1st Quarter Results

8th May 2008 12:01

Bank Pekao SA08 May 2008 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of Bank Pekao S.A. Group for the first quarter of 2008 prepared according to International Financial Reporting Standards Selected financial statements translated into EUR Position I Quarter I Quarter I Quarter I Quarter of 2008 of 2007 of 2008 of 2007 I. I. Net interest income 1 122 719 593 068 315 601 151 823 II. II. Net fee and commission 610 871 517 146 171 718 132 388 income III. III. Operating profit 1 361 313 583 639 382 671 149 410 IV. Profit before income tax 1 398 672 617 408 393 173 158 054 V. Net profit (loss) 1 140 865 503 108 320 702 128 794 VI. Net profit (loss) attributable 1 137 519 502 086 319 761 128 532 to equity holders of the Company VII. Net profit (loss) attributable 3 346 1 022 941 262 to minority interest VIII. Net cash from operating (2 322 768) 3 181 718 (652 940) 814 509 activities IX. Net cash used in investing (1 086 589) (1 301 714) (305 445) (333 235) activities X. Net cash from financing (97 337) 31 917 (27 362) 8 171 activities XI. Net increase / decrease in cash (3 506 694) 1 911 921 (985 746) 489 446 and cash equivalents XII. Total assets 122 399 510 73 573 665 34 715 387 19 013 740 XIII. Amounts due to the Central Bank 1 423 541 1 670 267 403 750 431 649 XIV. Amounts due to other banks 8 672 070 3 967 027 2 459 603 1 025 204 XV. Amounts due to customers 87 031 345 55 180 059 24 684 141 14 260 256 XVI. Minority interest 83 858 17 766 23 784 4 591 XVII. Equity attributable to the 15 807 304 9 246 611 4 483 324 2 389 614 Company's equity holders XVIII. Share capital 262 169 167 103 74 357 43 185 XIX. Number of shares 262 168 504 167 103 098 262 168 504 167 103 098 XX. Book value per share (in PLN/ 60,29 55,33 17,10 14,30 EUR) XXI. Diluted book value per share 60,25 55,27 17,09 14,28 (in PLN/EUR) XXII. Earnings per 1 ordinary share 4,34 3,01 1,22 0,77 (in PLN/EUR) XXIII. Diluted earnings per 1 ordinary 4,34 3,00 1,22 0,77 share (in PLN/EUR) XXIV. Declared or paid dividend per 9,60 9,00 2,54 2,31 share (in PLN/EUR) XXV. Capital adequacy ratio 10,63 14,70 x x XXVI. Risk weighted assets (*) 103 906 439 41 761 013 29 470 316 10 792 354 XXVII. Core funds (Tier I) 11 049 025 6 140 127 3 133 764 1 586 801 XXVIII. Supplementary funds (Tier II) - - - - (*) Data as at 31st March 2008 are disclosed in accordance with the Resolution 1/2007 of Financial Supervision Authority Basel II. In items I - VI is disclosed total profit from continuing and discontinuing operations 1 Summary 2 Accounting principles adopted in the preparation of the quarterly report 3 Consolidated financial information - prepared in a comparable basis 4 Financial statements 5 Additional information 5.1 Operational Integration 5.2 The Group 5.3 Results achieved in the first quarter of 2008 and factors which influencedthese results 5.3.1 Results of the Group 5.3.2 The structure of the net profit 5.3.3 Achievements of Bank Pekao S.A. 5.3.4 Achievements of subsidiaries 5.4 Segment reporting 5.5 Adjustments for provisions, deferred tax provision and assets 5.6 Write-offs for revaluation of assets 5.7 Information on contingent assets and liabilities 5.8 Post balance sheet events 5.9 Seasonality or cyclical nature of the Bank's activity 5.10 Issuance, redemption and repayment of debt securities 5.11 Dividend paid 5.12 Effects of changes in the Group's structure 5.13 The position of the Management Board regarding the possibility of achievingpreviously published forecasts 5.14 Information regarding shareholders owning at least 5% of the total numberof votes at the General Meeting of Bank Pekao S.A. 5.15 The Issuer's shares held by the Management and Supervisory Board Members 5.16 Pending litigations 5.17 Assessment of the financial credibility of Bank Pekao S.A. 5.18 Transactions of related entities 5.19 Factors which will affect the results of at least the next quarter 1 Summary In order to provide better comparability, the financial statements (hereafterreferred to as "combined data" or "combined result") in respect of the firstquarter of 2007 are presented as a "combination" of the financial results of theBank Pekao Group and Pekao285, i.e. that part of Bank BPH S.A. merged with BankPekao S.A. through the division of Bank BPH S.A. as registered on 29th November2007". For the first quarter of 2008 Bank Pekao S.A. Group reported a net profitattributable to shareholders of PLN 1,137.5 million, i.e. PLN 210.9 million(22.8%) higher than combined result for the first quarter of 2007. The results for the first quarter of 2008 were realised in a tough environmentdue to the continuing difficult situation in the international financial marketsand Warsaw Stock Exchange. As a result, the decrease of shares prices andresulting redemptions during the period resulted in a substantial decrease ofmutual fund assets. A further negative factor influencing results was theslowdown in the mortgage loans market, particularly in loans denominated in PLN. Despite the above and with work continuing in respect of the integration, theGroup achieved a good financial result. Growth in the first quarter results wasdriven by a good commercial performance, as a result of which the decrease incommissions relating to investment products was compensated for by the growth innet interest income. Operating costs were kept under control and a significantreduction in cost of risk was realised. In the first quarter of 2008, the Group's total income amounted to PLN 2,340.8million, PLN 225.7 million (10.7%) higher than combined income in the firstquarter of 2007. • Group income in the first quarter of 2008 remained under pressure as aresult of the difficult situation on stock exchange. This resulted inredemptions of mutual funds and a decrease in assets valuation. Fee andcommission income decreased by PLN 97.4 million (13.8%), mainly due to lowercommissions on investment products. As a result of a significant decline indemand, lower sales of mutual funds translated into lower up-front fees whilethe decrease of mutual funds assets under management impacted managementcommissions. In addition, lower activity on the WSE led to reduced fees fromretail customer share trading activities. • A growth in net interest income by PLN 125.4 million (12.4%) offsetthe decrease in net fees and commissions income. • Total overhead costs (including depreciation) in the first quarter of2008 amounted to PLN 929.2 million, i.e. 3.6% higher than the combined costs inthe first quarter of 2007, i.e. below the rate of inflation. • In the first quarter of 2008, impairment losses on loans and advancesamounted to PLN 50.3 million and were PLN 51.5 million (50.6%) lower than thecombined result for the first quarter of 2007, benefiting from effective creditrisk management and a good macroeconomic situation. At the end of March 2008,the ratio of impaired receivables to total receivables amounted to 7.4% comparedto 7.8% at the end of 2007. The ratio decreased due to the increased volume oftotal loans and a reduced volume of impaired loans. • At the end of March 2008, customer savings of the Group (customerdeposits, structured certificates of deposits and mutual funds) amounted toPLN 108,480.3 million and were PLN 8,727.7 million lower than at the end of2007. The reduction was due to a decrease in mutual funds of PLN 5,512.2 million(significantly impacted by negative valuation), partially offset by an increasein retail deposits of PLN 1,513.4 million, and a decrease in corporate depositsof PLN 4,665.6 million, a trend also observed in the banking sector. • The volume of Group loans as at the end of the first quarter of 2008amounted to PLN 74,697.6 million, of which corporate loans amounted to PLN50,349.1 million and retail loans PLN 24,348.5 million. The growth of PLN 865.8million was driven by an increase in corporate loans and mortgage loans. 2 Accounting principles adopted in the preparation of the quarterly report The interim consolidated report of the Capital Group of Bank Pekao S.A. and thestand alone report of Bank Pekao S.A. were prepared in compliance withInternational Financial Reporting Standards (IFRS), published by theInternational Accounting Standards Board. The presented report meets the requirements of International Accounting Standard34 relating to interim financial reports and of the Decree of the Council ofMinisters dated 19th October 2005 on current and periodic information submittedby the issuers of securities. The consolidated interim financial statements of the Group and enclosed interimfinancial statements of the Bank have been prepared in accordance with theaccounting principles applied for the purpose of asset and liabilities valuationand measurement of financial results, as disclosed in the consolidated financialstatements of the Capital Group of the Bank Pekao S.A. and the standalonefinancial statement of the Bank Pekao S.A. ended as at 31st December 2007 andpublished on 21st March 2008. In the interim report no changes were made to accounting principles in relationto accounting principles described in the reports mentioned above. Data presented in the interim consolidated financial statements have beenprepared in a manner assuring their comparability, with the exception ofhistorical data relating to spin-off transactions made between Bank Pekao S.A.and Bank BPH S.A., realized by a transfer of the part of BPH S.A. property inthe form of an organized part of the enterprise to Bank Pekao S.A. For illustrative purposes financial information presented in the chapters 3 and5 of this report have been prepared on a comparative basis. In order to achievecomparability the historical information regarding the income statement for thefirst quarter 2007 and the balance sheet statement as at 31st March 2007 havebeen restated by combining the income statement and balance sheet items of PekaoGroup and Pekao285. 