Key financial data. NLB NLB Group st Half st Half st Half st Half Key indicators

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2 Key financial data Key indicators st Half st Half st Half st Half 2013 Return on equity after tax (ROE a.t.) -28.5% 4.1% -16.5% -25.0%* 6.5%* -16.8%* Return on assets after tax (ROA a.t.) -2.4% 0.3% -1.5% -1.7%* 0.4%* -1.3%* Cost/income ratio (CIR) 41.3% 34.6% 74.4% 54.6% 45.0% 81.2% Capital adequacy ratio (CAR) 11.8% 11.2% 11.4% 10.6% 12.1% 10.1% Tier 1 ratio 9.9% 11.2% 9.8% 8.8% 10.6% 8.5% Core Tier 1 9.9% 10.1% 9.8% 8.8% 9,8% 8.5% Loan/deposit ratio (LTD) 115.7% 110.8% 110.3% 104.7% 105.6% 101.0% Market share in terms of total assets 24.8% 26.7% 24.4% Income statement indicators (in million EUR) Net interest income Net non-interest income Costs Impairments and provisions Result before tax Result of minority shareholders Result after tax Financial position statement indicators (in million EUR) Group Total assets 11,487 13,150 11,095 14,335 16,297 13,843 Loans to non-banking sector 7,832 8,190 7,476 9,553 10,378 9,135 Deposits from non-bankig sector 6,769 7,393 6,778 9,121 9,825 9,082 Equity 1, ,125 1,026 1,019 Equity of minority shareholders Key indicators per share Number of shares 1,989 1,991 1, Nominal value (in EUR) 12,548,930 11,061,125 22,056, Book value (in EUR) International credit ratings Moody's Fitch st Half st Half 2013 B2 Ba2 Caa2 BBB- BBB BB- * Without taking into account the profits of minority shareholders. 2

3 Contents Business Report 2 Introduction 3 Activities 3 Key events 5 Financial review of operations 5 Risk management 9 Funding 12 Corporate governance of 13 Financial Statements 15 1

4 1 Report Business 2

5 Introduction Group is the largest Slovenian banking and financial group. As at June 30, 2013, it comprised 47 Group companies, including 19 strategic and 28 non-strategic banks and companies. Banking is the Group's most important activity, while the Group also provides other financial services, such as insurance (e.g. life and pension insurance) and asset management. Group comprises the following in 14 countries or 15 markets: 10 members and 1 subsidiary abroad in the banking sector; 7 members in the leasing sector; 9 members in the area of factoring and forfeiting; 3 members in the insurance sector; 1 member in asset management; 17 members in other activities. Activities Activities during the first half of 2013 were in line with the Bank's new strategic objectives. The governance of companies that operate on non-strategic markets or in non-strategic activities and are planned for divestment was formally segregated. In line with the aforementioned strategy, has begun selling off its investments on non-strategic markets. The expected result of these measures is organizational and financial consolidation, and the strengthening of the Group's capital, which will facilitate increased focus on the markets and activities that proved most profitable and prospective in the past. At the beginning of the year, LHB Immobilien was sold in Germany. Activities to transfer the credit portfolios of certain Group companies included in the divestment process continued, while agreements were signed on the purchase of a minority interest in the company OL Nekretnine and on one of two minority interests in the company Optima Leasing. Activities to sell Adria Bank and leasing companies also continued in cooperation with financial consultants. With the aim of improving capital management, established a separate company, Crna gora, to which a portion of the non-performing claims of Montenegrobanka were transferred. In order to ensure an appropriate level of capital at Group companies, Factoring (in liquidation) and CBS Invest received capital injections during the first half of Group Business Report 3

6 Southeastern Europe Western and Central Europe Table 1: Matrix of activities of Group members by country as at 30 June 2013 Slovenia Austria Czech Republic Germany Italy Switzerland Bosnia and Herzegovina Bulgaria Croatia Kosovo Banking, Ljubljana; Banka Celje, Celje*; SIB (in liquidation), Ljubljana Adria Bank, Vienna* Trieste Branch, Trieste**** Razvojna banka, Banja Luka; Banka, Tuzla Prishtina, Pristina Leasing Leasing, Ljubljana Leasing, Sarajevo Leasing, Sofia Optima Leasing, Zagreb Factoring and forfeiting Prvi faktor, Ljubljana** InterFinanz, Prague; Factoring (in liquidation), Ostrava InterFinanz, Zürich Prvi faktor, Sarajevo** Prvi faktor, Zagreb** Insurance Vita, Ljubljana**; Skupna pokojninska družba, Ljubljana* Asset management Skladi, Ljubljana Other activities Prospera Plus, Ljubljana; Propria, Ljubljana; Bankart, Ljubljana*; FIN-DO, Domžale; ICJ, Domžale**; Kreditni biro SISBON, Ljubljana*; Argo, Horjul***; Pivovarna Laško, Laško*** LHB Aktiengesellschaft, Franfkurt/Main Plan, Banja Luka; CBS Invest, Sarajevo LHB Trade, Zagreb; OL Nekretnine, Zagreb Macedonia Tutunska banka, Skopje Lizing, Skopje Prvi faktor, Skopje** Nov penziski fond, Skopje Montenegro Montenegrobanka, Podgorica Leasing, Podgorica Crna gora, Podgorica Serbia banka, Belgrade Leasing, Belgrade InterFinanz, Belgrade; Prvi faktor, Belgrade** Conet (in liquidation), Novi Sad; Convest, Novi Sad; Srbija, Belgrade * Associated companies. ** Joint ventures. *** Associated companies obtained via the redemption of collateral. **** The Trieste Branch is part of. Group Business Report 4

