AS REĢIONĀLĀ INVESTĪCIJU BANKA
CONTENTS Report of the Management 3 The Council and the Board of Directors of the Bank 5 Statement of Responsibility of the Management 6 Auditors Report 7 Financial Statements: Statement of Comprehensive income 8 Statement of Financial Position 9 Statement of Changes in Shareholders Equity 10 Statement of Cash flows 11 Notes to the Financial Statements 12-24 AS Reģionālā investīciju banka J. Alunana Street 2, Riga, LV 1010, Latvia Phone: (371) 67508989 Facsimile: (371) 67508988 Registration number: 4000 356 3375 2
REPORT OF THE MANAGEMENT AS REĢIONĀLĀ INVESTĪCIJU BANKA In the first half of 2012 AS Reģionālā investīciju banka (hereinafter the Bank) continued its successful development. Following bank capitalization tendencies in the world including Europe one of the primary targets of the Bank in this half of the year was ensuring increased capital adequacy requirements. Key financial indicators of the Bank assets, deposits and loans, reached the highest results during the history of the operations of the Bank. Moreover, the Bank generated a profit of 1,37 million during first half of the year which will be used for further increase of the share capital of the Bank. Overall economical situation During the first half of 2012 Latvian economy maintained positive growth tendencies started in 2011. During the first quarter Latvia reached the highest growth among 27 European Union countries in GDP terms. GDP for the period as compared to the first quarter of 2011 increased by 5.5% based on Eurostat data. It should be noted that despite healthy economy growth rates, significant inflation is not observed with inflation in June 2012 being 1.9% as compared to June 2011. Positive tendencies were observed also in production sector of economy, showing increase of 6% as compared to May 2011. Although the overall economical situation allows for optimistic future outlooks, several significant risks are endangering development of the country in the future. The most important one is economical downturn experienced by the Eurozone countries, which is the key trading partner of Latvia. In order to join the Eurozone in the future, Latvia should continue abiding with fiscal discipline measures and proceed with implementation of reforms. Ukraine experienced significant improvement in economic situation during 2012 as well, however it should be noted that GDP growth rates have started to slow down. For example, GDP in first quarter of 2012 grew by 2,0%, which is significantly less than growth of 4,7% experienced during fourth quarter of 2011. It also should be noted that the expansion of Ukraine s economy was slower than that of the neighbouring countries - Poland and Russia. Ukrainian unemployment rates are still worrying. After improvements in employment market in 2011 resulting in decrease in unemployment rate to 7,9%, during the first quarter of the year it increased to 8.4%. Future outlooks for the development of Ukraine during the year also propose low growth rates caused by stagnation in export markets, expected increase of current account deficit and anticipated plans on decrease on state budget deficit. Positive tendencies are observed in Ukrainian banking sector, which has returned in 2012 to profit and increase in asset base after losses experienced in 2010 and 2011 when major emphasis was placed on provisioning for overdue and non-recoverable loans, as well as recapitalization of the banks. Total profit of the Ukrainian banking sector for the first half of 2012 comprised USD 193 million. Although the situation in the banking sector can be described as stable, foreign financial markets are still hardly accessible to Ukrainian banks and resource prices are comparably high. This may cause slow down of recovery rates of the financial sector and may not allow to provide fully all the financial resources required for the growth of the state economy. Performance of the Bank during the reporting period Most important financial indicators of the Bank during first half of 2012 evidence successful growth. Bank s assets increased by 35,87% during half of year and reached 322,1 million as at 30 June 2012. Deposit portfolio grew by 37,28% and reached 295,84 million as at 30 June 2012, while the loan portfolio as at 30 June 2012 reached 85,98 million and grew by 2,55% as compared to the previous year, reaching its historical maximum at the end of March of 88,69 million. Finance and capital markets commission (FCMC) has set individual capital adequacy requirement of 15,6% for the Bank for 2012, which the Bank has successfully maintained during the first half of the year. During the March 2012 changes were made to the Council of the Bank, changing the composition of the Council. Currently it is comprised of 5 Council members. During April 2012 changes to the Bank s shareholder structure occurred. The Bank raised 6,4 million in capital. Currently the largest shareholders of the Bank are public joint stock company Pivdennij, owning 77,6% of the shares and Jurijs Rodins, owning 11,98% of the shares. 3
