RIETUMU BANKA AS. Condensed Interim Bank Separate and Group Consolidated Financial Statements For the six month period ended 30 June 2016

RIETUMU BANKA AS Condensed Interim Bank Separate and Group Consolidated Financial Statements For the six month period ended

Contents Report of Council and Board of Directors 3 Independent auditors Report 7 Condensed Interim Bank Separate and Group Consolidated Income Statement Condensed Interim Bank Separate and Group Consolidated Statement of Other Comprehensive Income Condensed Interim Bank Separate and Group Consolidated Statement of Financial Position Condensed Interim Bank Separate and Group Consolidated Statement of Cash Flows Condensed Interim Bank s Separate Statement of Changes in Shareholders Equity Condensed Interim Group Consolidated Statement of Changes in Shareholders Equity Notes to the Condensed Interim Bank Separate and Group Consolidated Financial Statements 9 10 11 13 15 16 19 2

Report of Council and Board of Directors Rietumu Banka AS Dear Shareholders, Customers and Business Partners The Rietumu Bank Group continued its successful development and closed first half of 2016 with net profit after tax of EUR 53 million which represents a 48.3% increase compared to first half of 2015. The Group s revenues are diversified between interest and commission and despite the low interest rate environment the Group continued to operate very efficiently with a cost to income ratio of 33.7% and operating income per employee of EUR 98 thousand. Quality and Individual approach The Group offers a wide-ranging range of banking products to corporate customers and high net worth individuals. The Group has extensive experience in the EU and CIS countries and its customers operate in Latvia, the Baltic States, Western Europe, Russia and other CIS countries. The Group understands the business environments in both Western and Eastern Europe. Recently the Group has been focusing on larger privately owned businesses to which we can offer a broader range of products. Given the geographical area that the Group operates in, the current turbulent geopolitical and economic environment has resulted in elevated risks in these regions. Exchange rate volatility and especially the devaluation of the Russian Ruble in 2014 and 2015 resulted in significant challenges to the Group and our customers. Although the Ruble exchange rate has stabilized in the first half of 2016 it still represents risks and challenges to many of our customers. By maintaining close contact to our clients through our extensive network of representative offices, we have continued to successfully cooperate with our customers. In developing new products our emphasis has always been on employing the latest technologies. The Bank follows a very conservative lending policy while offering innovative and individually tailored products that suit the requirements of each individual customer the best. The Group focused on industries that have not been significantly affected in times of crises and need significant efforts to grow its trade finance and transport finance businesses. By focusing on trade finance business the Bank also offered its customers new opportunities to develop their international expansion. Trade finance as well as developing new lending markets such as Ireland and the United Kingdom are the areas the Bank will focus on in developing its lending business. The major non-banking companies include leasing and consumer finance companies, repossessed real estate and other repossessed collateral maintenance companies and asset management and financial companies. It is the Bank s strategy as much as possible to fully integrate its subsidiaries into the Bank s management and control systems. The activities of Group companies are financed by the Bank via capital investments and loans. In most cases the Bank owns 100% of the shares of its subsidiaries. Financial review The Group closed first half of 2016 with after tax profit attributable to the Bank s shareholders of EUR 52.75 million. The Group generated for its shareholders an annualized after tax return on equity of 23.11% (first half of 2015: 19.98%) and an annualized after tax return on assets of 2.88% (first half of 2015: 2.02%). Income distribution was well diversified across the business units of the Group with many of the Group s business units contributed to the increase in net profit. Operating income reached EUR 106.4 m which represents an increase of 38.3% from 2015. The Group s goal is to maintain a cost to income ratio of less than 40% and in 2016 this ratio reached 33.7%. For the first half of 2016 the Group reached a profit margin of 53% compared to 54% in 2015. During 2016, Visa Inc. completed the purchase of Visa Europe from all European participating banks. As a result of this sale the Bank realized a profit of EUR 24.74 m from the cash settlement and EUR 2 m from deferred payment. The Bank was also given 8,991 Visa Inc. preference shares with a face value of USD 1. These preference shares are accounted for in available for sale at a price of USD 4.6 m. 3

As at the Group s total assets were EUR 3,599 m. This represents a decrease of 5.1% compared to 2015 and this slow-down is due to the general economic situation in the region we operate in as well as the Bank purposefully changing the focus on larger customers resulting in the loss of some smaller customers. The Bank follows a conservative approach to asset allocation with 48% of the Bank s assets invested in liquidity management portfolios. 31% of the liquidity management portfolio is invested in short term money market placement with large mainly European banks. During the first half of 2016 loans and receivables due from customers decreased by 7% to EUR 1,025 m. The decrease was due to the Bank downsizing its CIS portfolio. The Bank expects lending to the European Union and trade finance to start compensating for the decrease in the CIS pending portfolio. The Group follows a conservative lending policy that focuses on creating specific and tailor made products to meet customer s expectations. However, impairment expenses on loans have increased to EUR 16.42 m in 2016 compared to EUR 10.57 m in 2015 reflecting an increase in non-performing loans. Loans and receivables due from customers represent 28% of total assets and since 2010 this ratio has not exceeded 45%. The Bank increased its bond portfolio during 2016 to reach a total of EUR 827 million (2015: EUR 674 million). The bond portfolio is invested in a widely diversified range of bonds with an average maturity of 2.5 years. The funding sources of the Group remained unchanged in that the Group finances its activity through current accounts and deposits due to customers and shareholders equity. Current accounts and deposits due to customers were EUR 2,885 m down 10% compared to 2015. The fall in deposits was due to the general economic environment and a refocusing of the Bank customer base to larger customers. Current accounts represented 88.16% of total deposits balances. Term deposits amounted to EUR 341 m as at 30 June 2016 and included in this are EUR 114 m of subordinated deposits. The average tenor of term deposits is 4.2 years with the average effective interest rate in 2016 of 2.1%. The Group total shareholders equity reached EUR 464 m as of representing a 1.6% increase from 2015. The Group total capital adequacy ratio was 22.3% (2015: 19.2 %). The Bank has always aimed to maintain high capital adequacy ratios and this has been the basis for maintaining financial stability and growth in the Group for more than 20 years. The first 6 months of 2016 presented many new opportunities to the Bank and we believe that the remainder of the year will also prove to be very successful. We owe our success to our customers and business partners and the trust that they have placed in us. We are looking forward to continue developing the Bank in 2016 successfully. 4

