PATRIA BANK GROUP INTERIM CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE PERIOD ENDED AT 30 JUNE

Transcription

1 PATRIA BANK GROUP INTERIM CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

2 INTERIM CONSOLIDATED AND SEPARATE FINANCIAL STATEMENT CONTENTS Interim Consolidated and Separate Statement of Profit or Loss and Other Comprehensive Income 3 Interim Consolidated and Separate Statement of Financial Position 5 Interim Consolidated and Separate Statement of Changes in Equity 6 Interim Consolidated and Separate Statement of Cash Flows 10 Notes to the interim consolidated and separate Financial Statements 12

3 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Group Bank Unaudited (*) Unaudited (*) Unaudited (*) Unaudited (*) Note 30 June June June June 2017 Interest income 5 72,348 70,836 64,250 63,529 Interest expense 5 (19,480) (17,001) (18,188) (16,049) Net interest income 52,868 53,835 46,062 47,480 Fee and commission income 6 13,557 13,964 13,101 13,516 Fee and commission expense 6 (2,686) (3,404) (1,981) (2,737) Net fee and commission income 10,871 10,560 11,120 10,779 Net trading income 7 1,558 7,469 3,782 5,536 Net gain/(loss) from investments 8 (2,709) 727 (2,732) 1,764 Credit impairment losses (13,471) (11,230) (13,648) (10,250) Net gains/(losses) on derecognition of financial assets measured at amortised cost Other operating income 9 10,413 6,188 11,838 5,690 Net operating income 59,530 67,549 56,422 60,999 Personnel expenses 11 (40,392) (43,750) (38,493) (41,592) Depreciation and amortisations expense (9,955) (7,989) (7,875) (7,779) Other operating and administrative expenses 12 (33,847) (40,643) (33,353) (37,773) Total operating expenses (84,194) (92,382) (79,721) (87,145) Gross loss (24,664) (24,833) (23,299) (26,145) (Expenses) / income with current profit tax 13 (402) (538) - - Net loss for the period (25,066) (25,371) (23,299) (26,145) 3 of 117

4 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Group Unaudited (*) Unaudited (*) Unaudited (*) Unaudited (*) Note 30 June June June June 2017 Loss for the period (25,066) (25,370) (23,299) (26,145) Other elements of the comprehensive income Items that may be reclassified to profit and loss: Net gains in investments on available for sale assets Net gains on debt instruments measured at fair value through other comprehensive income, reclassified to profit 2,732-2,732 - or loss Net loss on investments in debt instruments measured at FVOCI (945) - (945) - Net gains on investments in debt instruments designated at fair value through other comprehensive income Income tax recorded directly in other comprehensive income (951) (218) (951) (218) Items that may not be reclassified to profit and loss account: Changes in revaluation reserve of tangible assets Income tax recorded directly in other comprehensive income Other elements of the comprehensive income, net of tax Total comprehensive income for the period (24,188) (24,701) (22,421) (25,475) Total comprehensive income attributable to: -Equity holders of the parent entity (24,188) (24,701) (22,421) (25,475) -Non-controlling interests Total comprehensive income for the period (24,188) (24,701) (22,421) (25,475) Loss per share (base and diluted) 36 Bank Bogdan Merfea General Manager Lucica Pitulice Deputy General Manager 4 of 117

5 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF FINANCIAL POSITION Group Bank Unaudited (*) Unaudited (*) June 30 June December December Note Assets Cash and cash equivalents , , , ,525 Financial assets held for trading ,106 99,966 36,792 28,635 Financial assets measured at fair value through other comprehensive income ,896 1,151, ,896 1,151,064 Due from banks 17 5,268 8,408 5,268 5,076 Loans and advances to customers 18 1,506,882 1,370,125 1,452,829 1,325,216 Investments in debt instruments at amortised cost 356, ,087 - Investments held to maturity , ,708 Investment property 20 74,893 76,541 71,829 73,476 Investments in subsidiaries ,770 27,505 Other financial assets 23 12,246 9,294 11,126 9,065 Other assets 24 50,368 45,469 53,291 47,090 Deferred income tax assets 13 22,842 22,716 23,061 22,936 Intangible assets 25 43,162 45,280 41,286 43,211 Property, plant and equipment , , , ,886 Total assets 3,556,698 3,747,590 3,443,446 3,645,393 Liabilities Deposits from banks 27 69,841 95,967 69,841 95,967 Deposits from customers 28 3,045,204 3,231,281 3,054,779 3,256,296 Borrowed funds 29 43,014 39, Other financial liabilities 30 91,620 98,972 5,902 6,892 Provisions for other risks, credit commitments and financial guarantees 32 10,467 11,827 9,800 10,979 Other liabilities 33 18,299 15,609 14,802 14,060 Subordinated debt 34 32,681 29,589 32,681 29,589 Total liabilities 3,311,126 3,523,138 3,187,807 3,413,842 Equity Share capital , , , ,418 Share premium 35 (67,569) (67,569) (67,569) (67,569) Redeemed own shares 35 (1,134) (1,055) - - Retained earnings (Accumulated deficit) (58,294) (33,069) (47,565) (25,226) Revaluation reserves 38 52,242 52,862 50,445 51,063 Reserves for general banking risks 38 15,301 15,301 15,301 15,301 Legal reserves 38 11,887 11,887 11,887 11,887 Other reserves 38 14,678 14,678 14,678 14,678 Non-controlling interest Total shareholders equity 245, , , ,551 Total liabilities and shareholders equity 3,556,698 3,747,590 3,443,446 3,645,393 Bogdan Merfea General Manager Lucica Pitulice Deputy General Manager 5 of 117