Report of the Management (continued) AS REĢIONĀLĀ INVESTĪCIJU BANKA Performance of the Bank during the reporting year (continued) During first half of 2012 client base of the Bank as compared to 2011 grew by 4,81%. There was a significant increase in number and volumes of payment card transactions and outgoing payments. Number of payment cards as compared to the same period of the previous year has increased by 27,8%, with significant increase of more than 30% in turnover on payment card transactions, with increase in purchases made by 35%. Number of outgoing payments as compared to the first half or 2011 increased by 24% and amounts of outgoing payments increased by 43,2%. Continuing positive growth trends of 2011, number and volume of documentary transactions in first half of 2012 also increased. Volume of guarantees issued by the Bank grew by 52% as compared to the same period last year and comprised 6,5 million as at 30 June 2012, while the number of export letters of credit increased by 32% reaching volume of 75,9 million as at 30 June 2012. During this half of the year the Bank was actively working on implementation of new e-brokerage service. Starting with July 2012 clients of the Bank regularly carrying transactions with financial instruments are offered services of e-broker, allowing for the option of carrying out transactions with shares of companies listed in NASDAQ OMX Riga, Tallinn and Vilnius stock exchanges without intermediation of the broker from the Bank. From the IT perspective the Bank carried out a number of modernisations in several systems and programmes, as well as implementation of new service Regular payments in one of the newest Internet bank versions, allowing for ensuring easier administration and processing of daily payments. During this half of the year the Bank hired 10 new employees and the total number of employees as at 30 June 2012 was 125 employees. Future plans and perspectives In the forthcoming half of the year the Bank plans to continue a strategy of moderate development, focusing on increasing share capital through the issuance of subordinated debentures of USD 10 million. The Bank will continue the process of implementation of MasterCard Acquiring and already at the end of 2012 the clients of the Bank will be able to accept MasterCard and Maestro payment cards in their trading places, including internet. In order to optimise process of business letter signing and sending, the Bank has started work on implementation of e-signature. Introduction of e-signature in daily business communication will save time, as well as other resources. 4
THE COUNCIL AND THE BOARD OF DIRECTORS OF THE BANK As at 30 June 2012 and as at the date of signing the accounts: Date of appointment The Council Jurijs Rodins Marks Bekkers Dmitrijs Bekkers Alla Vanecjancs Irina Buc Chairman of the Council Deputy Chairman of the Council Member of the Council Member of the Council Member of the Council Re-elected 11.04.2011 Re-elected 11.04.2011 Re-elected 11.04.2011 Re-elected 11.04.2011 As of 24.02.2012 The Board Haralds Āboliņš Daiga Muravska Chairman of the Board, President Member of the Board Re-elected 11.04.2011 Re-elected 11.04.2011 5
STATEMENT OF RESPONSIBILITY OF THE MANAGEMENT The Council and the Board of Directors (hereinafter - the Management) of the Bank are responsible for the preparation of the financial statements of the Bank. The financial statements on pages 8 to 24 are prepared in accordance with the source documents and fairly present the financial position of the Bank as at 30 June 2012 and the results of its operations and cash flows for the 6 months period ended 30 June 2012. The financial statements are prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting on a going concern basis. Appropriate accounting policies have been applied on a consistent basis. Prudent and reasonable judgements and estimates have been made by the Management in the preparation of the financial statements. The Management of the Bank is responsible for the maintenance of proper accounting records, safeguarding of the Bank s assets and the prevention and detection of fraud and other irregularities in the Bank. They are also responsible for operating the Bank in compliance with the Law on Credit Institutions, regulations of the Financial and Capital Market Commission, Bank of Latvia and other legislation of the Republic of Latvia applicable for credit institutions. 6
AUDITORS REPORT 7
