Key financial data Q Q International credit ratings Moody's Fitch. B2 Ba2 Caa2 BBB- BBB BBB-

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2 Key financial data Key indicators Return on equity after tax (ROE a.t.) -28.5% -15.2% -1.7% -25.0%* -14.3%* -0.2%* Return on assets after tax (ROA a.t.) -2.4% -1.1% -0.2% -1.7%* -0.8%* 0.0%* Cost/income ratio (CIR) 41.3% 57.0% 72.0% 54.6% 61.0% 73.5% Capital adequacy ratio (CAR) 11.8% 9.7% 12.0% 10.6% 10.8% 10.6% Tier 1 ratio 9.9% 7.2% 10.2% 8.8% 7.0% 8.9% Loan/deposit ratio (LTD) 115.7% 113.1% 111.7% 104.7% 106.9% 102.1% Market share in terms of total assets 24.8% 27.3% Profit and loss account indicators (in million EUR) Net interest income Net non-interest income Costs Impairments and provisions Result before tax ,1 Result after tax ,7 Financial position statement indicators (in million EUR) Total assets 11,487 13,546 11,419 14,335 16,828 14,259 Loans to non-banking sector 7,832 8,347 7,701 9,553 10,617 9,404 Deposits from non-bankig sector 6,769 7,401 6,896 9,121 9,935 9,214 Equity 1, ,047 1, ,108 Equity of minority shareholders International credit ratings Moody's Fitch Q Q 2012 B2 Ba2 Caa2 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 Profit and loss account 5 Statement of financial position 6 Capital and capital adequacy 8 Financial Statements 9 1

4 1 Report Business 2

5 Introduction is the largest Slovenian banking and financial group which as at 31 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: 10 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; 16 members in other activities. Illustration 1: Ownership structure of as at 31 Zavarovalnica Triglav 1.31% Other shareholders 7.35% Poteza naložbe - in bankruptcy 2.30% Slovenska odškodninska družba (Slovenian remuneration fund) 5.73% Kapitalska družba (Slovenian pension fund) 6.40% Republic of Slovenia 76.91% Business Report 3

6 Southeastern Europe Western and Central Europe Table 1: Matrix of activities of members by country as at 31 Banking Leasing Factoring and forfeiting Insurance Asset management Other activities Slovenia, Ljubljana; Banka Celje, Celje*; SIB (in liquidation), Ljubljana Leasing, Ljubljana Prvi faktor, Ljubljana*** Vita, Ljubljana***; Skupna pokojninska družba, Ljubljana* Skladi, Ljubljana Prospera Plus, Ljubljana; Propria, Ljubljana; Bankart, Ljubljana*; FIN-DO, Domžale; ICJ, Domžale***; Kreditni biro SISBON, Ljubljana*; Argo, Horjul**; Pivovarna Laško, Laško** Austria Czech Republic Adria Bank, Vienna* InterFinanz, Prague; Factoring (in liquidation), Ostrava Germany LHB, Frankfurt/Main Italy Trieste Branch, Trieste**** Switzerland InterFinanz, Zürich Bosnia and Herzegovina Razvojna banka, Banja Luka; Banka, Tuzla Leasing, Sarajevo Prvi faktor, Sarajevo*** Plan, Banja Luka; CBS Invest, Sarajevo Bulgaria Leasing, Sofia Croatia Optima Leasing, Zagreb Prvi faktor, Zagreb*** LHB Trade, Zagreb; OL Nekretnine, Zagreb Kosovo Prishtina, Pristina Macedonia Tutunska banka, Skopje Lizing, Skopje Prvi faktor, Skopje*** Nov penziski fond, Skopje Montenegro Montenegrobanka, Podgorica Leasing, Podgorica Serbia banka, Belgrade Leasing, Belgrade InterFinanz, Belgrade; Prvi faktor, Belgrade*** Conet (in liquidation), Novi Sad; Convest, Novi Sad; Srbija, Belgrade * Associated companies. ** Associated companies obtained via the redemption of collateral. *** Joint ventures. **** The Trieste Branch is part of. Business Report 4