6 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY Group Unaudited (*) Note Share capital Share premium Redeemed own shares Reserves for assets measured at fair value through other comprehensive income Revaluation reserves for property, plant and equipment Legal reserves Reserves for general banking risks Other reserves Accumulated loss Total shareholders' equity attributable to equity holders of the parent Noncontrolling interest Total shareholders' equity Balance at 1 st January , (2,936) 21,375 23,503 11,683 30,290 (62,476) 220,657 61, ,172 Loss for the financial year premerger (14,311) (14,311) (4,246) (18,557) Decrease of reserve from (212) (212) (261) (473) revaluation of available-for-sale assets Transfer from revaluation surplus (523) to retained earnings Other changes in Equity ,269 1, ,979 Balance at 1st of May , (3,148) 20,852 23,503 11,683 30,290 (74,995) 207,403 57, ,121 absorbed company Dissolution of the absorbed company (199,218) (22,416) (23,503) (11,683) (30,290) 54,352 (232,602) - (232,602) Capital of the absorbing company attributable to the controlling entity Capital of the absorbing company attributable to non-controlling interests Merger effect (share issuance) 146, ,808 41,704 7,626 9,817 15,038 (79,081) 144, ,205 81, (102) 22,420 4,260 5,484 (360) (55,704) 57,718-57, ,966 (67,569) ,397-88,397 Parent Initial balance after 383,979 (67,569) - (286) 62,560 11,887 15,301 14,678 (155,428) 265, ,121 merger Group Initial balance after 383,979 (67,569) (1,055) (286) 64,359 11,887 15,301 14,678 (155,428) 265, ,865 merger Loss for the financial period of the (13,885) (13,885) - (13,885) Group Total comprehensive income net of tax: Decrease in revaluation reserve from , (1,143) - (1,143) the revaluation of available for sale assets Other comprehensive income, , (1,143) - (1,143) net of tax Transfer from revaluation surplus to (408) retained earnings Balance at 30 June ,979 (67,569) (1,055) ,951 11,887 15,300 14,678 (168,905) 253, ,123 6 of 117

7 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY Group Unaudited (*) Note Share capital Share premium Redeemed own shares Reserves for assets measured at fair value through other comprehensive income Revaluation reserves for property, plant and equipment Legal reserves Reserves for general banking risks Other reserves Accumulated loss Total shareholders' equity attributable to equity holders of the parent Noncontrolling interest Balance at 1 st January ,418 (67,569) (1,055) (10,270) 63,132 11,887 15,301 14,677 (33,069) 224, ,452 Changes due to initial application of IFRS 9 in Patria Bank Changes due to initial application of IFRS 9 in Patria IFN Total shareholders' equity , (5,767) (1,609) - (1,609) (1,058) (1,058) - (1,058) Other movements (67) (67) - (67) Restated balance at 1 st January ,418 (67,569) (1,055) (6,112) 63,132 11,886 15,301 14,678 (39,960) 221, ,719 Loss for the period (25,067) (25,067) - (25,067) Other comprehensive income, net of tax Total comprehensive income for the period (25,066) (24,188) - (24,188) Share capital increase through share issue 47, ,044-47,044 Transfer from revaluation surplus to retained earnings (5,653) , Release of deferred tax asset due to the revaluation reserves transfer ,076 1,076-1,076 Acquisition of own shares - - (79) (79) - (79) Balance at 30 June ,462 (67,569) (1,134) (5,234) 57,479 11,887 15,301 14,678 (58,294) 245, ,572 7 of 117

