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2 1. Infrmatin n the structure f bank s expsure t specific entities, capital grups, industrial and gegraphical market segments, tgether with the expsure risk assessment 1.1. Infrmatin regarding the Bank s expsure t specific industries is presented in the table belw. The data d nt include receivables due frm banks, interest r value adjustment n accunt f effective cmmissin settlement: Sectrs f the ecnmy Grss receivables as at June 30, 2006 Grss receivables as at June 30, 2005 Private individuals 1,342, ,126 Whlesale 890, ,046 Other prductin 436, ,239 Prductin f fd and beverages 248, ,672 Prductin f metal gds 210, ,420 Municipal and husing services 204, ,744 Timber and wden gds 187, ,638 Cnstructin services 179, ,025 Cmmercial intermediaries 115,334 4,314 Retail trade in industrial gds 105,111 88,264 Htels and mtels 104,157 49,509 Nn-banking financial services 98,751 42,009 Retail trade in grceries 98,458 97,219 Paper and statinery 90,747 37,880 Scial utility services 88,951 27,027 Rubber and plastic prducts 78,983 42,966 Land transprt 78,735 65,834 Ceramics and glass 67,957 35,921 Textiles and fabric prductin 62,656 65,537 Mtr vehicles 56,723 42,500 Print shps and publishers 56,507 50,542 Electrical prducts 53,606 49,151 Furniture and accessries 49,879 33,404 Trade in means f transprt 39,754 35,730 Science and technlgy services 39,459 36,156 Develper activity 38,913 17,086 Cal and crude il prducts 34,381 33,591 Other chemical prducts 31,901 37,520 Other services 657, ,453 Other industries 104,640 48,832 Ttal 5,853,643 3,840, Data n the Bank s expsure by the main gegraphical regins f Pland are presented in the table belw. The data d nt include interest, receivables due frm banks, r value adjustment n accunt f effective cmmissin settlement. 2

3 3! 24( Gegraphical regins f Pland Grss receivables as at June 30, 2006 in PLN thusand Grss receivables as at June 30, 2005 in PLN thusand Eastern Regin 2,465,499 1,825,984 Małplska Regin 1,091, ,473 Western Regin 834, ,935 Silesia Regin 798, ,126 Nrthern Regin 663, ,837 Ttal 5,853,643 3,840,355 Fr the needs f the abve cmparisn, the Małplska Regin cmprises the fllwing prvinces: Małplska, Pdkarpackie and witkrzyskie; the Silesia Regin cmprises the fllwing prvinces: Silesia and Oplskie; the Eastern Regin cmprises the fllwing prvinces: Mazvia, Lublin, Łód, Warmia-Mazuria and Pdlasie; the Western Regin cmprises the fllwing prvinces: Wielkplska, West Pmerania, Lwer Silesia and Lubuskie; the Nrthern Regin cmprises the fllwing prvinces: Pmerania and Kujawy Pmerania Data regarding the Bank s expsure t specific ecnmic sectrs is presented in the table belw. The data d nt include interest r value adjustment n accunt f effective cmmissin settlement. Entity type Grss receivables as at June 30, 2006 in PLN thusand Grss receivables as at June 30, 2005 in PLN thusand Financial sectr 100,591 42,397 Insurance institutins and pensin funds Other financial intermediaries 97,676 40,827 Auxiliary financial institutins 2,638 1,339 VISA card settlements and thers Nn-financial sectr 5,752,536 3,797,353 State-wned enterprises and cmpanies 29,323 31,070 State-wned enterprises and cmpanies and cperatives 4,061,064 3,010,774 Individual entrepreneurs 304, ,635 Private individuals 1,339, ,493 Individual farmers Nn-cmmercial institutins perating in favur f husehlds 6,925 3,077 VISA card settlements and thers 10,146 13,456 State budget sectr Lcal budgetary units VISA card settlements and thers 7 Ttal 5,853,643 3,840,355 In Sectins 1.1., 1.2. and 1.3. amunts receivable due frm the financial, nn-financial and State budget sectrs are presented, excluding transactins with banks. 3

4 3! $4( 1.4. Data regarding the Bank s expsure t specific custmers and capital grups. As at June 30, 2006, the Bank did nt exceed a maximum expsure limit twards any custmer r capital grup as stipulated under the Banking Law. The Bank s expsure exceeded 10% f capital equity twards 13 custmers/capital grups, and ttalled PLN 1,249 millin. T cmpare, as at June 30, 2005, the Bank s expsure exceeded that level in the case f 18 custmers/capital grups and ttalled PLN 1,355 millin. The Bank s expsure exceeded 10% f capital equity (used t cmpute the slvency rati) twards ten (10) capital grups and three (3) individual entities, and ttalled PLN 1,144 millin. The amunt f the Bank s expsure t industries f specific capital grups are presented in the table belw. N. grup/entity industry The Bank s ttal expsure June 30, 2006 June 30, capital grup A Residential cnstructin services 135,461 58,182 2 capital grup B Prductin f fd and beverages 105,155 88,208 3 capital grup C Financial services 105,132 89,630 4 capital grup D Textiles and fabric prductin 103, , individual custmer E Cmmercial intermediary 82, ,667 individual custmer F Municipal and husing services 81,327 84,893 7 capital grup G Wden prducts and scial utility services 81,246 33,018 8 capital grup H Whlesale 80,639 93,270 9 capital grup I Prductin f wden gds 77,843 62, capital grup J Services and whlesale 75,339 43, capital grup K Whlesale 74,558 74, individual custmer L Other prductin 71, capital grup M Cnstructin and medical services 70,821 64, Data regarding credit risk cncentratin. The Bank s financial expsure fcuses n the fllwing sectrs: prductin, services, private individual custmers and trade and it amunts t 29%, 26%, 23% and 19% f the credit prtfli value respectively, as at the end f the first half f As far as ther sectrs are cncerned, the expsure is relatively lw. As cmpared t June 30, 2005, the Bank decreased its expsure in service and trade sectrs whereas the expsure in private individual custmer segment and prductin sectr increased. The highest grwth f expsure was reprted in the metallurgy sectr, whereas the biggest decrease was reprted in the sea transprt sectr. Detailed infrmatin regarding the credit risk cncentratin in industries where the Bank s expsure exceeds 5% f ttal lans granted, are presented in Sectin e f the. 2. Data regarding the surce f depsit acquisitin, brken by industrial and gegraphical market segments Data n the surce f funds acquisitin by the main gegraphical regins f Pland are presented in the Table belw. Interest is nt included. Gegraphical regins f Pland Depsits as at June 30, 2006 Depsits as at June 30, 2005 Eastern Regin 1,598,375 1,117,343 Małplska Regin 969, ,592 Silesia Regin 413, ,688 Western Regin 418, ,309 Nrthern Regin 344, ,251 Ttal 3,744,488 3,042,183 4

