AS LTB Bank. Condensed Interim Financial Statements for the six month period ended 30 June 2011

AS LTB Bank Condensed Interim Financial Statements for the six month period ended 30 June 2011

CONTENTS Page Management Report 3-4 Members of the Council and the Board 5 Condensed Statement of Comprehensive Income 6 Condensed Statement of Financial Position 7 Condensed Statement of Cash Flows 8 Condensed Statement of Changes in Shareholders Equity 9 Notes to the Condensed Financial Statements 10-24 Independent Auditors Report 25-26 AS LTB Bank Address: Grēcinieku iela 22 Riga, LV 1050 Registration number: 4000 304 3232 2

MANAGEMENT REPORT The management of AS LTB Bank (hereinafter also the Bank) informs its shareholders, clients, business partners and the general public on the operational result for the six month period ended 30 June 2011. In 2011 the Bank continued working on improving its business development strategy and within the framework of the new strategic approaches of the parent bank OAO MDM Bank the Bank developed and adopted a new strategic plan for 2011 2014 setting the main goals to balance the Bank s business and increase operational efficiency, retaining a conservative approach with medium risk level and ensuring long-term stability, offering balanced and high quality bank services to corporate clients, as well as ensuring improvement of technological processes and information systems. The Bank has maintained the reputation of a stable and professional business partner. Deutsche Bank, one of the leading banks in the world, has for the fourth time in turn highly appreciated long-term and efficient cooperation with AS LTB Bank by awarding AS LTB Bank with their Deutsche Bank s 2010 Straight Through Processing (STP) Excellence Award for quality payments in USD and EUR. This award is a proof of Bank s payment system quality and efficiency. During the reporting period the Bank continued facing uncertainty regarding the stability of growth of the global economy and the risk of recurrent financial instability that can be practically observed as minimum interest rates in the inter-bank market and low development pace, especially regarding the lending market. Restrictions implemented to regulate the banking sphere as of 2011 have had an adverse impact on the market restricting the economic activity of the Bank and reflect in profitability of the Bank. The operational plan of the Bank for 2011 sets a business policy focused on the development of performance in the sphere of asset operations creating a loan portfolio, including in the local market, and continuing business development based on strict cost management and increasing efficiency in all operational segments. In 2011 the Bank did not face significant changes of operations in comparison with 2010 and the volume of operations recovered gradually. The Bank has managed to retain its customer loyalty and customer base as it has always taken into account the specifics of the customers commercial activities in the area of investments and the related high fluctuations in the volume of customer deposits. Average assets of the Bank during the reporting period amounted to LVL 231,283 thousand. The Bank places such deposits only in highly liquid and safe assets. Regardless of positive trends, minimum interest rates in the financial markets continue to impact net interest margin of the Bank. As the Bank has planned, commission income has increased in comparison with the same period in 2010, however, profit from sales of foreign currencies has decreased. The Bank s operations in the period have generated profit after tax of LVL 483 thousand. Return on equity (ROE) amounted to 2.16%, while return on assets (ROA) was 0.4%. 3

MANAGEMENT REPORT Key financial results and performance indicators in 2009, 2010 and for the period ended 30 June 2011 (): 2011 2010 2009 6 months 12 months 12 months Total assets 343,183 445,185 267,158 Capital and reserves 44,881 44,398 42,899 Profit before tax 565 1,717 2,461 Net profit after tax 483 1,497 2,087 Income from operating activities 1,829 3,891 4,245 ROE (%) 2.16 3.4 5.0 ROA (%) 0.4 0.6 1.0 Capital adequacy (at the end of period, %) : 54% 39% 59% During the reporting period the Bank was upgrading the internal control system, focusing particularly on continuing implementation of the requirements of Basel II as expressed in the new requirements on risk transaction management developed by the Financial and Capital Market Commission. The Bank has introduced a target index for capital management, namely, a range of internal capital adequacy. Compliance with this index reflects the Bank's ability to achieve its strategic goals in capital management. In the first half of 2011 the Bank s capital was more than adequate for covering the significant risks identified and for covering other risks the Bank is exposed to, as well as for creating reserves. The average internal rate of capital adequacy was 43% and the liquidity ratio was above 105%. The sole shareholder of AS LTB Bank is MDM Bank, one of the biggest financial institutions in Russian Federation. OAO MDM Bank is a member of leading international financial corporations: International Financial Corporation (IFC), European Bank for Reconstruction and Development (ERBD), German Development Bank (DEG). Shareholders of the Bank are the largest investment companies in Russia and CIS fund of direct investments Russia Partners (Siguler Guff & Company) and Troika Capital Partners. OAO MDM Bank has received highest credit ratings among private banks of the Russian Federation: Standard and Poor s (B+; stable), Fitch Ratings (BB, AA-rus, stable), and Moody s Investor Service (Ba2/NP; stable), and the national agency RusRating has granted BBB, stable forecast. The Bank holds a stable position in servicing corporate customers based on best practice standards and principles of corporate ethics. AS LTB Bank will continue operating within the scope of the parent bank s strategy, providing high-quality financial services to major groups of corporate customers, including business partners of the parent bank and other customers operating in the Russian Federation and international financial and consumer markets. Chairman of the Council Nikita Ryauzov Chairman of the Board Armands Šteinbergs 16 August 2011 4