8 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY Bank Unaudited (*) Note Share capital Share premium Reserves for assets measured at fair value through other comprehensive income Revaluation reserves for property, plant and equipment Legal reserves Reserves for general banking risks Other reserves Accumulated loss Total shareholders' equity attributable to equity holders of the parent Noncontrolling interest Total shareholders' equity Balance at 1 st January ,218 - (2,934) 21,375 23,503 11,683 30,290 (62,476) 220,659 61, ,174 Loss for the financial year pre-merger (14,311) (14,311) (4,246) (18,557) Decrease of reserve from revaluation of available-for-sale assets - - (212) (212) (261) (473) Transfer from revaluation surplus to (523) retained earnings Other changes in Equity ,269 1, ,979 Balance at 1st of May ,218 - (3,146) 20,852 23,503 11,683 30,290 (74,995) 207,405 57, ,123 absorbed company Dissolution of the absorbed company (199,218) (22,416) (23,503) (11,683) (30,290) 54,352 (232,602) - (232,602) Capital of the absorbing company attributable to the controlling entity Capital of the absorbing company attributable to non-controlling interests Merger effect (share issuance) 146,293-2,808 41,704 7,626 9,817 15,038 (79,081) 144, ,205 81,720 - (102) 22,420 4,260 5,484 (360) (55,704) 57,718-57, ,966 (67,569) ,397-88,397 Parent Initial balance after merger 383,979 (67,569) (284) 62,560 11,887 15,301 14,678 (155,428) 265, ,123 Loss for the financial period (7,589) (7,589) - (7,589) Total comprehensive income net of tax: Decrease in revaluation reserve from the - - 1, (1,143) - (1,143) revaluation of available for sale assets Other comprehensive income, net - - 1, (1,143) - (1,143) of tax Transfer from revaluation surplus to (408) retained earnings Balance at 30 June ,979 (67,569) ,152 11,887 15,300 14,678 (162,609) 258, ,677 8 of 117

9 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY Bank Unaudited (*) Note Share capital Share premium Reserves for assets measured at fair value through other comprehensive income Revaluation reserves for property, plant and equipment Legal reserves Reserves for general banking risks Other reserves Accumulated loss Total shareholders' equity attributable to equity holders of the parent Balance at 1 st January ,418 (67,569) (10,270) 61,333 11,887 15,301 14,677 (25,226) 231,551 Changes due to initial application of IFRS 9 in Patria Bank - - 4, (5,767) (1,609) Restated balance at 1 st January ,418 (67,569) (6,111) 61,333 11,886 15,301 14,678 (30,993) 229,942 Loss for the period (23,299) (23,299) Other comprehensive income, net of tax Total comprehensive income for the period (23,299) (22,421) Share capital increase through share issue 47, ,044 Transfer from revaluation surplus to retained earnings (5,651) ,651 - Release of deferred tax asset due to the revaluation reserves transfer ,076 1,076 Balance at 30 June ,462 (67,569) (5,233) 55,682 11,887 15,300 14,678 (47,565) 255,639 9 of 117

10 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CASH FLOWS Group Bank Nota 30 June June June June 2017 Unaudited (*) Unaudited (*) Unaudited (*) Unaudited (*) Cash flows from operating activities Interest received 5 83,707 64,067 78,148 59,136 Interest paid 5 (20,526) (18,318) (19,234) (17,366) Fees and commissions received 6 13,557 13,964 13,101 13,516 Fees and commissions paid 6 (2,686) (3,404) (1,981) (2,737) Gain/Loss from financial derivatives 7 (400) 75 (400) 75 Net trading and other operating income 7,8,9 14,261 14,090 15,900 11,945 Recoveries from off balance sheet items 10 12,389 9,587 12,309 9,579 Cash payments to employees 11 (40,117) (50,243) (37,995) (48,085) Cash payments to suppliers 12 (34,487) (40,620) (33,990) (37,074) Income taxes paid 13 (343) (538) - - Net cash-flow from operating activities before changes in operating assets and liabilities 25,356 (11,340) 25,948 (11,011) Changes of operating assets (Increase)/Decrease of: - due from banks 17 3,168 5,284 (164) 1,756 - financial assets held for trading 15 (13,431) 22,862 (8,448) 27,846 - loans and advances to customers 18 (163,190) (27,186) (155,315) (17,831) - other financial assets and other nonfinancial assets 23 (5,691) (6,502) (5,976) 3,218 Total changes of operating assets (179,143) (5,542) (169,902) 14,989 Changes of operating liabilities Increase/(Decrease) of: - deposits from banks 27 (26,135) (31,430) (26,135) (31,430) - deposits from customers 28 (185,010) (93,587) (200,450) (82,729) - other financial liabilities and other nonfinancial liabilities 30 (4,777) 3,891 (214) (798) Total changes of operating liabilities (215,922) (121,126) (226,799) (114,957) Net cash flow used in operating activities (369,710) (138,009) (370,753) (110,979) Cash flows from investing activities Acquisition of securities at fair value through other items of comprehensive income 16 (81,595) (421,627) (81,595) (422,990) Sale of securities at fair value through other items of comprehensive income , , , ,532 Redemption of investments held to maturity 19 (48,657) 1,058 (48,657) 1,058 Acquisition of equity instruments 16 - (7) (3,265) 80 Dividend income received , Sales/(acquisitions) of investment property (1,389) Acquisition of tangible and intangible assets 25,26 (5,982) (6,244) (6,122) (4,595) 10 of 117

11 INTERIM CONSOLIDATED AND SEPARATE STATEMENT OF CASH FLOWS Group Bank Nota 30 June June June June 2017 Unaudited(*) Unaudited(*) Unaudited(*) Unaudited(*) Net cash used in investing activities 349, , , ,981 Cash flows from financing activities Drawdowns from borrowings from other financial institutions 29 3,134 1, Repayments of borrowings from other financial institutions (44) (5,531) Subordinated loan 34 3, , Shares issue 35,36 46,965-47,044 - Net cash generated from /used in financing activities 53,186 1,675 50,087 (4,877) Impact of exchange rate changes on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents 32,759 35,466 28,640 55,125 Cash and cash equivalents at 1st of January , , , ,497 Cash and cash equivalents at end of period 675, , , , of 117