5 2.2. Infrmatin regarding fund acquisitin by the Bank frm specific industries is presented in the table belw. Interest is nt included. Depsits as at June 30, 2006 Depsits as at June 30, 2005 Sectrs f the ecnmy Private individuals 1,300,545 1,276,781 Whlesale 271, ,474 Prductin f fd and beverages 196, ,880 Cnstructin services 193, ,106 Prductin f metal gds 118, ,545 Other prductin 104,072 79,971 Scial utility services 87,135 63,062 Legal and ecnmic services 77,501 45,475 Land transprt 66,200 60,584 Nn-banking financial services 62,868 38,059 Science and technlgy services 47,457 35,050 Retail trade in industrial gds 46,856 23,262 Brkerage activity 46,607 28,242 Nn-life insurance 43,168 94,706 Municipal and husing services 43,143 28,361 Htels and mtels 42,886 20,640 Timber and wden gds 39,280 19,754 Cmmercial intermediary 34,567 4,105 Mtr vehicles 32,561 25,422 Retail trade in grceries 29,244 10,322 Rubber and plastic prducts 28,021 18,326 Other means f transprt: 26,613 16,099 Prductin f nn-electrical machines 21,886 17,592 Publishing services 21,244 16,721 Textiles and fabric prductin 20,588 10,199 Other industries 132, ,961 Other services 609, ,484 Ttal 3,744,488 3,042,183 In Sectins 2.1.and 2.2. amunts receivable due frm the financial sectr, excluding transactins with banks, nn-financial and State budget sectrs are presented. 3. Infrmatin abut changes in the value f subsidies fr freign branches. The Bank des nt have any freign branches. 4. Infrmatin abut financial instruments Financial Assets and Liabilities: The Bank classifies its financial assets and liabilities n the day f their purchase r riginatin int the fllwing categries: a) Financial assets r liabilities held fr trading - financial assets r liabilities which were purchased 5

6 in rder t btain ecnmic gains as a result f shrt-term price changes and fluctuatins f ther market factrs, including derivatives. b) Credits and lans granted by the Bank and ther wn receivables f the Bank - lans and credit facilities granted by the Bank (financial assets which riginated as a result f giving cash earmarked fr a specific purpse directly t the ther party t a cntract), and ther wn receivables except fr lans and credit facilities which were granted with the intentin f immediate r fast sale, included int financial assets held fr trading. c) Financial assets held t maturity financial assets purchased fr investment purpses, which the Bank intends t hld t maturity, i.e. until the date f their repurchase by the issuer. As at June 30, 2006, the Bank held n such assets. d) Financial assets available fr sale ther financial assets that are nt classified int categries enumerated in letters a), b) r c) abve. The Tables belw present the change f the balance f financial assets held fr trading, lans and credit facilities granted by the Bank and wn receivables nt held fr trading, financial assets available fr sale and ther financial liabilities: Financial assets held fr trading January 1, 2006 t June 30, 2006 PLN thusand January 1, 2005 t June 30, 2005 PLN thusand Opening balance 62,909 65,353 Increases (n accunt f) 2,794, ,549 - purchase 2,774, ,785 - measurement f financial instruments 15,915 14,764 - measurement f securities 15 - premium / discunt 2 - cupn interest 3,231 Decreases (n accunt f) (2,750,541) (658,832) - sale (2,745,799) (641,080) - measurement f financial instruments (4,731) (10,238) - measurement f securities (11) (67) - premium / discunt (133) - interest (7,314) Ending balance 106,458 44,070 Lans and credit facilities granted by the Bank and wn receivables nt held fr trading January 1, 2006 t June 30, 2006 PLN thusand January 1, 2005 t June 30, 2005 PLN thusand Opening balance 5,588,596 4,650,125 Increases (n accunt f) 1,474, ,852 - change in the net depsit balance frm banks 1,456, ,309 - change in the balance f receivables due n accunt f LC discunt 6,090 11,780 - change in the net interest balance 5,165 8,992 - change n accunt f the measurement f interest-bearing bnds f Credit Suisse First Bstn Singapre Branch 1,926 11,771 - change in specific prvisins balance 4,834 Decreases (n accunt f) (1,041,563) (88,599) - change in specific prvisins balance (289) - change in the balance f net receivables due frm banks (1,036,899) (88,192) - change in the balance f receivables due n accunt f settlements with VISA cards (4,664) (118) Ending balance 6,021,658 4,953,378 6