Financial results of the Group (6 months) Rietumu Banka AS 31 December 2015 30 June 2015 (6 months) 31 December 2014 30 June 2014 (6 months) At period end (EUR 000) Total assets 3,599,227 3,794,153 3,630,036 3,477,763 3,081,738 Loans and receivables due from customers 1,024,737 1,101,772 1,102,137 1,041,444 955,853 Current accounts and deposits due to customers 2,884,668 3,203,992 3,165,111 3,082,706 2,686,514 Total shareholder s equity 464,363 456,869 376,747 341,903 336,193 For the period (EUR 000) Net profit before income tax 56,062 81,176 41,315 87,021 42,523 Net profit after tax 53,230 70,043 35,894 74,130 35,630 Net interest income 39,014 83,158 40,865 76,936 36,275 Net fee and commission income 20,299 44,124 20,943 45,722 21,469 Capital adequacy ratio 19.9% 19.2% 18.7% 19.0% 21.4% 22.3%* 19.5%* 22.3%* Financial results of the Bank (6 months) 31 December 2015 30 June 2015 (6 months) 31 December 2014 30 June 2014 (6 months) At period end (EUR 000) Total assets 3,594,833 3,785,767 3,629,119 3,475,041 3,075,059 Loans and receivables due from customers 1,077,979 1,151,789 1,153,662 1,087,989 1,011,542 Current accounts and deposits due to customers 2,912,301 3,231,558 3,189,229 3,107,957 2,698,365 Total shareholders equity 442,513 432,841 362,382 323,380 328,470 For the period (EUR 000) Profit before income tax 54,145 81,940 43,029 83,786 44,330 Profit for the period 51,294 72,179 37,617 71,500 37,643 Net interest income 34,147 76,330 37,575 69,902 33,053 Net fee and commission income 20,161 43,684 20,807 45,488 21,151 Capital adequacy ratio 20.3% 19.4% 19.0% 18.9% 21.8% 22.7%* 20.0%* 22.9%* * Capital adequacy rate, including profit for 6 months (upon receiving the Financial and Capital Market Commission permission) 5

Statement of management responsibility Rietumu Banka AS The management of the AS Rietumu Banka (the Bank) is responsible for the preparation of the condensed consolidated interim financial statements of the Bank and its subsidiaries (the Group) as well as for the preparation of the condensed interim financial statements of the Bank. The condensed Group consolidated and Bank s separate interim financial statements are prepared in accordance with IAS 34 Interim Financial Reporting on a going concern basis. Appropriate accounting policies have been applied on a consistent basis. Prudent and reasonable judgments and estimates have been made by the management in the preparation of the condensed interim financial statements. The condensed Group consolidated and Bank s separate interim financial statements on pages 9-61 are prepared in accordance with the source documents and present the financial position of the Group and the Bank as at and the results of its performance and cash flows for the six month period ended. The management of the Bank is responsible for the maintenance of proper accounting records, the safeguarding of the Group s and the Bank s assets and the prevention and detection of fraud and other irregularities. The management is also responsible for operating the Bank in compliance with the Law on Credit Institutions, the regulations of the Financial and Capital Markets Commission, and other legislation of the Republic of Latvia applicable to credit institutions. 6

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CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED INCOME STATEMENT Note 6 month period ended Group Bank 6 month period ended 30 June 2015 Group Bank Interest income 7 52,169 47,024 51,849 48,138 Interest expense 7 (13,155) (12,877) (10,984) (10,563) Net interest income 39,014 34,147 40,865 37,575 Fee and commission income 8 33,499 33,305 33,532 33,433 Fee and commission expense 9 (13,200) (13,144) (12,589) (12,626) Net fee and commission income 20,299 20,161 20,943 20,807 Net gain on financial instruments at fair value through profit or loss 1,132 15 404 65 Net foreign exchange gain 10,984 10,750 11,487 12,114 Net realised gain on available-for-sale assets 10 31,137 31,137 119 119 Share of loss of equity accounted investees (net of income tax) (12) - (4) - Other income/(expense) 11 3,873 2,154 3,163 3,331 Operating Income 106,427 98,364 76,977 74,011 Impairment losses 12 (14,508) (15,882) (8,653) (8,330) General administrative expenses 13 (35,857) (28,337) (27,009) (22,652) Profit before income tax 56,062 54,145 41,315 43,029 Income tax expense 14a,b (2,832) (2,851) (5,421) (5,412) Profit for the period 53,230 51,294 35,894 37,617 Attributable to: Equity holders of the Bank 52,747 35,473 Non-controlling interest 483 421 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 9

CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Note 6 month period ended 6 month period ended 30 June 2015 Profit for the period 53,230 51,294 35,894 37,617 Items that are or may be reclassified to profit or loss Foreign currency translation differences for foreign operations (2,028) - (2,211) - Available-for-sale financial assets net change in fair value (20,705) (20,151) 4,436 4,678 Related tax 14c (519) (519) - - Other comprehensive income for the period (23,252) (20,670) 2,225 4,678 Total comprehensive income for the period 29,978 30,624 38,119 42,295 Attributable to: Equity holders of the Group 29,495 37,698 Non-controlling interest 483 421 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 10