STATEMENT OF COMPREHENSIVE INCOME 6 months ended 30 June 2012 6 months ended 30 June 2011 Interest income 6,945,415 3,285,633 Interest expense (3,876,004) (2,239,046) Net interest income 3,069,411 1,046,587 Provisions for loan impairment (1,187,681) (729,383) Net interest income after provision for loan impairment 1,881,730 317,204 Fee and commission income 1,911,123 1,444,157 Fee and commission expense (547,828) (315,897) Net fee and commission income 1,363,295 1,128,260 Profit /(loss) on securities trading, net 923 (4,725) Profit / (loss) on revaluation of securities at fair value through profit or loss, net 144,212 (189,639) Loss on derivative financial instruments revaluation, net (274,453) (40,989) Profit on operation with foreign exchange, net 563,324 207,540 Profit from revaluation of foreign exchange, net 93,725 22,913 Other operating income 166,132 111,351 Administrative expense (2,040,717) (1,643,560) Amortisation and depreciation charge (123,670) (135,490) Other operating expenses (29,458) (29,917) Profit / (loss) before income tax 1,745,043 (257,052) Income tax expense (378,436) (85,413) Profit / (loss) for the period 1,366,607 (342,465) Total comprehensive income / (loss) for the period attributable to shareholders 1,366,607 (342,465) The financial statements on pages 8 to 24 have been approved by the Council and the Board of Directors of the Bank and signed on their behalf by: The accompanying notes on pages 12 to 24 are an integral part of these financial statements. 8
STATEMENT OF FINANCIAL POSITION Notes 30.06.2012. 31.12.2011. Assets Cash and balances with the Bank of Latvia 22,732,712 11,880,259 Balances due from banks 3 182,523,152 129,980,150 Loans and advances to customers 4 85,978,021 83,836,244 Financial assets at fair value through profit or loss 5 28,825,850 9,083,444 Derivative financial instruments 60,619 293,827 Intangible assets 193,701 259,546 Property and equipment 254,625 289,615 Other assets 1,470,453 1,016,784 Deferred expenses 75,673 71,752 Deferred tax assets 6,628 6,628 Corporate income tax 5,818 358,892 Total assets 322,127,252 237,077,141 Liabilities Balances due to banks 122,996 1,180,403 Due to customers 6 295,842,776 215,504,303 Derivative financial instruments 281,784 240,539 Other financial liabilities 1,037,184 1,624,702 Deferred income and accrued expenses 594,114 513,988 Deferred income tax liability - - Subordinated loan 3,939,245 5,470,660 Total liabilities 301,818,099 224,534,595 Equity Share capital 17,525,000 11,125,000 Retained earnings 1,417,546 4,203,860 Comprehensive income/ (loss) for the period 1,366,607 (2,786,314) Total equity 20,309,153 12,542,546 Total liabilities and equity 322,127,252 237,077,141 Commitments and contingent liabilities Contingent liabilities 6,446,901 4,991,407 Liabilities to customers 28,723,979 13,402,669 The financial statements on pages 8 to 24 have been approved by the Council and the Board of Directors of the Bank and signed on their behalf by: The accompanying notes on pages 12 to 24 are an integral part of these financial statements. 9
STATEMENT OF CHANGES IN SHAREHOLDER`S EQUITY Share capital Retained earnings Total Balance as at 31 December 2010 10,200,000 4,203,860 14,403,860 Increase in share capital 425,000-425,000 Comprehensive loss for the period - (342,465) (342,465) Balance as at 30 June 2011 10,625,000 3,861,395 14,486,395 Increase in share capital 500,000-500,000 Comprehensive loss for the period - (2,443,849) (2,443,849) Balance as at 31 December 2011 11,125,000 1,417,546 12,542,546 Increase in share capital 6,400,000-6,400,000 Comprehensive income for the period - 1,366,607 1,366,607 Balance as at 30 June 2012 17,525,000 2,784,153 20,309,153 The accompanying notes on pages 12 to 24 are an integral part of these financial statements. 10
STATEMENT OF CASH FLOWS 6 months ended 30 June 2012 6 months ended 30 June 2011 Cash flows from operating activities Interest received 5,226,377 1,775,136 Interest paid (4,336,764) (2,868,878) Fees and commission received 1,911,123 1,444,157 Fees and commission paid (547,828) (315,897) Income / (loss) on securities trading 923 (4,725) Income on foreign exchange 563,324 207,540 Other operating income 166,132 111,351 Personnel expenses paid (1,219,152) (1,102,834) Administrative and other operating expenses paid (851,022) (570,643) Income tax paid (378,436) (93,510) Cash flows from operating activities before changes in operating assets and liabilities 534,677 (1,418,303) Changes in operating assets and liabilities Net increase of securities at fair value through profit or loss (18,730,700) (31,249,091) Net decrease of balances due from banks 3,840,977 637,570 Net (increase)/ decrease of loans and advances to customers (163,063) (7,422,430) Net increase of other assets (457,591) (8,181) Net increase of balances due to customers 73,050,164 38,771,872 Net decrease in other liabilities (154,318) (329,034) Net cash and cash equivalents (used in) / generated from operating activities 57,920,146 (1,017,597) Cash flows from investing activities Purchase of intangible assets (6,430) (4,487) Purchase of fixed assets (16,405) (12,428) Net cash and cash equivalents used in investing activities (22,835) (16,915) Cash flows from financing activities Increase in share capital 6,400,000 425,000 Subordinated loan received 1,686,000 - Subordinated loan paid (3,264,000) - Net cash and cash equivalents generated from financing activities 4,822,000 425,000 Effect of exchange rates on cash and cash equivalents 2,909,316 (6,080,122) Net increase / (decrease) in cash and cash equivalents 65,628,627 (6,689,634) Cash and cash equivalents at the beginning of the period 129,500,953 93,211,896 Cash and cash equivalents at the end of the period 195,129,580 86,522,262 The accompanying notes on pages 12 to 24 are an integral part of these financial statements. 11