7 Key events 1st quarter: Submission of the Restructuring plan to the European Commission. Initiation of the liquidation procedure in Factoring and capital increase of EUR 62 million. Increase of share capital due to conversion of the hybrid loan into shares in the amount of EUR 1.9 million. Moody's rating agency downgrade of to Caa2. Global Finance awarded as the best bank in Slovenia in 2013 for the sixteenth time in a row. Successful completion of the new issue of Slovene entrepreneurship securities in the record amount of EUR 60 million, which organised and executed. Financial review of operations In the first three months of 2013 recorded a profit before provisions totalling EUR 29.5 million and in the amount of EUR 20.3 million. The result after tax, which totalled EUR -0.7 million in and EUR -4.5 million in, was influenced by established impairments and provisions in the amount of EUR 37.6 million at the level of the Group or EUR 22.3 million at the level of the Bank. The following key factors influenced performance of in the first three months of 2013: loan approval on the basis of stricter selection criteria and by consequence reduction in the volume of lending to non-banking sector; further deterioration in the quality of loan portfolio; further implementation of cost-cutting measures; Bank of Slovenia's decree on preparation of an action plan to ensure capital adequacy ratios as set in the ICAAP-SREP dialogue. Profit and loss account In the first three months of 2013, net interest income of totalled EUR 71.1 million, which is a decrease of 30% 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 44.6 million or 34% less than in the same period of the previous year. Lower net interest income is a result of loan portfolio quality deterioration and changes in the methodology of how the interest income is presented, i.e. suspension of interest on overdue receivables from D and E-rated customers (effective as of 1 January 2013) and lower lending interest rate. The largest share in the structure of net non-interest income is commissions which, at the level of the Group, amount to EUR 33.9 million and EUR 24.9 million at the Bank level. Net non-interest income of the Group total EUR 39.5 million and that of the Bank EUR 27.9 million. The costs at the level of and the Bank are by 8% and 6% lower, reaching EUR 81.3 million and EUR 52.2 million, respectively. Labour costs, which account for more than half of all costs, fell by 8% at the level of the Group as well as the bank in comparison to the same period last year. Operating costs also decreased compared to the last year, namely by 6% and 1% at the Group and Bank level, respectively, and the costs of depreciation and amortisation by 12% and 10% at the Group and Bank level, respectively. The cost/income ratio (CIR) stood at 73.5 % for, i.e p.p. less favourable compared to the same period last year, while the same indicator for deteriorated by 15.0 p.p. to 72.0%. The increased ratio is a result of lower net interest income. established EUR 37.6 million of impairments and provisions in the first three months of 2013, which is 62% less than in the same period of the previous year, while additional impairments and provisions in totalled EUR 22.3 million, which is 74% less than in the same period of the previous year. Business Report 5

8 Financial markets (Slovenia) Strategic foreign markets Retail banking (Slovenia) Other Non-strategic markets and activities Corporate banking (Slovenia) Table 2: Key profit and loss account 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 Illustration 2: Result before tax structure in the first three months of 2013 in million EUR Business Report 6

9 Statement of financial position The total assets of at the end of the first quarter of 2013 amounted to EUR 14,259.4 million, which is 1% less than at the end of last year. In parallel, the total assets of also fell by 1% and reached EUR 11,418.5 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. At the same time increased the requirements for collaterals and made the criteria on project feasibility stricter. Loans to non-banking sector thus totalled EUR 9,404.2 million at the end of the first quarter of 2013 for the Group and EUR 7,700.7 million for the Bank, which means that they dropped by 2% at both Group and Bank levels. On the other hand, non-banking deposits in increased by 1% to EUR 9,214.4 million and at the Bank level they increased by 2%, amounting to EUR 6,895.5 million. The coverage of loans to non-banking sector by deposits from non-banking sector (LTD) fell by 2.6 p.p at the Group level, reaching 102.1%, while at the Bank level it decreased by 4.0 p.p., standing at 111.7% at the end of March. Table 3: Key financial position statement items ASSETS Business Report Grow th in million EUR in million EUR in million EUR in million EUR Cash % , % Loans to banks % % Loans to non-banking sector 7, , % 9, , % Gross loans to non-banking sector 9, , % 11, , % - corporate 6, , % 8, , % - state % % - retail 1, , % 2, , % Impairments -1, , % -1, , % Financial assets 2, , % 2, , % - held for trading % % - available for sale and held to maturity 1, , % 2, , % Investments in subsidiaries, associates and joint ventures % % Property and equipment % % Investment property % % Intangible assets % % Other assets % % Total assets 11, , % 14, , % LIABILITIES Deposits from non-banking sector 6, , % 9, , % - corporate 1, , % 2, , % - state % % - retail 4, , % 6, , % Deposits form banks % % Debt securities in issue % % Borrow ings 2, , % 3, , % Other liabilities % % Subordinated debt % % Equity 1, , % 1, , % Equity of minority shareholders % Total liabilities 11, , % 14, , % OFF-BALANCE SHEET 4, , % 5, , % Grow th Guarantees and accepted bills % 1, , % Letters of credit - risk bearing % % Commitments for extended credit and limit % 1, % Derivatives 2, , % 2, , %