MANAGEMENT REPORT As at the date of signing these financial statements, the Members of the Council of the Bank were as follows: Date of Name Position appointment Nikita Ryauzov Chairman of the Council 08/10/2010 Anna Arkhangelskaya Deputy Chairperson of the Council 11/05/2010 Artem Kirillov Member of the Council 24/01/2011 Anton Savushkin Member of the Council 11/05/2010 During the first 6 months of the year 2011, the following Members of the Council resigned: Name Position Date of appointment Date of resignation Nikolay Ustinov Member of the Council 11/05/2010 24/01/2011 On 24 January 2011, the shareholder meeting recalled the member of the Council and elected the new member of the Council. On 16 March 2011, the changes in the composition of the Bank s Council were registered in the commercial register of the Register of Enterprise of the Republic of Latvia. As at the date of signing these financial statements, the Members of the Board of the Bank were as follows: Date of Name Position appointment Armands Šteinbergs Chairman of the Board 25/09/2000 Inna Harčenko Deputy Chairperson of the Board 23/12/2005 Māris Avotiņš Member of the Board 25/07/2011 Up to date of signing these financial statements, the following Members of the Board of Directors were recalled: Name Position Date of appointment Date of resignation Valda Knauere Member of the Board 06/11/2000 22/07/2011 Rolands Pētersons Member of the Board 15/03/2010 08/07/2011 On 8 July 2011 and 14 July 2011 the Council recalled members of the Board of Directors Rolands Pētersons and Valda Knauere and on 14 July 2011 elected new member of the Board of Directors Māris Avotiņš. The recalling of Rolands Pētersons and Valda Knauere was registered in the Register of Enterprise of the Republic of Latvia on 17 July and 5 August 2011 respectively. The election of new member of the Board of Directors Māris Avotiņš was registered in the Register of Enterprise of the Republic of Latvia on 5 August 2011. 5

MEMBERS OF THE COUNCIL AND THE BOARD Notes Six months ended 30 June 2011 2010 Interest income 7,27 716 480 Interest expense 7 (249) (235) Net interest income 467 245 Fee and commission income 8,27 379 412 Fee and commission expense 9,27 (37) (36) Net fee and commission income 342 376 Net foreign exchange income 1,146 1,524 Other expenses (126) (91) Total operating income 1,829 2,054 General administrative expenses 10 (1,264) (1,000) Profit before income tax 565 1,054 Income tax expense 11 (82) (156) Profit for the period 483 898 Other comprehensive income - - Total comprehensive income for the period 483 898 The accompanying notes on pages 10 to 24 are an integral part of these interim condensed financial statements. The condensed interim financial statements as set out on pages 6 to 24 were approved for issue by the Management Board on 16 August 2011. Chairman of the Board Armands Šteinbergs Deputy Chairperson of the Board Inna Harčenko 6