NOTES TO THE FINANCIAL STATEMENTS AS REĢIONĀLĀ INVESTĪCIJU BANKA 1 INCORPORATION AND PRINCIPAL ACTIVITIES A/S Reģionālā Investīciju banka (hereinafter the Bank) provides financial services to corporate clients and individuals. In 2005, the Bank established its representative office in Odessa and, in 2007, in Dnepropetrovsk, Ukraine. At the beginning of 2009, representative office of the Bank was established in Kijev, Ukraine. In October 2009, the first branch of the Bank was established in Varna, Bulgaria. While in 2010 the representative office of the Bank was established in the capital of Belgium Brussels. The Bank has no other subsidiaries or branches apart from those mentioned above. The Bank is a joint-stock company incorporated and domiciled in Riga, Republic of Latvia. It was registered within the Commercial Register on 28 September 2001. The legal and actual address of the Bank is: J. Alunana Street 2, LV-1010, Riga, Latvia These financial statements have been approved for issue by the Council and the Board of Directors on July 2012. 2 MAIN ACCOUNTING POLICIES A summary of the significant accounting policies, all of which have been applied consistently throughout the years 2012 and 2011, are set out below: (a) Reporting currency The financial statements are reported in Latvian lats (), unless stated otherwise. (b) Basis of preparation These interim condensed financial statements for the 6 month period ended 30 June 2012 are prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. These interim condensed financial statements should be read in conjunction with the 2011 full annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS) adopted in the European Union. The preparation of interim financial statements in accordance with IAS 34 requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Management s best knowledge of current events and actions, actual results may ultimately differ from those estimated. Bank s operational activity: The global economic conditions remained weak during the first half of 2012, due to crisis in Eurozone and the moderate growth of USA economy. The investors are increasingly worried about the central governments ability to service loans which are quickly increasing during the crisis. Thus, the international finance markets for raising money are becoming hardly available or unavailable at all for many Eurozone member states. Returns on 10 year government bonds of Europe s largest economies Spain and Italy are reaching their maximum. It has significantly affected economical growth and outlooks for the future in the first half of 2012. During the first quarter of 2012, GDP of many Eurozone member countries decreased by 0.1% and it is anticipated to decrease further by up to 0.5% during the second quarter of the year. Majority of economists have assessed that the economy of Eurozone might stabilize only in the end of 2012 or even only in 2013. In needs to be stressed though that improvement of economic outlooks requires coordinated, swift and united actions from all Eurozone member states including adherence to the budget discipline and revitalization of economies. Significant concerns are raised also by slowing down of rapid economic growth of China. This economy was the main source of increase in world GDP since the start in global economical downturn and its cooling down or overheating might cause another wave of downturn globally. 12
NOTES TO THE FINANCIAL STATEMENTS (continued) 2 MAIN ACCOUNTING POLICIES (continued) (b) Basis of preparation (continued) Impact on liquidity: In 2012, interbank market continues to revive; however, placements of interbank deposits are prudent and mainly made in banks with high credit ratings. With economic recovery and the increase in interest rates this situation might improve and the Bank would be able to raise funds by using interbank loans. Impact on borrowers: Debt servicing capacity of Bank's borrowers may be reduced as a result of liquidity decrease. Deterioration in the business environment for borrowers may influence management's cash flow forecasts and estimates on the impairment in the value of financial and non-financial assets. Management has derived its opinion on recoverable value of assets from available information and reflected updated cash flow forecasts in asset impairment evaluation; however forecasts may differ from actual results. Impact on collateral: Level of