3 Consolidated financial information - prepared in a comparable basis The tables below present financial information prepared on a comparable basis.In order to achieve comparability the historical information regarding theincome statement for the first quarter 2007 and the balance sheet statement asat 31st March 2007 have been restated by combining the income statement andbalance sheet items of Pekao Group and Pekao285. Such combined data has beenadjusted by the elimination of transactions made between Bank Pekao and Pekao285during that period. The combined financial information has been prepared for illustrative purposesonly as it includes results of Pekao285 that were generated as part of Bank BPHoperations. Accordingly it does not purport to be indicative of what theoperating results or financial position would have been had Pekao285 operationsbeen integrated with Bank Pekao during that period. The combined financialinformation for the first quarter 2007 does not reflect the strategy andorganizational structure under which Pekao285 has been operating since itsmerger with part of Bank Pekao. CONSOLIDATED INCOME STATEMENT - I Quarter 2008 I Quartercombined data (in '000 PLN) period from 2007 period 08-01-01 to from 07-01-01 08-03-31 to 07-03-31 Net interest income 1 122 719 1 012 024Net fee and commission income 610 871 708 328Other income 171 568 394 768Gain on sale of discontinued 435 600 -operationsTotal income 2 340 758 2 115 120Overhead costs (929 191) (896 900)Net operating income 1 411 567 1 218 220Net impairment losses on financial (50 254) (101 790)assets and net provisions forguarantees and commitmentsShare of profit (loss) of associates 37 359 33 769and joint venture entities valued atthe equity methodProfit before income tax 1 398 672 1 150 199Income tax expense (175 043) (221 033)Income tax expense on gain on sale of (82 764) -discontinued operationsNet profit 1 140 865 929 166 1. Attributable to equity 1 137 519 926 641holders of the Company2. Attributable to minority 3 346 2 525interest CONSOLIDATED BALANCE SHEET - combined data (in 31.03.2008 31.12.2007 31.03.2007 PLN '000) ASSETS Cash and amounts due from Central Bank 6 667 392 5 121 210 5 134 552 Debt securities eligible for rediscounting at 1 327 1 108 23 465 the Central Bank Loans and advances to banks 12 254 120 16 960 034 19 018 479 Financial assets as held for trading 2 406 297 3 165 113 3 685 605 Derivative financial instruments 1 873 568 1 922 958 1 858 681 Other financial instruments at fair value 3 981 645 3 777 729 9 371 402 through profit or loss Loans and advances to customers 67 407 060 66 658 037 63 168 049 Net investment in the finance lease 3 169 253 3 043 768 2 668 578 Derivatives used for hedging 13 040 40 672 274 266 Investment securities 18 658 316 17 620 419 15 680 160 1. Available for sale 18 153 943 17 033 529 15 387 317 2. Held to maturity 504 373 586 890 292 843 Assets of disposal group classifield as held 9 869 65 068 6 652 for sale Investments in associated undertakings 411 786 388 169 316 525 Intangible assets 676 579 688 559 649 507 Tangible fixed assets 1 991 466 2 021 052 2 003 619 Investment property 57 470 58 559 57 690 Income taxes 467 174 421 486 432 741 1. Current tax assets - 2 493 1 371 2. Deferred income tax assets 467 174 418 993 431 370 Other assets 2 353 148 2 142 210 1 266 298TOTAL ASSETS 122 399 510 124 096 151 125 616 269 LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities Amounts due to the Central Bank 1 423 541 1 485 921 1 670 267 Amounts due to other banks 8 672 070 8 456 191 8 540 241 Financial liabilities as held for trading 445 011 491 382 630 825 Derivative financial instruments 1 927 249 1 661 282 1 689 091 Amounts due to customers 87 031 345 89 944 078 91 247 314 Derivatives used for hedging 67 184 28 965 32 372 Debt securities in issue 3 522 801 3 716 778 3 000 160 Liabilities directly associated with assets - 55 291 - classified as held for sale Current income tax liabilities 205 674 53 169 505 668 Provisions for deferred income tax - 324 16 454 Provisions 373 638 379 828 327 138 Other liabilities 2 839 835 3 075 647 2 895 221Total liabilities 106 508 348 109 348 856 110 554 751 Shareholders' equityCapital and reserves attributable to the Company's 15 807 304 14 666 788 14 987 678equity holders Share capital 262 169 261 867 261 867 Other capital and reserves 12 396 319 12 393 624 12 118 232 Prior and current year profits 3 148 816 2 011 297 2 607 579Minority interest 83 858 80 507 73 840Total Shareholders' equity 15 891 162 14 747 295 15 061 518TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 122 399 510 124 096 151 125 616 269 QUARTERLY INDIVIDUAL REPORT INCOME STATEMENT - combined data I Quarter I Quarter(in '000 PLN) 2008 period 2007 period from from 08-01-01 to 07-01-01 to 08-03-31 07-03-31 Net interest income 1 031 210 952 280Net fee and commission income 536 025 614 813Other income 195 310 542 292Overhead costs (835 297) (827 956)Net operating income 927 248 1 281 429Net impairment losses on financial (37 715) (95 971)assets and net provisions forguarantees and commitmentsProfit before income tax 889 533 1 185 458Income tax expense (162 950) (204 097)Net profit 726 583 981 361 BALANCE SHEET (in PLN '000) - combined data 31.03.2008 31.12.2007 31.03.2007ASSETS Cash and amounts due from Central Bank 6 635 260 5 082 829 5 119 397 Debt securities eligible for 1 327 1 108 23 465 rediscounting at the Central Bank Loans and advances to banks 13 029 546 17 551 065 18 798 506 Financial assets held for trading 2 223 029 2 828 802 3 322 550 Derivative financial instruments 1 881 896 1 917 960 1 860 286 Other financial instruments at fair value 3 981 597 3 777 679 9 371 402 through profit or loss Loans and advances to customers 64 668 782 63 955 254 61 295 227 Derivatives used for hedging 13 040 40 672 274 266 Investment securities 18 723 360 17 715 886 15 728 794 1. Available for sale 18 218 987 17 128 996 15 435 951 2. Held to maturity 504 373 586 890 292 843 Non-current assets held for sale 1 650 514 1 857 Shares in subsidiaries 1 631 694 1 631 694 1 450 533 Shares in associates 51 755 56 530 51 129 Intangible assets 657 583 668 183 629 900 Tangible fixed assets 1 877 117 1 908 424 1 925 188 Investment property 54 791 55 730 54 815 Income taxes 395 153 349 412 371 776 1. Current tax assets - - - 2. Deferred income tax assets 395 153 349 412 371 776 Other assets 2 189 364 2 026 814 1 056 760TOTAL ASSETS 118 016 944 119 568 556 121 335 851 LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities Amounts due to the Central Bank 1 423 541 1 485 921 1 666 345 Amounts due to other banks 7 119 369 6 884 279 6 871 127 Financial liabilities held for trading 442 585 491 382 603 906 Derivative financial instruments 1 950 929 1 683 306 1 699 605 Amounts due to customers 86 737 485 89 160 124 90 640 278 Derivatives used for hedging 67 184 29 083 32 372 Debt securities in issue 2 002 665 2 097 070 1 683 435 Current income tax liabilities 123 318 51 793 495 235 Provisions for deferred income tax - - - Provisions 368 765 374 998 323 589 Other liabilities 2 644 636 2 932 216 2 450 697Total liabilities 102 880 477 105 190 172 106 466 589 Shareholders' equity Share capital 262 169 261 867 261 867 Profit for the year and retained earnings 2 733 183 2 006 600 2 709 900 Other capital and reserves 12 141 115 12 109 917 11 897 495TOTAL SHAREHOLDERS' EQUITY 15 136 467 14 378 384 14 869 262TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 118 016 944 119 568 556 121 335 851 4 Financial statements Quarterly financial statements I Quarter 2008 I Quarter 2007 period from 08-01-01 to 08-03-31 period from 07-01-01 to 07-03-31 CONSOLIDATED INCOME STATEMENT Continuing Discontinued Total Continuing Discontinued Total(in '000 PLN) operations operations operations operations Interest income 1 970 342 - 1 970 342 986 389 - 986 389 Interest expense (847 510) (113) (847 623) (392 611) (710) (393 321) Net interest income 1 122 832 (113) 1 122 719 593 778 (710) 593 068 Fee and commission income 726 246 556 726 802 573 212 7 336 580 548 Fee and commission expense (115 819) (112) (115 931) (61 866) (1 536) (63 402) Net fee and commission income 610 427 444 610 871 511 346 5 800 517 146 Dividend income 87 - 87 42 - 42 Result on financial instruments 3 752 (30) 3 722 25 043 615 25 658at fair value Result on investment securities 1 173 - 1 173 3 398 - 3 398 Foreign exchange result 102 873 - 102 873 66 138 - 66 138 Other operating income 86 642 1 86 643 32 312 - 32 312 Other operating expenses (22 831) (99) (22 930) (16 287) - (16 287) Net other operating income 63 811 (98) 63 713 16 025 - 16 025 Gain on sale of discontinued - 435 600 435 600 - - -operations Net impairment losses on (50 254) - (50 254) (43 553) - (43 553)financial assets and netprovisions for guarantees andcommitmentsOverhead costs (928 548) (643) (929 191) (590 150) (4 133) (594 283) Operating profit 926 153 435 160 1 361 313 582 067 1 572 583 639 Share of profit (loss) of 37 359 - 37 359 33 769 - 33 769associates and joint ventureentities valued at the equitymethodProfit before income tax 963 512 435 160 1 398 672 615 836 1 572 617 408 Income tax expense (175 099) 56 (175 043) (113 866) (434) (114 300) Income tax expense on gain on - (82 764) (82 764)sale of discontinued operations Net profit 788 413 352 452 1 140 865 501 970 1 138 503 108 1. Attributable to equity 785 067 352 452 1 137 519 500 948 1 138 502 086holders of the Company 2. Attributable to minority 3 346 - 3 346 1 022 - 1 022interest Earnings per share (in PLN pershare) - basic for the period 3,00 4,34 3,00 3,01 - diluted for the period 2,99 4,34 3,00 3,00 CONSOLIDATED BALANCE SHEET (in PLN '000) 31.03.2008 31.12.2007 31.03.2007 ASSETS Cash and amounts due from Central Bank 6 667 392 5 121 210 4 257 412 Debt securities eligible for rediscounting at the 1 327 1 108 3 245 Central Bank Loans and advances to banks 12 254 120 16 960 034 11 751 807 Financial assets as held for trading 2 406 297 3 165 113 2 827 397 Derivative financial instruments 1 873 568 1 922 958 551 257 Other financial instruments at fair value through 3 981 645 3 777 729 1 615 302 profit or loss Loans and advances to customers 67 407 060 66 658 037 33 326 131 Net investment in the finance lease 3 169 253 3 043 768 1 074 085 Derivatives used for hedging 13 040 40 672 - Investment securities 18 658 316 17 620 419 14 462 684 1. Available for sale 18 153 943 17 033 529 14 169 841 2. Held to maturity 504 373 586 890 292 843 Assets of disposal group classifield as held for 9 869 65 068 628 sale Investments in associated undertakings 411 786 388 169 235 667 Intangible assets 676 579 688 559 589 943 Tangible fixed assets 