3rd Aug 2007 09:22
Bank Pekao SA03 August 2007 BANK POLSKA KASA OPIEKISPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Groupfor the second quarter of 2007 prepared according to theInternational Financial Reporting Standards Selected financial statements translated into EUR in PLN ths. in EUR ths. Position 2 Quarters 2 Quarters 2 Quarters 2 Quarters of 2007 of 2006 of 2007 of 2006Net interest income 1 213 801 1 143 882 315 388 293 288Net fee and commission income 1 108 522 928 876 288 033 238 161Operating profit 1 215 867 1 037 028 315 924 265 891Profit before income tax 1 294 156 1 073 016 336 267 275 118Net profit (loss) 1 043 205 865 208 271 061 221 837Net profit (loss) attributable 1 041 246 864 992 270 552 221 782to equity holders of theCompanyNet profit (loss) attributable 1 959 216 509 55to minority interestNet cash from operating 2 765 106 2 780 249 718 471 712 848activitiesNet cash used in investing (731 612) (1 208 432) (190 098) (309 838)activitiesNet cash from financing (1 472 014) (1 199 209) (382 480) (307 474)activitiesNet increase / decrease in 561 480 372 608 145 892 95 536cash and cash equivalentsTotal assets 71 191 123 66 792 966 18 904 648 16 519 010Amounts due to the Central 1 606 898 1 838 971 426 708 454 808BankAmounts due to other banks 6 486 233 4 484 353 1 722 405 1 109 055Amounts due to customers 52 139 609 49 866 024 13 845 560 12 332 696Minority interest 15 396 15 217 4 088 3 763Equity attributable to the 8 144 272 7 806 799 2 162 694 1 930 751Company's equity holdersShare capital 167 103 166 808 44 374 41 254Number of shares 167 103 098 166 808 257 167 103 098 166 808 257 Book value per share (in PLN/ 48,74 46,80 12,94 11,57EUR)Diluted book value per share 48,68 46,77 12,93 11,57(in PLN/EUR)Earnings per 1 ordinary share 6,23 5,19 1,62 1,33(in PLN/EUR)Diluted earnings per 1 6,23 5,18 1,62 1,33ordinary share (in PLN/EUR)Paid dividend per share (in 9,00 7,40 2,31 1,84PLN/EUR)Capital adequacy ratio 14,66 18,43 x xRisk weighted assets 42 690 888 34 281 761 11 336 472 8 478 449Core funds (Tier I) 6 257 951 6 625 266 1 661 785 1 638 538Supplementary funds (Tier II) - (171 913) - (42 517) 1 Summary 2 Accounting principles adopted in the preparation of the quarterly report 3 Financial statement 4 Additional information 4.1 The Group 4.2 Achievements of Bank Pekao S.A. 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) 4.3.3 Business activity in Ukraine 4.4 Results achieved in the first half of 2007 and the factors which influencedthese results 4.4.1 Results of the Group 4.4.2 The structure of the net profit 4.5 Segment reporting 4.6 Adjustments for provisions, deferred tax provision and assets 4.7 Write-offs for revaluation of assets 4.8 Information on contingent assets and liabilities 4.9 Post balance sheet events 4.10 Seasonality or cyclical nature of the Bank's activity 4.11 Issuance, redemption and repayment of debt securities 4.12 Dividend paid 4.13 Effects of changes in the Group's structure 4.14 The position of the Management Board regarding the possibility of achievingpreviously published forecasts 4.15 The information about the shareholders owning at least 5% of the totalnumber of votes at the General Meeting of Bank Pekao S.A. 4.16 The Issuer's shares held by the Management and Supervisory Board Members 4.17 Pending litigations 4.18 Claims regarding the resolutions of the Bank's Ordinary ShareholdersMeeting 4.19 Assessment of the financial credibility of Bank Pekao S.A. 4.20 Management and Supervisory Boards of the Bank 4.21 Information about integration of Bank Pekao S.A. and Bank BPH S.A. 4.22 Transactions of related entities 4.23 Factors which will affect the results of at least the next quarter 1 Summary In the second quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 540.1 million. In the first half of the 2007 the net profit amounted to PLN 1,043.2 million,i.e. 20.6% higher than in the first half of 2006. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fees and commissionsand interest income, with operating costs under control and lower cost of risk. • In the first half of 2007 the Group's total income amounted to PLN 2,549.3 million, i.e. PLN 236.5 million (10,2%) higher than last year. The main growth driver in this period was fee and commission income, which increased by 19.3%, primarily thanks to fee and commission income on investment products. • In the first half of 2007 interest income was PLN 66.1 million higher than last year, mainly as a result of the increasing volumes allowing to offset the impact of lower yield on debt securities portfolio. • In the first half of 2007, the Group noted a continued positive trend in the results of its business activity, with successful sales of key products: mutual funds, PLN mortgage loans and consumer loans "Express Loan". The value of mutual funds increased by 32.9% compared with the end of 2006. Sales of PLN mortgage loans amounted to PLN 1,734.3 million (70,0% higher than in the first half of 2006) contributing to a growth in the stock of 23.4% in the first half of 2007. Sales of the "Express Loan" in the first half of 2007 amounted to PLN 938.4 million contributing to a growth in the stock of 10.5% in the first half of 2007. • Overhead costs (including depreciation) in the first half of 2007 amounted to PLN 1,241.1 million, i.e. 6.4% higher than in the first half of 2006. The total overhead costs were kept under control and increased mainly due to personnel costs growth related to improving results and also due to the expansion in the Ukrainian market. In the first half of 2007 the Group's cost / income ratio amounted to 48.7% and was 1.7 p.p. lower than in the previous year. • In the first half of 2007, impairment losses on loans and advances amounted to PLN 92.3 million and were 15.9% lower than in the previous year. This resulted primarily from the continued effective credit risk management and improved macroeconomic situation. The ratio of impaired receivables to total receivables decreased from 11.8% at the end of 2006 to 11.3% at the end of June 2007 as a result of an increase in the total volume of receivables. • Savings of the Group's clients increased in the first half of 2007 by PLN 8,723.2 million, i.e. by 12.0% resulting from an increase both in the savings of individual clients and in corporate deposits. The savings of retail clients increased by PLN 5,350.7 million in the first half of 2007 and almost reached the level of PLN 55 billion. Corporate deposits increased by PLN 3,372.5 million in this period. • In the first half of 2007, the gross loan portfolio grew by PLN 2,473.1 million, i.e. by 6.8%. This growth was driven by successful sale of PLN mortgage loans and the "Express Loan", as well as an increase in the volume of corporate 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 with theInternational Financial Reporting Standards (IFRS), published by theInternational Accounting Standards Board. The presented report meets the requirements of the International AccountingStandard 34 related to interim financial reports and of the Decree of theCouncil of Ministers dated 19th October 2005 on current and periodic informationsubmitted by the issuers of securities. The consolidated financial report of the Group and enclosed financial report ofthe Bank have been prepared in accordance with the accounting principles appliedfor the purpose of asset and liabilities valuation and measurement of financialresults, as disclosed in the consolidated financial statements and the standalone financial statements of Bank Pekao S.A. for the year ended on 31stDecember 2006, published on 21st March 2007, including the principles adoptedand described in the quarterly report for the first quarter 2007, concerning thedisclosure in the financial statements, of subsidiary entities being under jointcontrol, purchased or merged in the frame of the same Capital Group, which forthe Bank is UniCredit Capital Group. In the second quarter of 2007 no changes were made to accounting principlesapplied for the preparation of the financial statement of the Bank Pekao S.A.and the financial statements of the Capital Group. Data presented in this report have been prepared to a manner assuring theircomparability, with the exception of the historical data of the purchasedcompany - Commercial Bank HVB Bank Ukraine which were included in theconsolidated financial statements without restatements. 