provisions for non-performing loans is based on management's assessment of assets as at the balance sheet date, considering cash flows from the disposal of collateral as reduced by the cost of take-over and sale. For a number of collateral categories, especially Latvian real estate, market is significantly influenced by downturn in the local economy, reducing liquidity for these assets. As a result, the actual sales value of collateral may differ from the value used in cash flow projections underlying estimate for impairment provisions even if sales value of collateral has been determined on prudent basis. The accounting policies used in the preparation of these interim condensed financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2011, except for the changes in accounting policies as a result of new and amended International Financial Reporting Standards (IFRS) that are effective for the accounting periods beginning on or after 1 January 2012 and are relevant to the Bank. (c) Adoption of new or revised standards and interpretations Various new standards and interpretations have been published effective for annual periods beginning on or after 1 January 2012 and which are not relevant to the Bank s operations or they are not endorsed by the EU: - Disclosures Transfers of Financial Assets Amendments to IFRS 7 (effective for annual periods beginning on or after 1 July 2011; not yet adopted by the EU), - Deferred Tax: Recovery of Underlying Assets Amendment to IAS 12 (effective for annual periods beginning on or after 1 January 2012; not yet adopted by the EU), - Employee benefits Amendment to IAS 19 (effective for annual periods beginning on or after 1 January 2013; not yet adopted by the EU), - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendment to IFRS 1 (effective for annual periods beginning on or after 1 July 2011; not yet adopted by the EU), - Financial statements presentation regarding other comprehensive income Amendment to IAS 1 (effective for annual periods beginning on or after 1 July 2012; not yet adopted by the EU), - IFRS 9, Financial Instruments Part 1: Classification and Measurement (effective for annual periods beginning on or after 1 January 2015; not yet endorsed by the EU), - IFRS 10, Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - IFRS 11, Joint Arrangements (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), 13
NOTES TO THE FINANCIAL STATEMENTS (continued) 2 MAIN ACCOUNTING POLICIES (continued) (c) Adoption of new or revised standards and interpretations (continued) - IFRS 12, Disclosure of Interests in Other Entities` (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - IFRS 13, Fair Value Measurement` (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - Consolidated and Separate Financial Statements` - IAS 27 (revised 2011), (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - Investments in Associates - IAS 28 (revised 2011), (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - Offsetting Financial Assets and Financial Liabilities Amendments to IAS 1 (effective for annual periods beginning on or after 1 January 2014; not yet endorsed by the EU), - Disclosure - Offsetting Financial Assets and Financial Liabilities Amendments IAS 7, (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - IFRS 1, First time adoption on government loans (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU), - Annual improvements of IFRS (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). The Management of the Bank is currently evaluating the impact of these standards and interpretations on financial statements, if there is any at all. (d) Corporate income tax Corporate income tax is recognised in each interim period based on the best estimate of the weighted average effective annual income tax rate expected for the full financial year. if the estimate of the weighted average effective annual income tax rate changes, amounts accrued for income tax expense in one interim period may have to be adjusted in a subsequent interim period of that financial year. Interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate is applied to the pre-tax income of the interim period. 14
NOTES TO THE FINANCIAL STATEMENTS (continued) 3 BALANCES DUE FROM BANKS 30.06.2012 31.12.2011 Due from Republic of Latvia credit institutions 1,142,721 12,662,630 Due from non-oecd credit institutions 113,523,325 45,874,599 Due from OECD credit institutions 67,857,106 71,442,921 182,523,152 129,980,150 The following table discloses balances due from banks between demand and term deposits: On demand 172,362,503 93,536,781 Balances with maturity of three months or less 157,361 25,264,316 Other balances due from banks 10,003,288 11,179,053 182,523,152 129,980,150 4 LOANS AND ADVANCES TO CUSTOMERS Analysis of loans by client and loan types: 30.06.2012 31.12.2011 Loans to legal entities 90,393,319 87,864,729 Loans to private individuals, except for mortgages 1,546,739 