7 Financial assets available fr sale January 1, 2006 t June 30, 2006 PLN thusand January 1, 2005 t June 30, 2005 PLN thusand Opening balance 302, ,775 Increases (n accunt f) 487,926 1,106,451 - purchase 481,837 1,096,955 - change in the balance f prvisins fr receivables purchased 69 - discunt 2,357 3,557 - measurement 3,661 5,936 - FX differences and ther 2 3 Decreases (n accunt f) (110,575) (1,157,507) - sale (99,690) (1,155,799) - change in the balance f net receivables purchased (447) (316) - change in the balance f prvisins fr receivables purchased (166) - interest (1,558) (1,226) - measurement f securities (8,880) Ending balance 680, ,719 Neither as at June 30, 2006, December 31,2005 nr at June 30, 2005, the Bank s prtfli included financial assets held t maturity. Liabilities in respect f financial instruments January 1, 2006 t June 30, 2006 PLN thusand January 1, 2005 t June 30, 2005 PLN thusand Opening balance 51,939 26,286 Increases (n accunt f) 36,611 56,782 - measurement f derivative instruments 28,243 50,865 - interest liability in respect f derivative instruments 8,368 5,917 Decreases (n accunt f) (14,586) (29,032) - measurement f derivative instruments (12,359) (18,134) - interest liability in respect f derivative instruments (2,227) (10,898) Ending balance 73,964 54, Infrmatin n financial assets and liabilities brken by categries f financial instruments. a) Financial assets. financial assets held fr trading as at June 30, 2006 the prtfli f securities held fr trading cmprised Treasury bnds f the fair value amunting t PLN 39,252 thusand. The psitive result f the derivative instrument measurement equal t PLN 67,206 thusand is als reprted as financial assets held fr trading; financial assets held t maturity the Bank has n assets f this categry; financial assets available fr sale in this grup, the Bank reprts Treasury securities: Treasury bills, Treasury bnds and NBP bills. These securities are held t hedge against the interest rate risk and manage the liquidity surplus. As at the end f the first half f 2006, their value ttalled PLN 679,037 thusand. This categry includes als receivables purchased, whse net value std at PLN 999 thusand as at June 30, The Bank reprts here als shares in SWIFT and VISA f the ttal amunt f PLN 45 thusand. Lans and credit facilities granted by the Bank and wn receivables nt held fr trading this grup cmprises receivables due frm custmers f PLN 5,836,888 thusand n accunt f lans granted, decreased by the specific prvisin created, increased by interest accrued alng with the value adjustment n accunt f measurement at amrtized cst using the effective interest rate. This grup includes als interbank placements with interest PLN 583 thusand, receivables due n accunt f LC 7

8 3! %4( discunt PLN 15,187 thusand, settlements n accunt f VISA cards PLN 8,204 thusand and interest-bearing bnds f Credit Suisse First Bstn Singapre Branch in the nminal value f PLN 150,000 thusand tgether with the cupn accrued f PLN 5,921 thusand, premium t be settled f PLN 837 thusand likewise the adjustment n accunt f the bnd measurement t fair value f PLN 4,037 thusand. b) Descriptin f methds and essential assumptins adpted t establish fair value f financial assets and liabilities. Fair value is the amunt that a given asset culd be exchanged fr and a liability settled thrugh a transactin effected n market terms between the interested, well-infrmed, nt affiliated parties. Measurement f securities Debt securities held fr trading are measured at market value, whereas assets which have n existing active market at fair value using valuatin methds based upn market interest rates. The effects f a change in the market r fair value are recgnized as net financial result. Debt securities available fr sale are measured at fair value and the effects f a change in the fair value are recgnized as the revaluatin fund. Fr the measurement purpses, the Bank applies debt security transactin prices quted n brker pages in the Reuters infrmatin service. In the event there are n prices n a given day, the Bank cmputes them using market interest rates by discunting financial flws. The Bank takes bth securities prices and market interest rates fr measurement needs n the measurement date at abut 4.00 p.m. Debt securities available fr sale are measured at fair value and the effects f a change in the fair value are recgnized as the revaluatin fund. Measurement f derivative instruments FX Frward and FX Swap transactins are measured at fair value. The effects f a change in the market r fair value are recgnized as net financial result. In the Bank s balance sheet statement, the valuatin f derivatives related t FX Frward and FX Swap is presented in ther financial assets r liabilities in respect f financial instruments. The fair value f FX Spt transactins, FX Frward and FX Swap transactins is cmputed by cmparisn f the transactin rate with the market rate binding fr similar transactins at the end f a reprting perid, when there is mre than tw (2) days difference between the value date and the current date. In ther cases, the NBP mid-rate is the reference rate. IRS cntracts are measured t market value as at a reprting date using the Discunted Cash Flw methd. Discunting factrs are estimated based n the market yield curve as at the measurement date. The market value is cmpared with the value f interest cmputed pursuant t the cntract prvisins. The difference is bked as either csts r incme n accunt f financial transactins, accrdingly. FX Futures cntracts are measured t market value every day. The difference is bked as either csts r incme n accunt f financial transactins, accrdingly. FRAs are measured using the Discunted Cash Flw methd based n the market yield curve. Measurement differences are psted in the same manner as fr IRS cntracts. FX Eurpean ptins sld and purchased are measured t fair value using the Black-Schles mdel in the versin adapted t the abve ptins. The vlatility parameter which is required when using the abve mdel is assumed in the frm f the s-called implied vlatility parameter which ensures cnsistency f the price btained with the actual market price. Interest rate ptins are measured t fair value using a mdified versin f the Black-Schles mdel. The vlatility parameter which is required when using the abve mdel is assumed in the frm f the s-called implied vlatility parameter which ensures cnsistency f the price btained with the actual market price. Shares and minrity hldings are recgnized at their purchase price taking int cnsideratin relevant writedwns fr impairment lss. Shares in the Bank s subsidiary, i.e. Frtis Private Investments Plska SA are measured using the equity methd. The results f the measurement f the shares f Frtis Private Investments Plska SA are recgnized in the fllwing: - Revaluatin reserve fund, in the part resulting frm mvements in wn equity f the unit in which the investment was made and which were nt recgnized in the prfit and lss accunt, 8