3 Financial statement Financial statements CONSOLIDATED INCOME STATEMENT II Quarter 2 Quarters II Quarter 2 Quarters(in '000 PLN) 2007 period 2007 period 2006 period 2006 period from from from from 07-04-01 to 07-01-01 to 06-04-01 to 06-01-01 to 07-06-30 07-06-30 06-06-30 06-06-30 Interest income 1 069 096 2 055 485 939 937 1 855 033Interest expense (448 363) (841 684) (367 293) (711 151)Net interest income 620 733 1 213 801 572 644 1 143 882Fee and commission income 663 803 1 244 351 524 707 1 030 916Fee and commission expense (72 427) (135 829) (55 899) (102 040)Net fee and commission income 591 376 1 108 522 468 808 928 876Dividend income 2 019 2 061 1 638 1 638Result on financial 19 445 45 103 16 870 19 397instruments at fair valueResult on investment 7 764 11 162 31 441 63 412securitiesForeign exchange result 71 513 137 651 67 916 120 236Other operating income 30 536 62 848 39 714 88 981Other operating expenses (15 511) (31 798) (20 245) (53 661)Net other operating income 15 025 31 050 19 469 35 320Net impairment losses on (48 786) (92 339) (51 385) (109 760)financial assets and netprovisions for guarantees andcommitmentsOverhead costs (646 861) (1 241 144) (583 582) (1 165 973)Operating profit 632 228 1 215 867 543 819 1 037 028Share of profit (loss) of 44 520 78 289 15 226 35 988associates and joint ventureentities valued at the equitymethodProfit before income tax 676 748 1 294 156 559 045 1 073 016Income tax expense (136 651) (250 951) (112 154) (207 808) Net profit for the period 540 097 1 043 205 446 891 865 208 1. Attributable to equity 539 160 1 041 246 446 132 864 992holders of the Company2. Attributable to minority 937 1 959 759 216interest Earnings per share (in PLN pershare)- basic for the period 6,23 5,19- diluted for the period 6,23 5,18 CONSOLIDATED BALANCE SHEET(in '000 PLN) 30.06.2007 31.12.2006 30.06.2006 Assets Cash and amounts due from Central Bank 4 344 853 3 577 924 3 027 986 Debt securities eligible for 2 147 2 519 4 010 rediscounting at the Central Bank Loans and advances to banks 10 379 991 10 512 877 9 051 044 Financial assets as held for trading 1 793 669 2 391 371 2 698 602 Derivative financial instruments 690 577 526 642 621 118 Other financial instruments at fair 1 509 962 1 613 196 1 689 741 value through profit or loss Loans and advances to customers 33 945 092 31 778 127 29 050 716 Net investment in the finance lease 1 148 570 966 607 859 868 Investment securities 13 862 639 13 000 067 15 736 070 1. Available for sale 13 432 059 12 574 657 14 256 522 2. Held to maturity 430 580 425 410 1 479 548 Assets of disposal group classifield as 3 771 8 784 53 165 held for sale Investments in associated undertakings 208 192 207 254 155 040 Intangible assets 597 694 608 884 610 239 Tangible fixed assets 1 424 207 1 445 460 1 418 154 Investment property 60 400 52 670 58 359 Income taxes 332 110 305 885 277 135 1. Current tax assets 27 1 491 - 2. Deferred income tax assets 332 083 304 394 277 135 Other assets 887 249 705 421 1 481 719Total assets 71 191 123 67 703 688 66 792 966 Liabilities and Shareholders' equity'Liabilities Amounts due to the Central Bank 1 606 898 2 045 278 1 838 971 Amounts due to other banks 6 486 233 2 009 976 4 484 353 Financial liabilities as held for 129 974 211 373 554 825 trading Derivative financial instruments 676 310 504 200 568 654 Amounts due to customers 52 139 609 51 793 583 49 866 024 Debt securities in issue 43 717 3 2 Liabilities directly associated with 916 - - assets classified as held for sale Current income tax liabilities 87 887 202 148 97 278 Provisions for deferred income tax 350 - - Provisions 219 