Condensed Interim Bank Separate and Group Consolidated Financial statements CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note 31 Dec 2015 31 Dec 2015 ASSETS Cash and balances with the central bank 15 718,887 718,846 881,868 881,816 Financial instruments at fair value through profit or loss 16 15,485 1,044 16,439 1,166 Loans and receivables due from banks 17 710,277 709,690 841,210 840,803 Loans and receivables due from customers 18 1,024,737 1,077,979 1,101,772 1,151,789 Reverse repo 33 134,102 134,102 88,566 88,566 Available-for-sale assets 19 565,429 609,939 484,064 529,789 Non-current assets held for sale 4-50 - Held-to-maturity investments 20 269,775 266,858 220,510 217,901 Investments in subsidiaries 21-29,945-28,882 Equity accounted investees 34 9-21 - Investment property 24 85,082 10,260 82,968 8,447 Property and equipment 22 45,458 7,840 46,492 8,150 Intangible assets 23 4,503 2,584 4,005 2,910 Current tax asset 4,955 4,409 3,625 3,218 Deferred tax asset 242-376 - Other assets 25 20,282 21,337 22,187 22,330 Total Assets 3,599,227 3,594,833 3,794,153 3,785,767 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 11

CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note 31 Dec 2015 31 Dec 2015 LIABILITIES AND SHAREHOLDERS EQUITY Financial instruments at fair value through profit or loss 16 274 274 19 19 Due to Bank of Latvia 120,000 120,000 - - Deposits and balances due to banks 26 39,717 39,716 50,390 49,710 Current accounts and deposits due to customers 27 2,884,668 2,912,301 3,203,992 3,231,558 Issued debt securities 28 56,078 56,078 55,784 56,785 Current tax liability 171-102 - Deferred tax liability 3,222 811 3,246 191 Other liabilities and accruals 29 30,734 23,140 23,751 14,663 Total Liabilities 3,134,864 3,152,320 3,337,284 3,352,926 Share capital 30 168,916 168,916 168,916 168,916 Share premium 30 52,543 52,543 52,543 52,543 Revaluation reserve 1,354-1,364 - Fair value reserve 2,028 4,707 23,252 25,377 Currency translation reserve (3,545) - (1,517) - Other reserves 106 23 106 23 Retained earnings 230,162 216,324 198,357 185,982 Total Equity Attributable to Equity Holders of the Bank 451,564 442,513 443,021 432,841 Non-controlling Interest 12,799-13,848 - Total Shareholders Equity 464,363 442,513 456,869 432,841 Total Liabilities and Shareholders Equity 3,599,227 3,594,833 3,794,153 3,785,767 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 12

CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED STATEMENT OF CASH FLOWS 6 month period ended 6 month period ended 30 June 2015 Note CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax 56,062 54,145 41,315 43,029 Amortization and depreciation 22, 23 1,924 917 1,599 875 (Gain)/Loss from sale of investment property - - (153) - Revaluation of property, plant and equipment (102) - - - Revaluation of investment property 1,524 - - - Share of loss of equity accounted investees 46-4 - (Losses) on disposal of property and equipment 22 (103) - - Impairment losses 12 14,508 15,882 8,653 8,330 Increase in cash and cash equivalents before changes in assets and liabilities, as a result of ordinary operations 73,984 70,841 51,418 52,234 Decrease in financial instruments at fair value through profit or loss 954 122 2,391 428 (Increase)/Decrease in loans and receivables due from banks term deposits (139,450) (139,450) 195,007 195,007 (Increase)/Decrease in loans and receivables from customers 63,172 60,117 (69,234) (74,003) (Increase) in receivable under reverse repurchase (45,536) (45,536) (46,185) (46,185) agreements (Increase) in available-for-sale assets (102,070) (101,795) (368,156) (364,795) (Increase)/Decrease in other assets (2,232) (1,478) (1,883) (2,070) Increase/(Decrease) in derivative liabilities 255 255 (81) (81) Increase in term deposit deposits due to banks 141 820 280 280 (Decrease)/Increase in current accounts and deposits from customers (319,324) (319,257) 82,405 81,272 Decrease in non-current assets held for sale 46-108 - Increase in amounts payable under repurchase agreements 120,000 120,000 - - Increase in other liabilities and accruals 6,983 8,477 5,127 3,433 Increase/(Decrease) in cash and cash equivalents from operating activities before corporate income tax (343,077) (346,884) (148,803) (154,480) Corporate income tax paid (4,972) (3,940) (7,022) (6,557) Net cash and cash equivalents from operating activities (348,049) (350,824) (155,825) (161,037) CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment and intangible assets 22,23 (1,383) (1,236) (845) (719) Proceeds from sale of property and equipment and other assets - - 24 9 (Purchase) of investment property - (37) (2,774) (260) (Increase)/decrease in equity investments in other entities and acquisition of subsidiaries - (6) - - Consideration paid for acquisition of subsidiaries (10) - (2) (16) (Increase) in held-to-maturity financial assets (49,265) (48,957) (98,593) (98,124) Sale of non-controlling interest (699) - (1,501) - Acquisition of Investment property (1,653) - - - Cash and cash equivalents used in / from investing activities (53,010) (50,236) (103,691) (99,110) The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group financial statements. 13