1 991 466 2 021 052 1 417 973 Investment property 57 470 58 559 57 690 Income taxes 467 174 421 486 322 502 1. Current tax assets - 2 493 1 371 2. Deferred income tax assets 467 174 418 993 321 131 Other assets 2 353 148 2 142 210 1 079 942 TOTAL ASSETS 122 399 510 124 096 151 73 573 665 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank 1 423 541 1 485 921 1 670 267 Amounts due to other banks 8 672 070 8 456 191 3 967 027 Financial liabilities as held for trading 445 011 491 382 537 968 Derivative financial instruments 1 927 249 1 661 282 529 632 Amounts due to customers 87 031 345 89 944 078 55 180 059 Derivatives used for hedging 67 184 28 965 - Debt securities in issue 3 522 801 3 716 778 45 250 Liabilities directly associated with assets - 55 291 - classified as held for sale Current income tax liabilities 205 674 53 169 270 281 Provisions for deferred income tax - 324 354 Provisions 373 638 379 828 223 943 Other liabilities 2 839 835 3 075 647 1 884 507 Total liabilities 106 508 348 109 348 856 64 309 288 Shareholders' equity Capital and reserves attributable to the Company's 15 807 304 14 666 788 9 246 611equity holders Share capital 262 169 261 867 167 103 Other capital and reserves 12 396 319 12 393 624 6 896 484 Prior and current year profits 3 148 816 2 011 297 2 183 024 Minority interest 83 858 80 507 17 766 Total Shareholders' equity 15 891 162 14 747 295 9 264 377 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 122 399 510 124 096 151 73 573 665 Capital adequacy ratio 10,63 12,12 14,70 Book value 15 807 304 14 666 788 9 246 611 Number of shares 262 168 504 261 866 657 167 103 098 Book value per share ( in PLN per share) 60,29 56,01 55,33 Diluted numebr of shares 262 343 589 262 061 017 167 304 797,00 Diluted book value per share (in PLN per share) 60,25 55,97 55,27 CONSOLIDATED STATEMENT OF CHANGES 2008 2007 2007 IN SHAREHOLDERS' EQUITY period from period from period from(in PLN '000) 08-01-01 to 07-01-01 to 07-01-01 to 08-03-31 07-12-31 07-03-31Shareholders equity at the beginning of the period 14 747 295 8 892 627 8 892 627 a) adjustment related to IFRS/IAS introduction - - - b) change of consolidation method - - - c) adjustment due to fundamental errors - - - Adjusted shareholders equity at the beginning of the 14 747 295 8 892 627 8 892 627period 1. Share capital at the beginning of the period 261 867 166 808 166 808 a) Increase 302 95 059 295 - new shares issue 302 95 059 295 b) Decrease - - - - redemptions - - - 1. Share capital at the end of the period 262 169 261 867 167 103 2. Earnings from previous years at the beginning of 2 011 297 1 680 938 1 680 938the period a) Increase - - - - undistributed profits of prior period - - - - other - - - b) Decrease - (1 825 119) - - appropriation to general banking risk fund - (100 000) - - appropriation to other reserve capital - (158 756) - - appropriation to reserve capital - (27 856) - - dividend - (1 503 928) - - other - (34 579) - 2. Earnings from previous years at the end of the 2 011 297 (144 181) 1 680 938period 3. Other capital and reserves at the beginning of the 12 393 624 7 028 137 7 028 137period a) Increase 43 762 5 807 664 42 286 - appropriation of net profit - 286 612 - - share premium on issue of new shares 36 844 5 516 702 31 657 - valuation of securities available for sale (net) - - 9 347 - hedging financial instrument valuation 6 242 - - - employee share option proceeds 676 4 350 949 - foreign exchange differences from valuation of - - -foreign entities- other - - 333 b) Decrease (41 067) (442 177) (173 939) - cost of issues (205) (96 414) (31) - valuation of securities available for sale (net) in (12 225) (212 958) -which: gains/losses from valuation of securities available (14 976) (262 878) -for sale provision for deferred income tax of the securities 2 751 49 920 -portfolio valuation- hedging financial instrument valuation - (50 495) - - foreign exchange differences from valuation of (12 665) (10 901) -foreign entities- other (15 972) (71 409) (173 908) 3. Other capital and reserves at the end of the 12 396 319 12 393 624 6 896 484period 4. Net profit 1 137 519 2 155 478 502 086 Shareholders' equity at the end of the period 15 807 304 14 666 788 9 246 611 Minority interest at the beginning of the period 80 507 16 744 16 744 a) Changes: 3 351 63 763 1 022 - net profit 3 346 6 999 1 022 - other 5 56 764 - Minority interest at the end of the period 83 858 80 507 17 766 Total equity 15 891 162 14 747 295 9 264 377 CONSOLIDATED STATEMENT OF CASH FLOW 1 Quarter 1 Quarter 2008 2007 (in PLN '000) period from period from 08-01-01 to 07-01-01 to 08-03-31 07-03-31Cash flow from operating activities - indirect method Net profit (loss) 1 137 519 502 086 Adjustments: (3 460 287) 2 679 632 Deprecition 99 702 80 326 Share of profit (loss) associates (37 359) (33 769) Foreign exchange differences 57 252 20 818 (Profit) loss on investing activities (36 414) (12 760) Impariment - - Interest and dividend (96 255) (161 772) Change in loans and advances to banks (346 962) (6 497) Change in financial assets as held for trading and 554 900 (438 132)other financial instruments at fair value throughprofit or lossChange in derivative financial instruments 49 390 (24 615) Change in loans and advances to customers (749 242) (1 548 730) Change in net investment in the finance lease (125 485) (107 478) Change in investment securities available for sale 2 988 (35 734) Change in deferred income tax assets (45 430) (18 836) Change in other assets (174 317) (487 191) Change in amounts due to banks 153 499 1 582 040 Change in liabilities as held for trading (46 371) 326 595 Change in derivative financial instruments and other 265 967 25 432financial liabilitiy at fair value through profit orlossChange in amounts due to customers (2 912 733) 3 386 476 Change in debt securities in issue - - Change in provisions (6 190) - Change in other liabilities (95 345) 70 172 Income tax paid (150 467) (69 959) Carrent tax 178 585 133 246 Net cash from operating activities (2 322 768) 3 181 718 Cash flows from investing activities Investing activity inflows 5 620 114 7 381 141 Sale of subsidiaries and associates - - Sale of investment securities 5 607 022 7 270 367 Sale of intangible assets and tangible fixed assets 13 092 137 Other investing inflows - 110 637 Investing activity outflows (6 706 703) (8 682 855) Purchase of subsidiaries and associates - - Purchase of investment securities (6 644 577) (8 645 927) Purchase of intangible assets and tangible fixed (62 126) (36 928)assets Other investing outflows - - Net cash used in investing activities (1 086 589) (1 301 714) Cash flows from financing activities Financing activity inflows 795 317 31 921 Proceeds from loans and advances from other banks - - Proceeds from other loans and advances - - Issue of debt securities 758 376 - Increase of subordinated liabilities - - Issue of ordinary shares 36 941 31 921 Sale of own shares - - Other financing inflows - - Financing activity outflows (892 654) (4) Repayments of loans and advances from other banks - - Repayments of other loans and advances - - Redemption of debt securities (892 654) (4) Decrease of subordinated liabilities - - Other financial liabilities - - Payments of financial lease liabilities - - Dividends and other payments to shareholders - - Other than payments to shareholders expenditures due - -to appropriation of profit Purchase of own shares - - Other financing outflows - - Net cash from financing activities (97 337) 31 917 Total net cash flow -3 506 694 1 911 921 Net change in cash and cash equivalents -3 506 694 1 911 921 Cash and casch equivalents at the beginning of the 16 645 143 10 633 337period Cash and cash equivalents at the end of the period 13 138 449 12 545 258 QUARTERLY INDIVIDUAL REPORT INCOME STATEMENT (in '000 PLN) I Quarter I Quarter 2008 period 2007 period from from 08-01-01 to 07-01-01 to 08-03-31 07-03-31 Interest income 1 836 382 966 583 Interest expense (805 172) (399 465) Net interest income 1 031 210 567 118 Fee and commission income 645 977 479 238 Fee and commission expense (109 952) (53 650) Net fee and commission income 536 025 425 588 Dividend income 37 287 152 349 Result on financial instruments at (787) 25 242fair value Result on investment securities 1 047 3 398 Foreign exchange result 100 485 65 669 Other operating income 72 900 28 205 Other operating expenses (15 622) (15 078) Net other operating income 57 278 13 127 Net impairment losses on financial (37 715) (41 401)assets and net provisions forguarantees and commitmentsOverhead costs (835 297) (538 794) Operating profit 889 533 672 296 Profit before income tax 889 533 672 296 Income tax expense (162 950) (101 374) Net profit 726 583 570 922 Earnings per share (in PLN pershare) - basic for the period 2,77 3,42 - diluted for the period 2,77 3,41 BALANCE SHEET (in PLN '000) 31.03.2008 31.12.2007 31.03.2007 ASSETS Cash and amounts due from Central Bank 6 635 260 5 082 829 4 244 319 Debt securities eligible for rediscounting 1 327 1 108 3 245 at the Central Bank Loans and advances to banks 13 029 546 17 551 065 11 329 771 Financial assets held for trading 2 223 029 2 828 802 2 427 898 Derivative financial instruments 1 881 896 1 917 960 551 045 Other financial instruments at fair value 3 981 597 3 777 679 1 615 302 through profit or loss Loans and advances to customers 64 668 782 63 955 254 32 785 601 Derivatives used for hedging 13 040 40 672 - Investment securities 18 723 360 17 715 886 14 385 583 1. Available for sale 18 218 987 17 128 996 14 092 740 2. Held to maturity 504 373 586 890 292 843 Non-current assets held for sale 1 650 514 628 Shares in subsidiaries 1 631 694 1 631 694 997 208 Shares in associates 51 755 56 530 51 092 Intangible assets 657 583 668 183 574 546 Tangible fixed assets 1 877 117 1 908 424 1 365 845 Investment property 54 791 55 730 54 815 Income taxes 395 153 349 412 291 365 1. Current tax assets - - - 2. Deferred income tax assets 395 153 349 412 291 365 Other assets 2 189 364 2 026 814 894 697 TOTAL ASSETS 118 016 944 119 568 556 71 572 960 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank 1 423 541 1 485 921 1 666 345 Amounts due to other banks 7 119 369 6 884 279 2 959 746 Financial liabilities held for trading 442 585 491 382 511 049 Derivative