7 Key events January: Submission of the Restructuring Plan to the European Commission. Initiation of liquidation proceedings against Factoring. February: Increase in s share capital as a result of the issue of new shares in the amount of EUR 1.9 million. March: receives award from the financial magazine Global Finance as the best Slovenian bank in 2013 for the 16th time in succession. Successful completion of a new Slovenian corporate securities issue in the record amount of EUR 60 million, organising and carrying out the issue. is downgraded to Caa2 by Moody s. Capital increase at Factoring in the amount of EUR 62 million. Conversion of the principal on a hybrid loan provided by the Republic of Slovenia in June 2012 into shares. April: is downgraded to BB- by Fitch. May: is awarded a European Green Office certificate by Umanotera, the Slovenian Foundation for Sustainable Development. receives a Trusted Brand award for the seventh time in succession. June: Conversion of the interest on a hybrid loan provided by the Republic of Slovenia in June 2012 into shares. Financial review of operations In the first half of 2013 Group recorded a result for its operations before provisions totalling EUR 35.1 million and for in the amount of EUR 35.3 million. The result after tax, which totalled EUR million in Group and EUR million in, was influenced by the high established impairments and provisions amounting to EUR million at the level of the Group or EUR million at the level of the Bank. The total comprehensive result, which also takes into account evaluations of securities and cash flows otherwise recognised through capital, amounted to EUR million at the level of the Group and EUR million at the level of the Bank. The key events and factors that impacted the performance of and Group in the first half of the year were as follows: A decline in lending to the non-banking sector and a continuing deterioration in the quality of the credit portfolio both at and at the subsidiaries. An outflow of deposits in the household and corporate segments. Continuing debt repayments on the wholesale markets. Activities to ensure capital adequacy ratios: conversion of a hybrid loan into shares and measures to reduce risk-weighted assets. The ongoing implementation of cost-cutting measures and the activation of plans to increase revenue. A withdrawal from non-strategic markets and services. Action to transfer bad claims to the bad bank. Group Business Report 5

8 Income statement In the first half of 2013, the Group s net interest income totalled EUR million, 33% less than in the same period last year, while the Bank generated a net interest income of EUR 84.7 million or 36% less than in the first half of last year. The biggest share in the structure of net non-interest income is commissions which, at the Group level, amounted to EUR 68.2 million and EUR 50.4 million at the Bank level. The Group s net non-interest income totalled EUR 65.8 million and that of the Bank EUR 53.5 million. At the Group level, costs decreased by 13% to EUR million and at the Bank level they fell by 10%, amounting to EUR million. Labour costs which account for more than one half of total costs decreased compared to the same period of last year, namely by 14% and 10% at the Group and Bank level, respectively, operating costs dropped by 11% and 9% at the Group and Bank level, respectively, and depreciation costs by 15% and 12% at the Group and Bank level, respectively. The cost/income ratio (CIR) stood at 81.2 % for Group, i.e p.p. worse than in the same period last year, while the same indicator for worsened by 39.8 p.p. to 74.4%. The deterioration in the indicator is primarily the result of the loss of net income from financial transactions owing to the extremely positive effects of prepayments of subordinated instruments in 2012 and a decline in net interest as a result of the decline in interest-bearing assets and the exclusion of interest. In spite of the economic recovery, credit risk still had a considerable impact. Consequently, Group established EUR million of credit portfolio impairments and provisions in the first six months of 2013, 6% less than in the same period last year, while credit portfolio impairments and provisions in totalled EUR 56.7 million, 49% less than in the same period last year. Table 2: Key income statement items Group 1st Half st Half 2013 Grow th 1st Half st Half 2013 in million EUR in million EUR in million EUR in million EUR Net interest income % % Net non-interest income % % Net fees and commissions % % Dividend revenues % % Net income from financial transactions % % Net other revenues % % Total net income % % Costs % % Employee costs % % Operating costs % % Depreciation and amortisation % % Result from equity investments in associates and joint ventures (equity method) % Result before provisions % % Impairments and provisions % % Impairments of financial assets available for sale through equity % % Credit impairments and provisions % % Other impairments and provisions % % Result before tax % % Income tax expense Result of minority shareholders % Result after tax % % Effects recognised through equity % % - from cash-flow hedges % % - from financial assets available for sale % % - other % Comprehensive result % % Grow th Group Business Report 6

9 Financial markets (Slovenia) Strategic foreign markets Retail banking (Slovenia) Other activities Corporate banking (Slovenia) Non-strategic markets and activities Group in million EUR Illustration 1: Result before tax structure of Group in the first half of Statement of financial position The total assets of and Group at the end of the first half of 2013 were both down 3% on the end of last year, at EUR 13,842.7 million and EUR 11,095.4 million respectively. The Group s operations are still marked by the stagnation of credit growth. The results of the recession in the real sector were seen in a deterioration of the Group s asset portfolio and the resulting need to reprogramme loans in those segments most affected by the recession. Group increased the requirements for collateral and tightened up the criteria on project feasibility, while at the same time it accelerated the process of establishing impairments and provisions since the quality of collateral has deteriorated in the uncertain economic situation. Loans to the non-banking sector at Group were down 4% in the first half of 2013 at EUR 9,135.4 million, while loans to the non-banking sector at were down 5% at EUR 7,475.5 million. By contrast, deposits by the non-banking sector remained unchanged from the end of last year, at EUR 9,082.1 million at Group and EUR 6,777.8 million at. The loan/deposit ratio (LTD) in the non-banking sector decreased by 4.6 p.p. at the Group level in the first half of 2013 to reach 101.0%, while at the Bank level it dropped by 0.5 p.p. to stand at 110.3% at the end of June. Group Business Report 7