10 Illustration 3: Total assets structure as at 31 Retail banking (Slovenia) 30.1% Financial markets (Slovenia) 23.1% Other activities 0.9% Strategic foreign markets 21.8% Non-strategic markets and activities 10.0% Corporate banking (Slovenia) 14.0% Capital and capital adequacy Regulatory capital of as at 31 was estimated at EUR 1,164.0 million and was EUR 4.2 million lower than at the end of The estimated capital adequacy ratio (CAR) on the same date was 10.6%, which is 0.08 p.p. higher than at the end of the previous year, while the Tier 1 ratio was assessed at 8.9%, thus increasing by 0.1 p.p. compared to the end of As at 31 the regulatory capital of was EUR 1,127.9 million, which is EUR 10.2 million less than at the end of On the same date, the capital adequacy ratio (CAR) was 12.0% or 0.2 p.p. more than at the end of last year, while the Tier 1 ratio was 10.2%, thus increasing by 0.3 p.p. compared to the end of Business Report 8

11 2 Statements Financial Financial Statements 9

12 Key financial data Condensed Interim Financial Statements of d.d. and prepared in accordance with IAS 34 Interim financial reporting 10

13 Contents CONDENSED INCOME STATEMENT CONDENSED STATEMENT OF COMPREHENSIVE INCOME 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 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 Debt securities 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 Held to maturity financial assets Fair value hierarchy of financial and non-financial assets and liabilities Other assets Deferred income tax Deposits, borrowings and debt securities in issue Deposits from banks and amounts due to customers Borrowings from banks and other customers Debt securities in issue Subordinated liabilities Other financial liabilities Provisions Tax effects relating to each component of other comprehensive income Other liabilities Book value per share Capital adequacy ratios Off-balance sheet liabilities EVENTS AFTER THE END OF THE REPORTING PERIOD OTHER DISCLOSURES Related-party transactions Analysis by segment Subsidiaries Ke y 11

14 Condensed income statement three months ended three months ended Notes March March March March Interest and similar income Interest and similar expenses 4.1. (68.840) ( ) (88.230) ( ) Net interest income ======== ======== ======== ======== Dividend income Fee and commission income Fee and commission expenses 4.2. (6.303) (5.459) (11.186) (10.536) 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) (3.036) Gains less losses from financial assets and liabilities held for trading (2.220) (696) Gains less losses from financial assets and liabilities designated at fair value through profit or loss Fair value adjustments in hedge accounting (31) 51 (31) 41 Foreign exchange translation gains less losses (3.799) (4.919) Gains less losses on derecognition of assets other than held for sale - (8) 92 (20) Other operating income Other operating expenses 4.6. (4.813) (1.363) (6.031) (2.451) Administrative expenses 4.7. (45.447) (47.963) (69.717) (75.228) Depreciation and amortization (6.768) (7.581) (11.553) (13.157) Provisions for other liabilities and charges 4.8. (851) (11.618) 520 (13.173) Impairment charge 4.9. (21.454) (73.319) (38.174) (84.851) Share of profits of associates and joint ventures accounted for using the equity method Net (loss)/gain from non-current assets held for sale (1.073) 92 (1.073) (109) LOSS BEFORE INCOME TAX (2.019) (42.965) (8.122) (39.798) ======== ======== ======== ======== Income tax (2.496) LOSS FOR THE PERIOD (4.515) (36.451) (185) (34.465) ======== ======== ======== ======== Attributable to: Owners of the parent (4.515) (36.451) (693) (34.616) Non-controlling interests Basic loss per share (in EUR per share) (0,29) (3,31) (0,04) (3,14) Diluted loss per share (in EUR per share) (0,21) (3,31) (0,03) (3,14) Financial Statements 12