financial instruments 1 950 929 1 683 306 529 613 Amounts due to customers 86 737 485 89 160 124 54 741 868 Derivatives used for hedging 67 184 29 083 - Debt securities in issue 2 002 665 2 097 070 8 Current income tax liabilities 123 318 51 793 259 848 Provisions for deferred income tax - - - Provisions 368 765 374 998 221 311 Other liabilities 2 644 636 2 932 216 1 450 153 Total liabilities 102 880 477 105 190 172 62 339 941 Shareholders' equity Share capital 262 169 261 867 167 103 Profit for the year and retained earnings 2 733 183 2 006 600 2 299 461 Other capital and reserves 12 141 115 12 109 917 6 766 455 TOTAL SHAREHOLDERS' EQUITY 15 136 467 14 378 384 9 233 019 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 118 016 944 119 568 556 71 572 960 Capital adequacy ratio 9,97 11,13 13,20 STATEMENT OF CHANGES IN EQUITY 2008 2007 2007 (in PLN '000) period from period from period from 08-01-01 to 07-01-01 to 07-01-01 to 08-03-31 07-12-31 07-03-31 Shareholders equity at the beginning of the 14 378 384 8 620 165 8 620 165 period a) adjustment related to IFRS/IAS - - - introduction b) adjustment due to fundamental errors - - - Adjusted shareholders equity at the 14 378 384 8 620 165 8 620 165 beginning of the period 1. Share capital at the beginning of the 261 867 166 808 166 808 period a) Increase 302 95 059 295 - new shares issue 302 95 059 295 b) Decrease - - - - redemptions - - - 1. Share capital at the end of the period 262 169 261 867 167 103 2. Retained earnings (loss) from previous 2 006 600 1 728 539 1 728 539 years at the beginning of the period a) Increase - - - - profit for previous year - - - b) Decrease - (1 728 539) - - appropriation to legal capital - (15 000) - - appropriation to general banking risk - (100 000) - fund - appropriation to reserve capital - (109 611) - - dividends - (1 503 928) - 2. Retained earnings (loss) at the end of 2 006 600 - 1 728 539 the period 3. Other capital at the beginning of the 12 109 917 6 724 818 6 724 818 period a) Increase 43 693 5 745 663 41 704 - appropriation of net profit - 224 611 - - issue of shares under its' nominal value 36 844 5 516 702 31 657 - valuation of securities available for - - 9 098 sale (net); in which gains/losses from valuation of securities available for - - 11 317 sale provision for deferred income tax - - (2 219) - valuation of hedging financial 6 189 - - instruments (net); in which: hedging financial instrument valuation 7 671 - - provision for deferred income tax of the hedging (1 482) - - financial instrument valuation - valuation of management options 660 4 350 949 b) Decrease (12 495) (360 564) (67) - cost of issues (205) (96 414) (31) - valuation of securities available for (12 249) (212 878) - sale (net); in which: gains and losses from valuation of securities available for sale (15 006) (262 778) - provision for deferred income tax of the securities 2 757 49 900 - portfolio valuation - valuation of hedging financial - (50 039) - instruments (net); in which: hedging financial instrument valuation - (61 776) - provision for deferred income tax of the hedging - 11 737 - financial instrument valuation - foreign exchange differences on branches (41) (1 233) (36) abroad 3. Other capital at the end of the period 12 141 115 12 109 917 6 766 455 4. Net profit 726 583 2 006 600 570 922 Shareholders' equity at the end of the 15 136 467 14 378 384 9 233 019 period CASH FLOW STATEMENT I Quarter I Quarter 2008 2007 (in PLN '000) period from period from 08-01-01 to 07-01-01 to 08-03-31 07-03-31 Cash flow from operating activities - indirect method Net profit (loss) 726 583 570 922 Adjustments: (3 669 219) 2 287 891 Depreciation 90 632 75 795 Foreign exchange differences 89 947 (7 292) (Profit) loss on investing activities (1 183) (12 697) Impairment - - Interest and dividend (128 772) (313 318) Change in loans and advances to banks (1 057 707) (118 358) Change in financial assets as held for 401 855 (379 177) trading and other financial instruments at fair value through profit or loss Change in derivative financial instruments 36 064 (24 402) Change in loans and advances to customers (713 747) (434 012) Change in investment securities available 939 (37) for sale Change in deferred income tax assets (45 741) (18 760) Change in other assets (126 216) (463 206) Change in amounts due to banks 172 710 653 814 Change in liabilities as held for trading (48 797) 307 641 Change in derivative financial instruments 267 623 25 419 Change in amounts due to customers (2 422 639) 2 930 618 Change in debt securities in issue - - Change in provisions (6 233) 299 Change in other liabilities (206 297) 6 871 Income tax paid (134 607) (61 442) Current tax 162 950 120 135 Net cash from operating activities (2 942 636) 2 858 813 Cash flows from investing activities Investing activity inflows 5 567 484 7 467 867 Sale of subsidiaries and associates - - Sale of investment securities 5 516 067 7 211 447 Sale of intangible assets and tangible 216 72 fixed assets Other investing inflows 51 201 256 348 Investing activity outflows (6 628 549) (8 872 298) Purchase of subsidiaries and associates - (326 108) Purchase of investment securities (6 582 468) (8 518 583) Purchase of intangible assets and tangible (46 081) (27 607) fixed assets Other investing outflows - - Net cash used in investing activities (1 061 065) (1 404 431) Cash flows from financing activities Financing activity inflows 36 941 31 921 Loans received from banks - - Loans received from other financial - - institutions Issue of debt securities - - Increase in subordinated liabilities - - Issue of ordinary shares 36 941 31 921 Sale of own shares - - Other inflows - - Financing activity outflows (60 035) (4) Repayment of bank loans - - Repayment of loans received from other - - financial institutions Redemption of debt securities (60 035) (4) Decrease of subordinated liabilities - - Repayment of other financial liabilities - - Repayment of pricipal amounts under finance - - lease agreements Dividends and other payments to - - shareholders Outflows from profi appropriation other - - than payments to shareholders Purchase of own shares - - Other financing outflows - - Net cash from financing activities (23 094) 31 917 Total net cash flow (4 026 795) 1 486 299 Net change in cash and cash equivalents (4 026 795) 1 486 299 Cash and cash equivalents at the beginning 16 814 198 10 577 405 of the period Cash and cash equivalents at the end of the 12 787 403 12 063 704 period 5 Additional information 5.1 Operational Integration On 29th November 2007 the legal integration of Bank Pekao S.A. with the part ofBank BPH S.A. transferred as an organized part of enterprise was completed. In order to ensure continuous and undisrupted customer service during thetransition phase, Bank Pekao S.A. and Bank BPH S.A. concluded relevantoutsourcing agreements. According to these agreements Bank BPH S.A. willoutsource to Bank Pekao S.A. a part of its IT Platform until the completion ofthe migration process of customers data from Bank BPH S.A. In order to efficiently manage the risks inherent in the operationalintegration, in-depth analyses were performed in order to identify individualrisk areas and develop methods best suited to managing operational risk. The keyobjective behind the adopted strategy for operational risk management, whichincludes necessary monitoring and support plans and procedures, is to ensurehigh security of the process, as well as continuous and undisrupted service toall customers, while mitigating identified operational risks. Since the beginning of 2008, intensive efforts have been undertaken relating tothe migration of accounts and data of clients handled by Pekao285 outlets fromBank BPH's IT platform to Bank Pekao's IT platform. The migration has beencarried out on a roll-out basis, which means that customers are being migratedand their account numbers are being changed gradually - one group of outlets ata time. In order to minimize inconveniences for customers, both previous and newaccount numbers will be active for an additional one year after migration. Themigration is preceded by procedures unification, installation of new terminalsand set-up of applications comprising the operational and IT system, as well asintensive training of employees manning the acquired outlets. The migration is being realised in line with the pre-defined timetable. As ofthe date of this report, migration has been completed for almost 80% ofcustomers in 198 branches. Furthermore, the migration of all corporate customershas been successfully completed. The migration process has required the fullengagement and commitment of all staff in order to quickly implement necessarytechnical adjustments that were unavoidable, taking into consideration theimmense scale of the operation. The experience gathered in this process willallow to successfully complete the migration on time. After the migration allcustomers have access to the full scope of products and services offered by theBank, including all electronic distribution channels - Pekao24 and PekaoBiznes24with the offer of internet banking for SME clients extended by the introductionof PekaoFIRMA24. 5.2 The Group The Bank Pekao S.A. Capital Group as at 31st March 2008 consists of Bank PekaoS.A as the parent entity and 25 subsidiary entities. The following entities are included in the consolidated financial report as at31st March 2008:No Company's name Core activity % of Status shareholder's share capital Parent entity Bank Pekao S.A. Banking - - Entities fully consolidated UniCredit Bank Ltd. (before Banking 100.00 full Bank Pekao (Ukraina) Ltd.) Centralny Dom Maklerski Brokerage 100.00 full Pekao S.A. Pekao Fundusz Kapita(3)owy Financial 100.00 full Sp. z o.o. Pekao Leasing Sp. z o. o. Leasing 100.00 full Pekao Faktoring Sp. z o.o. Financial 100.00 full Pekao Pioneer Powszechne Financial 65.00 full Towarzystwo Emerytalne S.A. Drukbank Sp. z o.o. No activities 100.00 full performed Centrum Kart S.A. Financial 100.00 full Pekao Financial Services Financial 100.00 full Sp. z o. o. BPH Bank Hipoteczny S.A.