9 3! (4( - Prfit and lss accunt, with regard t the remaining part. Measurement f in-built derivative instruments Ordinance f the Finance Minister f February 23, 2004 regarding the detailed recgnitin rules, measurement methd, scpe f disclsure and manner f presentatin f financial instruments (Dz.U. (Jurnal f Laws) N. 31, item 266) in Sub-Paragraph 1a f Paragraph 10 prvides fr specific cases f a clse cnnectin between the nature f an in-built derivative instrument and risk inherent in such instrument and the nature f the respective agreement and risks arising frm that agreement. The existence f a clse relatin between an in-built derivative instrument and the respective agreement releases the given unit frm the bligatin t separately recgnize and measure an in-built instrument in its accunting bks. Lease agreements cncluded by Frtis Bank Plska S.A. where a payment is denminated in a freign currency meet the cnditins set ut in Paragraph 10, Sub-Paragraph 1a f the said Ordinance. As a result, the Bank has nt recgnized and measured separately in-built derivative instruments arising frm such agreements in its financial statements fr the first half f c) Rules f entering int accunting bks financial instruments purchased frm the regulated market. The Bank acquires derivative instruments - futures cntracts frm the regulated market. FX futures cntracts are standardized stck exchange cntracts fr freign currency exchange. The essence f a cntract is a daily stck exchange market valuatin and related cash flws. The cntracts may be settled thrugh a physical delivery f currencies r thugh transferring the difference between the cntract rate f exchange and the final settlement price. Debt securities are entered int accunting bks at their purchase price n the transactin date. Between the transactin date and value date, a given security is recrded in ff-balance sheet items at its nminal value. d) Infrmatin n interest rate risk. Frm January thrugh June 2006, the Bank pursued a plicy f matching average interest rate re-pricing perids f USD, EUR and CHF assets and liabilities. Bth assets and liabilities in the abve currencies are re-priced in ne-, three- and six-mnth perids. The Bank has renewed the maturing prtin f its securities prtfli and purchased tw-year bnds in prprtin t the Bank s capital increase. Detailed infrmatin n the actual interest rate risk is presented in item heref. e) Infrmatin n credit risk. The Bank s credit activity fcuses n the service f small and medium-sized enterprises. The majrity f lans are granted t entities perating in trade, services and prductin and als t private individuals. The table belw presents credit risk in sectrs in which the Bank s expsure exceeds 5% f the ttal vlume f lans granted by the Bank. In the item Nn-perfrming lans, receivables are reprted that are classified by the Bank as: watch, substandard, dubtful, lst, with the specificatin f the lst items. June 30, 2006 June 30, 2005 Credit risk in sectrs in which the Bank s expsure exceeds 5% f the ttal vlume f lans granted by the Bank. in PLN thusand Ttal lans % f ttal lans Including nnperfrming lans in PLN thusand % f ttal lans in PLN thusand Ttal lans % f ttal lans Including nnperfrming lans in PLN thusand Private individuals ,9% ,6% ,5% ,8% f which lst ,3% ,4% Whlesale ,2% ,0% ,5% ,9% f which lst ,7% ,3% Other services ,2% ,2% ,4% ,3% f which lst ,4% ,7% % f ttal lans 9

10 Other prductin ,5% ,5% ,6% ,5,% f which lst ,3% ,4% Financial assets that are measured at amrtized cst The NBP bnds, purchased in cnnectin with keeping the NBP mandatry reserve, which are classified int the available fr sale categry, are measured at amrtized cst because their fair value cannt be reliably established. As at June 30, 2006, the value f these securities amunted t PLN 25,334 thusand Assets and liabilities that are nt measured at fair value The Bank measures at fair value all the assets that are s required, i.e. assets available fr sale and held fr trading, except fr the afrementined NBP bnds (held-fr-trading prtfli) whse fair value cannt be estimated in a reliable manner. Shares and hldings in subsidiaries are measured by equity methd. Other shares and interests recgnized as fixed assets are valued at the acquisitin price, taking int accunt write-dwns fr impairment lsses. Credit expsures are measured at amrtized cst using the effective interest rate methd and taking int accunt regulatins gverning the creatin f prvisins fr risk related t banking activity. The measurement at amrtized cst using the effective interest rate methd is applied t these lans and credit facilities where terms and amunts f future cash flws have been determined, that is, which have repayment schedule set ut. The required prvisins are created based n Ordinance f the Ministry f Finance dated December 10, 2003, regarding rules f creatin f prvisins fr risk cnnected with peratins f banks (Jurnal f Laws N. 218, item 2147) at the end f each reprting perid. When classifying credit expsures int risk categries, the Bank applies tw independent criteria: punctuality f a lan principal r interest repayment, debtr s financial standing. Fllwing the regulatins n creating specific prvisins fr risk related t banking activity, the Bank, when classifying credit expsures int risk categries, may take int accunt the type f cllateral which secures thse expsures. Specific prvisins are created with regard t credit expsures classified int the fllwing risk categries: perfrming with regard t credit expsures arising frm retail lans and credit facilities, watch categry, nn-perfrming including expsures classified int substandard, dubtful r lst categries. The fair value f credit expsures classified int lans and receivables categry des nt materially differ frm their bk value. Other assets and liabilities, including cash, capital and equity are measured at their nminal value. Financial liabilities due t financial and nn-financial entities and State and lcal gvernment institutins that are nt held fr trading and are nt derivative instruments, are recgnized in the balance sheet in the required payment amunt. The fair value f such liabilities des nt materially differ frm their bk value In the first half f 2006, the Bank was nt a party t any agreement under which financial assets are transfrmed int securities r repurchase agreement Data regarding the effects f measurement f available-fr-sale financial assets t fair value. As at June 30, 2006 the available-fr-sale securities were measured t market value. The measurement value was recgnized in the Bank s balance sheet statement in the revaluatin reserve item. The measurement results are presented in the table belw: Measurement value June 30, 2006 June 30, 2005 Treasury bills Treasury bnds (2 077) Ttal (2 070) Table presenting changes in the financial instrument revaluatin reserve specifying the balance at the beginning and at the end f the reprting perid and its increases and decreases, including deferred tax. 10