15 Condensed statement of comprehensive income three months ended three months ended Note March March March March Net loss for the period after tax (4.515) (36.451) (185) (34.465) Other comprehensive (loss)/income after tax (16.870) (13.788) Hedge of a net investment in a foreign operation Net valuation gains taken to equity Foreign currency translation (5.077) Translation gains/(losses) taken to equity (5.077) Cash flow hedges (effective portion) Valuation gains/(losses) taken to equity 14 (319) 14 (319) Transferred to income statement Available for sale financial assets (19.939) (18.930) Valuation (losses)/gains taken to equity (15.082) (14.062) Transferred to income statement (4.857) (4.868) Share of other comprehensive income of entities accounted for using the equity method - - (134) Income tax relating to components of other comprehensive income (5.003) (6.568) Total comprehensive loss for the period after tax (21.385) (16.451) (13.973) (14.696) Attributable to owners of the parent (21.385) (16.451) (14.321) (14.909) Attributable to non-controlling interests All items of statement of comprehensive income are subsequently reclassified to profit or loss when specific conditions are met. Financial Statements 13

16 Condensed statement of financial position 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 Loans and advances - 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 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 Financial liabilities measured at amortized cost - deposits from banks borrowings from banks due to customers borrowings from other customers debt securities in issue subordinated liabilities other financial liabilities 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 ========== ========== ========== ========== EQUITY AND RESERVES ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital Share premium Other equity instruments Revaluation reserve (22.286) (5.416) (26.382) (12.754) Profit reserves Retained earnings ( ) ( ) ( ) ( ) Treasury shares (2.048) (2.048) (2.048) (2.048) Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY ========== ========== ========== ========== Financial Statements 14

17 Condensed statement of changes in equity Share capital Share premium Other equity instruments Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, (5.416) ( ) (2.048) Net loss for the period (4.515) - (4.515) - Other comprehensive income (16.870) (16.870) Total comprehensive income after tax (16.870) - (4.515) - (21.385) New share capital subscribed (and paid in) Other equity instruments issued (5.173) Conversion of other equity instruments ( ) Other* - (149) (149) Balance at March 31, (22.286) ( ) (2.048) * Item other relates to cost directly attributable to the issuance of new shares. Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Total equity Balance at January 1, (41.226) (2.048) Net loss for the period (36.451) - (36.451) - Other comprehensive income Total comprehensive loss after tax (36.451) - (16.451) Balance at March 31, (21.226) (36.451) (2.048) Share capital Share premium Other equity instruments Revaluation reserves Profit reserves Retained earnings Balance at January 1, (12.754) ( ) (2.048) Net loss for the period (693) - (693) 508 (185) - Other comprehensive income (13.628) (13.628) (160) (13.788) Total comprehensive income after tax (13.628) - (693) - (14.321) 348 (13.973) New share capital subscribed (and paid in) Other equity instruments issued (5.173) Conversion of other equity instruments ( ) Other* - (149) (4.380) - (4.529) (161) Balance at March 31, (26.382) ( ) (2.048) Treasury shares Equity attributable to owners of the parent * Item other relates to cost directly attributable to the issuance of new shares and transactions with non-controlling interest. Equity Total equity attributable to noncontrolling interests Share capital Share premium Revaluation reserves Profit reserves Retained earnings Treasury shares Equity attributable to owners of the parent Equity Total equity attributable to non-controlling interests Balance at January 1, (52.942) (2.048) Net loss for the period (34.616) - (34.616) 151 (34.465) - Other comprehensive income Total comprehensive loss after tax (34.616) - (14.909) 213 (14.696) Balance at March 31, (33.235) (3.732) (2.048) Financial Statements 15