* Banking 100.00 full BPH PBK Leasing S.A. Leasing 80.10 full Finanse plc * Financial 100.00 full agency Indirect subsidiary - subsidiary of BPH PBK Leasing BPH Leasing S.A. Leasing 80.10 full BPH Auto Finanse S.A. Car lease and 80.10 full fleet management Indirect subsidiary - subsidiary of UniCredit Bank Ltd. BDK Consulting Sp. z o. o. Consulting, 99.99 full hotels, transportation Subsidiary entities non-consolidated Final Holding Sp. z o. o. Holding 100.00 non- management consolidated BPH Real Estate S.A. Real estate 100.00 non- consolidated Centrum Us(3)ug Ksiegowych Accounting 100.00 non- Sp. z o.o. service consolidated Property Sp. z o. o. (in Real estate 100.00 non- liquidation) consolidated Centrum Bankowooeci Call-center 98.00 non- Bezpooeredniej Sp. z o. o. consolidated Indirect subsidiary - subsidiary of Final Holding Sp. z o. o. PBKL S.A. (in bankruptcy) N/A 84.51/84.79 non- consolidated Final S.A. Aluminum 99.82/99.84 non- profiles consolidated manufacture Indirect subsidiary - subsidiary of Property Spo (3)ka z o.o. (in liquidation) FBP Media Sp. z o. o. Real estate 100.00 non- consolidated Indirect subsidiary - subsidiary of BPH Real Estate S.A. Metropolis Sp. z o. o. Real estate - 100.00 non- venture capital consolidated Jana Kazimierza Development Real estate - 100.00 non- Sp. z o. o. venture capital consolidated Associated with Bank Pekao S.A. Central Poland Fund LLC Financial 53.19 Equity brokerage Xelion. Doradcy Finansowi Supporting, 50.00 Equity Sp. z o.o. financial and insurance Pioneer Pekao Investment Financial 49.00 Equity Management S.A. brokerage Pirelli Pekao Real Estate Real estate 25.00 Equity Sp. z o.o Krajowa Izba Rozliczeniowa Clearing House 34.44 Equity S.A. CPF Management Financial 40.00 not valuated under brokerage no equity method activities performed Bankowe Doradztwo Podatkowe Tax Advisory 74.00/48.68 not valuated under Sp. z o. o. equity method Polish Banking System S.A.. In liquidation 48.90 not valuated under (in liquidation) equity method PPP Budpress Sp. z o. o. In liquidation 36.20 not valuated under (in liquidation) equity method * Percentage shares of entities which make up the Pekao S.A. Capital Group atthe General Shareholder Meeting/General Partner Meeting are as follows: - Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - holds0.04 % share in BPH Bank Hipoteczny S.A. Total share of the Group in BPH BankHipoteczny S.A. equity is 100%, - Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - holds0.02 % share in equity of Finanse plc. Total share of the Group in Finanse plcequity is 100%. As at 31st March 2008 the composition of the Capital Group was unchanged ascompared to 31st December 2007. As at 31st March 2008 the Group engagement at subsidiary and associated entitiesnon-consolidated or not valued under the equity method were included at the costof purchase. Financial data of these companies are immaterial and have noinfluence on Group consolidated financial report. In the first quarter of 2008 an organised part of Pekao S.A. Central BrokerageHouse enterprise operations connected with investment banking (CDM MIB) wassold. The organised part of the enterprise was purchased on behalf of and forUniCredit CAIB Polska S.A. on 28th January 2008. The effect of the sale of the corporate brokerage and investment bankingservices part of enterprise of CDM S.A. was as follows (PLN ths.): Value of net assets sold 7 996Gross gain on sale 435 600Sale price (cash inflow) 443 596 5.3 Results achieved in the first quarter of 2008 and factors whichinfluenced these results In order to provide better comparability, the financial statements (hereafterreferred to as "combined data" or "combined result") in respect of the firstquarter of 2007 are presented as a "combination" of the financial results of theBank Pekao Group and Pekao285, i.e. that part of Bank BPH S.A. merged with BankPekao S.A. through the division of Bank BPH S.A. as registered on 29th November2007". 5.3.1 Results of the Group For the first quarter of 2008 Bank Pekao S.A. Group reported a net profitattributable to shareholders of PLN 1,137.5 million, i.e. PLN 210.9 million(22.8%) higher than combined result for the first quarter of 2007. The results for the first quarter of 2008 were realised in a tough environmentdue to the continuing difficult situation in the international financial marketsand Warsaw Stock Exchange. As a result, the decrease of shares prices andresulting redemptions during the period resulted in a substantial decrease ofmutual fund assets. A further negative factor influencing results was theslowdown in the mortgage loans market, particularly in loans denominated in PLN. Despite the above and with work continuing in respect of the integration, theGroup achieved a good financial result. Growth in the first quarter results wasdriven by a good commercial performance, as a result of which the decrease incommissions relating to investment products was compensated for by the growth innet interest income. Operating costs were kept under control and a significantreduction in cost of risk was realised. High efficiency of Pekao Group is confirmed by return on average equity (ROE),which in the first quarter of 2008 stood at 22.8%* as compared to 22.4%* in thefirst quarter of 2007. The income statement include one-off transactions in both the first quarter of2007 and 2008: - in the first quarter of 2007, the disposal of shares in CommercialUnion PTE resulted in the Pekao Group realising a pre-tax profit of PLN 178.0million and net profit of PLN 144.2 million, - in the first quarter of 2008 the disposal of part of the enterpriseof CDM conducting corporate brokerage and investment banking services resultedin the Pekao Group realising a pre-tax profit of PLN 435.6 million and netprofit of PLN 352.8 million. The consolidated income statement for the first quarter of 2008 and combineddata for the first quarter of 2007 is presented below: (PLN million) I Q 2008 I Q 2007 combinedNet interest income ** 1,136.9 1,011.5Fee and commission income 610.9 708.3Dividend income 0.1 0.0Trading income / FX gains 93.6 369.7Other operating income / cost net 63.7 25.5Gain on sale of discontinued operations 435.6 0.0Total income 2,340.8 2,115.1Overhead costs (including depreciation) (929.2) (896.9)Operating income 1,411.6 1,218.2Impairment losses on loans and advances (50.3) (101.8)Share in net profit (loss) of the 37.4 33.8associatesPre-tax profit 1,398.7 1,150.2Tax charge (257.8) (221.0)Net profit 1,140.9 929.2Attributable to equity holders of the 1,137.5 926.6CompanyAttributable to minority interest 3.4 2.6 * For the purpose of calculation of these ratios, result of one-off transactionsi.e. gain on sale of part of the enterprise of CDM Pekao S.A. conductingcorporate brokerage and investment banking services (in 1Q 2008) and gain onsale of Commercial Union PTE (in 1Q 2007) were included in the results ofrespective quarters, however it was not annualized. ** Including income on SWAP transactions. The Group's income In the first quarter of 2008, the Group's total income amounted to PLN 2,340.8million, PLN 225.7 million (10.7%) higher than combined income in the firstquarter of 2007. Group income in the first quarter of 2008 remained under pressure as a result ofthe difficult situation on stock exchange. This resulted in redemptions ofmutual funds and a decrease in assets valuation. Fee and commission incomedecreased by PLN 97.4 million (13.8%), mainly due to lower commissions oninvestment products. As a result of a significant decline in demand, lower salesof mutual funds translated into lower up-front fees while the decrease of mutualfunds assets under management impacted management commissions. In addition,lower activity on the WSE let to reduced fees from retail customer share tradingactivities. A growth in net interest income by PLN 125.4 million (12.4%) offset the decreasein net fees and commissions income. The Group's overhead costs (including depreciation) Total overhead costs (including depreciation) in the first quarter of 2008amounted to PLN 929.2 million, i.e. an increase of only PLN 32.4 million (3.6%)in comparison to the combined costs in the first quarter of 2007, i.e. below theinflation rate. (PLN million) I Q 2008 I Q 2007 combinedOverhead costs (including depreciation) (929.2) (896.9)- Personnel costs (471.6) (456.2)- Non-personnel costs (357.9) (344.4)- Depreciation (99.7) (96.3) Overhead costs were kept under control, the increase was mainly due to the costsof the integration and expansion in the Ukrainian market. In the first quarter of 2008, the Group's cost / income ratio amounted to 39.7%,in comparison with 42.4% in the first quarter of 2007. As at the end of March 2008, the Bank had 20,502 employees, compared to 20,636as at the end of December 2007. The Group had 22,900 employees, compared to22,926 as at the end of December 2007. Impairment losses on loans and advances In the first quarter of 2008, impairment losses on loans and advances amountedto PLN 50.3 million and were PLN 51.5 million (50,6%) lower than the combinedresult for the first quarter of 2007, benefiting from effective credit riskmanagement and a good macroeconomic situation. (PLN million) 31.03.2008 31.12.2007Gross receivables* 75,219.8 74,334.9not impaired 69,616.0 68,574.4impaired 5,603.8 5,760.5Impairment losses (4,881.5) (4,855.5)Interest 233.1 219.1Total net value 70,571.4 69,698.5 * Including debt securities eligible for rediscounting at the Central Bank, netinvestment in the finance lease, non quoted securities and BSB transactions. At the end of March 2008, the ratio of impaired receivables to total receivablesamounted to 7.4% compared to 7.8% at the end of 2007. The ratio decreased due tothe increased volume of total loans and a reduced volume of impaired loans. Loans (PLN million) 31.03.2008 31.12.2007Gross loans (principal)* 74,697.6 73,832.2corporate (principal) 50,349.1 49,595.9retail (principal) 24,348.5 24,236.3 * Including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities and BSBtransactions. The volume of Group loans as at the end of the first quarter of 2008 amounted toPLN 74,697.6 million, of which corporate loans amounted to PLN 50,349.1 millionand retail loans PLN 24,348.5 million. The growth of PLN 865.8 million was driven by an increase in corporate loans andmortgage loans. Savings (PLN million) 31.03.2008 31.12.2007Deposits (principal) 83,288.7 86,440.9corporate (principal) 45,341.3 50,006.9retail (principal) 37,947.4 36,434,0Structured Certificates of 1,986.3 2,049.6DepositsPioneer Pekao TFI mutual funds 23,205.3 28,717.5incl. distributed through the 21,664.0 27,000.3Group's networkTotal savings 108,480.3 117,208.0incl. retail 63,139.0 67,201.1 At the end of March 2008, customer savings of the Group (customer deposits,structured certificates of deposits and mutual funds) amounted to PLN 108,480.3million and were PLN 8,727.7 million lower than at the end of 2007. Thereduction was due to a decrease in mutual funds of PLN 5,512.2 million(significantly impacted by negative valuation), partially offset by an increasein retail deposits of PLN 1,513.4 million, and a decrease in corporate depositsof PLN 4,665.6 million, a trend also observed in the banking sector. 