STATEMENT OF COMPREHENSIVE INCOME Notes ASSETS Cash and demand deposits with the Bank of Latvia 12 44,675 7,551 Loans and advances due from financial institutions 14,27 297,559 436,243 Loans and advances due from customers 15,27 29 182 Available-for-sale instruments 16 11 11 Property and equipment 17 191 208 Intangible assets 18 295 275 Deferred tax asset 11 11 9 Income tax asset 142 189 Other tax asset - 44 Other assets 19,27 270 473 Total Assets 343,183 445,185 LIABILITIES AND SHAREHOLDER S EQUITY Deposits and balances due to financial institutions 20,27 25 55 Current accounts and deposits due to customers 21,27 297,765 400,312 Provisions 86 124 Other tax payable 23 20 Other liabilities 22 403 276 Total Liabilities 298,302 400,787 Share capital 8,200 8,200 Share premium 4,470 4,470 Revaluation reserves 3 3 Other reserves 1 1 Retained earnings 32,207 31,724 Total Shareholder s Equity 23 44,881 44,398 Total Liabilities and Shareholder s Equity 343,183 445,185 Contingent liabilities and commitments 24,27 Funds under trust management 26,27 The accompanying notes on pages 10 to 24 are an integral part of these interim condensed financial statements. The condensed interim financial statements as set out on pages 6 to 24 were approved for issue by the Management Board on 16 August 2011. Chairman of the Board Armands Šteinbergs Deputy Chairperson of the Board Inna Harčenko 7

STATEMENT OF CASH FLOW Notes Six months ended 30 June 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax 565 1,054 Amortisation and depreciation 17,18 59 37 Net decrease in provisions (38) (51) Unrealised foreign exchange gain - 14 Increase in cash and cash equivalents before changes in assets and liabilities, as a result of ordinary operations 586 1,054 (Increase)/decrease in loans and advances due from financial institutions (8,243) 26,970 (Increase)/decrease in loans and advances due from customers 153 (1,027) Increase of deferred expenses and accrued income (33) (61) Decrease in other assets 330 129 Decrease in current accounts and deposits due to customers 21 (102,547) (51,152) Increase in deferred income and accrued expenses 41 12 Increase/(decrease) in other liabilities 89 (10) Decrease in cash and cash equivalents from operating activities before corporate income tax (109,624) (24,085) Corporate income tax paid (85) (195) Net cash and cash equivalents used in operating activities (109,709) (24,280) CASH FLOW FROM INVESTING ACTIVITIES Acquisition of property and equipment and intangible assets 17,18 (62) (120) Decrease in cash and cash equivalents used in investing activities (62) (120) Net cash flow for the period (109,771) (24,400) Cash and cash equivalents at the beginning of the period 443,235 237,027 Cash and cash equivalents at the end of the period 13 333,464 212,627 The accompanying notes on pages 10 to 24 are an integral part of these interim condensed financial statements. The condensed interim financial statements as set out on pages 6 to 24 were approved for issue by the Management Board on 16 August 2011. Chairman of the Board Armands Šteinbergs Deputy Chairperson of the Board Inna Harčenko 8

STATEMENT OF CASH FLOW Share capital Equity Attributable to Equity Holders of the Bank Share premium Revaluation reserves Other reserves Retained earnings Total Balance at 1 January 2010 8,200 4,470 1 1 30,227 42,899 Profit for the period - - - - 898 898 Balance at 30 June 2010 8,200 4,470 1 1 31,125 43,797 Other comprehensive income - - 2 - - 2 Profit for the period - - - - 599 599 Balance at 31 December 2010 8,200 4,470 3 1 31,724 44,398 Profit for the period - - - - 483 483 Balance at 30 June 2011 8,200 4,470 3 1 32,207 44,881 The accompanying notes on pages 10 to 24 are an integral part of these interim condensed financial statements. The condensed interim financial statements as set out on pages 6 to 24 were approved for issue by the Management Board on 16 August 2011. Chairman of the Board Armands Šteinbergs Deputy Chairperson of the Board Inna Harčenko 9