2,339,560 Loans to private individuals private enterprises 7,454 39,872 Mortgages 4,432,095 2,873,873 Loans and advances to customers before provisions for loan impairment 96,379,607 93,118,034 Less: provisions for loan impairment (10,401,586) (9,281,790) Total loans and advances to customers 85,978,021 83,836,244 The following table discloses changes in provisions for loan impairment during the 6 months of 2012: Loans to legal entities Loans to private individuals, except for mortgages Mortgages Total Provisions for loan impairment as at 1 January 2012 8,600,593 330,762 350,435 9,281,790 Increase in provisions for loan impairment for the period 1,207,415 (30,778) (579) 1,176,058 Written-off loans on accrual basis (285,278) - - (285,278) Effect on currency revaluation 229,016 - - 229,016 Provisions for loan impairment as at 30 June 2012 9,751,746 299,984 349,856 10,401,586 15
NOTES TO THE FINANCIAL STATEMENTS (continued) 4 LOANS AND ADVANCES TO CUSTOMERS (continued) The following table discloses changes in provisions for loan impairment during 2011: Loans to legal entities Loans to private individuals, except for mortgages Mortgages Total Provisions for loan impairment as at 4,724,489 220,287 5,022,422 1 January 2011 77,646 Increase in provisions for loan impairment for 652,938 19,213 729,383 the period 57,232 Effect on currency revaluation (130,300) - - (130,300) Provisions for loan impairment as at 5,247,127 239,500 5,621,505 30 June 2011 Increase in provisions for loan impairment for 3,053,147 91,262 134,878 3,359,966 the period 215,557 Effect on currency revaluation 300,319 - - 300,319 Provisions for loan impairment as at 31 December 2011 8,600,593 330,762 350,435 9,281,790 The industry concentration of risks in the credit portfolio is as follows: 30.06.2012 31.12.2011 % % Trade and commercial activities 37,472,345 38.87% 40,198,822 43.17% Private individuals 5,978,834 6.21% 5,213,433 5.60% Agriculture and food industry 4,528,689 4.70% 4,800,559 5.16% Construction and operations with real estate 18,710,711 19.40% 18,457,822 19.82% Transport and communication 11,648,964 12.09% 6,859,560 7.37% Production 2,799,905 2.91% 3,910,509 4.20% Tourism and hotel services, restaurant business 3,699,432 3.84% 3,717,004 3.99% Finance and investment 7,041,453 7.31% 6,112,989 6.96% Other 4,499,274 4.67% 3,847,336 4.13% Loans and advances to customers (before provisions for impairment) 96,379,607 100.0% 93,118,034 100.00% 16
NOTES TO THE FINANCIAL STATEMENTS (continued) 4 LOANS AND ADVANCES TO CUSTOMERS (continued) The following table shows the loans outstanding as at 30 June 2012 by credit quality. Loans to legal entities Loans to private individuals, except for mortgages Loans to private individuals private enterprises Mortgages Total Neither past due nor impaired - Loans to big size entities with credit history longer than 2 years 3,538,043 - - - 3,538,043 - Loans to big size entities 2,391,585 - - - 2,391,585 - Loans to medium size entities 5,177,634 - - - 5,177,634 - Loans to small size entities 53,433,807-7,454-53,441,261 - Loans to private individuals - 197,126-2,218,684 2,415,810 Total neither past due nor impaired 64,541,069 197,126 7,454 2,218,684 66,964,333 Past due but not impaired - past due up to 30 days 3,859,475 7 - - 3,859,482 - past due 31-90 days - - - 96,284 96,284 - past due 91-180 days 1,149,689 - - 321,707 1,471,396 - past due 181-360 days - - - 951,385 951,385 Total past due, but not impaired 5,009,164 7-1,369,376 6,378,547 Individually impaired loans (gross amount) - not past due 5,704,736 38 - - 5,704,774 - past due up to 30 days - 17,297 - - 17,297 - past due 91 180 days 4,808,949 3,896-6,655 4,819,500 - past due 181 360 days 1,437,125 900,919-704,610 3,042,654 - past due over 360 days 8,892,276 427,456-132,770 9,452,502 Total individually impaired loans (gross amount) 20,843,086 1,349,606-844,035 23,036,727 Less: provisions for loan impairment (9,751,746) (299,984) - (349,856) (10,401,586) Total loans and advances to customers 80,641,573 1,246,755 7,454 4,082,239 85,978,021 17
NOTES TO THE FINANCIAL STATEMENTS (continued) 4 LOANS AND ADVANCES TO CUSTOMERS (continued) The following table shows the loans outstanding as at 31 December 2011 by credit quality. Loans to legal entities Loans to private individuals, except for mortgages Loans to private individuals private enterprises Mortgages Total Neither past due nor impaired - Loans to big size entities 4,005,574 - - - 4,005,574 - Loans to medium size entities 4,967,761 - - - 4,967,761 - Loans to small size entities 54,199,718 - - - 54,199,718 - Loans to private individuals - 748,279 39,872 873,946 1,662,097 Total neither past due nor impaired 63,173,053 748,279 39,872 873,946 64,835,150 Past due but not impaired - past due up to 30 days 5,209,337 10,146-232,115 5,451,598 - past due 31 90 days 1,234,075 4,169-921,143 2,159,387 - past due over 360 days 236 - - - 236 Total past due, but not impaired 6,443,648 14,315-1,153,258 7,611,221 Individually impaired loans (gross amount) - not past due 6,608,916 18,258 6,603 6,633,777 - past due up to 30 days 133,432 - - - 133,432 - past due 31 90 days 180,243 890,721 - - 1,070,964 - past due 91 180 days 1,104,682 - - 707,297 1,811,979 - past due 181 360 days 3,807,436 632,622 - - 4,440,058 - past due over 360 days 6,413,318 35,365-132,770 6,581,453 Total individually impaired loans (gross amount) 18,248,027 1,576,966-846,670 20,671,663 Less: provisions for loan impairment (8,600,593) (330,762) - (350,435) (9,281,790) Total loans and advances to customers 79,264,135 2,008,798 39,872 2,523,439 83,836,244 18