5.3.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) I Q 2008 I Q 2007 combined Net profit of Banku Pekao S.A. 726.6 981.4Entities consolidated under fullmethodCentralny Dom Maklerski Pekao S.A.* 375.6 45.7BPH PBK Leasing S.A.** 9.3 7.5UniCredit Bank Ltd.*** 5.6 (7.0)BPH Bank Hipoteczny S.A.**** 5.6 7.0Pekao Pioneer PTE S.A. 4.3 2.9Pekao Financial Services Sp. z o.o. 4.2 3.7Pekao Leasing Sp. z o.o. 3.8 2.5Centrum Kart S.A. 2.8 0.6Pekao Faktoring Sp. z o.o. 1.9 1.7Finanse plc***** - 1.1Pekao Fundusz Kapita(3)owy Sp. z o.o.* 0.8 1.5*****Drukbank Sp. z o.o. 0.1 0.0Pekao Access Sp. z o.o. - 0.0Entities valued under the equitymethodPioneer Pekao Investment Management 32.1 29.8S.A.Pirelli Pekao Real Estate Sp. z o.o. 3.4 4.1Krajowa Izba Rozliczeniowa S.A. ****** 3.2 1.5*Central Poland Fund LLC 0.0 0.0Xelion. Doradcy Finansowi Sp. z o.o. (1.6) (2.3)Exclusions and consolidation (40.2) (155.1)adjustments ********Net profit of the Group attributable 1,137.5 926.6to shareholders * The result of the first quarter of 2008 including the effect of sale ofcorporate brokerage and investment banking services part of the company. ** The result of the subsidiary covering results of dependent entities BPHLeasing S.A and BPH Auto Finanse S.A. The result of the first quarter of 2007not included in financial statements for that period. *** The result of the first quarter of 2007 covering only the result ofUniCredit Bank Ltd. (former Bank Pekao (Ukraina) Ltd.) **** The result of the first quarter of 2007 not included in financialstatements for that period. ***** The result of the first quarter of 2007 not included in financialstatements for that period. Former company's name: BPH Finance plc. ****** The result of the first quarter of 2007 including valuation of associatedentities under equity method. ******* Higher result the first quarter of 2008 also due to higher Bank's sharein the company since 30.11.2007. ******** Includes transactions within the Group, including dividends fromsubsidiaries for the year 2007 paid in 2008 and net profit attributable tominority interest. The results of Bank Pekao S.A. The main items from the income statement of the Bank for the first quarter of2008 and combined data for the first quarter of 2007 are as follows: (PLN million) I Q 2008 I Q 2007 combined Net interest income* 1,045.4 951.8Non-interest income 717.1 1,157.6Total income 1,762.5 2,109.4Overhead costs (including depreciation) (835.3) (828.0)Operating income 927.2 1,281.4Impairment losses on loans and advances (37.7) (95.9)Pre-tax profit 889.5 1,185.5Net profit 726.6 981.4 * Including income on SWAP operations. The combined net profit and combined total income of the Bank in the firstquarter of 2007 included a one-off transaction comprising the sale of shares inCommercial Union PTE with an impact on the combined total income of PLN 178,0million and on combined net profit of PLN 144.2 million. The income of the Bank in the first quarter of 2008 in comparison with combineddata for the first quarter of 2007 was influenced by: - an increase in net interest income of PLN 93.6 million, - lower fees and commissions income - by PLN 78.8 million, mainly dueto unfavorable market conditions, impacting income on investment products, - lower income from dividend by PLN 115 million - the dividend from CDMin 2007 (PLN 138.0 million) was paid in the first quarter while in 2008 will bepaid in the second quarter. At the same time operating costs were kept under control while the cost of riskhas decreased substantially. The main items of the Bank's balance sheet at the end of March 2008 incomparison with the end of December 2007 are as follows: 31.03.2008 31.12.2007 Total gross loans in PLN million* 68,402.1 67,701.6Impaired receivables to total receivables in 7.4 7.7%Total deposits in PLN million* 82,992.1 85,658.8Total assets in PLN million 118,016.9 119,568.6Structured Certificates of Deposits in PLN 1,986.3 2,049.6millionMutual funds distributed through the Bank's 19,395.3 24,153.9network in PLN millionCapital adequacy ratio in % 10.0 11.1 * The nominal value. The volumes of Bank's loans as at the end of March 2008 amounted to PLN 68,402.1million, of which corporate loans PLN 45,025.7 million and retail loans PLN23,376.4 million. In the first quarter of 2008 gross loans volumes increased byPLN 700.5 million (1.0%). At the end of March 2008, savings of the Bank's clients amounted toPLN 104,373.7 million and were by PLN 7,488.6 million lower than at the end of2007. The reasons of such changes in savings are described above. 5.3.3 Achievements of Bank Pekao S.A. Bank Pekao S.A. is a universal, commercial bank, offering a full range ofbanking services to both individual and corporate clients, operating in Polandand abroad. Pekao Group's subsidiary financial institutions operate in banking,asset management, pension funds, brokerage, leasing and factoring markets. In the first quarter of 2008, there were intense actions undertaken connected tothe integration of Bank Pekao with the separated part of Bank BPH S.A. At thesame time the Bank continued its high level of business activity. The continuousefforts were focused on offering key products, in particular PLN mortgage loans,consumer loans and mutual funds. The Bank continued its policy of offering PLNmortgage loans. 31.03.2008 31.12.2007Total number of PLN current accounts (in 4,175.0 4,179.7thousand) *of which packages (in thousand) 3,194.7 3,205.1Number of mortgage loans accounts (in 177.8 181.0thousand) **of which PLN mortgage loans accounts (in 117.2 117.1thousand)Number of "Express Loans" accounts (in 674.0 679.7thousand)Total number of outlets (in items) 1,055 1,058Total number of ATMs (in items) 1,888 1,885 * Number of accounts including accounts of pre-paid cards. ** Retail customers accounts The Bank has a superior physical distribution available to its clients, with acomprehensive and convenient countrywide network. The distribution network issupplemented with teams of Relationship Managers and a network of the PrivateBanking offices. The number of customers using alternative distribution channelssuch as the call centre and internet banking platform is systematically growing.Pekao24 Service (for the retail and SME clients) and PekaoBiznes24 (forcorporate clients) facilitate the management of financial assets, and the scopeof services is being systematically extended. In the first quarter of 2008 theinternet banking platform functionality was improved by the possibility of termdeposit termination, the scope of applications was extended by cardsapplication, Eurokonto overdraft granting and changing of monthly limits as wellas opening current account in convertible currencies and brokerage account inDom Maklerski Pekao (Pekao Brokerage House). The offer of internet banking for SME clients was extended by introduction ofPekaoFIRMA24. Bank Pekao S.A. continues to organize conferences for entrepreneurs regarding EUfunds availability for enterprises in Poland within the framework of EU budgetfor the years 2007-2013. The aim of these conferences is to presentpossibilities of utilizing support funds and to indicate the Bank's instrumentssupporting process of gathering EU funds for projects realization. Bank Pekao S.A. is offering an unique instrument on the Polish market, theInternet search engine for information about the EU funds - a tool supportingthe provision of basic information about EU programs meeting pre-definedcriteria. This search tool as well as Bank's EU newsletter, providing up to dateinformation about legislation changes and support programs in place, areavailable on the Bank's website. 5.3.4 Achievements of subsidiaries Pioneer Pekao TFI S.A. As at 31st March 2008, the net assets value of mutual funds under management ofPioneer Pekao TFI S.A., a company managed by Pioneer Pekao Investment ManagementS.A. (in which the Bank holds a 49% share), amounted to PLN 23,205.3 million andwas lower by PLN 5,512.2 million compared with the end of 2007. The decrease ofassets was driven by unfavorable market conditions that resulted in significantredemptions of mutual funds and the decrease of assets valuation caused mainlyby a decrease of shares prices. As at 31st March 2008, the Company had1,196.6 thousand open accounts (a decrease by 5.8% in the first quarter of2008). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 31.03.2008 31.12.2007 Net assets value of Pioneer Pekao 23,205.3 28,717.5TFI- bond and money market funds 5,253.7 4,550.5- equity funds 7,377.1 10,564.7- balanced funds 10,574.5 13,602.3 Centralny Dom Maklerski Pekao S.A. (CDM) At the end of March 2007, CDM maintained over 149.8 thousand investment accountsand its market share amounted to 15.1%. CDM also offered on-line access toinvestment accounts, allowing its customers to buy and sell all instrumentslisted on the Warsaw Stock Exchange and on the OTC market (CeTO) through theInternet. As at 31st March 2008, CDM maintained 27.1 thousand on-line accounts,0.7 thousand more than at the end of 2007. In the first quarter of 2008 the Company achieved: - a 21.0% share in the bond trading volume on the Warsaw Stock Exchange, - a 3.2% share in the stock trading volume on the Warsaw Stock Exchange, - a 4.1% share in the futures trading volume on the Warsaw Stock Exchange. In line with Bank's strategy of concentration on retail brokerage services,being a part of the integrated services offered by Bank to retail clients, CDMon the basis of a sale agreement dated January 28th 2008 sold to UniCredit CA IBpart of the enterprise conducting corporate brokerage and investment bankingservices. UniCredit Bank Ltd. As of 31st March 2008 UniCredit Bank pursues its activity through 57 branches,192 debit cards and consumer credits sales outlets, providing services for over113.0 thousand individual clients and over 1.8 thousand corporate clients. According to information provided by Bank Austria Creditanstalt AG (BA-CA), amember of UniCredit Group, BA-CA on 24th January 2008 completed on theacquisition of 94.2% of the share capital of Ukrsotsbank (which is the fourthlargest bank in Ukraine by assets) from the group of investors represented byInterpipe Group. The structure of the Ukrainian operations belonging to theUniCredit Group is currently being assessed. 