STATEMENTS OF CHANGES IN SHAREHOLDER S EQUITY 1 Reporting entity AS LTB Bank (the Bank ) was established in the Republic of Latvia on 6 December 1991 as a closed joint stock company. The Bank operates under a banking license issued by the Financial and Capital Market Commission according to which the Bank is allowed to conduct financial services without any restrictions. The principal activities of the Bank involve local and international money transfers, trade financing, trust operations, granting loans to private individuals and corporate customers, foreign exchange transactions on behalf of customers and safeguarding services (individual depositories). At the end of 2009 the Bank received a permission to open a branch office in the Republic of Cyprus from supervisory authorities in Latvia and Cyprus. As a result, activities of the Bank s branch were started on October 8, 2010: Information about the branch: AS LTB Bank Cyprus Branch, Address: 82, Nikou Pattichi, Maritania Court, P.C. 3070, Limassol, Cyprus 2 Basis of preparation (a) Statement of compliance These condensed interim financial statements include financial information of the Bank and its branch in Cyprus. These condensed interim financial statements of the Bank and its branch in Cyprus are prepared in accordance with IAS 34 Interim Financial Reporting. These condensed interim 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 financial statements of the Bank as at and for the year ended 31 December 2010. The condensed interim financial statements were approved for issue by the Management Board on 16 August 2011. The shareholders have the right to reject these financial statements and request that new financial statements are prepared. (b) Functional and Presentation Currency The financial statements are presented in thousands of lats (), unless otherwise stated, as the lat is the Bank s functional currency. 3 Significant accounting policies and principles of assessment The accounting policies applied by the Bank in these condensed interim financial statements are the same as those applied by the Bank in its financial statements as at and for the year ended 31 December 2010. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual earnings. 10

3 Significant accounting policies and principles of assessments (continued) New standards and interpretations A number of new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2011. None of these has a significant effect on the condensed Group consolidated and Bank's separate interim financial statements: Revised IAS 24 Related Party Disclosure; Amendment to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010); Amendment to IAS 32 Financial Instruments: Presentation Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010). 4 Risk management All aspects of the Bank s risk management objectives and policies are consistent with that disclosed in the financial statements as at and for the year ended 31 December 2010. 5 Capital management The Financial and Capital Market Commission sets and monitors capital requirements for the Bank. The Bank defines as capital those items that are defined by statutory regulation as capital. Under the current capital requirements set by 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 30 June 2011, this minimum level is 8%. The Bank was in compliance with the statutory capital ratio as at 30 June 2010, 31 December 2010 and 30 June 2011 (ratios during the periods are not audited). The Bank s risk based capital adequacy ratio, as at 30 June 2011, was 54% (31 December 2010: 39.14% and 30 June 2010: 64.75%). 6 Use of estimates and judgements The preparation of condensed 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 Bank s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements as at and for the year ended 31 December 2010. Estimation and assumptions related to depreciation and amortisation rates of equipment and intangible assets, determining the allowance for credit losses and the fair value of financial assets and liabilities are not assumed as significant areas for six month period ended as at 30 June 2011 and 31 December 2010. 11

7 Net interest income Six months ended 30 June 2011 2010 Interest income Loans and advances due from financial institutions 710 477 Loans and advances due from customers 6 3 716 480 Interest expense Current accounts and deposits due to customers 82 83 Deposits and balances due to financial institutions 1 - Other interest expense 166 152 249 235 8 Fee and commission income Six months ended 30 June 2011 2010 Money transfers 279 263 Payment cards 20 22 Trust account servicing 36 69 Current account servicing 17 49 Documentary operations 4 1 Other commission and fee income 23 8 379 412 9 Fee and commission expense Six months ended 30 June 2011 2010 Money transfers 30 27 Payment cards 7 9 37 36 12

10 General administrative expenses Six months ended 30 June 2011 2010 Remuneration to staff 757 583 Statutory social insurance contributions 169 130 Depreciation and amortization 59 37 Lease of the building 60 61 Taxes 41 - Security 39 40 Professional services 33 37 Telecommunications 23 24 Transportation 17 17 Repairs and maintenance of premises 20 17 Business trips 3 14 Representation expense 1 2 Charity and sponsorship 1 2 Other expense 41 36 1,264 1,000 11 Income tax expense (a) Income tax charge The components of income tax expense for the six month periods ended 30 June 2011 and 2010 were the follows: Six months ended 30 June 2011 2010 Current income tax expense 84 144 Deferred tax expense (2) 12 Total 82 156 The Bank s applicable tax rate for current and deferred tax is 15% (30 June 2010: 15%). (b) Reconciliation of effective tax rate Six months ended 30 June 2011 2010 Profit before income tax 565 1,054 Income tax at the statutory rate of 15% 85 158 Income tax donations (1) (2) Tax effects of expenses not deductible in determining taxable profits (2) - Income tax expense for the period 82 156 13