10 Table 3: Key items from the statement of financial position ASSETS Grow th in million EUR in million EUR in million EUR in million EUR Cash % % Loans to banks % % Loans to non-banking sector 7, , % 9, , % Gross loans to non-banking sector 9, , % 11, , % - corporate 6, , % 8, , % - state % % - retail 1, , % 2, , % Impairments -1, , % -1, , % Financial assets 2, , % 2, , % - held for trading % % - available for sale and held to maturity 1, , % 2, , % Investments in subsidiaries, associates and joint ventures % % Property and equipment % % Intangible assets % % Other assets % % Total assets 11, , % 14, , % LIABILITIES Group Deposits from non-banking sector 6, , % 9, , % - corporate 1, , % 2, , % - state % , % - retail 4, , % 6, , % Deposits form banks % % Debt securities in issue % % Borrow ings 2, , % 3, , % Other liabilities % % Subordinated debt % % Equity 1, % 1, , % Equity of minority shareholders % Total liabilities 11, , % 14, , % Grow th Illustration 2: Total assets structure of Group as at 30 June 2013 Strategic foreign markets 22.1 % Corporate banking (Slovenia) 13.2 % Non-strategic markets and activities 10.0 % Financial markets (Slovenia) 24.1 % Retail banking (Slovenia) 29.6 % Other activities 0.9 % Group Business Report 8

11 Capital and capital adequacy As at 30 June 2013 the regulatory capital of Group totalled EUR 1,074.3 million, which is EUR 93.9 million less than at the end of On the same date, the capital adequacy ratio (CAR) was 10.1% or 0.5 p.p. less than at the end of last year and the Tier 1 ratio was 8.5%, namely 0.3 p.p. lower than at the end of As at 30 June 2013 the s regulatory capital totalled EUR 1,046.3 million, which is EUR 91.9 million less than at the end of On the same date, the Bank s capital adequacy ratio (CAR) was 11.4% or 0.3 p.p. less than at the end of last year and the Tier 1 ratio was 9.8%, which is 0.1 p.p. lower than at the end of Risk management The Bank s operations during the first half of this year were characterized by the recession in Slovenia, which was driven in part by structural imbalances in the domestic economy and declining economic growth in the EU. The Bank continues to face a relatively high concentration of investments in sectors that have been hit hardest by the crisis, and is only gradually reducing that concentration. Macroeconomic conditions remain unfavorable in the majority of countries in which Group companies operate. Despite the adverse conditions, the Bank has not deviated from the basic principles of risk management in Group, the most important of which are: independence of the risk management function from specific business areas and independence in decision making; the achievement of the Bank s business objectives may not be linked to the assumption of excessive risk; decisions in the area of risk management are based on a comprehensive assessment of various risk factors. As a rule, decisions may not be made based solely on the results of a specific quantitative model or approach (diversification of approaches with respect to modeling); risk appetite within Group derives from the Group s strategic policy, which includes the redefinition of the target risk profile to a more conservative approach, in line with the proposal from the restructuring program; and consistent implementation of the centralized monitoring of risks, and the implementation of risk management standards at subsidiary banks and other financial corporations within Group. Credit risk remains the most significant risk to which Group is exposed. Due to the adverse economic conditions, which continue to be reflected in the rising of overdue unpaid claims and the resulting deterioration of the credit portfolio, the latter requires careful and meticulous attention. The Bank places a great deal of emphasis on the proactive and effective management of that portion of the portfolio that is already impaired or in danger, while it is more conservative in its approval of new investments within the scope of the re-engineered process and criteria. For this reason and with the goal of managing all risks that the Group is exposed to in its banking operations more effectively, activities are being carried out to re-engineer the credit process. The Risk Management Department and the Corporate Intensive Care and Non-Performing Loan Department were reorganized last year with the aim of identifying increased risks in the operations of specific customers earlier, the timely restructuring and intensive treatment of corporates in distress, and ultimately the more effective collection of claims and redemption of collateral. Group continues to place a great deal of emphasis on liquidity risk management. The continued downgrading of Slovenia and, and the adverse macroeconomic conditions in individual EU Member States reduce access to sources of funding on the financial markets. Borrowing via the Eurosystem has increased as a result, with highly liquid reserves in the form of investments in the securities of EU Member States bearing exceptional importance. In addition, operational and market risks are also monitored and managed closely, while other material risks are monitored and managed in the internal capital adequacy assessment process. Representing new challenges are changes in banking regulations in the area of capital and liquidity risk, unofficially referred to as Basel III, which Group will implement in accordance with the policies adopted by Group Business Report 9