5.4 Segment reporting Segment reporting of the Pekao Group covers following areas: - Retail banking area - full-range of banking activity related toretail clients and small and micro companies with annual turnover not exceedingPLN 10 million, and also income of companies consolidated under the full methodand assigned to retail activity, - Corporate banking area - full-range of banking activity related tomedium and large companies, and also income of companies consolidated under thefull method and assigned to corporate activity, - Treasury and Investment activities area - Bank's involvement oninter-bank market, in debt securities and capital investments in companies,which are not a part of other segments, and also income of companiesconsolidated under the full method and assigned to this activity. Information on main segments' results for the first quarter of 2008*: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 747.3 699.6 523.4 1 970.3External interest expense 278.2 441.4 128.0 847.6Net external interest 469.1 258.2 395.4 1,122.7incomeInternal interest income 631.5 860.8 (1 492.3) -Internal interest expense 367.5 737.4 (1 104.9) -Net internal interest 264.0 123.4 (387.4) -incomeNet interest income 733.1 381.6 8.0 1,122.7Non interest income 526.3 669.5 22.3 1,218.1Total income 1,259.4 1,051.1 30.3 2,340.8 Allocated assets 32,478.2 40,334.3 40,600.2 113,412.7Unallocated assets 8,986.8 Total assets 122,399.5 Allocated liabilities 52,417.8 39,143.8 8,880.0 100,441.6Unallocated liabilities 21,957.9 Total liabilities 122,399.5 * Including results of Pekao285 Information on main segments' results for the first quarter of 2007*: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 288.0 355.6 342.8 986.4External interest expense 91.4 235.3 66.6 393.3Net external interest 196.6 120.3 276.2 593.1incomeInternal interest income 315.0 260.6 (575.6) -Internal interest expense 126.6 256.3 (382.9) -Net internal interest 188.4 4.3 (192.7) -incomeNet interest income 385.0 124.6 83.5 593.1Non interest income 487.3 107.9 33.2 628.4Total income 872.3 232.5 116.7 1,221.5 Allocated assets 13,243.5 24,558.9 30,998.2 68,800.6Unallocated assets 4,773.1 Total assets 73,573.7 Allocated liabilities 30,868.2 23,917.1 6,206.7 60,992.0Unallocated liabilities 12,581.7 Total liabilities 73,573.7 * Methodology comparable with methodology of the first quarter of 2008, datadifferent than published for the first quarter of 2007 due to changes inallocation of revenues by segment. The methodology applied by the Bank inallocation of interest income/expense between segments is based on theapplication of market interest rates to segment product volumes, pricing forliquidity, term to maturity and currency structure. 5.5 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 31.03.2008 31.12.2007 31.03.2008 31.12.2007Total provisions 373.6 379.8 368.8 375.0of which:provisions for off-balance 180.4 186.2 180.4 186.2sheet liabilitiesprovisions for liabilities to 129.6 123.6 127.8 121.9employeesother provisions 63.6 70.0 60.6 66.9Provision for deferred tax 0.0 0.3 0.0 0.0Deferred tax assets 467.2 419.0 395.2 349.4 5.6 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. I Q 2008 I Q 2007 I Q 2008 I Q 2007Total (50.3) (43.6) (37.7) (41.4)for loan receivables (52.6) (45.7) (40.1) (43.5)for off-balance sheet 2.1 2.1 2.2 2.1liabilitiesother 0.2 0.0 0.2 0.0 5.7 Information on contingent assets and liabilities (PLN million) 31.03.2008 31.12.2007Contingent liabilities granted and 61,294.3 64,325.0receivedLiabilities granted: 36,372.6 38,716.8Financial 32,222.8 34,264.5Guarantees 4,149.8 4,452.2Liabilities received: 24,921.8 22,608.2Financial 6,400.8 2,199.5Guarantees 18,521.0 20,408.7Financial derivatives 253,682.3 298,579.7currency transactions 65,038.2 109,653.5interest rate transactions 165,791.3 188,215.7securities transactions 22,852.8 710.5Other 18,394.1 17,663.0Total off-balance sheet items 333,370.7 377,567.7 5.8 Post balance sheet events No significant events occurred after the balance sheet date which were notreflected in the financial statements. 5.9 Seasonality or cyclical nature of the Bank's activity The demand for the financial services offered by the Bank is stable, and so theimpact of seasonal changes is immaterial. Due to the nature of the Bank'sactivity, it is not subject to seasonal or cyclical changes. 5.10 Issuance, redemption and repayment of debt securities Issuance of bonds of Bank Pekao S.A. On the basis of Resolution No. 6 of the Bank's Extraordinary General Meetingdated 25th July 2003 on the issue of registered bonds under an incentiveprogramme, the Bank issued registered A and B series bonds with pre-emptiverights to take up the Bank's F series shares as well as registered C and Dseries bonds with pre-emptive rights to take up the bank's G series shares. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from the A and B series bondsand all the pre-emptive rights to take up G series shares pursuant to theimplementation of the right of priority ensuing from the C series bonds wereexecuted. The Bank acquired 69,028 registered series C bonds from Pekao Faktoring Sp. zo.o., for the purpose of redemption, and a total of 345,972 series C bonds fromeligible persons, upon the request thereof for early redemption, pursuant to theimplementation of the right of priority to take up the Bank's shares ensuingfrom the bonds, for the purpose of redemption thereof. The issue price of G series share amounts to PLN 123.06. The execution of the pre-emptive rights to take up G series shares can beexercised in respect of D series bonds from 1st January 2009 to 31st December2012. D series bonds can be purchased from the Trustee agent by eligible persons until30th December 2008. The bonds that will not be sold by the Trustee agent by 30th December 2008, willbe purchased on 31st December 2008 by the Bank for the purpose of redemption atthe nominal value. Issuance of bonds of Joint Stock Commercial Bank HVB Bank Ukraine On 24th January 2006 HVB Ukraine issued 79,000 bonds of total face value79,000,000 UAH. The purpose of this issue was to acquire the funds for financingthe development of the lending activity. In the issue HVB Ukraine offered bondswith put option, common, interest bearing, registered, with discount to the facevalue. For the first two years the coupon interest was fixed at 8.8% p.a. andthe interest rate for the next two years is 10.35% p.a. Structured Certificates of Deposits Structured Certificates of Deposits are investment products for Bank's clientsthat are an alternative for traditional banks' deposits. The total value ofBank's liabilities due to that ground (principal) amounted to PLN 1,986.3million at the end of March 2008. In Bank's balance sheet there are 39 issues ofStructured Certificates of Deposits in PLN, Euro and USD with the maximummaturity date set at 8th March 2011. Liabilities with the date of maturity in2008, 2009, 2010 and 2011 account for 27.6%, 41.2%, 19.5% and 11.7% of totalliabilities, respectively. BPH PBK Leasing S.A. bonds The total value of liabilities due to that bonds (principal) amounted to PLN627.9 million. The maximum maturity date set at 30th September 2008. Nominalvalue with the date of maturity up to 1 month account to 35.2%, with the date ofmaturity 1 - 3 months - 48.9% and over 3 months - 15.9% of total nominal value. BPH Bank Hipoteczny S.A. mortgage-backed securities The total value of liabilities due to that mortgage-backed securities(principal) amounted to PLN 951.4 million. The maximum maturity date set at 2ndJune 2012. Nominal value with the date of maturity up to 3 months account to4.2%, with the date of maturity 2 - 3 months - 64.0% and over 3 years - 31.8% oftotal nominal value. 5.11 Dividend paid Pursuant to Resolution of the Ordinary General Meeting of Bank Pekao S.A. dated23rd April 2008, PLN 9.60 per one share was appropriated for payment of adividend in respect of 2007, i.e. 6.7% higher as compared to the dividend paidin respect of 2006 (PLN 9.00 per one share). The ex-dividend date was declaredfor the 15th May 2008 and the date of dividend payment for the 3rd June 2008.All the Bank's shares are ordinary shares. 5.12 Effects of changes in the Group's structure As at 31st March 2008 the composition of the Capital Group had not changedcompared to the data disclosed as at 31st December 2007. 5.13 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published a forecast of financial results for 2008. 5.14 Information regarding shareholders owning at least 5% of the totalnumber of votes at the General Meeting of Bank Pekao S.A. The shareholders of Bank Pekao S.A. owning directly or indirectly through theirsubsidiaries at least 5% of the total number of voting rights at the GeneralMeeting of Bank Pekao S.A. are as follows: Shareholder's # of shares Share in share # of shares Share in share name and votes at capital and and votes at capital and the General total number of the General total number of Meeting votes at the Meeting votes at the General Meeting General Meeting 31st March 2008 31st December 2007 UniCredito 155,433,755 59.29% 155,433,755 59.36% Italiano S.p.A. Other 106,734,749 40.71% 106,432,902 40.64% shareholders Total 262,168,504 100.00% 261,866,657 100.00% As at the date of this report share capital of the Bank has been increased bythe total amount of PLN 44,125 as a result of issue of 44,125 series G ordinarybearer shares which have been taken up by participants of share optionprogramme. The share capital of the Bank amounts to PLN 262,212,629. The shareof UniCredito Italiano S.p.A. in the share capital and the total number of votesat the General Meeting amounts to 59.28% while the share of other shareholdersamounts to 40.72%. 