial statements on Signed on behalf of the Board: Kamil Bendák Member of the Board of Directors Štěpán Ašer, MBA Member of the Board of Directors

34 30 ANNUAL REPORT 2006 Consolidated Statement of Changes in Equity in TCZK Share capital Retained earnings Capital fund Minority interest Closing balance as at 31 December , , , ,246,762 Decrease of goodwill other than from consolidation 1,111 1,111 Capital deposit paid up during the year 420, ,000 1,000,000 Profit for the year 173, ,641 Transfer to legal reserve fund (2,412) 2,412 Change in minority interests Closing balance as at 31 December , , , ,421,514 Opening balance as at 1 January , , , ,421,514 Other Contribution of capital fund to share capital 580,000 (580,000) Profit for the year 173, ,639 Transfer to legal reserve fund (8,772) 8,772 Change in minority interests (526) (526) Closing balance as at 31 December ,513, , ,302 2,594,683 The accompanying notes, set out on pages 32 to 74, are an integral part of these financial statements. Total In 2005 the capital fund of J&T BANKA, a. s., was increased by TCZK 580,000 to a total amount of TCZK 904,426. The increase was realized by J&T FINANCE GROUP, a. s., based on an Agreement dated 9 August 2005 on payment of a capital fund contribution to increase the equity of J&T BANKA, a. s. On 21 October 2005 the sole shareholder of the Bank, J&T FINANCE GROUP, a. s., increased the Bank s share capital by TCZK 420,000 through a subscription of new shares. In 2006 the registered capital was increased by a transfer of TCZK 580,000 from the capital fund. The capital fund includes the legal reserve fund. All companies are required to maintain a legal reserve fund to cover future adverse financial conditions. The Bank is obliged to contribute an amount to the fund each year, which is not less than 5% of its annual net profit until the aggregate amount reaches a minimum level equal to 20% of the issued share capital. The legal reserve fund is not distributable to shareholders.

35 J&T BANKA, a. s. 31 Consolidated Cash Flow Statement CASH FLOWS FROM OPERATING ACTIVITIES in TCZK Note Profit before taxation 233, ,719 Adjustments for: Depreciation 27,765 24,364 Negative goodwill Loan impairment losses 11 34, ,864 Net loss (gain) on sales of investment securities and subsidiaries Net loss (gain) on sale of intangible and tangible fixed assets 18, Other non-cash items (3,053) (15,832) (Increase) decrease in operating assets: Due from financial institutions (1,010,593) 2,346,884 Loans and advances to customers (4,822,859) (5,779,858) Financial instruments at fair value through profit or loss and available-for-sale 4,614 (231,055) Prepayments, accrued income and other assets 9,279 (16,093) Increase (decrease) in operating liabilities: Amounts owed to banks 306,924 12,934 Amounts owed to customers 4,521,366 3,508,265 Accruals, provisions and other liabilities 142, ,868 Tax refund (paid) (65,431) (29,002) Net cash flows from operating activities (603,120) 564,344 Cash flows from investing activities Purchase of intangible and tangible fixed assets (45,870) (14,094) Proceeds from sales of intangible and tangible fixed assets Proceeds from sale of subsidiaries, net of cash disposed of Net cash flows from investing activities (45,253) (13,851) Cash flows from financing activities Increase in capital funds 580,000 Capital deposit paid up during the year 420,000 Net cash flows from financing activities 1,000,000 Increase (decrease) in cash and cash equivalents (648,373) 1,550,493 Cash and cash equivalents at beginning of period 34 2,312, ,935 Cash and cash equivalents at end of period 34 1,664,055 2,312,428 Cash flows from operating activities include: Interest received 840, ,309 Interest paid 362, ,264 Dividends received 1,253 21,257 The accompanying notes, set out on pages 32 to 74, are an integral part of these financial statements.