12 regulatory bodies. On the basis of known guidelines, new approaches and criteria for monitoring all types of risk will also be introduced gradually. Risk management is based on the use of various tools for measuring and managing risks. These include the management of regulatory and internal capital, stress testing, the monitoring of key risk profile indicators, a proactive approach to creating impairments, the diversification of the investment portfolio, points models, internal ratings, value-at-risk and other contemporary risk management models. Credit risk management Group manages credit risk at two levels: at the level of the individual customer-debtor, and at the level of the overall portfolio of Group companies and Group. At the transaction level, customers and claims are assigned a credit rating in accordance with the Group's methodology for the classification of customers to credit rating categories and the setting of maximum borrowing limits, which is in part based on the requirements of the Bank of Slovenia. The Bank has an early warning system to identify increased risk in the context of identifying problematic customers. Accordingly, the financial position of such customers is monitored in more detail, while measures are implemented to improve operations. In addition, the Bank continuously verifies and updates procedures for assessing the appropriateness of impairments and provisions in order to respond to changes in the financial position of customers in a cost-efficient and timely manner. Group identifies and measures the credit risk linked to the investment portfolio on the basis of international accounting standards by assessing recoverability and thus the associated impairments. The quality of the credit portfolio is monitored regularly by segment type (e.g. customer type and size, credit rating, country, collateral, non-performing/overdue/restructured claims, the currency of an exposure, etc.), with one of the most important tools being matrices of customer transitions between credit rating categories. Monitoring the quality of the credit portfolio comprises an analysis of changes on the basis of time factors in the identification of trends in movements, on risks and on portfolio concentration. In the scope of the Group s risk profile and risk appetite, credit risk criteria have been set and their target values defined by operating segment, credit rating structure, quality of the portfolio and concentration risk. In addition, the Bank also places a great deal of emphasis on stress tests that forecast the effects of negative movements in the portfolio on the level of impairments and on capital adequacy. The credit risk to which Group is exposed increased further during the first half of 2013, which is reflected in the deterioration of the credit rating structure, growth in the proportion of non-performing loans and the creation of additional impairments. The amount of losses was up most notably in the sectors of manufacturing, wholesale and retail trade and construction. The most significant increase in arrears, and as a result in non-performing loans, was likewise recorded by the aforementioned sectors. The proportion of non-performing loans was up 2.9 percentage points on the end of 2012 to stand at 31.1%. The coverage of non-performing loans by impairments was down 1.7 percentage points to stand at 57.6%. Also having a significant impact on growth in the proportion of nonperforming loans was a contraction in the loan portfolio due to a drop in investment demand, the overindebtedness of corporates and limits on the Bank s capital. Through regular reviews of business practices and the credit portfolios of Group companies, ensures the credit risk management of those companies functions in accordance with the Group s risk management standards. This ensures meaningfully uniform risk management and monitoring procedures at the consolidated level. The economic crisis has accelerated the following trends and activities in terms of credit policy: the securing of the highest quality collateral for existing and new transactions, with the consistent application of established ratios and the more consistent monitoring of contractual obligations; a precursory assessment of additionally required impairments of claims and provisions for commitments in the event of unfavorable trends, and the creation of impairments and provisions when objective evidence thereof exists; the establishment of an early warning system to detect increased credit risk, and the associated transfer of monitoring of individual customers to the watch list or intensive care list; Group Business Report 10

13 the gradual updating of the credit rating classification methodology, with an emphasis on decreased risk assumption; and the centralized monitoring and the expression of opinions on the approval of individually material investments at Group companies. Illustration 3: Risk portfolio structure by client s internal credit rating In Group as at 30 June 2013 E 23.1% A 45.4% D 7.5% C 13.3% B 10.7% Liquidity risk management Liquidity risk management is carried out within Group in accordance with the relevant policies and strategies, which define the related rules and a system of accountability. At the Group level, the Bank employs a balanced liquidity management strategy with respect to sources of funding. The liquidity position and maturity matching of balance-sheet items are monitored via the analysis and control of the liabilities and investments of the Bank and Group companies. Liquidity conditions on the financial markets remain adverse as the result of the downgrading of Slovenia and the Bank, and owing to the debt crisis in certain EU Member States. The deteriorating quality of the credit portfolio and limits on the Bank s capital affect liquidity management. Limited refinancing on foreign financial markets is reflected in part in an increase in borrowing from the Eurosystem.Despite the extraordinarily difficult conditions on the international capital market, Group ensures the effective management of operational and structural liquidity. An appropriately large portfolio of secondary liquidity reserves of the requisite quality is very important for ensuring liquidity for the entire Group. Through a conservative approach to monitoring risks, and other Group banks generated relatively large, high-quality liquid investments in the past, for the most part in the form of government securities that are eligible as collateral according to ECB criteria. At the end of June 2013, s portfolio of secondary liquidity reserves accounted for 30.3% of total assets and amounted to EUR 3.36 billion. Secondary liquidity reserves totaled EUR 4.5 billion at the Group level at the end of June. Group also gives attention to providing structural liquidity, while it also indirectly manages the structure of the Bank s balance sheet via its pricing policy.the Group generates several stress test scenarios that take into account a specific crisis at the Bank or a systemic crisis in the wider economic environment. The Bank and Group companies have adopted a crisis plan in the form of a plan of measures and liquidity management in extraordinary circumstances. Group Business Report 11