12 1. REPORTING ENTITY At 30 June The Group Patria Bank ( The Group ) includes Patria Bank S.A. (resulted from the 2017 reverse merger between Banca Comerciala Carpatica and Patria Bank former Nextebank until 2016), Patria Bank, ( The Bank / PBK ), Patria Credit IFN SA ( IFN ), Patria Investments SA (former SAI Patria Asset Management SA), Imobiliar Invest SRL and SAI Carpatica Asset Management SA (together with managed investment funds: FDI Carpatica Stock, FDI Carpatica Global and FDI Carpatica Obligatiuni). Patria Bank SA is Parent of the Group. At December 2017 The Group Patria Bank ( The Group ) included Patria Bank S.A. (former Nextebank SA Patria Bank, ( The Bank / PBK ), Patria Credit IFN SA ( IFN ), Patria Investments SA (former SAI Patria Asset Management SA, former SAI Intercapital Investment Management SA), Banca Comerciala Carpatica SA ( BCC or Banca Carpatica ) and its subsidiaries incorporated in Romania: Imobiliar Invest SRL and SAI Carpatica Asset Management SA (together with managed investment funds: FDI Carpatica Stock, FDI Carpatica Global and FDI Carpatica Obligatiuni). At 30 June 2018 the Structure of the Patria Bank Group is the following: Patria Bank S.A. Parent is a Romanian credit institution resulted from the merger by absorption between the former Banca Comerciala Carpatica S.A. (as an absorbing entity) and former Patria Bank S.A. (as an absorbed entity), which took place on 1 st of May According to the decision of the General Meeting of Shareholders regarding the approval of the merger, the decision to change the name of the absorbing company from Banca Comerciala Carpatica S.A. in Patria Bank S.A. was implemented at the same time with the merger date. As of 30 June 2018, and 30 June 2017 the Bank is ultimately controlled by Emerging Europe Accession Fund Cooperatief U.A. ( EEAF ) 100% owner of EEAF Financial Services B.V.. The main investors in EEAF are EBRD - European Bank for Reconstruction and Development, EIF - European Investment Fund (part of the European Investment Bank Group), DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbh, Black Sea Trade and Development Bank. The main shareholders had the same structure at 31 December These four institutions held joint control over the Emerging Europe Accession Fund Cooperatief U.A. The Group provides banking services and other financial services to SMEs, microenterprises and separate clients. These services include: deposit accounts, domestic and international payments, foreign exchange transactions, working capital loans, medium term lending, bank guarantees, letters of credit. 12 of 117

13 Patria Credit IFN SA Subsidiary - is registered in Romania as of February 12, 2004 and is authorized by the National Bank of Romania ("NBR") to carry out lending activities. Starting with September 28, 2007, the NFI is registered with the General Register of the NBR's Nonbanking Financial Institutions ("IFN"), and as of February 26, 2008 Patria Credit IFN was also registered with the NBR Special Register. Starting February 2016, Patria Credit IFN was de-registered from the Special Register of Non-Banking Financial Institutions in accordance with the NBR address 428/2 / , as a result of the decrease of the specific indicators of the registration in the Special Register As of , The National Bank of Romania decided that the company should be registered back in the Special Register of Non-Banking Financial Institutions. At 30 June 2018, Patria Credit IFN is enrolled in the General Register under the number RG-PJR / and in the Special Register under the number RS-PJR / Patria Credit IFN is specialized in rural lending and microfinance and is under the control of Patria Bank SA, by taking over % of the share capital and voting rights held by the former Patria Bank SA. Patria Investments SA Subsidiary (Voluntary liquidation) (former SAI Patria Asset Management SA, former S.A.I. Intercapital Investment Management SA) to which the ASF (Financial Supervisory Authority of Romania) revoked on the authorization for the operation (administration of investment funds) and is currently in the process of voluntary liquidation; is a company under the control of Patria Bank SA, by taking over the share held by former Patria Bank SA of 99.99% of the share capital and the voting rights. Following the decision of the Extraordinary General Meeting of Shareholders of S.A.I. Patria Asset Management SA dated 19 September 2017, the company decided to withdraw from the capital market. The investment fund management activity was discontinued starting with 19 October 2017, the company requesting and obtaining the withdrawal of the authorization from the ASF at the end of At the same time, at the General Meeting of the Company's Shareholders dated 19 September 2017, it was decided to change the scope of activity of SAI Patria Asset Management SA in "Management consultancy activities", as well as a name of the company from SAI Patria Asset Management in SC Patria Investments SA. During 2018, Patria Bank takes the necessary steps to liquidate the Patria Investments subsidiary, according to the legal procedures. SAI Carpatica Asset Management SA - Subsidiary- (and the three investment funds controlled by it - FDI Carpatica Stock, FDI Carpatica Global, FDI Carpatica Obligatiuni), authorized by the Romanian Financial Supervisory Authority (ASF) for the management of investment funds; is a company under the control of Patria Bank SA by taking over 99.99% of the share capital and voting rights held by the former Banca Comerciala Carpatica SA. 13 of 117