11 frm January 1, 2006 thrugh June 30, 2006 frm January 1, 2005 thrugh June 30, Revaluatin reserve n accunt f financial instruments at the beginning f the reprting perid (674) 1.1. Revaluatin reserve changes (3 254) a) increases (n accunt f) b) decreases (n accunt f) (7 761) (3 161) 2. Revaluatin reserve at the end f the reprting perid (1 349) Infrmatin abut incme and cst frm financial assets available fr sale, which were remved (sld, liquidated) frm the balance sheet statement. In the first half f 2006, Frtis Bank Plska S.A. sld the fllwing securities frm the prtfli f assets available fr sale: Treasury bnds with the ttal nminal value f PLN 90,000 thusand: the Bank incurred lss n the abve transactins in the amunt f PLN 1,053 thusand, while the sld discunt amunted t PLN 624 thusand; Infrmatin abut incme and expenses n accunt f financial assets sld whse fair value culd nt be reliably measured befre, with the indicatin f the balance sheet value f the assets determined as at the sale date. In the first half f 2006, the Bank did nt generate any incme r incur any expenses n the abve accunt In the first half f 2006, n financial assets measured at fair value were reclassified int assets measured at the adjusted cst f acquisitin In the first half f 2006, there was a change in the value f subsidiary s shares held by the Bank. The measurement value increase at the end f the first half f the year amunted t PLN 610 thusand. The change f the value was recgnized in Nte N. 7B t the balance sheet statement Revenues n accunt f interest n lans granted and wn receivables brken dwn by prducts and maturity are presented in the tables belw: Data fr the perid frm January 1, 2006 Data fr the perid frm January 1, 2005 t June 30, 2006 t June 30, 2005 Interest Interest Interest Interest accrued received accrued received Interbank placements 6,349 1,258 15,184 Interest n mandatry reserve 7 1, ,280 and nstr accunt with NBP Credits 20, ,535 14, ,394 Interest n financial instruments 694 2,668 4, Receivables purchased Guarantees paid 1 12 Ttal 21, ,872 20, ,118 Interest accrued brken by maturity Data fr the perid frm January 1, 2006 Data fr the perid frm January 1, 2005 t June 30, 2006 t June 30, 2005 Up t 3 mnths 20,054 15, mnths 1,189 4,829 Over 12 mnths 40 3 Ttal 21,283 20, Infrmatin n deferred interest incme: As at June 30, 2006 As at June 30, 2005 Interest capitalized Deferred interest incme n receivables purchased 40 1 Deferred interest incme n guarantees paid 5,571 5,033 Deferred interest incme n lans 103, ,113 Ttal 109, ,170 11

12 Interest expense due t financial, nn-financial and the State budget sectrs, brken by paid and accrued and maturity are presented in the tables belw: Data fr the perid frm January 1, 2006 t Data fr the perid frm January 1, 2005 June 30, 2006 t June 30, 2005 Interest accrued Interest received Interest accrued Interest received Current accunts 69 10, ,131 Interbank depsits , ,816 Term depsits 2,792 21,051 6,709 23,966 Blcked depsits 888 2, Credit facilities and lans received 4,785 5,654 3,451 7,887 Insurance plicies ,795 1,762 Interest n hedging transactins 5,002 5,002 Ttal 14,198 57,056 17,377 56,735 Interest accrued brken by maturity Data fr the perid frm January 1, 2006 Data fr the perid frm January 1, 2005 t June 30, 2006 t June 30, 2005 Up t 3 mnths 5,242 9, mnths 8,936 7,505 Over 12 mnths Ttal 14,198 17, Infrmatin n underlying instruments. Within its peratins, the Bank makes derivative transactins. The transactins are effected fr cmmercial purpses and t manage the currency risk and interest rate risk. Derivative transactins are als ffered t custmers. Derivative instruments IRS cntracts cnsist in an exchange f interest payments based n a variable market interest rate fr interest accrued at a fixed interest rate agreed upn in the cntract. They are measured by discunted cash flw mdel based n the market yield curve. The purpse f the cntract is t hedge against interest rate risk. FX frward - cnsists in a purchase r sale f a specific currency at a predetermined date in the future at the exchange rate agreed n the transactin date. It is measured by cmparisn f the transactin FX rate with the market rate fr similar transactins. The purpse f the cntract is t hedge against FX rate risk and maintain liquidity. FX swap - cnsists in the purchase r sale f a specific currency at a spt exchange rate and a simultaneus sale r purchase f the same amunt f the currency at a frward rate agreed at the transactin date, hwever the transactins may be cncluded as a cmbinatin f a transactin with the value date equal t the transactin date and the simultaneus reverse transactin fr the value date f the fllwing day. It is measured by cmparisn f the transactin FX rate with the market rate fr similar transactins. The purpse f the cntract is t regulate liquidity and hedge against FX rate risk f the Bank s currency lan prtfli. Interest rate ptins cnsist in a purchase f a right t receive the settlement amunt in exchange fr a premium paid/received. Depending n the ptin type (cap/flr), the cunterparty receives n a specified settlement day the settlement amunt resulting frm the difference between the predetermined transactin rate and the reference rate. It is measured based n a mdified Black-Schles mdel. The purpse f the transactin is t hedge against interest rate risk and t maintain liquidity FX ptins cnsist in a purchase f a right, but nt the bligatin, t buy/sell a freign currency at the frward FX rate established n the transactin cnclusin date in exchange fr a premium paid/received. It is measured based n the Black-Schles mdel. The purpse f the transactin is t hedge against FX risk and maintain liquidity. FRA cnsists in an agreement between the parties t the transactin upn a fixed interest rate fr a specific value f depsit. On the day f the transactin settlement, the buyer f FRA cntract shall pay the settlement amunt t the seller if the reference rate n the date f effecting the transactin was lwer than the transactin rate. At the same time the seller f the instrument shall pay the buyer, n the transactin settlement date the 12