18 Condensed statement of cash flows three months ended three months ended March March March March CASH FLOWS FROM OPERATING ACTIVITIES Interest received Interest paid (66.889) (94.688) (83.058) ( ) Dividends received Fee and commission receipts Fee and commission payments (5.813) (8.951) (10.306) (14.014) 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 - (3.028) - (2.994) profit or loss (Losses)/gains from financial assets and liabilities held for trading (266) Payments to employees and suppliers (49.962) (50.634) (77.453) (79.731) Other income Other expenses (2.890) (698) (3.766) (2.201) Income tax paid - - (1.784) (1.171) Cash flows from operating activities before changes in operating assets and liabilities Decreases/(increases) in operating assets (72.676) (8.698) Net increase in trading assets (12.986) ( ) (13.165) ( ) Net increase in financial assets and liabilities designated at fair value through profit or (421) loss Net decrease in available for sale financial assets Net decrease/(increase) in loans and advances ( ) (30.962) ( ) Net decrease in non-current assets held for sale Net increase in other assets (101) (57) (3.570) (1.314) (Decreases)/increases in operating liabilities (18.565) (23.610) Net (decrease)/increase in deposits and borrowings from central banks (31) (31) Net increase/(decrease) in deposits and borrowings measured at amortized cost ( ) (1.247) ( ) Net decrease in securities measured at amortized cost (21.741) ( ) (21.741) ( ) Net decrease in other liabilities (6) (303) (591) (1.714) Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Receipts from investing activities Proceeds from sale of property and equipment and investment property Proceeds from disposal of held to maturity investments Payments from investing activities (64.949) (33.634) (5.585) (30.784) Purchase of property and equipment and investment property (1.730) (1.284) (3.738) (3.128) Purchase of intangible assets (1.649) (1.977) (1.847) (2.283) Purchase of subsidiaries and increase in subsidiaries' equity (61.570) (5.000) - - Purchase of held to maturity investments - (25.373) - (25.373) Net cash used in investing activities (54.919) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from financing activities Issue of ordinary shares and other equity instruments Payments from financing activities (12.649) - (12.649) - Repayments of subordinated debt (12.500) - (12.500) - Other payments related to financing activities (149) - (149) - Net cash from financing activities (10.790) - (10.790) - Effects of exchange rate changes on cash and cash equivalents (1.439) (2.636) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Financial Statements 16

19 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 three months ended March 31, 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 Nima Motazed Blaž Brodnjak Janko Medja Member of the Member of the Member of the Management Board Management Board Management Board & CEO Financial Statements 17

20 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 shareholder as at March 31, 2013 is the Republic of Slovenia, owning 76.91% of shares (December 31, 2012: Republic of Slovenia 40.21% and KBC Bank N.V. Brussels 22.04%). The Republic of Slovenia is the ultimate controlling party of. 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, 2012, 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. Accounting standards and amendments to existing standards effective for annual periods beginning on January 1, 2013 that were endorsed by EU and adopted by us - 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). - IFRS 7 (amendments) - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013). - IFRS 13 (new standard) - Fair Value Measurement (effective for annual periods beginning on or after January 1, 2013, with earlier application permitted). - 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 18

21 - IFRS 1 (amendments) Fist time Adoption of IFRS (effective for annual periods beginning on or after January 1, 2013). - Other revised standards and interpretations: amendment to IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine. Accounting standards and amendments to existing standards endorsed by EU but not early adopted by the - IAS 32 (amendments) - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2014). - 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. Standards are effective for annual periods beginning on or after January 1, 2014, 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. 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. - Amendments to IFRS 10 - Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities - Transition Guidance (effective for annual periods beginning on or after January 1, 2014, with earlier application permitted). - Amendments to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities Investment Entities (effective for annual periods beginning on or after January 1, 2014, with earlier application permitted). Financial Statements 19