14 SC Imobiliar Invest SRL (Voluntary liquidation) Subsidiary - based in Sibiu, Autogarii street, no 1, having the main activity of buying and selling of own real estate. A company in the process of voluntary liquidation, having the main activity of buying and selling its own real estate; it is a company under the control of Patria Bank SA, by taking over the stake held by former Banca Comerciala Carpatica SA of 100% of its share capital and voting rights. By Decision / , Banca Comerciala Carpatica SA, as the sole shareholder of Imobiliar Invest SRL, decided the early dissolution and the voluntary liquidation of the company. SSIF Carpatica Invest SA (Dissolution) Subsidiary of BCC - SSIF Carpatica Invest S.A. with its head office in Sibiu, 5 Mihai Veteanu Street. SSIF Carpatica Invest S.A is a financial investment company, authorized, regulated and supervised by the Financial Supervisory Authority ( ASF ); the Group owns 95.68% of the shares (2015: 95.68%). The Financial Supervisory Authority has ruled to suspend the trading activity of SSIF Carpatica Invest SA, considering that the company is not compliant with the legal requirements regarding the level of own funds. Thus, the main shareholder, Banca Comerciala Carpatica SA, has decided to dissolve the company. Considering the dissolving decision and the insignificant impact of consolidating SSIF Carpatica Invest SA, the Group has decided to modify the scope of the consolidation by excluding SSIF Carpatica Invest SA for the 2016 and 2017 statements.. In the Interim Financial Statements on June 30, 2018, the same consolidation perimeter is preserved in the sense of not including the subsidiary SSIF Carpatica Invest SA. 2. BASIS OF PREPARATION a) Statement of compliance The interim consolidated and individual financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These interim consolidated and individual financial statements were not audited or revised. The interim consolidated and individual financial statements include: the consolidated and individual statement of financial position, the consolidated and individual statement of comprehensive income, the consolidated and individual statement of changes in equity, the individual and consolidated cash flow statement, and a selection of relevant explanatory notes for the period ending at 30 June The interim financial statements do not include all disclosures required by the International Financial Reporting Standards adopted by the European Union ("IFRS") for the full set of annual financial statements; so, these interim statements should be read together with the Group's annual financial statements as at 31 December 2017 approved on March 23, In accordance with Order 27 / issued by the President of the Board of Directors of the National Bank of Romania, the Group's annual financial statements at 31 December 2017 were prepared in accordance with the International Financial Reporting Standards adopted by the European Union ("IFRS"). 14 of 117

15 The Group keeps their accounting records in Romanian LEI ("RON") which is also the functional and presentation currency of the Group in accordance with the Romanian Accounting Law and the accounting and reporting regulations issued by the National Bank of Romania ("NBR") and the Ministry of Public Finance. Patria Bank SA is the result of the reverse merger between the former Banca Comerciala Carpatica S.A (as the absorbing entity) and the former Patria Bank S.A. (as the absorbed entity), the merger was effective on May 1 st, More detailed information on the merger process, the economic and financial impact and the disclosure in the accounts are presented in the annual financial statements as at 31 December The information was not repeated in these interim financial statements. b) Basis of measurement These financial statements have been prepared under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of properties and equipment, available-for-sale financial assets, and financial instruments at fair value through profit or loss. The significant accounting policies used in the preparation of these interim financial statements are those presented in Note 3 of the Group's Annual Consolidated and Separate Financial Statements as at 31 December 2017 approved on 28 March 2018; except for changes resulting from the implementation of IFRS 9 Financial Instruments. These changes are presented in Note 3 in these interim financial statements. c) Basis of Consolidation The consolidated financial statements comprise the financial statements of the Patria Bank SA and all its subsidiaries for the period ended at 30 June 2018 and the comparative financial statements of the Patria Bank SA and all its subsidiaries for the year ended 30 June The Bank records the participations in subsidiaries separately at cost adjusted with impairment. All balances between Group companies, transactions, income and expenses, losses and gains arising from transactions between Group companies are eliminated in full. Subsidiaries are entities controlled by the Bank. An investor controls an investee when it has power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor's returns. The entities in the Group are incorporated in Romania, keep their accounting books and prepare their statutory financial statements as follows: 15 of 117