14 Market risk management The management of market risks is generally supported by the use of contemporary methodologies and a reporting system that ensures the appropriate control over market risks at all Group companies. Separate guidelines have been established for Group banks and other financial institutions. Moreover, certain activities are decentralized within the Group, while others can only be carried out by. An example of the latter are services linked to the trading book that provides for other Group companies, as the only trading bank among Group companies. Nevertheless, market risks within Group are relatively low in terms of scope, while the Group constantly updates the monitoring of the aforementioned risks. Operational risk management The system for monitoring and managing operational risks is relatively stable, and derives from the monitoring of actual and potential loss events, and the timely drafting of measures to reduce the possibility of loss events arising. and Group recorded a smaller number of loss events during the first half of this year relative to the same period last year, while the amount of net losses was up slightly. The aforementioned increase was driven primarily by the implementation of processes and the perpetration of criminal acts. In the area of operational risk management, special emphasis is placed on measures to prevent loss events in the lending process and the process of winding up non-strategic companies in Group. In the scope of the global re-engineering of the credit process, is introducing additional control measures with the aim of mitigating both credit and operational risks. Where appropriate and costefficient, additional control activities are also being introduced in other areas of operations, for example in the area of integrity. Forecast Group felt the first blow of the financial crisis and subsequent economic crisis back in 2008, which resulted in the deterioration of the credit portfolio, an increase in impairment and provisioning costs and a deterioration in operating results. That trend continues. Through a conservative lending policy supported by the centralization and re-engineering of the credit process, persistent efforts to achieve an appropriate coverage of the non-performing portion of the portfolio by impairments and provisions, and the restructuring and accelerated recovery of non-performing investments, Group companies minimize the impact of the adverse economic conditions on their operating results. The Bank assesses that negative economic growth and the associated adverse conditions on the domestic market, limited access to refinancing on the foreign financial markets, the debt crisis in certain European countries and the resulting effects on the Group s strategic markets will continue to have a negative impact on the Group s portfolio. In addition, the high indebtedness of the corporate sector and low investment demand are hindering efforts to kick start lending in the Slovenian banking sector. The envisaged transfer of non-performing claims to the Bank Assets Management Company (Measures of the Republic of Slovenia to Strengthen the Stability of Banks Act) and the associated improvement in the credit portfolio, and the capital increased planned for the second half of 2013 represent the basis for the long-term sustainability of the Bank s operations. In the future, the Bank will also place a great deal of emphasis on the restructuring and intensive treatment of corporates in distress, and on the effective recovery of non-strategic investments. Funding Despite the adverse conditions on the financial markets, the Bank s liquidity was adequate during the first half of ensures liquidity through the effective management of liquidity reserves, the majority of which are accounted for by Slovenian government bonds and the investment-grade securities of other countries. Due to the difficult conditions on the international financial markets, the Bank s activities to secure long-term sources of funding were particularly focused on the servicing of existing loan agreements and preparations for the issue of debt securities when market conditions are more favorable. Group Business Report 12

15 In an effort to harmonize Group, all borrowing by Group companies on the international financial markets is centralized at, which coordinates and advises Group companies in their borrowing activities on the aforementioned markets. The focus of the funding of Group companies during the first half of this year was on borrowing from commercial banks. Group companies borrowed a total of EUR 16.5 million from commercial banks during the first half of this year. With regard to financing and insuring export transactions, focused on the markets where exportoriented customers operate. The Bank attempted to provide all the requisite support to facilitate the securing of transactions on the aforementioned markets by export-oriented companies, and provided collateral or assumed the risks associated with such transactions as necessary. In the financing of major, long-term projects, works with SID banka, which offers insurance against commercial and non-commercial risks. Corporate governance of Management Board In accordance with the law and s articles of association, the Supervisory Board may appoint and recall three to six members (a president and up to five members) to the Management Board. The president and members are appointed for a term of five years, and may be reappointed or recalled before their term expires in accordance with the law and s articles of association. The members of s Management Board are as follows: President: Janko Medja (since 2 October 2012) Members: Blaž Brodnjak (since 1 December 2012), Nima Motazed. Supervisory Board In accordance with s articles of association, the Supervisory Board has seven members appointed and recalled by the Bank s General Meeting of Shareholders from candidates proposed by the shareholders or the Supervisory Board. The members of s Supervisory Board were elected at the General Meeting of Shareholders of 11 June 2013 for the period of time from their election until the conclusion of s General Meeting of Shareholders that decides on the use of distributable profit for the fourth financial year after the election of members. The first year is deemed to be the financial year in which the members of the Supervisory Board were elected. The following persons were members of the Supervisory Board until 11 June 2013: Chairman: Sašo Cunder (from 25 April 2013, Klemen Vidic until 25 April 2013); Deputy Chairpersons: Stephan Wilcke, Riet Docx (until 10 January 2013); Members: Jan Vanhevel, Miroslav Germ, Matjaž Schroll (until 2 August 2013, on the basis of their resignation), Janko Medja (until 1 October 2012, on the basis of his resignation), Miran Pleterski (until 11 October 2012, on the basis of his resignation), Albin Hojnik (until 24 October 2013, on the basis of his resignation) and John Hollows (until 31 December 2012, on the basis of his resignation). On the basis of the resignations of Matjaž Schroll and Jan Vanhevel, Marianne Økland and Gaël de Pontbriant were appointed to replace the aforementioned members until the expiration of the term of originally elected members of the Supervisory Board. The following members of the Supervisory Board were appointed to a new term at the General Meeting of Shareholders of 11 June 2013: France Arhar, Goran Katušin, Gorazd Podbevšek, Sergeja Slapničar, Tit A. Erker, Miha Košak and Uroš Ivanc. Group Business Report 13