CONDENSED INTERIM BANK SEPARATE AND GROUP CONSOLIDATED STATEMENT OF CASH FLOWS Note 6 month period ended 6 month period ended 30 June 2015 CASH FLOW FROM FINANCING ACTIVITIES Shares issued 30 - - 4,453 4,453 Share premium 30 - - 9,741 9,741 Issued debt securities 28 - (707) 789 789 Interest on issued debt securities 28 - - - - Dividends paid (21,785) (20,952) (2,830) (2,242) Other borrowed funds 294 - - - Cash and cash equivalents from financing activities (21,491) (21,659) 12,153 12,741 Net cash flow for the period (422,550) (422,719) (247,363) (247,406) Cash and cash equivalents at the beginning of the period 1,651,735 1,651,276 1,698,340 1,699,103 Cash and cash equivalents at the end of the period 15 1,229,185 1,228,557 1,450,977 1,451,697 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 14

CONDENSED INTERIM BANK S SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Share capital Share premium Revaluation reserve Fair value reserve Other reserves Retained earnings Total equity Balance at 1 January 2015 160,843 33,882 - (2,658) 23 131,290 323,380 Total comprehensive income Profit for the period - - - - - 37,617 37,617 Other comprehensive income - - - 4,678 - - 4,678 Transactions with shareholders recorded directly in equity Preference shares issued (Note 30) 4,453 - - - - - 4,453 Share premium received (Note 30) - 9,741 - - - - 9,741 Dividends paid - - - - - (17,487) (17,487) Balance at 30 June 2015 165,296 43,623-2,020 23 151,420 362,382 Total comprehensive income Profit for the period - - - - - 34,562 34,562 Other comprehensive income - - - 23,357 - - 23,357 Transactions with shareholders recorded directly in equity Preference shares issued (Note 30) 3,620 - - - - - 3,620 Share premium received (Note 30) - 8,920 - - - - 8,920 Balance at 31 December 2015 168,916 52,543-25,377 23 185,982 432,841 Total comprehensive income Profit for the period - - - - - 51,294 51,294 Other comprehensive income - - - (20,670) - - (20,670) Transactions with shareholders recorded directly in equity Dividends paid - - - - - (20,952) (20,952) Balance at 168,916 52,543-4,707 23 216,324 442,513 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 15

CONDENSED INTERIM GROUP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Attributable to Equity Holders of the Bank Foreign Share Share Revaluation Fair value currency translation Other Retained Noncontrolling Total capital premium reserve reserve reserve reserves earnings Total interest Equity Balance at 1 January 2015 160,843 33,882 1,387 (5,036) 43 104 146,405 337,628 4,275 341,903 Transactions with shareholders recorded directly in equity Preference shares issued (Note 30) 4,453 - - - - - - 4,453-4,453 Share premium received (Note 30) - 9,741 - - - - - 9,741-9,741 Dividends paid - - - - - - (17,487) (17,487) - (17,487) Transactions with non controlling interest Transaction with third parties related to units of funds controlled by the Group - - - - - - 96 96 2,201 2,297 Dividends paid to non-controlling interest - - - - - - - (588) (588) Change in ownership interest Loss of control in fund with non-controlling interest (Note 38) - - - - - - - - (1,860) (1,860) Purchase of subsidiaries with non-controlling interest - - 195 - - - - 195 (26) 169 Total comprehensive income Profit for the period - - - - - - 35,473 35,473 421 35,894 Other comprehensive income - - - 4,436 (2,211) - - 2,225-2,225 Other Depreciation of revalued property - - (10) - - - 10 - - - Balance at 30 June 2015 165,296 43,623 1,572 (600) (2,168) 104 164,497 372,324 4,423 376,747 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. 16

CONDENSED INTERIM GROUP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Share capital Share premium Attributable to Equity Holders of the Bank Revaluation reserve Fair value reserve Foreign currency translation reserve Other reserves Retained earnings Total Noncontrolling interest Total Equity Balance at 30 June 2015 165,296 43,623 1,572 (600) (2,168) 104 164,497 372,324 4,423 376,747 Transactions with shareholders recorded directly in equity Preference shares issued (Note 30) 3,620 - - - - - 3,620-3,620 Share premium received (Note 30) - 8,920 - - - - - 8,920-8,920 Change in ownership interest Loss of control in fund with non-controlling interest (Note 38) - - - - - - - - 1,860 1,860 Purchase of subsidiaries with non-controlling interest - - (195) - - - - (195) (25) (220) Transactions with non controlling interest Transactions with third parties related to units of funds controlled by the Group - - - - - - (96) (96) 7,383 7,287 Total comprehensive income Profit for the current period - - - - - - 33,942 33,942 207 34,149 Other comprehensive income - - - 23,852 651 3-24,506-24,506 Other Depreciation of revalued property - - (14) - - - 14 - - - Other reserve transfer - - 1 - - (1) - - - - Balance at 31 December 2015 168,916 52,543 1,364 23,252 (1,517) 106 198,357 443,021 13,848 456,869 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. 17

CONDENSED INTERIM GROUP CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Share capital Share premium Attributable to Equity Holders of the Bank Revaluation reserve Fair value reserve Foreign currency translation reserve Other reserves Retained earnings Total Noncontrolling interest Total equity 000 EUR 000 EUR 000 EUR 000 EUR Balance at 31 December 2015 168,916 52,543 1,364 23,252 (1,517) 106 198,357 443,021 13,848 456,869 Transactions with shareholders recorded directly in equity Dividends paid - - - - - - (20,952) (20,952) - (20,952) Transactions with non controlling interest Transaction with third parties related to units of funds controlled by the Group - - - - - - - - (699) (699) Dividends paid to noncontrolling interest - - - - - - - - (833) (833) Change in ownership interest - - - - - - - - - - Total comprehensive income - - - - - - - - - - Profit for the period - - - - - - 52,747 52,747 483 53,230 Other comprehensive income - - - (21,224) (2,028) - - (23,252) - (23,252) Other Depreciation of revalued property - - (10) - - - 10 - - - Balance at 168,916 52,543 1,354 2,028 (3,545) 106 230,162 451,564 12,799 464,363 The accompanying notes on pages 19 to 61 are an integral part of the condensed interim Bank separate and Group consolidated financial statements. The condensed interim Bank separate and Group consolidated financial statements as set out on pages 9 to 61 are authorised for issue on 28 July 2016 by: Chairman of the Board Alexander Pankov Member of the Board Rolf Paul Fuls 18