22 3. CHANGES IN SUBSIDIARY HOLDINGS THREE MONTHS ENDED MARCH 31, 2013 Capital increase: - The increase of share capital by cash in total amount of EUR 72,070 thousand was registered in Factoring, v likvidaci, Ostrava and in Montenegrobank, Podgorica. - The increase of share capital by cash from Leasing, Ljubljana in total amount of EUR 42,356 thousand was registered in Optima Leasing, Zagreb and OL Nekretnine, Zagreb. Other changes: - Factoring, Ostrava was renamed to Factoring, v likvidaci, Ostrava. CHANGES IN THE YEAR 2012 a) Capital increase: - The increase of share capital by cash in total amount of EUR 141,438 thousand was registered in LHB, Frankfurt, Montenegrobank, Podgorica, Leasing, Sarajevo, Leasing, Ljubljana and in banka, Beograd. - With increase of share capital in Montenegrobank, Podgorica increased its ownership interest from 89.95% to 96.71%. - The increase of share capital by cash in total amount of EUR 10,500 thousand has not yet been registered in Montenegrobank, Podgorica. - The increase of share capital by cash from Leasing, Ljubljana in total amount of EUR 42,356 thousand has not yet been registered in Optima Leasing, Zagreb and OL Nekretnine, Zagreb. - The increase of share capital by loan conversion in total amount of EUR 15,350 thousand was registered in banka, Beograd and LHB Trade, Zagreb. b) 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, Leasing, Ljubljana sold its 100% ownership interest in Leasing, Podgorica to. - has by the called collateral acquired 75% ownership interest in Argo, Horjul. However according to contractual agreement does not have control, but only significant influence and therefore the entity is accounted as an associate. - LHB Internationale Handelsbank, Frankfurt returned its banking licence, changed its legal form of the entity and was renamed to LHB, Frankfurt. - On General meeting of shareholders of Banka Celje, Banka Celje obtained approval to change the preferred shares into ordinary shares, therefore s voting rights decreased from 49.42% to 41.11%. Financial Statements 20

23 c) Disposal of subsidiary: - LHB, Frankfurt sold its 100% ownership interest in LHB Immobilien, Frankfurt outside of. The details of the assets and liabilities of at the date of disposal and disposal consideration are as follows: Loans and advances to banks 159 Property and equipment Other assets 211 Other liabilities 46 Net assets of subsidiary Non-controlling interest - Carrying amount of net assets disposed of Total disposal consideration Cash and cash equivalents in subsidiary sold - Cash inflow on disposal The loss on disposal of the subsidiay comprises: Considieration for disposal of the subsidiary Carrying amount of net assets disposed of, net of non-controlling interest Cumulative currency translation reserve on foreign operation recycled from other comprehensive income to profit or loss - Loss from disposal of subsidiary in consolidated financial statements Financial Statements 21

24 4. NOTES TO THE CONDENSED INCOME STATEMENT 4.1. Interest income and expenses three months ended three months ended March March March March 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 22

25 4.2. Net fee and commission income three months ended three months ended March March March March 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 Guarantees Deposit insurance Other services TOTAL ======= ======= ======= ======= NET FEE AND COMMISSION INCOME ======= ======= ======= ======= 4.3. Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss three months ended three months ended March March March March Available for sale financial assets Financial liabilities measured at amortized cost - (2.268) - (2.191) Held to maturity investments - (1.253) - (1.253) Loans and receivables - - (5) - TOTAL (3.340) (3.036) ======== ======== ======== ======== Financial Statements 23

26 4.4. Gains less losses from financial assets and liabilities held for trading three months ended three months ended March March March March Derivatives (4.036) (4.201) Foreign exchange trading Equity instruments (101) 915 (101) 915 Debt instruments (264) 72 (264) 330 TOTAL (2.220) (696) ======== ======== ======== ======== 4.5. Other operating income three months ended three months ended March March March March Income from non-banking services Rental income from investment property Other operating income TOTAL ======= ======= ======= ======= Income from non-banking services includes income from IT services, cash transportation and operating leases of movable property. Financial Statements 24

27 4.6. Other operating expenses three months ended three months ended March March March March Expenses related to issued service guarantees Taxes and other duties Membership fees Other operating expenses TOTAL ======= ======= ======= ======= 4.7. Administrative expenses three months ended three months ended March March March March Employee costs Other general and administrative expenses TOTAL ======= ======= ======= ======= 4.8. Provisions for other liabilities and charges three months ended three months ended March March March March Guarantees and commitments (544) Other provisions (6) 3 24 (22) TOTAL (520) ======= ======= ======= ======= Financial Statements 25