16 General Meeting of Shareholders shareholders met at the 22nd General Meeting of Shareholders on 11 June A total of 91.7% of shares with voting rights were represented at the start of the meeting. shareholders were briefed on the approved 2012 annual report, the report of the Supervisory Board and information regarding the remuneration of members of the Management Board and Supervisory Board in The General Meeting of Shareholders was also briefed on the allocation of distributable profit for 2012, and the granting of discharge to the Management Board and Supervisory Board for the 2012 financial year. The shareholders adopted several proposed amendments to s articles of association, while the audit firm Ernst & Young d.o.o. was appointed as auditor. By amending the articles of association at SOD s proposal, the General Meeting of Shareholders authorised the Bank s Management Board (with the Supervisory Board s consent and without an additional general meeting resolution) to increase the Bank s share capital once over a five-year period in the maximum amount of EUR 500 million through the issue of the appropriate number of new shares via cash or non-cash contributions (authorised capital). New shares are issued with rights, under the conditions and in the manner set out in the resolution of the Management Board to increase the Bank s share capital and issue new ordinary or preference shares, whereby the new shares may be issued exclusively to ensure the Bank s capital adequacy under the conditions determined by the local or foreign regulatory body (e.g. the Bank of Slovenia or the European Banking Authority) or the European Commission. The Bank s Management Board may exclude the pre-emptive rights of existing shareholders with the aim of offering the new shares to the Republic of Slovenia or persons associated therewith, provided that the Bank s Supervisory Board gives its consent. does not have any shareholders with special controlling rights. has no limitations on voting rights, as voting rights are attached to all shares (except to treasury shares) in accordance with the law. Table 4: Ten largest shareholders of as at 30 June 2013 Name of shareholder Number of shares Share (in %) 1 Republika Slovenija 17,095, Kapitalska družba, d.d. 1,374, Slovenska odškodninska družba, d.d. 1,231, Poteza Naložbe, d.o.o. - in bankruptcy 494, Zavarovalnica Triglav, d.d. 280, UCTAM d.o.o. 153, NFD 1 Delniški investicijski sklad, d.d. 131, Triglav vzajemni skladi 108, Vanermo Limited 63, CG Invest, d.d. - in bankruptcy 55, major shareholders - total 20,988, Other shareholders 1,067, Total shareholders 22,056, Group Business Report 14

17 2 Statements Financial Group Business Report 15

18 Key financial data Condensed semi-annual financial statements of d.d. and Group prepared in accordance with IAS 34 Interim financial reporting Group Business Report 16

19 Contents Condensed income statement Condensed income statement by quarter Condensed statement of comprehensive income Condensed statement of comprehensive income by quarter Condensed statement of financial position Condensed statement of changes in equity Condensed statement of cash flows Notes to the condensed financial statements GENERAL INFORMATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance Accounting policies CHANGES IN SUBSIDIARY HOLDINGS NOTES TO THE CONDENSED INCOME STATEMENT Interest income and expenses Net fee and commission income Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss Gains less losses from financial assets and liabilities held for trading Other operating income Other operating expenses Administrative expenses Provisions for other liabilities and charges Impairment charge Earnings per share NOTES TO THE CONDENSED STATEMENT OF FINANCIAL POSITION Cash and balances with central banks Trading assets Available for sale financial assets Loans and advances Debt securities Loans and advances to banks Loans and advances to customers Other financial assets Movements in allowance for impairment of banks, loans and advances to customers and other financial assets Held to maturity financial assets Fair value hierarchy of financial and non-financial assets and liabilities Other assets Deferred income tax Financial liabilities measured at amortized cost Deposits from banks and amounts due to customers Borrowings from banks and other customers Debt securities in issue Subordinated liabilities Other financial liabilities Provisions Income tax relating to components of other comprehensive income Other liabilities Book value per share Capital adequacy ratios Off-balance sheet liabilities EVENTS AFTER THE END OF THE REPORTING PERIOD OTHER DISCLOSURES Related-party transactions Analysis by segment Subsidiaries

20 Condensed income statement six months ended Group six months ended Notes June June June June Interest and similar income , , , ,998 Interest and similar expenses 4.1. (118,139) (190,923) (156,227) (238,373) Net interest income 84, , , ,625 ======== ======== ======== ======== Dividend income 2,800 6,809 1,639 4,581 Fee and commission income ,395 67,465 92,272 95,882 Fee and commission expenses 4.2. (14,024) (13,219) (24,047) (23,031) Net fee and commission income 50,371 54,246 68,225 72,851 ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss , ,144 (4,759) 115,721 Gains less losses from financial assets and liabilities held for trading ,739 10,877 5,086 14,852 Gains less losses from financial assets and liabilities designated at fair value through profit or loss Fair value adjustments in hedge accounting (14) 352 (14) 342 Foreign exchange translation gains less losses (2,910) (1,257) (3,803) (4,461) Gains less losses on derecognition of assets other than held for sale (46) (37) Other operating income ,556 6,620 14,159 15,011 Other operating expenses 4.6. (8,079) (2,895) (10,134) (4,896) Administrative expenses 4.7. (89,542) (99,176) (139,502) (160,598) Depreciation and amortization (13,310) (15,122) (22,435) (26,167) Provisions for other liabilities and charges 4.8. (552) (3,614) 1,102 (7,885) Impairment charge 4.9. (131,037) (160,860) (146,119) (158,576) Share of (losses)/profits of associates and joint ventures accounted for using the equity method - - (2,386) 2,434 Net (loss)/gain from non-current assets held for sale (4,775) 83 (4,775) (116) (LOSS)/PROFIT BEFORE INCOME TAX (96,272) 51,367 (109,897) 64,188 ======== ======== ======== ======== Income tax 10,446 (31,687) 19,859 (31,636) (LOSS)/PROFIT FOR THE PERIOD (85,826) 19,680 (90,038) 32,552 ======== ======== ======== ======== Attributable to: Owners of the parent (85,826) 19,680 (91,176) 32,275 Non-controlling interests - - 1, Basic (loss)/profit per share (in EUR per share) (4.62) 1.78 (4.91) 2.93 Diluted (loss)/profit per share (in EUR per share) (3.91) 1.78 (4.16) 2.93 Group Financial Statements 18