16 - the Bank, Patria Investments SA, SAI Carpatica Asset Management S.A., FDI Carpatica Stock, FDI Carpatica Global, FDI Carpatica Obligatiuni in accordance with IFRS as adopted by the European Union; - Patria Credit IFN SA, SC Imobiliar Invest S.R.L. in accordance with Romanian accounting regulations. The Bank consolidates the financial statements of its subsidiaries in accordance with IFRS 10. The list of Group subsidiaries is presented under the reporting entity chapter. The Group presents the non-controlling interest in its consolidated financial position within equity, separated from the equity of the parent company s owners. The non-controlling interest is measured proportionally with the percentage held in the net assets of the subsidiary. Changes in a parent's ownership interest in a subsidiary, which do not result in the loss of parent control of the subsidiary, are reflected as equity transactions. d) Going concern The preparation of the consolidated and separate financial statements is based on the going concern assumption which involves management's assessments, estimates and hypotheses related to the income, expenses, assets, liabilities, cash flows, liquidity and capital requirements of the Bank. The uncertainty in relation to these hypotheses and estimates could determine results that require significant adjustments of the assets, liabilities and capital requirements in the future periods. The Bank's ability to continue its planned activity depends, as presented below, on reaching breakeven during 2018, on the shareholder's financial support, attracting new capital and new investors, as well as the compliance with the regulations of the National Bank of Romania. Operational considerations During the first 6 months of 2018 the loan portfolio continued its upward trend started immediately after the completion of the merger process (May 1, 2017) recording as of a net balance with 10% higher than the balance at the end of the year 2017; this led to an increase of the weight of the loans in total assets (from 36% at to 42% on ) and to an improvement of the loans / deposits ratio (52% as of compared to 45% as of ). Between the Bank recorded a net loss of 23.3m RON close to the budgeted level for the first half of 2018 (22.3m RON loss), this result being sustained by a 112% achievement of the sales plan for new loans and a level of the operational expenses in line with the budget. The net operating result also recorded an evolution in line with the budgeted level for the first 6 months of The cost of risk was influenced by an adverse trend compared with the planned one for certain loan exposures and for receivables related to instalment sales and rental of real estate assets. 16 of 117

17 The Bank s profitability continues to be under pressure, mainly due to the suboptimal structure of its assets, as the significant liquidity surplus is invested in short duration treasury bonds, which, generates lower interest income than the average yields of the loan portfolio, but this pressure is decreasing as the Bank is implementing its credit growth strategy. The results as at 30 June 2018 regarding the credit volume is supporting the path of approaching the operational profitability level. In addition, during the period until the optimal level of the assets structure will be achieved, the Bank considered in the 2018 budget a set of actions which will contribute to the Bank s financial performance, consisting of: recovery of the non-productive assets and of the non-performing assets existing in its balance - sheet and off balance -sheet. These actions started in the second quarter of 2018 and will continue in the coming months of Capital Ratios considerations As of 30 June 2018, the Bank s Total Equity Ratio is 11.94%, being over the TSCR limit (10.93%) but under the minimum OCR level of 14.81% (TSCR plus capital buffer of 1.88% and the 2% systemic shock buffer introduced since 30 June 2018). The CET 1 Ratio is 10.39%, above the 6.12% minimum TSCR and the 10% minimum OCR for this indicator. Although the level of the capital ratio presented above may create a material uncertainty that may cast significant doubt on the Bank s ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business, the management of the Bank believes that nevertheless it is appropriate for the going concern principle to be applied in the preparation of the consolidated and separate financial statements, due to: (1) the adopted plans to strengthen the capital base, (2) the plans to grow the business such that the Bank achieves profitability and (3) strong liquidity position. These plans are set out below: i) Strengthening the Bank s capital base: actions taken until and planned actions for the second half of 2018 To ensure the compliance with the capital ratios imposed by the National Bank of Romania based on regulations applicable to EU credit institutions, it was planned that the Bank s capital base to be improved in 2018 through a phased approach as presented below (and as it is included in 2018 Budget of the Bank approved by Board of Directors on March 12, 2018): (1) Phase 1: increase of the share capital with a maximum amount of 60,538,661 RON the equivalent of EUR 13,000,000. This action was approved by the Extraordinary Shareholder Assembly dated 12 March 2018 and has to be achieved through the following actions: a. Conversion of the subordinated loans of RON 40,309,000 (representing the equivalent in RON of EUR 8,650,000) granted to the Bank by EEAF Financial Services BV; and b. Contribution in cash, with pre-emption rights granted to all existing shareholders of the Bank on of 117