28 4.9. Impairment charge Impairment of financial assets three months ended three months ended March March March March Available for sale financial assets Loans and advances to banks (note ) - 18 (47) (356) Loans and advances to customers (note ) (40.038) Other financial assets (note ) (647) Investments in subsidiaries, associates and joint ventures Other TOTAL ======= ======= ======= ======= In three months ended the recorded impairment of investment in subsidiary Factoring, v likvidaci, Ostrava and consequently released additional allowances for given loan Earnings per share Basic earnings per share is calculated by dividing the net result by the weighted average number of ordinary shares in issue, less treasury shares. Diluted earnings per share is calculated by dividing the net result by the weighted average number of ordinary shares and dilutive potential shares, less treasury shares. Diluted earning per share considers subordinated loans and issued debt securities have future conversion options and consequently dilutive potential ordinary shares which is issued financial instrument with characteristics of equity (CoCo). Diluted profit is the same as net profit of the and the ; recognizes interests from issued financial instrument with equity characteristics, directly from profit from reserves, as part of equity (note Statement of changes in equity). three months ended three months ended March March March March Net loss (in thousand of EUR) (4.515) (36.451) (693) (34.616) Weighted average number of ordinary shares (in thousand) Basic loss per share (in EUR per share) (0,29) (3,31) (0,04) (3,14) Weighted average number of ordinary shares and potential dilutive shares (in thousand) Diluted loss per share (in EUR per share) (0,21) (3,31) (0,03) (3,14) Financial Statements 26

29 5. NOTES TO THE CONDENSED STATEMENT OF FINANCIAL POSITION 5.1. Cash and balances with central banks Cash Balances and obligatory reserves with central banks TOTAL ========= ========= ========= ========= 5.2. Trading assets Derivatives, excluding hedging instruments Swap contracts Forward contracts Options Total derivatives Securities Shares Bonds Treasury bills Total securities TOTAL ====================== =========== =========== Financial Statements 27

30 5.3. Available for sale financial assets Bonds Shares Treasury bills Certificates of deposit - _ - _ _ _ TOTAL ========= ========= ========= ========= 5.4. Loans and advances Debt securities Banks Companies TOTAL ================== ================== Loans and advances to banks Demand deposits Loans Time deposits Reverse sale and repurchase agreements Purchased receivables Allowance for impairment (note ) (396) (385) (14.557) (14.390) TOTAL ======== ======== ======== ======== Financial Statements 28

31 Loans and advances to customers Loans Finance lease receivables Overdrafts Credit card business Called guarantees Reverse sale and repurchase agreement Allowance for impairment (note ) ( ) ( ) ( ) ( ) TOTAL ========= ========= ========= ========= Other financial assets Receivables from purchase agreements for equity securities Credit card receivables Receivables in the course of collection Fees and commissions due Accrued fees and commissions Debtors Prepayments Other financial assets Allowance for impairment (note ) (25.089) (25.843) (50.444) (51.051) TOTAL ========= ========= ========= ========= Movements in allowance for impairment of banks, loans and advances to customers and other financial assets Banks Customers Other financial assets Balance at January Impairment (note 4.9.) - 18 (40.038) (647) 563 Write offs - - (1.255) (431) (37) (111) Exhange differences 11 (17) (1.526) (1.394) (70) 58 Other Balance at March ======= ======= ======= ======= ======= ======= Financial Statements 29

32 Banks Customers Other financial assets Balance at January Exchange differences on opening balance (132) 112 (1.465) (51) Impairment (note 4.9.) (47) (356) Write offs - - (14.735) (15.084) (668) (647) Exhange differences 346 (173) 567 (1.604) (97) 54 Other Balance at March ======= ======= ======= ======= ======= ======= 5.5. Held to maturity financial assets and Bonds Treasury bills TOTAL ========= ========= Decrease is due to disposals of financial assets at maturity. Financial Statements 30