13 3! 24( settlement amunt when the reference rate is higher than the transactin rate. FRA is usually cncluded fr the term up t 1 year and it allws, n ne hand, t hedge against the grwing interest rate (FRA purchase), and n the ther t hedge assets against interest rate decrease (FRA sale).the instrument is measured by discunted cash flw mdel based n the market yield curve. CIRS cntracts cnsist in an exchange f interest payments based n a variable market interest rate in ne currency in exchange fr interest accrued at a fixed interest rate in anther currency agreed upn in the cntract, with the exchange f principal amunts allwed at the predetermined exchange rates at the beginning and end f the perid, withut the principal amunt exchange r with the exchange made nly at the end f the perid fr which the transactin was cncluded. The instrument is measured by discunted cash flw mdel based n the market yield curve. The purpse f the cntract is t hedge against interest rate risk. Instrument Number f nt matured transactins Derivative instruments prfile as at June 30, 2006 (PLN thusand) Future revenues/ payments Maturity Pssibility f exchange int r substitutin by anther asset/ liability Hedging instruments against interest rate risk Agreed rates/ amunts f incme and payment dates Other cnditins Risk type IRS 1 variable nne variable nne Interest rate, liquidity and cunterparty risks FX frward 1,319 variable FX swap 4 variable Optins 1,820 variable IRS 47 variable Optins 4 variable FRA 13 variable FX instruments held fr trading Interest rate instruments held fr trading nne variable nne FX, liquidity and cunterparty risks nne variable nne FX, liquidity and cunterparty risks nne variable nne FX risk nne variable nne Interest rate, liquidity and cunterparty risks nne variable nne Interest rate, liquidity and cunterparty risks nne variable nne Interest rate risks Instrument Number f nt matured transactins Derivative instruments prfile as at June 30, 2005 (PLN thusand) Future revenues/ payments Maturity Pssibility f exchange int r substitutin by anther asset/ liability Hedging instruments against interest rate risk Agreed rates/ amunts f incme and payment dates Other cnditins IRS 1 variable nne variable nne FX frward 944 variable FX swap 6 variable FX instruments held fr trading Risk type Interest rate, liquidity and cunterparty risks nne variable nne FX, liquidity and cunterparty risks nne variable nne FX, liquidity and cunterparty risks Optins 1,064 variable nne variable nne FX risk IRS 10 variable Interest rate instruments held fr trading nne variable nne Optins 2 variable nne variable nne Interest rate, liquidity and cunterparty risks Interest rate, liquidity and cunterparty risks FRA 1 variable nne variable nne Interest rate risks 13

14 3! $4( The derivative transactins brken dwn by their nminal value as at June 30, 2006 and cmparable data as at June 30, 2005 are presented in the table belw: Hedging instruments against interest rate risk at nminal value as at June 30, 2006 (PLN thusand) at nminal value as at June 30, 2005 (PLN thusand) IRS 150, , , ,000 FX instruments held fr trading FX frward 1,676,709 1,681, , ,878 FX swap 111, , , ,616 Optins 2,355,881 2,355,880 1,278,516 1,278,516 Interest rate instruments held fr trading IRS 785, , , ,000 Optins 42,241 42,241 2,020 2,020 CIRS 69,796 69,796 FRA 1,002,170 1,002,170 20,077 20,077 Ttal 6,123,828 6,124,687 2,846,264 2,857,903 As at June 30, 2006 and June 30, 2005, nt matured derivative instruments, transacted by the Bank, were the fllwing: Original maturity f interest-rate risk hedging instruments at nminal value, PLN thusand As at: June 30, 2006 June 30, 2005 Instrument type/ maturity frm 1 t 5 years 150, ,000 - banks 150, ,000 Ttal 150, ,000 IRS Original maturity date f FX instruments held fr trading at nminal value, PLN thusand As at: June 30, 2006 June 30, 2005 Instrument type/ maturity FX FX FX swap Optins Ttal FX swap Optins Ttal frward frward up t 3 mnths 637, ,266 1,106, ,872 43, , ,869 - banks 235, , , , ,886 - ther 637, , , , , ,983 3 mnths up t 1 year 932, ,239 1,756,140 2,799, ,596 65, ,078 1,302,031 - banks 111, , ,745 65, , ,396 - ther 932, ,634 1,813, , , ,635 frm 1 t 5 years 106, , ,233 31,815 23,270 55,085 - banks 6,312 65,127 71,439 11,635 11,635 - ther 100,446 65, ,794 31,815 11,635 43,450 Ttal 1,676, ,239 2,355,881 4,143, , ,615 1,274,086 2,309,984 Original maturity f interest-rate instruments held fr trading at nminal value, PLN thusand As at: June 30, 2006 June 30, 2005 Instrument type/ maturity IRS FRA Optins Ttal IRS FRA CIRS Optins Ttal 3 mnths up t 1 year 600, ,000 - banks 600, ,000 frm 1 t 5 years 608, ,170 16,482 1,027, ,000 20,077 - banks 529, ,085 8, , ,000 20,077 - ther 79, ,085 8, ,697 abve 5 years 176,846 68, ,846 - banks 113,423 34, ,423 69,79 6 4, ,913 35,79 6 2, ,893 34,00 0 2,020 36,020 14