11 Income tax expense (continued) The following table presents deferred tax included in the statement of financial position and changes recorded in the income statement for the six and twelve month periods ended respectively 30 June 2011 and 31 December 2010: Deferred tax asset at the beginning of the period (9) (12) Decrease/(increase) of deferred tax asset during the period (2) 3 Deferred tax asset at the end of the period (11) (9) The temporary differences that form the deferred tax asset as at 30 June 2011 and 31 December 2010 are presented in the following statement of financial position captions: Accelerated depreciation of property and equipment 41 29 Provisions (13) (18) Tax losses carried forward (branch) (39) (20) Deferred tax asset at the end of the period (11) (9) 12 Cash and demand deposits with the Bank of Latvia Cash 351 277 Demand deposits with the Bank of Latvia 44,324 7,274 Total cash and demand deposits with the Bank of Latvia 44,675 7,551 Demand deposits with the Bank of Latvia represent cash on the correspondent account used for clearing purposes and to comply with the obligatory reserve requirement. The Bank receives interest income on these balances within the limits set in the obligatory reserve requirement. In accordance with the Bank of Latvia regulations, the Bank has to comply with the obligatory reserve requirement ranging from 0% to 5%, depending on the Bank s total attracted resources subject to the reserve requirement at the end of each month. The compulsory reserve is compared to the Bank s average monthly correspondent account balance in LVL. The Bank s average correspondent balance should exceed the compulsory reserve requirement. The Bank was in compliance with the aforementioned compulsory reserve requirement at the end of the reporting period. 13 Cash and cash equivalents Cash and demand deposits with the Bank of Latvia 44,675 7,551 Loans and advances due from financial institutions* 288,789 435,684 333,464 443,235 * The Loans and advances due from financial institutions classified as cash and cash equivalents are all Nostro accounts, loans and deposits maturing less than 3 month from the reporting period, including netting of the amount by deposits and balances due to credit institutions. 14

14 Loans and advances due from financial institutions Nostro accounts Latvian commercial banks 24,518 44 OECD banks 207,264 380,601 Non-OECD banks 31,629 14,365 Total nostro accounts 263,411 395,010 Loans and deposits Latvian commercial banks 504 7,504 OECD banks 25,040 33,729 Non-OECD banks 8,604 - Total loans and deposits 34,148 41,233 Total loans and advances due from financial institutions 297,559 436,243 15 Loans and advances due from customers The breakdown of loans due from customers is as follows: (a) by borrower Commercial loans Loans to small and medium size companies - 2 Total commercial loans - 2 Loans to individuals Consumer loans 7 158 Credit cards 22 24 Total loans to individuals 29 182 Gross loans and advances due from customers 29 184 Specific impairment allowance - (2) Net loans and advances due from customers 29 182 (b) by the term of agreement Up to one year 22 13 More than one year 7 171 Gross loans and advances due from customers 29 184 Impairment allowance - (2) Net loans and advances due from customers 29 182 15

15 Loans and advances due from customers (continued) (c) by industry Loans to small and medium size companies - 2 Loans to individuals 29 182 Gross loans and advances due from customers 29 184 Impairment allowance - (2) Net loans and advances due from customers 29 182 (d) by geographical region Latvia 29 178 Non-OECD - 6 Gross loans and advances due from customers 29 184 Impairment allowance - (2) Net loans and advances due from customers 29 182 Credit quality of commercial loan portfolio No impairment recognized for commercial loans as at 30 June 2011. The following table provides information on the credit quality of the commercial loan portfolio as at 31 December 2010. Impairment to gross Gross loans Impairment Net loans loans % Loans for which no impairment has been identified: - Standard loans - - - - Total loans for which no impairment has been identified: - - - - Impaired loans: - overdue more than 90 days and less than 1 year 2 (2) - 100 Total impaired loans 2 (2) - 100 Total commercial loans 2 (2) - 100 16

15 Loans and advances due from customers (continued) Credit quality of loans to individuals The following table provides information on the credit quality of loans to individuals portfolio as at 30 June 2011: Impairment to Gross loans Impairment Net loans gross loans % Consumer loans Not past due 7-7 - Total consumer loans 7-7 - Credit cards Not past due 22-22 - Total credit cards 22-22 - Total loans to individuals 29-29 - The following table provides information on the credit quality of loans to individuals portfolio as at 31 December 2010: Impairment to Gross loans Impairment Net loans gross loans % Consumer loans Not past due 158-158 - Total consumer loans 158-158 - Credit cards Not past due 24-24 - Total credit cards 24-24 - Total loans to individuals 182-182 - 16 Available-for-sale instruments Shares and other non-fixed income securities 11 11 Total available-for-sale instruments 11 11 Shares and other non-fixed income securities represent an immaterial amount of un-listed and nonliquid shares of a Latvian private company, as well as S.W.I.F.T shares. S.W.I.F.T membership is required for ensuring payment services of the Bank. Valuation of available-for-sale financial instruments are performed on annual basis. Last valuation was performed as at 31 December 2010. 17