1 Background These condensed interim separate and consolidated financial statements include the financial statements of JSC Rietumu Banka (the Bank ) and its subsidiaries (together referred to as the Group ). There have been no significant changes in Group structure since 31 December 2015. JSC Rietumu Banka was established in the Republic of Latvia as a joint stock company and was granted its general banking licence in 1992. The principal activities of the Bank are deposit taking and customer accounts maintenance, lending and issuing guarantees, cash and settlement operations and operations with securities and foreign exchange. The activities of the Bank are regulated by the Bank of Latvia and the Financial and Capital Market Commission ( FCMC ) of the Republic of Latvia. The registered address of the Bank s head office is Vesetas Street 7, Riga, Latvia. 2 Basis of preparation (a) Statement of compliance These condensed interim separate and consolidated financial statements (the financial statements ) are prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. These condensed interim separate and consolidated financial statements do not include all of the information required for a complete set of annual financial statements and should be read in conjunction with the Bank Separate and Group Consolidated Financial Statements as at and for the year ended 31 December 2015. The audited financial statements as at and for the year ended 31 December 2015 are available at the Bank s web site: www.rietumu.com. The Board approved the condensed interim separate and consolidated financial statements for issue on 28 July 2016. The shareholders have the power to reject the separate and consolidated financial statements prepared and issued by management and the right to request that new financial statements be issued. (b) Basis of measurement The condensed interim separate and consolidated financial statements are prepared on the historical cost basis except for the following: - financial instruments at fair value through profit or loss are stated at fair value; - available-for-sale assets are stated at fair value; - owner occupied buildings which are stated at revalued amounts being the fair value at the date of valuation less subsequent accumulated depreciation; - investment property which is stated at fair value. (c) Functional and Presentation Currency These financial statements are presented in thousands of euro (EUR 000 s). The functional currencies of principal subsidiaries of the Bank are EUR except for the subsidiaries listed below: RB Securities Ltd. Rietumu Asset Management funds Rietumu Leasing Ltd. USD (US dollar) USD (US dollar) BYR (Belarus rouble) 19

3 Significant accounting policies The accounting policies applied by the Bank and the Group in these condensed interim separate and consolidated financial statements are the same as those applied by the Bank and the Group in their financial statements as at and for the year ended 31 December 2015. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual earnings. Adoption of new or revised standards and interpretations Certain new standards, interpretations and amendments to the existing standards have been published that become effective for the accounting periods beginning on or after 1 January 2016 or later periods and which are not relevant to the Group or are not yet endorsed by the EU. The Group is in the process of evaluating the potential effect if any of these new standards and interpretations. 4 Risk management All aspects of the Bank s and the Group s risk management objectives and policies are consistent with those disclosed in the financial statements as at and for the year ended 31 December 2015. The Bank and the Group have exposure to the following risks: market risk credit risk liquidity risks There have been no significant changes to sensitivities of financial assets and liabilities to financial risks other than presented in Note 39 compared to the quantitative information as presented in Bank s and the Group s financial statements for the year ended 31 December 2015, and therefore they are not disclosed in these condensed interim financial statements. 5 Capital management The Financial and Capital Market Commission sets and monitors capital requirements for the Bank and the Group. The Bank and the Group defines as capital those items defined by statutory regulation as capital. Under the current capital requirements set by the Financial and Capital Market Commission, banks must maintain a ratio of capital to risk weighted assets ( statutory capital ratio ) above the prescribed minimum level. As at, the individual minimum level is 15.8%. The Bank was in compliance with the FCMC determined individual capital ratio during the six-month periods ended 30 June 2016 and 30 June 2015, as well as during the year ended 31 December 2015. The Group s risk based capital adequacy ratio, as at, was 22.3% (31 December 2015: 19.2% and 30 June 2015: 19.5%). The Bank s risk based capital adequacy ratio as at was 22.7% (31 December 2015: 19.4% and 30 June 2015 20.0%). The Bank s and the Group s capital position is calculated in accordance with the requirements of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. Calculations are performed based on prudential consolidation group according to the Regulation No 575/2013 p.19. 20

6 Use of estimates and judgments The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those applied to the financial statements as at and for the year ended 31 December 2015. Allowance for credit losses on loans and receivables; Determining fair value of financial instruments; Impairment of available for sale financial assets; Impairment of held to maturity financial instruments; Determining fair value of property; Impairment of assets shown under other assets; Impairment of investment in subsidiaries; Impairment of goodwill; Useful life of equipment; Deferred tax asset recoverability; Consolidation of investment funds; Acquisition of new subsidiaries. 7 Net interest income Six months ended 30 June 2016 2016 2015 2015 Interest income Loans and receivables due from customers 41,480 36,367 44,503 40,807 Loans and receivables due from banks 1,883 1,871 1,239 1,232 Financial instruments at fair value through profit or loss 3-38 38 Available for sale assets 4,525 4,525 2,762 2,762 Held-to-maturity investments 3,921 3,904 3,014 3,006 Amounts receivable under reverse repurchase agreements 357 357 293 293 52,169 47,024 51,849 48,138 Interest expense Current accounts and deposits due to customers 6,496 6,481 7,304 7,299 Deposits and balances due to financial institutions 1,266 1,251 156 1 Other interest expense 5,393 5,145 3,524 3,263 13,155 12,877 10,984 10,563 Included within interest income from loans and receivables due from customers for the six months period ended is interest income of EUR 3,896 thousand (30 June 2015: EUR 2,420 thousand) relating to impaired loans issued by the Bank and by Group of EUR 3,955 thousand (30 June 2015: EUR 2,514 thousand). 21