NOTES TO THE FINANCIAL STATEMENTS (continued) 4 LOANS AND ADVANCES TO CUSTOMERS (continued) The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired as at 30 June 2012 was as follows: Loans to legal entities Loans to private individuals, except for mortgages Mortgages Fair value of collateral - loans past due but not impaired - residential real estate 69,000 - - 69,000 - other real estate 9,814,339-2,862,210 12,676,549 - other assets 536,491-536,491 - deposits 14,056 - - 14,056 Fair value of collateral - individually impaired loans -residential real estate 4,052,264 - - 4,052,264 - other real estate 21,064,258 1,872,000 565,055 23,501,313 - other assets 6,566,712 1,022,211-7,588,923 - deposits 154,719-70,280 224,999 Total 42,271,839 2,894,211 3,497,545 48,663,595 The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired as at 31 December 2011 was as follows: Total Loans to legal entities Loans to private individuals, except for mortgages Mortgages Fair value of collateral - loans past due but not impaired - other real estate 7,343,962 69,000 1,912,528 9,325,490 - due to customers 2,652,299 - - 2,652,299 - other assets 4,213,745 - - 4,213,745 Fair value of collateral - individually impaired loans - residential real estate 3,268,091 638,849-3,906,940 - other real estate 16,716,707 1,803,000 565,054 19,084,761 - due to customers 409,088-70,280 479,368 - other assets 10,678,993 320,100-10,999,093 Total 45,282,885 2,830,949 2,547,862 50,661,696 Total The balance sheet value of the each category of loans and advances to clients is approximately equal to its fair value as at 30 June 2012 and 31 December 2011. 19
NOTES TO THE FINANCIAL STATEMENTS (continued) 5 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 30.06.2012. 31.12.2011. Latvian government securities 10,499,350 6,546,415 OECD government bonds 16,859,760 - Non-OECD region corporate debt securities 1,460,040 2,531,386 Shares unlisted in stock market 5,020 4,864 Shares listed in stock market 1,680 779 28,825,850 9,083,444 Financial assets at fair value through profit or loss are accounted at fair value which also reflects the impairment loss related to credit risk. As the financial assets are accounted at fair value based on the market prices, the Bank does not analyse any impairment indicators. 6 DUE TO CUSTOMERS Analysis of groups by customers 30.06.2012. 31.12.2011. Legal entities - current/ settlement accounts 249,584,875 169,674,255 - term deposits 18,274,733 18,958,655 Private individuals - current/settlement accounts 5,628,570 7,204,876 - term deposits 22,354,598 19,666,517 Total customer accounts: 295,842,776 215,504,303 Sector profile: Private companies 264,722,784 184,545,862 Private individuals 27,983,168 26,871,393 Financial institutions 3,123,225 3,973,085 Non-profit institutions 2,574 97,136 Central government 11,025 16,827 Total customer accounts: 295,842,776 215,504,303 Analysis by place of residence Residents 22,282,578 20,725,059 Non-residents 273,560,198 194,779,244 Total customer accounts: 295,842,776 215,504,303 20
NOTES TO THE FINANCIAL STATEMENTS (continued) 6 DUE TO CUSTOMERS (continued) Economic sector concentration within customer accounts is as follows: 30.06.2012. 31.12.2011. % % Manufacturing 10,116,545 3.42 10,224,981 4.74 Construction and real estate 4,892,890 1.65 7,476,243 3.47 Trade and commercial activities 142,648,853 48.22 90,629,730 42.05 Financial and insurance services 69,102,238 23.36 30,216,472 14.02 Transport and communications 30,659,274 10.36 42,308,122 19.63 Agriculture and food industries 1,723,629 0.58 427,079 0.20 Private individuals 27,983,168 9.46 26,871,393 12.47 Other 8,716,179 2.95 7,350,283 3.42 Total customer accounts 295,842,776 100.0 215,504,303 100.0 7 RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Related parties are defined as shareholders, members of the Council and the Board, key management personnel, their close relatives and companies in which they have a controlling interest as well as associated companies. The balances in respect of operations with related parties are as follows as at 30 June 2012: Enterprises under the control of beneficiaries Other related parties Undrawn credit lines 56 6,434 Total amounts of loan commitments issued to and repaid by related parties during the 6 month period ended 30 June 2012 are as follows: Shareholders with significant control Other related parties Issued to related parties 6,067,630,836 47,484 Repaid by related parties 6,021,297,412 51,633 21