15 - ther 63,423 34,000 97,423 Ttal 785,588 1,002,170 84,482 1,872, ,000 20,077 69,79 6 4, ,913 Derivative transactins are cncluded by the Bank at market prices binding n transactin dates. The table belw presents valuatin f nt matured derivatives as at June 30, 2006 and June 30, 2005: Instrument type As at as at June 30, 2006 Psitive market value As at as at June 30, 2005 As at as at June 30, 2006 Negative market value As at as at June 30, 2005 Banks Other Banks Other Banks Other Banks Other Hedging instruments against interest rate risk IRS 4,114 8,875 FX instruments held fr trading FX frward 12 16, ,593 20,781 12,835 FX swap 4,800 1, ,902 Optins 8,441 16,401 5,022 4,685 16,402 8,441 3,848 3,866 Ttal 13,253 32,712 6,225 19,278 17,185 29,222 5,750 16,701 Interest rate instruments held fr trading IRS 8, ,422 4,470 2,760 3,877 Optins CIRS 1,862 1,782 FRA Ttal 8, ,424 1,867 5,093 2,894 5,660 In additin t the abve, the table belw shws balance sheet equivalents f derivative instruments calculated in accrdance with the rules prvided fr under Reslutin N. 4/2004 f the Banking Supervisin Cmmissin dated Octber 5, 2004 regarding the scpe and detailed rules f determinatin f capital requirements n accunt f specific risk types ( ), rules f cmputing a capital adequacy rati f a bank ( ). (Official Jurnal f the NBP N. 15, item 25). The balance sheet equivalent is understd as derivatives at their nminal value, weighted by prduct and cunterparty risks. Instrument type Balance sheet equivalent As at June 30, 2006 As at June 30, 2005 Banks Other Banks Other Hedging instruments against interest rate risk IRS 750 8,268 FX instruments held fr trading FX frward 2,493 31, ,782 FX swap 6, ,884 Optins 10,128,19,508 5,912 9,308 Ttal 18,790 50,589 6,768 33,974 Interest rate instruments held fr trading IRS 14,318 1,082 CIRS 0 0 Optins FRA Ttal 14,968 1, Risk management bjectives and rules. Liquidity risk. The Bank defines liquidity risk as the risk f lsing its ability t: a. settle its payment bligatins timely, b. acquire funds alternative t the funds currently held, c. generate psitive cash flw balance within a specified time hrizn. The Bank s strategy cnsists in ensuring high quality standards fr the liquidity management prcesses. Under the strategy, steps twards quality imprvement f the liquidity management prcesses have been assigned the 15

16 tp pririty at the Bank. The Bank perates in a market and ecnmic envirnment which is subject t the free market rules. Such psitining ensures multiple pprtunities t regulate the liquidity level; hwever this als makes the Bank susceptible t envirnment crises, if any. The Bank s strategy is t ensure that the Bank s dependence n market cnditins is limited t such an extent that in a market crisis the Bank will be able t keep its liquidity fr three mnths, withut limiting the range f services r initiating changes in the cre business. In the event f a market crisis lasting fr a lnger perid, the Bank s strategy prvides that liquidity is sustained, hwever, the previus develpment directin might be changed in this situatin and the Bank wuld allw fr cstly changes in the business prfile. A separate categry f liquidity risk generating factrs includes unfavrable events relating t the Bank; much talk abut such events in mass media may result in a negative respnse f the market envirnment. As an immediate cnsequence f such events, ther banks may dramatically restrict credit line availability t the Bank, likewise custmers are likely t panic and withdraw their depsits. The Bank s strategy is t minimize, in an active way, the prspect fr the ccurrence f unfavrable events fr the Bank. Since, hwever, the prbability that such factrs ccur may nt be cmpletely eliminated, the Bank s strategy cnsists als in ensuring that, shuld such factrs ccur, the Bank will sustain its financial liquidity at minimum wn csts (measurable and immeasurable) and take efficient steps t regain the cnfidence f custmers and financial institutins as sn as pssible. Currency risk The Bank s strategy cnsists in ensuring high quality standards fr the currency risk management prcesses. Under the strategy, steps twards quality imprvement f the currency risk management prcesses have been assigned high pririty at the Bank. The Bank s strategy with respect t expsures t market currency risk cnsists in the Bank s making peratins resulting in assuming currency psitins sensitive t market FX rate changes in rder t generate a psitive financial result. Mrever, the level f the Bank s expsure t the market currency risk is at all times limited by a ceiling in such a way as t be able t ensure with high prbability that: in a situatin f an rdinary (nt emergency) market vlatility, n any day f a calendar year: the annual cumulated financial prfit/lss (generated n accunt f the Bank s expsure t the currency risk), des nt reach a lss exceeding the duble prfit planned fr this year (n accunt f the Bank s expsure t the currency risk), in a situatin f a market crisis, n any day f a calendar year: the annual cumulated financial prfit/lss (generated n accunt f the Bank s expsure t the currency risk), des nt reach a lss exceeding 10% f the capital. Interest rate risk. The Bank s strategy cnsists in ensuring high quality standards fr the interest rate risk management prcesses. Under the strategy, steps twards quality imprvement f the interest rate risk management prcesses have been assigned high pririty at the Bank. The Bank s strategy with respect t expsures t market interest rate risk cnsists in the Bank s making peratins resulting in assuming pen interest rate risk psitins in rder t generate a psitive financial result. Mrever, the level f the Bank s expsure t the market interest rate risk is at all times limited by a ceiling in such a way as t be able t ensure with high prbability that: in a situatin f an rdinary (nt emergency) market vlatility, n any day f a calendar year: the cumulated financial prfit/lss 1 amunt (generated n accunt f transactins subject t the expsure t the market interest rate risk), tgether with the cumulated change f the capital value 2, des nt reach a negative value exceeding the prfit planned fr this year (n accunt f transactins subject t the expsure t the market interest rate risk), in a situatin f a market crisis, n any day f a calendar year: the cumulated financial prfit/lss amunt (generated n accunt f transactins subject t the expsure t the market interest rate risk), tgether with the cumulated change f the capital value, des nt reach a negative value exceeding 10% f the capital, 1 That is, the amunt summed frm the beginning f the calendar year t a given day f the calendar year. 2 the cumulated changed f the capital value, understd as the cumulated change f the fair value f financial instruments (riginated as a result f interest rate change), the measurement f which, under the binding accunting law, is recgnized in the Bank s capital. 16