18 (2) Phase 2 and 3: increase of the capital base by EUR 18,500,000 scheduled to take place in tranches by the end of June 2018 and during Q in the form of Tier 1 and/or Tier 2 capital attracted from investors. Until the following actions were carried out: (1) Completion of the capital increase process approved by the Extraordinary Shareholders Assembly dated 12 March Following this process, the Bank's share capital was increased by ,90 RON of which: i) 40,309,000 RON through the conversion of two subordinated loans in amount of EUR 8,650,000 granted to the Bank by the majority shareholder EEAF Financial Services BV (of which EUR 4,350,000 loan granted in 2016 and EUR 4,300,000 loan granted in February 2018); ii) the amount of 6,734,960 RON contribution in cash by exercising the pre-emptive rights of the shareholders registered in the shareholders registry on , out of which: 5,825, RON cash contribution of the majority shareholder EEAF Financial Services BV and 909,960,00 RON cash contribution of the minority shareholders. On June 30, 2018, the amount of 40,309,000 RON was included in the calculation of Tier 1 Own Funds, the amount representing the cash contribution of 6,734,960 RON being included as of July 2018 (following the approval received from the National Bank of Romania); (2) Signing in March 2018 of a new subordinated loan contract amounting of EUR 5,000,000 between the Bank and EEAF Financial Services BV; the loan was included in the calculation of Tier 2 Own Funds starting with April 2018 (following the approval received from the National Bank of Romania); (3) Initiation of the second stage of the share capital increase by the amount of 100,000,000 RON. This action was approved by the Extraordinary Shareholders Assembly on 2 August 2018 and has the following components: a. Conversion of the subordinated loan in the amount of 23,750,000 RON (equivalent in RON of EUR 5,000,000) granted to the Bank by EEAF Financial Services BV; and b. Cash contribution, with pre-emption rights granted to all existing shareholders of the Bank on It is estimated that the above share capital increase phase will be completed during October 2018, and the subscribed amounts to be included in the CET 1 calculation in November 2018 (after receiving approval from the National Bank of Romania). Complementary to the above actions the main shareholder of the Bank - EEAF Financial Services BV demonstrated its ongoing commitment to support the Bank s operations through a support letter dated 26 March The main shareholder of the EEAF Financial Services BV is the investment fund Emerging Europe Accession Fund Cooperatief U.A. (EEAF), whose main investors are international financial institutions: EBRD - European Bank for Reconstruction and Development 18 of 117

19 EIF - European Investment Fund part of European Investment Bank (EIB) BSTDB - Black Sea Trade and Development Bank DEG Development Bank part of the group KFW. The above mentioned actions aimed to strengthen the capital base required to i) finance the planned growth in higher return assets, and ii) achieve compliance with the regulatory capital requirements, should, if achieved, ensure up to the end of Q the full compliance with the new systemic risk buffer applicable from June ii) 3 years business plan to reach profitability The Bank has prepared and approved its 3 years business plan whereby it expects to reach profitable operations in the period ; the plan is designed only based on organic growth. For 2018 the Bank plans to break-even and become profitable, as it will continue to increase the weight of the higher yielding assets (loans to customers) in its total assets, implying also a corresponding increase of the risk weighted assets. The increase in the size of the loan book is expected to lead to an increase of the operating income of the Bank, while in parallel management aims to continue to control the operating costs of the Bank, including the cost of risk, in order to achieve the profitability targets. iii) Liquidity considerations As noted above, the Bank has a very strong liquidity position demonstrated by the level of key liquidity indicators such as LCR (625% at the end of June 2018 well above the Romanian market average leveland the minimum level required for this indicator of 100%) and a ratio of liquid assets to total assets of 45%. Although this liquidity generates certain pressure on the Bank s operating income (as it yields lower returns compared with lending assets) it represents the basis for a normal business as usual cash-flow profile during Based on all of the above, the Bank s management has made an assessment regarding the going concern principle and has concluded that the going concern principle is appropriate as basis for the preparation of the consolidated and separate financial statements as at and for the period ended 30 June e) Use of estimates and judgments The preparation of financial statements according to IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Items affected by the use of estimates and significant judgments are: fair value of financial assets, impairment adjustments for loans to customers, financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, costs. 19 of 117

20 Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Changes in accounting policies transition to IFRS 9 The Group has adopted IFRS 9 as issued by IASB in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Group did not early adopt any of IFRS 9 in previous periods, before 01 January As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings and other reserves of the current period. Consequently, for notes disclosures, the consequential amendments to IFRS 7 disclosures have also only been applied to the current period (6 months ended 30 June 2018). The comparative period notes disclosures (the financial year ended 31 December 2017 and 6 months period ended 30 June 2018 respectively) repeat those disclosures made in the prior year. The adoption of IFRS 9 has resulted in changes in the accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments: Disclosures. The transition note presents below the impact of IFRS 9 adoption for Patria Bank. The impact of IFRS 9 adoption for the Group is represented by: Remeasurement differences related to the carrying amount of loans and advances to customers - Patria Bank (4,887) thousand RON - For the subsidiary Patria IFN SA (1.058) thousand RON - Differences resulted from the reclassification of financial assets as financial assets at amortised cost (IFRS 9) from the previous classification as financial assets available for sale (IAS 39) - Patria Bank 4,078 thousand RON - For the subsidiary Patria IFN SA no such classification differences occurred The Group s subsidiaries do not have any other remeasurement or reclassification differences except for the computation of impairment for loans and advances in Patria IFN SA detailed above. The impact of IFRS 9 adoption at Group level is (1,867) thousand RON (overall net impact in equity) and for Patria Bank the net impact in equity is (809) thousand RON. 20 of 117