8 Fee and commission income Six months ended 30 June 2016 2016 2015 2015 E-commerce 9,779 9,779 10,026 10,026 Money transfers 8,871 8,871 9,383 9,383 Commission income from payment cards 5,126 5,126 5,167 5,167 Commission from account servicing 3,990 3,990 4,680 4,680 Revenue from customer asset management and brokerage commissions 2,796 2,581 2,456 2,427 Commission from documentary operations 417 417 212 212 Cash withdrawals 99 99 110 110 Remote system fee 75 75 81 81 Other 2,346 2,367 1,417 1,347 9 Fee and commission expense 33,499 33,305 33,532 33,433 Six months ended 30 June 2016 2016 2015 2015 E-commerce 5,842 5,842 5,296 5,296 Payment card expenses 4,137 4,137 3,866 3,866 Agent commissions 1,071 932 1,068 1,068 On correspondent accounts 967 967 902 902 Brokerage fees 484 443 346 342 Cash withdrawal fees 10 10 11 11 Other 689 813 1,100 1,141 13,200 13,144 12,589 12,626 10 Net realised gain on available-for-sale assets Six months ended 30 June 2016 2016 2015 2015 Equity instruments 30,958 30,958 5 5 Debt instruments 179 179 114 114 31,137 31,137 119 119 During 2016, Visa Inc. completed the purchase of Visa Europe from all European participating banks. As a result of this sale the Bank realized a profit of EUR 24.74 m from the cash settlement and EUR 2 million from deferred payment. 22

11 Other income/(expense) Six months ended 30 June 2016 2016 2015 2015 Rental income from operating leases 1,903 314 1,670 417 Penalties received 463 382 340 264 Gain/(loss) from sale of investment property 42 (7) 153 - Gain/(loss) from sale of property and equipment (4) - 24 - Profit/(loss) from revaluation of investment property (Note 24) (1,524) - - - Gain/loss from disposal of subsidiary shares 5 - - - Negative goodwill write-off 98 - - - (Loss)/Recovery of assets written off (134) 8 6 - Dividends received 92 959 3 2,330 Other 2,932 498 967 320 3,873 2,154 3,163 3,331 12 Impairment losses Six months ended 30 June 2016 2016 2015 2015 Impairment losses Loans and receivables due from customers (16,424) (16,102) (10,567) (10,231) Available-for-sale financial assets - (1,494) (1) - Other financial assets (632) (685) - - Other non-financial assets (15) (12) (112) (45) (17,071) (18,293) (10,680) (10,276) Reversals of impairment losses Loans and receivables due from customers 2,561 2,409 2,027 1,936 Available-for-sale financial assets - - - 10 Other non-financial assets 2 2 - - 2,563 2,411 2,027 1,946 Net impairment losses (14,508) (15,882) (8,653) (8,330) 23

13 General administrative expenses Six months ended 30 June 2016 2016 2015 2015 Employee compensation 12,042 9,422 9,302 8,139 Payroll related taxes on employee compensation 2,641 2,132 2,234 1,917 Provision for bonus and payroll related taxes 2,120 2,120 2,128 2,112 Taxes other than on corporate income and payroll 2,953 2,407 1,048 621 Professional services 2,501 2,447 228 190 Repairs and maintenance 1,940 393 1,026 382 Depreciation and amortization 1,924 917 1,599 875 IT related costs 1,094 1,094 865 865 Rent 1,006 1,819 995 1,826 Salaries to Board of Directors and Council 1,094 828 2,603 2,026 Representative offices 911 675 872 670 Communications and information services 646 591 678 620 Travel expenses 552 498 498 459 Advertising and marketing 545 199 922 306 Charity and sponsorship 531 307 362 237 Representation 412 76 269 123 Credit card service 171 171 179 179 Insurance 171 138 123 102 Employee health insurance 136 122 128 125 Subscription of information 98 75 73 73 Audit services 81 71 92 71 Security 46 52 53 38 Office supplies (stationery) 41 31 57 34 Other 2,594 2,145 2,393 2,380 Reverse of provisions for the management bonus (393) (393) (1,718) (1,718) 35,857 28,337 27,009 22,652 24

14 Income tax expense (a) Income tax expense recognized in profit and loss Six months ended 30 June 2016 2016 2015 2015 Current tax expense Current tax expense 3,203 2,750 6,068 5,704 Deferred tax (371) 101 (647) (292) Total income tax expense in the profit and loss 2,832 2,851 5,421 5,412 The tax rate applicable in countries in which group entities operate: 2016 2015 Latvia 15.00% 15.00% Belarus 18.00% 18.00% Cyprus 12.50% 12.50% Russia 20.00% 20.00% Azerbaijan 20.00% 20.00% (b) Reconciliation of effective tax rate: The Group 30 June 2015 % % Profit before tax 56,062 41,315 Income tax at the applicable tax rate 7,192 12.83% 6,197 15.00% Effect of different tax rate in other countries 25 0.04% 2 0.00% Tax relief on donations (254) (0.45%) (183) (0.44%) Non-deductible expenses 841 1.50% 329 0.80% Tax exempt income (4,945) (8.82%) (866) (2.10%) Tax paid in foreign countries (27) (0.05%) (58) (0.14%) 2,832 5.05% 5,421 13.12% The Bank % Profit before tax 54,145 43,029 30 June 2015 % Income tax at the applicable tax rate 8,122 15.00% 6,454 15.00% Non-deductible expenses 489 0.90% 121 0.28% Tax exempt income (5,485) (10.13%) (866) (2.01%) Tax relief on donations (248) (0.46%) (183) (0.43%) Tax paid in foreign countries (27) (0.05%) (114) (0.26%) 2,851 5.26% 5,412 12.58% 25