17 Property and equipment Leasehold improvements Other assets Total Historical cost As at 1 January 2010 102 480 582 Additions 41 84 125 Disposals - (36) (36) As at 1 January 2011 143 528 671 Additions - 18 18 As at 30 June 2011 143 546 689 Accumulated depreciation As at 1 January 2010 57 373 430 Depreciation charge 16 51 67 Disposals - (34) (34) As at 1 January 2011 73 390 463 Depreciation charge 13 22 35 As at 30 June 2011 86 412 498 Net carrying amount As at 1 January 2010 45 107 152 As at 1 January 2011 70 138 208 As at 30 June 2011 57 134 191 18 Intangible assets Software and licences Historical cost As at 1 January 2010 268 Additions 238 As at 1 January 2011 506 Additions 44 As at 30 June 2011 550 Accumulated amortisation As at 1 January 2010 217 Amortisation charge 14 As at 1 January 2011 231 Amortisation charge 24 As at 30 June 2011 255 Net carrying amount As at 1 January 2010 51 As at 1 January 2011 275 As at 30 June 2011 295 18

All intangible assets including software are used in the operating activities of the Bank. 19 Other assets Deferred expense 114 81 Accrued income 11 11 Currency transactions in progress 65 370 Other 85 14 Impairment allowance (5) (3) 270 473 20 Deposits and balances due to financial institutions Vostro accounts 25 55 25 55 As at 30 June 2011 the largest amounts due on demand were to MDM Bank (31 December 2010 - AB Bankas Snoras (Lithuania)). 21 Current accounts and deposits due to customers As at 30 June 2011, the largest deposit from one customer with the Bank amounted to LVL 130,558 thousand, or 44% of the total deposits (31 December 2010: LVL 234,910 thousand, or 59%), while the deposit from one group of related customers amounted to LVL 195,878 thousand, or 66% of the total deposits (31 December 2010: LVL 292,123 thousand, or 73%). The breakdown of current accounts and deposits due to customers is as follows: (a) by the term of the agreement Current accounts, including accrued interest 293,531 392,646 Deposits: up to six months 42 4,288 from six months to one year 3,552 2,996 more than one year 580 351 Accrued interest 60 31 Total current accounts and deposits due to customers 297,765 400,312 (b) by geographical region Residents of Latvia 2,947 1,709 Non-residents: Residents of OECD countries 12,247 28,225 Residents of other countries 282,571 370,378 Total current accounts and deposits due to customers 297,765 400,312 19

21 Current accounts and deposits due to customers (continued) (c) by depositor Current accounts Residents: Private enterprises 746 459 Private individuals 396 389 Public organisations 3 1 Bank employees 824 80 1,969 929 Non-residents: Financial institutions 6,808 6,184 Private enterprises 283,721 384,876 Private individuals 1,033 657 291,562 391,717 Total demand deposits 293,531 392,646 Deposits Residents: Private enterprises 30 - Private individuals 913 718 Bank employees 34 62 977 780 Non-residents: Private enterprises 3,200 6,649 Private individuals 57 237 3,257 6,886 Total deposits 4,234 7,666 Total current accounts and deposits due to customers 297,765 400,312 22 Other liabilities Accrued expense 181 140 Cash in transit 118 19 Payment card liabilities 7 1 Creditors 97 113 Other - 3 403 276 20