21 (a) Classification and measurement of financial instruments IAS 39 IFRS 9 31 December January 2018 Measurement Assets Measurement category Carrying amount Carrying amount category Cash and cash equivalents Amortised cost 636,525 Amortised cost 636,525 Financial assets at fair value through profit or loss (FVPL) FVPL 28,635 FVPL 28,635 Financial assets at fair value through other comprehensive income (FVOCI) FVOCI (AFS) 1,151,064 FVOCI 956,692 Due from other banks Amortised cost 5,076 Amortised cost 5,076 Loans and advances to customers Amortised cost 1,325,216 Amortised cost 1,320,291 Investments held to maturity Amortised cost 107,708 Amortised cost - Investments in debt instruments at amortised cost Amortised cost 0 Amortised cost 306,129 Equity instruments at fair value through other comprehensive income FVOCI (AFS) 27,505 FVOCI 27,505 Other financial assets Amortised cost 9,065 Amortised cost 9,132 Total assets 3,290,794 3,289, of 117

22 (b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9 Amortised cost Cash and cash equivalents Opening balance under IAS 39 and closing IAS 39 Carrying amount 31 December 2017 Reclassifications Remeasurements IFRS 9 Carrying amount 1 January 2018 balance under IFRS 9 636, ,525 Due from other banks Opening balance under IAS 39 and closing balance under IFRS 9 5, ,076 Loans and advances to customers Opening balance under IAS 39 1,325,216 - Remeasurement: ECL allowance (4,925) Closing balance under IFRS 9 1,320,291 Investments in debt instruments at amortised cost 22 of 117

23 Opening balance under IAS Addition: from held to maturity (IAS 39) 107,708 (29) - Addition: from available for sale (IAS 39) 198,450 Closing balance under IFRS 9 306,129 Investments held to maturity Opening balance under IAS ,708 (107,708) - Subtraction: to amortised cost IFRS 9 - Closing balance under IFRS 9 - Total financial assets measured at amortised cost 2,074, ,450 (4,954) 2,268,021 Financial assets at fair value through profit or loss (FVTPL) - Held for trading Opening balance under IAS 39 and closing balance under IFRS 9 28, , of 117

24 Debt instruments at fair value through other comprehensive income Opening balance under IAS Addition: from available for sale IAS ,692 Closing balance under IFRS 9 956,692 Equity instruments at fair value through other comprehensive income Opening balance under IAS 39 and closing balance under IFRS 9 27, , of 117

25 Financial assets available for sale IAS 39 Carrying amount 31 December 2017 Reclassifications Remeasurements IFRS 9 Carrying amount 1 January 2018 Opening balance under IAS 39 1,178,569 - Reclassification at amortised cost (IFRS 9) (194,372) - Reclassification to FVOCI (IFRS 9) (984,197) Closing balance under IFRS 9 0 Reclassifications to amortised cost 2018 From available for sale (IAS 39) Fair value as at 30 June ,240 Fair value loss that would have been recognised in the period if the financial asset had not been reclassified (1,243) 25 of 117

26 3.2 Summary of significant accounting policies Financial assets and liabilities Measurement methods Amortised cost and effective interest rate The amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or liability to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the amortised cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees and points paid or received that are integral to the effective interest rate, such as origination fees. For purchased or originated credit-impaired financial assets ( POCI ) the Group calculates the credit-adjusted effective interest rate, which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount and incorporates the impact of expected credit losses in estimated future cash flows. When the Group revises the estimates of future cash flows, the carrying amount of the respective financial asset or financial liability is adjusted to reflect the new estimate discounted using the original effective interest rate. Any changes are recognised in profit or loss. Interest income Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for: o POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the amortised cost of the financial asset. o Financial assets that are not POCI but have subsequently become credit-impaired (or stage 3), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of the expected credit loss provision). Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognised on trade date, the date on which the Group commits to purchase or sell the asset. 26 of 117

27 At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or liability, such as fees and commissions. Transaction costs of financial assets and liabilities carried at fair value through profit or loss are expensed in profit or loss. Immediately after initial recognition, an expected credit allowance (ECL) is recognised for financial assets measured at amortised cost and investments in debt instruments measured at FVOCI, which results in an accounting loss being recognised in profit or loss when an asset is newly originated. When the fair value of financial assets and liabilities differs from the transaction price on initial recognition, the Group recognises the difference as follows: o When the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observable markets, the difference is recognised as a gain or loss. o In all other cases, the difference is deferred, and the timing of recognition of deferred day one profit or loss is determined individually. It is either amortised over the life of the instrument, deferred until the instrument s fair value can be determined using market observable inputs, or realised through settlement. Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories: Amortised cost: Assets that are held for collection of contractual cash flows where those cash 27 of 117 Financial assets i. Classification and subsequent measurement From 1 January 2018, the Group has implemented IFRS 9 and classifies its financial assets in the following measurement categories: Fair value through profit or loss ( FVPL ); Fair value through other comprehensive income ( FVOCI ); or Amortised cost. The classification requirements for debt and equity instruments are described below: Debt instruments Debt instruments are those instruments that meet the definition of a financial liability form the issuer s perspective, such as loans, government and corporate bonds and trade receivables purchased from clients in factoring arrangements without recourse. Classification and subsequent measurement of debt instruments depend on: The Group s business model for managing the asset; and The cash flow characteristics of the asset.