14 Income tax expense, continued (c) Income tax recognized in other comprehensive income and directly in equity Group Deferred tax expense Tax Base Deferred income tax 30 June 2015 Tax Base Deferred income tax Change in revaluation reserve - - (12) 2 Change in fair value reserve* (20,705) (519) 4,436 - Total income tax recognised in other comprehensive income (20,705) (519) 4,424 2 Bank Deferred tax expense Tax Base Deferred income tax 30 June 2015 Tax Base Deferred income tax Change in fair value reserve* (20,151) (519) 4,678 - *Decrease in the fair value reserve in the amount of EUR 24,167 thousand (Group) and EUR 23,613 thousand (Bank) relates to the revaluation of securities the gains of which are not subject to income tax. The increase by EUR 3,462 thousand relates to the revaluation of the securities that are subject to income tax. 15 Cash and balances with the central bank Cash and balances with central bank comprised of the following items: 31 Dec 2015 31 Dec 2015 Cash 3,120 3,079 4,671 4,619 Balances due from the Bank of Latvia 715,767 715,767 877,197 877,197 Total 718,887 718,846 881,868 881,816 Cash and cash equivalents consist of the following: 31 Dec 2015 31 Dec 2015 Cash 3,120 3,079 4,671 4,619 Balances due from the Bank of Latvia 715,767 715,767 877,197 877,197 Demand loans and receivables due from banks (38,896) (38,896) 819,577 819,170 Demand deposits and balances due to banks 549,194 548,607 (49,710) (49,710) Total 1,229,185 1,228,557 1,651,735 1,651,276 26

16 Financial instruments at fair value through profit or loss 31 Dec 2015 31 Dec 2015 Bonds - with rating from AAA to A 1,098-1,552 - - with rating from BBB+ to BBB- 12,920-8,048 - - non-investment grade 362-5,233 - - not rated 61-74 - Equity investments 184 184 574 183 Derivative financial instruments 860 860 958 983 Financial assets at fair value through profit or loss 15,485 1,044 16,439 1,166 Derivative financial instruments (274) (274) (19) (19) Financial liabilities at fair value through profit or loss (274) (274) (19) (19) The Bank and the Group classify trading and derivative financial instruments and trading portfolio under this category. Derivative financial assets and liabilities The Group 31 Dec 2015 Carrying value Notional amount Carrying value Notional amount Assets Forward contracts 570 8,300 675 5,636 Option premium 290 n/a 283 n/a Swap contracts - - - - Total derivative financial assets 860-958 - Liabilities Forward contracts 274 8,448 19 1,038 Total derivative liabilities 274-19 - 27

16 Financial instruments at fair value through profit or loss, continued The Bank 31 Dec 2015 Carrying value Notional amount Carrying value Notional amount Assets Forward contracts 570 8,300 700 6,686 Option premium 290 n/a 283 n/a Total derivative financial assets 860 983 Liabilities Forward contracts 274 8,448 19 1,038 Total derivative liabilities 274-19 - 17 Loans and receivables due from banks 30 June 30 June 31 Dec 31 Dec 2016 2016 2015 2015 Demand accounts Latvian commercial banks 3,673 3,429 3,144 2,996 OECD banks 491,386 491,367 779,148 779,148 Other non-oecd banks 54,135 53,811 37,285 37,026 Total Demand accounts 549,194 548,607 819,577 819,170 Deposit accounts OECD banks 161,083 161,083 15,000 15,000 Other non-oecd banks - - 6,633 6,633 Total loans and deposits 161,083 161,083 21,633 21,633 Concentration of placements with banks 710,277 709,690 841,210 840,803 As at the Bank and the Group had balances with three banks (three as at 31 December 2015), which exceeded 10% of the total loans and receivables due from banks. The gross value of these balances was EUR 260,148 thousand as of (31 December 2015: EUR 296,356 thousand). 28

18 Loans and receivables due from customers 31 Dec 2015 31 Dec 2015 Companies Finance leases 15,352-17,609 - Loans 920,841 1,021,508 1,034,907 1,133,827 Individuals Finance leases 33,650-33,939 - Loans 144,339 142,951 111,075 109,610 Specific impairment allowance (87,928) (86,480) (93,285) (91,648) Collective impairment allowance (1,517) - (2,473) - Net Loans and receivables from customers 1,024,737 1,077,979 1,101,772 1,151,789 (a) Finance leases Loans and receivables from customers include the following finance lease receivables for leases of certain property and equipment where the Group is the lessor: 31 Dec 2015 31 Dec 2015 Gross investment in finance leases, receivable Less than one year 22,127-26,598 - Between one and five years 39,457-39,168 - Total gross investment in finance leases 61,584-65,766 - Unearned finance income (12,582) - (14,218) - Net investment in finance lease before allowance 49,002-51,548 - Impairment allowance (1,603) - (2,706) - Net investment in finance lease 47,399-48,842-31 Dec 2015 31 Dec 2015 The net investment in finance leases comprises: Less than one year 18,744-20,721 - Between one and five years 28,655-28,121 - Net investment in finance lease 47,399-48,842-29