23 Shareholder s equity Share capital As at 30 June 2011 and 31 December 2010, the fully paid-in share capital of the Bank was LVL 8,200 thousand and consisted of 820,000 voting ordinary registered shares with the nominal value of LVL 10 each. All the shares rank equally with regard to the Bank s residual assets, to the right to dividends and to vote at meetings of the Bank. The shareholders as at 30 June 2011 and 31 December 2010 are as follows: Shareholder Country % of the paid-in % of the paid-in share capital share capital MDM Bank Russian Federation 100.00 100.00 The shareholder of MDM Bank with significant investment in the capital is MDM Holding SE, a holding company, whose investment amounts to 73.6% (ordinary) and whose beneficial owners are Sergejs Popovs, Igors Kims and Martins Andersons. Other shareholders include significant international financial institutions such as the European Bank for Reconstruction and Development (5.2% investment) and International Finance Corporation, part of the World Bank Group, (3.6%), and other legal entities and private individuals. Share premium In summer 2004, the Bank attracted an portion of capital of LVL 2,980 thousand with share premium of LVL 4,470 thousand. 24 Contingent liabilities and commitments Contingent liabilities Guarantees 259 33 Commitments Letters of credit 348 - Credit cards commitments 94 94 Unutilised credit lines and overdraft facilities - 30,075 442 30,169 To meet the financial needs of customers, the Bank enters into various transactions resulting in contingent liabilities and commitments. Even though these financial liabilities are not recognised in the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank. Nevertheless, the potential credit loss is less than the total unused part of the liability since these are contingent upon customers maintaining specific standards. The Bank employs collateral mainly in the form of term deposits for mitigation of related credit risk. 21

Issued guarantees commit the Bank to make payments instead of the customers in the event of a specific act. Other commitments respresent contractual obligations on payment cards overdraft facilities. Since contingent liabilities and commitments may expire without being drawn on, the total contract amount do not necessarily represents future cash requirements. 25 Litigation In the ordinary course of business, the Bank is subject to legal actions and complaints. Unless otherwise disclosed in these financial statements, management believes that the ultimate liability, if any, arising from such actions or complaints, will not have a material adverse effect on the financial conditions of the results of the future operations of the Bank. 26 Funds under trust management Assets under management Non-residents: Loans - 6,777 Placement of resources 44,441 267 44,441 7,044 Liabilities under management Non-residents: Private enterprises 44,441 7,044 44,441 7,044 27 Related party transactions Related parties are defined as shareholders who have significant influence over the Bank, companies in which they have a controlling interest, members of the Council and Board of Directors, key management personnel, their close relatives and companies in which they have a controlling interest, as well as associated companies. The Law on Credit Institutions defines significant investment as a shareholding of 10 or more per cent of the company s capital or voting shares, obtained directly or indirectly, or providing an opportunity to exercise significant influence over the company s activities. The definition of related parties of the Law on Credit Institutions generally complies with the requirements of IAS 24 as applicable to the Bank which also specifies the requirements for disclosure of related party transactions in the financial statements. The Bank enters into transactions with related parties in the ordinary course of business. All the loans, advances and financing activities to related parties are given at market rates. For the six month period ended 30 June 2011, these are performing and free of any allowances for possible credit losses (2010: nil). 22

27 Related party transactions (continued) The Bank s financial statements comprise the following outstanding balances, contingent liabilities, commitments and statement of comprehensive income items as a result of transactions with related parties: Statement of financial position Key management ParentBank 23 personnel Other relatedparties Assets Loans and advances due from financial institutions 32,385 14,344 - - - - Loans and advances due from customers - - 7 159 - - Other assets - 1 25 10 - - 32,385 14,345 32 169 - - Liabilities Deposits and balances due to financial institutions 21 15 - - - - Current accounts and deposits due to customers - - 779 83 13,316 35,230 21 15 779 83 13,316 35,230 Contingent liabilities and commitments Parent Bank Key management personnel Other related parties Assets under management 44,441 268 - - - - Other commitments - - 9 9-6,003 Statement of comprehensive income financial positions Key management ParentBank personnel Other relatedparties Six months ended 30 June Six months ended 30 June Six months ended 30 June 2011 2010 2011 2010 2011 2010 Interest income 236-4 2 - - Fee and commission income 35 23 - - 4 18 Fee and commission expense (1) (1) - - - - 270 22 4 2 4 18

27 Related party transactions (continued) Remuneration of key management personnel Total remuneration included in employee compensation: Six months ended 30 June 2011 2010 Members of the Management Board 225 207 225 207 28 Events after reporting date As of the last day of the reporting period until the date of signing these condensed interim financial statements there have been no events requiring adjustments of or disclosure in the condensed interim financial statements or notes thereto. 24