21 Condensed income statement by quarter three months ended three months ended June 2013 March 2013 June 2012 March 2012 Interest and similar income 89, , , ,222 Interest and similar expenses (49,299) (68,840) (77,796) (113,127) Net interest income 40,104 44,575 65,102 67,095 ======== ======== ======== ======== Dividend income 2, ,675 1,134 Fee and commission income 33,204 31,191 34,175 33,290 Fee and commission expenses (7,721) _ (6,303) _ (7,760) _ (5,459) _ Net fee and commission income 25,483 24,888 26,415 27,831 ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss 422 5, ,484 (3,340) Gains less losses from financial assets and liabilities held for trading (1,144) 3,883 13,097 (2,220) Fair value adjustments in hedge accounting 17 (31) Foreign exchange translation gains less losses 889 (3,799) (6,300) 5,043 Gains less losses on derecognition of assets other than held for sale (46) - (29) (8) Other operating income 4,258 3,298 3,419 3,201 Other operating expenses (3,266) (4,813) (1,532) (1,363) Administrative expenses (44,095) (45,447) (51,213) (47,963) Depreciation and amortization (6,542) (6,768) (7,541) (7,581) Provisions for liabilities and charges 299 (851) 8,004 (11,618) Impairment charge (109,583) (21,454) (87,541) (73,319) Net (loss)/profit from non-current assets held for sale (3,702) (1,073) (9) 92 (LOSS)/PROFIT BEFORE INCOME TAX (94,253) (2,019) 94,332 (42,965) ======== ======== ======== ======== Income tax 12,942 (2,496) (38,201) 6,514 (LOSS)/PROFIT FOR THE PERIOD (81,311) (4,515) 56,131 (36,451) ======== ======== ======== ======== Group Financial Statements 19

22 Group three months ended three months ended June 2013 March 2013 June 2012 March 2012 Interest and similar income 130, , , ,612 Interest and similar expenses (67,997) (88,230) (100,796) (137,577) Net interest income 62,526 71,086 98, ,035 ======== ======== ======== ======== Dividend income 1, , Fee and commission income 47,151 45,121 49,057 46,825 Fee and commission expenses (12,861) (11,186) (12,495) (10,536) Net fee and commission income 34,290 33,935 36,562 36,289 ======== ======== ======== ======== Gains less losses from financial assets and liabilities not classified as at fair value through profit or loss (10,191) 5, ,757 (3,036) Gains less losses from financial assets and liabilities held for trading 127 4,959 15,548 (696) Gains less losses from financial assets and liabilities designated at fair value through profit or loss (32) 50 (22) 80 Fair value adjustments in hedge accounting 17 (31) Foreign exchange translation gains less losses 1,116 (4,919) (9,402) 4,941 Gains less losses on derecognition of assets other than held for sale (20) Other operating income 7,199 6,960 7,296 7,715 Other operating expenses (4,103) (6,031) (2,445) (2,451) Administrative expenses (69,785) (69,717) (85,370) (75,228) Depreciation and amortization (10,882) (11,553) (13,010) (13,157) Provisions for liabilities and charges ,288 (13,173) Impairment charge (107,945) (38,174) (73,725) (84,851) Share of (losses)/profits of associates and joint ventures accounted for using the equity method (2,542) ,809 Net loss from non-current assets held for sale (3,702) _ (1,073) _ (7) _ (109) _ (LOSS)/PROFIT BEFORE INCOME TAX (101,775) (8,122) 103,986 (39,798) ========= ========= ========= ========= Income tax 11,922 7,937 (36,969) 5,333 (LOSS)/PROFIT FOR THE PERIOD (89,853) (185) 67,017 (34,465) ======== ======== ======== ======== Attributable to: Owners of the parent (90,483) (693) 66,891 (34,616) Non-controlling interests Group Financial Statements 20

23 Condensed statement of comprehensive income six months ended Group six months ended Note June June June June Net (loss)/profit for the period after tax (85,826) 19,680 (90,038) 32,552 Other comprehensive (loss)/income after tax (10,496) 19,532 (12,239) 17,729 Hedge of a net investment in a foreign operation Net valuation gains taken to equity Foreign currency translation (5,987) Translation gains/(losses) taken to equity (5,987) Cash flow hedges (effective portion) Valuation gains/(losses) taken to equity 323 (776) 323 (776) Transferred to income statement 452 1, ,019 Available for sale financial assets (12,413) 25,017 (13,013) 29,443 Valuation (losses)/gains taken to equity (17,688) 7,394 (18,299) 11,592 Transferred to income statement 5,275 17,623 5,286 17,851 Share of other comprehensive income of entities accounted for using the equity method - - (1,745) 1,313 Income tax relating to components of other comprehensive income ,142 (5,728) 1,470 (7,293) Total comprehensive (loss)/income for the period after tax (96,322) 39,212 (102,277) 50,281 Attributable to owners of the parent (96,322) 39,212 (103,049) 49,775 Attributable to non-controlling interests All items of statement of comprehensive income are subsequently reclassified to profit or loss when specific conditions are met. Group Financial Statements 21