17 Operatinal risk Fr the needs f peratinal risk management, Frtis Bank Plska S.A. has adpted the definitin f risk prpsed by the Basel Cmmittee fr Banking Supervisin: The peratinal risk is the risk f direct r indirect lss resulting frm inadequate r failed internal prcesses, peple and systems r frm external events. Fr the needs f peratinal risk mnitring and the future capital requirement determinatin n accunt f this risk, the peratinal risk includes als legal risk. The Bank s strategy cnsists in implementing and maintaining high quality standards fr the peratinal risk management t guarantee that custmer depsits and the equity are secure and the Bank s financial result is stable. Under the Bank s peratinal risk management strategy, bjectives are defined with respect t: quality f peratinal risk management, the manner in which the Bank is adjusted t the New Capital Accrd requirements and the legal requirements resulting frm Recmmendatin M issued by the Banking Supervisin Cmmissin. The peratinal risk is a fundamental risk, which due t its cmplexity is characteristic f any rganizatin, including banks. has established a special rganizatinal unit within the Risk Management Department, respnsible fr n-ging peratinal risk analysis, develpment and imprvement f adequate peratinal risk cntrl techniques in the Bank. The Bank s Bard f Executives makes a peridic assessment f hw the Bank peratinal risk management strategy assumptins are executed. With this end in view, the Bank s Bard f Executives is kept infrmed n an n-ging basis n the scale and types f peratinal risk the Bank is expsed t, and als its cnsequences and peratinal risk management methds. The Bank s peratinal risk mnitring systems use databases that cntain infrmatin n peratinal lsses incurred. The databases that recrd peratinal lsses have been used in analyzing peratinal risk and mitigating this risk in the Bank. The Bank is particularly cmmitted t reducing peratinal risk by the prcess f imprving internal prcedures and mitigating peratinal risk, which accmpanies the intrductin f new prducts and services. has als adpted a special Business Cntinuity Plan, cvering all the Bank s key business functins. Credit risk Credit risk is assessed n the basis f the Bank s internal standards, taking int accunt natinal credit regulatins in frce as well as standards binding in the Frtis Bank grup. The Bank s credit decisin-taking mdel is based n the fllwing criteria: ttal credit expsure f the Bank twards a business entity/grup f entities affiliated by capital r management, Business Line t which a custmer belngs, internal rating and risk categry. In the credit prcess applied by the Bank, functins related t custmer acquisitin and sale f credit prducts as well as credit risk assessment are distributed rganizatinally. Custmers are acquired and prducts sld by the business lines: Retail Banking, Cmmercial Banking, Private Banking and Cnsumer Finance, while risk is assessed by Credits. Mnitring is carried ut n the basis f internal prcedures f the Bank that take int accunt the fllwing: - regulatins issued by the Ministry f Finance n December 10, 2003 regarding creatin f prvisins related t banking activity, - brrwer risk classificatin system applied in the Frtis Bank grup, - Frtis Masterscale internal rating system implemented under preparatins t the New Capital Accrd requirements. Fr mnitring purpses the Bank uses a Mnitring Card IT applicatin t ensure efficiency, cmpleteness and unifrm standard fr peridic review f credit prtfli. Risk is mitigated and hedged by applying the fllwing rules: - t grant entities a financing crrespnding t their creditwrthiness assessed and risk level; - t limit sectr expsure; 17

18 3! %4( - t establish legal cllateral fr lan repayment; - t measure the value f cllateral in real terms; - t establish individual strategies (curse f actins) twards debtrs with large credit expsure invlving an increased risk; - t create and plan specific prvisins fr existing and frecast credit expsures invlving an increased risk; - t mnitr the credit prtfli Infrmatin n applied hedge accunting rules: a) The Bank applies hedge accunting t a limited extent. Out f the existing three types f hedging relatins, i.e. fair value hedging, cash flw hedging and net investment hedging, the Bank applies nly the fair value hedging. b) T hedge interest rate risk f purchased interest-bearing bnds f Credit Suisse First Bstn, Singapre branch an IRS cntract was cncluded in the nminal value f PLN 150,000 thusand and fair value f PLN 4,114 thusand. Fr the abve transactin, the Bank applies hedge accunting rules. Interest rate based hedging transactins were measured by the Bank t fair value. Adjustments t fair value were recgnized in the prfit and lss statement f the Bank. Item a) prvides detailed infrmatin (figures) regarding this instrument. c) The Bank applies hedge accunting with respect t hedging against the risk f fair value changes as a result f interest rate alteratins. The fair value is hedged t limit a risk that fair value changes resulting frm a specific risk related t financial assets and liabilities r a specific part theref entered int accunting bks may affect the financial result. d) The Bank started t apply hedge accunting in the secnd half f At present the Bank des nt intend t enter int any transactins that will be hedged The Bank des nt generate any prfit r incur any lsses n accunt f the measurement f the IRS hedging instrument t the revaluatin reserve (fund) Infrmatin n interest rate risk expsure Frtis Bank Plska S.A. applies the methdlgy f Value-at-Risk (VAR), sensitivity f the whle investment prtfli t parallel shift f interest rates and Basis-Pint-Sensitivity (BPS) at any pint f the curve. VAR stands fr the amunt f lss at a given psitin whse level wuld likely nt be exceeded within the next tw mnths (99% level f cnfidence). The BPS methdlgy enables t estimate the whle prtfli valuatin sensitivity t changes at specific pints f interest rate curves by 1 basis pint (0.01%). As at June 30, 2006, Frtis Bank Plska S.A. interest rate change risk was the fllwing: VaR (2-mnth, ttal) PLN millin Bp sensitivity (+1bp): AUD CAD CHF CZK DKK EUR GBP HUF JPY NOK PLN SEK USD Ttal 132 D M , , ,389 M , , ,538 M6-4 4, , ,344 M , M , ,405 Y , ,865 Y3-1,251-21, ,956 Y5-1,537-30,315-31,852 Y ,165-11,250 Ttal 1 0 3, , , ,304 18