NOTES TO THE FINANCIAL STATEMENTS (continued) 7 RELATED PARTY TRANSACTIONS (continued) Balances with the related parties were as follows as at 30 June 2012: Shareholders with significant control Enterprises under the control of beneficiaries Other related parties Total loans and advances (interest rate on agreement: 2.1 24%) 74,780,329 1,951,611 19,508 Correspondent account 2,868,800 - - Due to customers (interest rate: 3.65 5.7%) - 11,163,145 4,274,646 Subordinated loan 1,126,919 562,109 - Vostro account 3,440 - - Income and expense from operations with related parties during the 6 months of year 2012 were as follows: Shareholders with Enterprises under the significant control control of beneficiaries Other related parties Interest income 2,869,402 76,504 619 Interest expenses (91,703) (135,718) (29,981) Fee and commission income - 110 428 Fee and commission expense (2,885) - - Administrative and other operating expenses (6,981) - - The balances in respect of operations with related parties are as follows as at 31 December 2011: Enterprises under the control of beneficiaries Other related parties Undrawn credit lines 54 13,893 Total amounts of loan commitments issued to and repaid by related parties during year 2011 are as follows: Shareholders with Enterprises under the significant control control of beneficiaries Other related parties Issued to related parties 3,509,395,404 1,768,350 57,179 Repaid by related parties 3,497,324,441-54,412 Balances with the related parties were as follows as at 31 December 2011: Shareholders with significant control 22 Enterprises under the control of beneficiaries Other related parties Total loans and advances (interest rate on agreement: 6-24%) 25,524,325 1,888,582 23,855 Correspondent account 3,972,875 - - Due to customers (interest rate: 2.0 8.5%) 3,292,515 2,311,145 1,752,068 Vostro account 3,440 - -
NOTES TO THE FINANCIAL STATEMENTS (continued) 7 RELATED PARTY TRANSACTIONS (continued) Income and expense from operations with related parties during the first 6 months of year 2011 were as follows: Shareholders with significant control Enterprises under the control of beneficiaries Other related parties Interest income 675,675-516 Interest expenses - 62,228 30,976 Fee and commission income - 399 226 Fee and commission expense 3,380 - - Administrative and other operating expenses 5,851 - - Remuneration to key management personnel is disclosed below: 6 months of year 2012 6 months of year 2011 Short-term benefits: - Salaries 131,470 112,570 Pension benefits: - Expenses to the State Pension Insurance 30,903 27,118 Total 162,373 139,688 23
NOTES TO THE FINANCIAL STATEMENTS (continued) 8 LIQUIDITY RISK AND ANALYSIS OF ASSETS AND LIABILITIES BY MATURITY PROFILE The table below allocates the Bank s assets and liabilities to maturity groupings as at 30 June 2012 based on the time remaining from the balance sheet date to the contractual maturity dates. Overdue Within 1 3 3 6 6 12 1 5 Over Total 1 month months months months years 5 years and undated Assets Cash and balances with the Bank of Latvia - 22,732,712 - - - - - 22,732,712 Balances due from banks - 173,654,452 3,934,000 3,696,333 1,238,367-182,523,152 Loans and advances to customers 5,207,335 9,443,733 9,631,577 10,020,899 14,497,009 35,061,472 2,115,996 85,978,021 Financial assets at fair value through profit or loss - 28,819,144 - - - - 6,706 28,825,850 Intangible assets - - - - - 193,701-193,701 Property and equipment - - - - - - 254,625 254,625 Derivative financial instruments - 60,619 - - - - - 60,619 Deferred expenses - - - - 75,673 - - 75,673 Deferred income tax - 6,628 - - - - - 6,628 Corporate income tax - - 5,818 - - - - 5,818 Other assets - 1,470,453 - - - - - 1,470,453 Total assets 5,207,335 236,187,741 13,571,395 13,717,232 14,572,682 36,493,540 2,377,327 322,127,252 Liabilities and equity Balances due to banks - 122,996 - - - - - 122,996 Due to customers - 243,230,471 10,067,230 9,113,387 17,088,925 16,342,763-295,842,776 Derivative financial instruments - 281,784 - - - - - 281,784 Deferred income and accrued expenses - - - - 594,114 - - 594,114 Other liabilities - 1,037,184 - - - - 1,037,184 Subordinated loan - 2,326 - - 2,919-3,934,000 3,939,245 Equity - - - - - - 20,309,153 20,309,153 Total liabilities and equity 244,674,761 10,067,230 9,113,387 17,685,958 16,342,763 24,243,153 322,127,252 Net liquidity 5,207,335 (8,487,020) 3,504,165 4,603,845 (3,113,276) 20,150,777 (21,865,826) - As at 31 December 2011 Total assets 2,968,717 143,864,707 7,136,607 17,615,764 31,169,999 33,643,295 678,052 237,077,141 Total liabilities and equity - 166,653,619 14,790,082 10,327,046 13,109,963 14,183,225 18,013,206 237,077,141 Net liquidity 2,968,717 (22,788,912) (7,653,475) 7,288,718 18,060,036 19,460,070 (17,335,154) - 24