24 Condensed statement of comprehensive income by quarter three months ended three months ended June 2013 March 2013 June 2012 March 2012 Net (loss)/profit for the period after tax (81,311) (4,515) 56,131 (36,451) Other comprehensive income/(loss) after tax 6,374 (16,870) (468) 20,000 Cash flow hedges (effective portion) Valuation gains/(losses) taken to equity (457) (319) Transferred to profit Available for sale financial assets 7,526 (19,939) ,850 Valuation (losses)/gains taken to equity (2,606) (15,082) (13,407) 20,801 Transferred to profit 10,132 (4,857) 13,574 4,049 Income tax relating to components of other comprehensive income (1,682) 2,824 (725) (5,003) Total comprehensive (loss)/income for the period after tax (74,937) (21,385) 55,663 (16,451) Group three months ended three months ended June 2013 March 2013 June 2012 March 2012 Net (loss)/profit for the period after tax (89,853) (185) 67,017 (34,465) Other comprehensive income/(loss) after tax 1,549 (13,788) (2,040) 19,769 Hedge of a net investment in a foreign operation Net valuation gains taken to equity Foreign currency translation (1,945) 2,219 (910) (5,077) Translation (losses)/gains taken to equity (1,945) 2,219 (910) (5,077) Cash flow hedges (effective portion) Valuation gains/(losses) taken to equity (457) (319) Transferred to profit Available for sale financial assets 5,917 (18,930) ,182 Valuation (losses)/gains taken to equity (4,237) (14,062) (13,810) 25,402 Transferred to profit 10,154 (4,868) 14,071 3,780 Share of other comprehensive income of entities accounted for using the equity method (1,611) (134) (756) 2,069 Income tax relating to components of other comprehensive (1,342) 2,812 (725) (6,568) Total comprehensive (loss)/income for the period after tax (88,304) (13,973) 64,977 (14,696) Attributable to owners of the parent (88,728) (14,321) 64,684 (14,909) Attributable to non-controlling interests Group Financial Statements 22

25 Condensed statement of financial position Group Notes Cash and balances with central banks , , , ,831 Trading assets , , , ,333 Financial assets designated at fair value through profit or loss 3,543 3,161 5,677 5,176 Available for sale financial assets , ,865 1,321,562 1,345,091 Derivatives - hedge accounting 7,655 10,909 7,655 10,909 Loans and advances - debt securities ,966 88,617 83,966 88,617 - loans and advances to banks , , , ,486 - loans and advances to customers ,395,368 7,747,361 9,055,150 9,467,743 - other financial assets ,163 40,975 76,392 67,069 Held to maturity investments ,030 1,041, ,030 1,041,105 Fair value changes of the hedged items in portfolio hedge of interest rate risk Non-current assets and disposal group classified as held for sale 12,045 16,216 17,666 21,824 Property and equipment 132, , , ,860 Investment property 1,649 1,702 68,022 67,753 Intangible assets 44,598 50, , ,493 Investments in subsidiaries 448, , Investments in associates and joint ventures 65,553 66,074 98, ,222 Current income tax assets 22-1,896 2,252 Deferred income tax assets ,206 88, ,090 88,267 Other assets ,163 4, , ,824 TOTAL ASSETS 11,095,351 11,487,425 13,842,514 14,334,693 ========== ========== ========== ========== Deposits and borrowings from central banks 1,263,848 1,259,615 1,263,848 1,259,615 Trading liabilities 43,860 79,985 43,856 80,028 Financial liabilities designated at fair value through profit or loss 3,542 3,160 3,542 3,160 Derivatives - hedge accounting 38,355 51,283 38,355 51,283 Financial liabilities measured at amortized cost - deposits from banks , ,809 45,338 55,331 - borrowings from banks ,420,504 1,555,004 1,585,075 1,755,915 - due to customers ,774,279 6,765,687 9,077,259 9,118,118 - borrowings from other customers ,671 31, , ,459 - debt securities in issue , ,567 76, ,620 - subordinated liabilities , , , ,898 - other financial liabilities ,938 74, , ,380 Fair value changes of the hedged items in portfolio hedge of interest rate risk Provisions ,207 53,427 69, ,961 Current income tax liabilities ,445 Deferred income tax liabilities ,323 3,891 Other liabilities ,814 5,621 14,907 12,485 TOTAL LIABILITIES 10,122,914 10,420,312 12,798,204 13,189,709 ========== ========== ========== ========== EQUITY AND RESERVES ATTRIBUTABLE TO OWNERS OF THE PARENT Share capital 184, , , ,731 Share premium 1,037, ,472 1,037, ,472 Other equity instruments - 336, ,044 Revaluation reserve (15,912) (5,416) (24,627) (12,754) Profit reserves 159, , , ,204 Retained earnings (390,700) (304,874) (335,201) (239,611) Treasury shares (2,048) (2,048) (2,048) (2,048) 972,437 1,067,113 1,019,221 1,125,038 Non-controlling interests ,089 19,946 TOTAL EQUITY 972,437 1,067,113 1,044,310 1,144,984 TOTAL LIABILITIES AND EQUITY 11,095,351 11,487,425 13,842,514 14,334,693 ========== ========== ========== ========== Group Financial Statements 23