5.15 The Issuer's shares held by the Management and Supervisory Board Members According to information available to the Bank as at the date of submitting thisreport, the members of the Bank's management and supervisory bodies held 175,239shares of Bank Pekao S.A. The table below presents the number of shares held bythe Management Board Members: As at the date of submitting the Change report For the first For the fourth quarter 2008 quarter 2007 Jan Krzysztof 50,000 10,000 40,000BieleckiLuigi Lovaglio 98,036 65,357 32,679Marian Wazynski 27,203 13,089 14,114Total 175,239 88,446 86,793 The Bank Pekao S.A. Capital Group is running an incentive programme in the formof management stock options. The Programme covers the Management Board of theBank, the remaining managerial staff, key employees for realisation of Bank'sstrategy, as well as employees of subsidiaries. The persons who meet therequirements set in the Programme will be able to acquire the Bank's shares. As at the date of submitting this report the incentive programme for 2004includes 39 persons for a total 303,760 shares, 132,791 of which will be able tobe purchased by the management. The Members of the Supervisory Board did notparticipate in the management stock options programme. The table below presents the number of management stock options held by theManagement Board Members: As at the date of submitting the Change report For the first For the fourth quarter 2008 quarter 2007 Jan Krzysztof 40,000 80,000 (40,000)BieleckiLuigi Lovaglio 32,678 65,357 (32,679)Paolo Iannone 23,000 23,000 0Christopher 23,000 23,000 0KosmiderMarian Wazynski 14,113 28,227 (14,114)Total 132,791 219,584 (86,793) The Bank has also joined the UniCredit Group incentive program "Long-TermIncentive Plan 2007", based on offering the stock options and shares ofUniCredito Italiano S.p.A. to the selected key managers and employees of theUniCredit Group. 63 employees of Pekao Group, including 8 members of theManagement Board, are participating in this programme. 5.16 Pending litigations In the first quarter of 2008 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, in respect tothe liabilities of the Group was 457. The total value amounted to PLN 751.0million. The number of legal proceedings in respect to receivables was 3,357with a total value of PLN 879.3 million. The value of legal proceedings relatingto the liabilities of the Group in the first quarter of 2008 does not exceed 10%of the issuer's equity. In the opinion of issuer opinion any proceeding that was in progress in courts,appropriate bodies of arbitration or public administration bodies during thefirst quarter of 2008, as well as all the proceedings taken together did notcreate any threat to the financial liquidity of the Bank. 5.17 Assessment of the financial credibility of Bank Pekao S.A. As at 31st March 2008, Bank Pekao S.A. had the following financial credibilityratings: Fitch Ratings Long-term rating (IDR) A Short-term rating F1 Individual rating B/C Support rating 1 Outlook of IDR Positive Standard and Poor's Long-term rating A Short-term rating A-1 Outlook Stable Moody's Investors Service Ltd. (The Bank has not ordered Moody's rating) Long-term deposit rating A2 Short-term deposit rating Prime-1 Financial strength C Outlook Stable 5.18 Transactions of related entities Agreement on sale of corporate brokerage part of Centralny Dom Maklerski PekaoS.A. (CDM) On the 28th January 2008 Centralny Dom Maklerski Pekao S.A. (a wholly ownedsubsidiary of the Bank) and UniCredit CA IB Polska S.A., signed the agreement onthe sale of part of the enterprise of CDM responsible for conducting corporatebrokerage and investment banking services. The impact of the transaction on thePre-tax profit of the Group is PLN 435.6 million and on the Net profit of theGroup is PLN 352.8 million. The transaction is in line with the strategy of focusing Bank Pekao S.A. onretail brokerage services as part of the integrated service offer for Bankretail customers. Any other transactions with related entities, other than typical and routinetransactions, with a value exceeded the equivalent of EUR 500 thousand, duringthe first quarter of 2008 the Bank and its subsidiaries have not concluded. During the first quarter of 2008, the Bank and its subsidiaries did not provideany sureties or guarantees in respect of loans or advances to any single entityor a subsidiary of that entity, as a result of which the total value of existingsureties and guarantees would have equal or exceeded10% of the Bank's equity. Increasing the share capital of UniCredit Bank Ltd. (former Bank Pekao (Ukraine)Ltd.) On the day 4th February 2008 the National Bank of Ukraine registered theamendments to the Articles of Association of UniCredit Bank Ltd. relating to theincrease of share capital of UniCredit Bank Ltd. by the amount of UAH109,834,200, being the equivalent of PLN 52,281,079.20 as per the NBP table ofexchange rates of 4th February 2008. On the 3rd September 2007 the Extraordinary General Meeting of UniCredit BankLtd. adopted a conditional resolution (conditional on receiving the consent ofthe National Bank of Ukraine NBU) to increase the share capital of UniCreditBank Ltd. by the amount of UAH 109,834,200, being the equivalent of PLN61,221,583.08 as per the NBP table of exchange rates of 3rd September 2007. The increase in the share capital of UniCredit Bank Ltd. was a consequence ofthe merger between UniCredit Bank Ltd. and JSCB HVB Bank Ukraine (100%-ownedsubsidiaries of Bank Pekao S.A.) and take-up by Bank Pekao S.A. of 109,834,200newly created shares in UniCredit Bank Ltd. with the par value of 1 UAH/share inthe share capital of UniCredit Bank Ltd., totalling UAH 109,834,200, in returnfor 1,098,342 stocks of JSCB HVB Bank Ukraine with the par value of 100 UAH/stock, with the total par value of UAH 109,834,200. At the moment of registration by the National Bank of Ukraine NBU of relevantamendments to the Articles of Association of the Bank concerning capitalincrease, the share capital of UniCredit Bank Ltd. has been increased from UAH543,673,470 to the amount of UAH 653,507,670. Bank Pekao S.A. currently holds shares in UniCredit Bank Ltd. of the totalnominal value of UAH 653,507,670, comprising 100% of share capital of UniCreditBank Ltd., carrying 100% of votes at the General Meeting of Shareholders inUniCredit Bank Ltd. 5.19 Factors which will affect the results of at least the next quarter The Polish economy is still expanding at high rate due to strong domestic demandand principally due to very strong growth of investment which creates favourableconditions for banking activities. Fast growth rate in retail loans andcorporate customer loans is observed and since the beginning of 2008 alsoincreased growth of households deposits. The drop in prices on the stock marketin the last months of 2007 and in the first quarter of 2008 has caused adecrease of investment fund assets and an outflow of savings from those funds. Strong economic growth is accompanied with by an even particular higher growthof wages which is not accompanied by an increase in work efficiency. The veryfast growth rate of internal demand has also created a growth in the foreigntrade deficit with high growth of wages despite the strengthening of the Polishzloty against EUR, and on particular against a weakening USD. These occurrencesaccompanied by increases of global prices of energy and food, already in forthquarter of 2007, significantly increased the prices growth visible also in thefirst quarter of 2008 and will probably last in the whole first half of 2008.Fast inflation growth forced the Monetary Policy Council to start in 2007 aseries of interest rates increases that were continued in the first quarter of2008. It is likely that Monetary Policy Council will decide about further ratesincrease by additional 25-50 basis points. Continued turmoil on the international financial markets related to the crisison the American mortgage loans market decreases the availability of foreignfinancing and also increase the risk of global economy slow-down and deeperprice drop on the stock market which in return threatens further outflow ofsavings from mutual funds. Despite increased growth rate of term deposits, still loan growth rate is higherthan growth of deposits and this disproportion, although slower than in 2007, isstill increasing. There is also growing discrepancies between maturity of assetsand liabilities. Thus liquidity position of banks is continuously weakening,although interest rates increases, those already done as well as expected ones,will support reversing of this process. The necessity of depository base growthin the conditions of a more difficult access to foreign financing willcontinuously cause the growth of liabilities financing costs, although due tohigher NBP interest rates to large extent this cost will be compensated byhigher interest rates on loans. Growing spread between Polish and foreign interest rates has caused again higherinterest in FX mortgage lending. This may negatively influence the growth of PLNmortgage lending as well as credit risk of banks granting FX mortgages. It is expected that economy growth rate to decrease gradually in the followingquarters, however, it will still remain at a high, 5% level. Credit actiongrowth rate will gradually decline, but it will still remain at a two-digitnumber level. Growth of household incomes and higher interest rates will befavourable for their savings which will be placed on deposits more often than inthe previous year because of the prices drop on the stock market. Strong income growth, PLN appreciation and higher interest rates will graduallydiminish enterprises efficiency and it may prove that higher credit risk is moreprobable in this sector. However, fast increase of average households incomewill considerably balance the risk related to higher costs of their debt servicewhile a higher risk regarding households with income lower than average can beexpected. This information is provided by RNS The company news service from the London Stock Exchange

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