18 Loans and receivables due from customers, continued (b) Credit quality of loan portfolio (i) The Group Ageing structure of loan portfolio As at Total EUR 000 Of which not past due on the reporting date Of which past due by the following terms More Less than 31-90 91-180 than 180 30 days days days days Net carrying value of overdue loans Net carrying amount 1,024,737 790,486 29,669 96,734 22,474 85,374 234,251 Out of which impaired 172,419 44,583 500 57,128 21,270 48,938 127,836 Assessed fair value of collateral 1,543,438 1,231,665 53,991 101,771 23,371 132,640 311,773 As at 31 Dec 2015 Net carrying amount 1,101,772 894,322 57,477 45,796 42,451 61,726 207,450 Out of which impaired 189,829 72,898 4,641 42,775 17,883 51,632 116,931 Assessed fair value of collateral 1,541,860 1,274,016 96,094 31,308 46,183 94,259 267,844 The Bank As at Total EUR 000 Of which not past due on the reporting date Of which past due by the following terms Less than 30 days 31-90 days 91-180 days More than 180 days Net carrying value of overdue loans Net carrying amount 1,077,979 844,007 30,223 96,036 22,365 85,348 233,972 Out of which impaired 174,402 47,083 494 56,666 21,246 48,913 127,319 Assessed fair value of collateral 1,603,639 1,293,932 52,757 101,073 23,263 132,614 309,707 As at 31 Dec 2015 Net carrying amount 1,151,789 947,014 56,164 44,617 42,309 61,685 204,775 Out of which impaired 190,971 75,157 4,618 41,795 17,810 51,591 115,814 Assessed fair value of collateral 1,603,155 1,339,924 92,844 30,129 46,040 94,218 263,231 30

18 Loans and receivables due from customers, continued (ii) Analysis of loan by type of collateral The following table provides the analysis of the loan portfolio, net of impairment, by types of collateral. The Group EUR 000 30 June 2016 % of loan portfolio 31 December 2015 % of loan portfolio Commercial buildings 331,933 32.39 379,316 34.42 Commercial assets pledge 319,313 31.16 360,226 32.70 Traded securities 70,741 6.90 92,337 8.38 Land mortgage 64,500 6.29 74,690 6.78 Mortgage on residential properties 44,151 4.31 35,478 3.22 Without collateral 40,244 3.93 40,252 3.65 Guarantee 31,217 3.05 26,150 2.37 Deposit 7,882 0.77 2,068 0.19 Non-traded securities 1,054 0.10 1,073 0.10 Other 113,702 11.10 - - Total 1,024,737 100.00 1,101,772 100.00 The Bank EUR 000 30 June 2016 % of loan portfolio 31 December 2015 % of loan portfolio Commercial buildings 364,565 33.82 413,042 35.86 Commercial assets pledge 344,595 31.97 380,701 33.05 Traded securities 70,741 6.56 92,336 8.02 Land mortgage 64,500 5.98 74,690 6.48 Mortgage on residential properties 44,342 4.11 35,478 3.08 Without collateral 42,776 3.97 44,602 3.87 Guarantee 31,217 2.90 26,150 2.27 Deposit 7,882 0.73 2,068 0.18 Non-traded securities 1,054 0.10 1,073 0.10 Other 106,307 9.86 - - Total 1,077,979 100.00 1,151,789 100.00 The amounts shown in the table above represent the carrying value of the loans, and not the fair value of the collateral. 31

18 Loans and receivables due from customers, continued (iii) Impaired loans 30 June 2016 30 June 2016 31 Dec 2015 31 Dec 2015 Impaired loans gross 260,347 260,882 283,114 282,619 Specific impairment allowance (87,928) (86,480) (93,285) (91,648) Net Loans and receivables from customers 172,419 174,402 189,829 190,971 Fair value of collateral related to impaired loans 189,518 192,029 189,747 191,404 When reviewing loans the Bank and the Group set the following categories for individual loans to assess their credit risk: The Group Gross Specific impairment allowance Collective impairment allowance 31 Dec 2015 Gross Specific impairment allowance Collective impairment allowance Standard 870,971 (1,737) (801) 936,123 (2,240) (817) Watch 129,701 (22,560) (34) 156,186 (23,575) (22) Substandard 64,099 (24,919) (100) 38,571 (15,191) (85) Doubtful 42,437 (32,197) (123) 52,641 (39,713) (106) Lost 6,974 (6,515) (459) 14,009 (12,566) (1,443) Total 1,114,182 (87,928) (1,517) 1,197,530 (93,285) (2,473) The Bank Gross Specific impairment allowance 31 Dec 2015 Gross Specific impairment allowance Standard 922,060 (1,737) 984,643 (2,240) Watch 132,373 (22,863) 158,392 (23,815) Substandard 64,066 (25,024) 38,254 (15,192) Doubtful 40,752 (31,648) 50,830 (39,083) Lost 5,208 (5,208) 11,318 (11,318) Total 1,164,459 (86,480) 1,243,437 (91,648) 32

18 Loans and receivables due from customers, continued (iv) Movements in the impairment allowance Movements in the loan impairment allowance for the and year ended 31 December 2015 are as follows: EUR 000 31 Dec 2015 31 Dec 2015 Allowance for impairment Balance at 1 January 95,758 91,648 90,271 86,813 Sale of subsidiary - - - Charge for the period: Specific impairment allowance 16,169 16,102 25,610 25,600 Collective impairment allowance 255-405 - Reversal of specific impairment allowance loss Specific impairment allowance (2,493) (2,409) (4,360) (4,781) Collective impairment allowance (68) - (167) - Effect of foreign currency translation (854) (809) 2,468 2,415 Write offs (19,322) (18,052) (18,469) (18,399) Balance at the end of period 89,445 86,480 95,758 91,648 (v) Restructured loans As at, the Group held restructured loans of EUR 255,275 thousand (31 December 2015: EUR 237,037 thousand) and the Bank held restructured loans of EUR 262,597 thousand (31 December 2015: EUR 243,062 thousand). Main forms of restructuring were the reduction of the interest rate, and postponing of interest payments or principal amounts. 33