486 223 943 90 071 Other liabilities 1 640 075 1 820 557 1 470 772Total liabilities 63 031 455 58 811 061 58 970 950 Shareholders' equityCapital and reserves attributable to the 8 144 272 8 875 883 7 806 799Company's equity holders Share capital 167 103 166 808 166 808 Other capital and reserves 7 064 892 7 028 137 6 881 567 Prior and current year profits 912 277 1 680 938 758 424Minority interest 15 396 16 744 15 217Total Shareholders' equity 8 159 668 8 892 627 7 822 016Total liabilities and Shareholders' equity 71 191 123 67 703 688 66 792 966 Capital adequacy ratio 14,66 16,51 18,43Book value 8 144 272 8 875 883 7 806 799Number of shares 167 103 098 166 808 257 166 808 257Book value per share ( in PLN per share) 48,74 53,21 46,80Diluted numebr of shares 167 290 662 166 941 439 166 935 209Diluted book value per share (in PLN per 48,68 53,17 46,77share) CONSOLIDATED STATEMENT OF CHANGES 2 Quarters 2 Quarters 2007 2006 2006 IN SHAREHOLDERS' EQUITY period from period from period from (in '000 PLN ) 07-01-01 06-01-01 06-01-01 to 07-06-30 to 06-12-31 to 06-06-30 Shareholders equity at the beginning 8 892 627 8 422 726 8 422 726 of the period 1. Share capital at the beginning of 166 808 166 482 166 482 the period a) Increase 295 326 326 - new shares issue 295 326 326 b) Decrease - - - - redemptions - - - 1. Share capital at the end of the 167 103 166 808 166 808 period 2. Earnings from previous years at the 1 680 938 1 521 895 1 521 895 beginning of the period a) Increase 14 624 31 226 31 226 - other 14 624 31 226 31 226 b) Decrease (1 824 531) (1 659 689) (1 659 689) - appropriation to general banking (100 000) (70 000) (70 000) risk fund - appropriation to other reserve (158 757) (346 418) (346 418) capital - appropriation to reserve capital (27 856) (8 890) (8 890) - dividend (1 503 928) (1 234 381) (1 234 381) - other (33 990) - - 2. Earnings from previous years at the (128 969) (106 568) (106 568) end of the period 3. Other capital and reserves at the 7 028 137 6 718 913 6 718 913 beginning of the period a) Increase 320 135 466 036 463 592 - appropriation of net profit 286 613 425 308 425 308 - share premium on issue of new shares 31 623 34 851 34 851 - employee share option proceeds 1 899 5 877 2 939 - - 494 b) Decrease (283 380) (156 812) (300 938) - valuation of securities available (117 713) (110 976) (268 952) for sale (net) (8 039) (10 080) - - other (157 628) (35 756) (31 986) 3. Other capital and reserves at the 7 064 892 7 028 137 6 881 567 end of the period 4. Net profit 1 041 246 1 787 506 864 992 Shareholders' equity at the end of the 8 144 272 8 875 883 7 806 799 period Minority interest at the beginning of 16 744 15 436 15 436 the period a) Changes: (1 348) 1 308 (219) - net profit 1 959 2 191 216 - other (3 307) (883) (435) Minority interest at the end of the 15 396 16 744 15 217 period Total equity 8 159 668 8 892 627 7 822 016 CONSOLIDATED STATEMENT OF CASH II Quarter 2 Quarters II Quarter 2 QuartersFLOW 2007 2007 2006 2006(in '000 PLN) period from period from period from period from 07-04-01 07-01-01 06-04-01 to 06-01-01 to to 07-06-30 to 07-06-30 06-06-30 06-06-30Cash flow from operatingactivities - indirect method Net profit (loss) 539 160 1 041 246 446 132 864 992Adjustments: (955 772) 1 723 860 226 138 1 915 257Deprecition 80 391 160 717 78 982 158 295Share of profit of associates (44 520) (78 289) (15 226) (35 988)Foreign exchange differences 79 483 100 301 50 756 63 683(Profit) loss on investing (8 647) (21 407) (8 730) (46 741)activitiesImpariment - - (11 527) (11 532)Interest and dividend (230 170) (391 942) (223 216) (422 246)Change in loans and advances to (66 066) (72 563) (457 117) (1 165 605)banksChange in financial assets as 1 139 068 700 936 (739 416) (104 660)held for trading and otherfinancial instruments at fairvalue through profit or lossChange in derivative financial (139 320) (163 935) (138 942) (121 828)instrumentsChange in loans and advances to (617 863) (2 166 593) (524 921) (824 890)customersChange in net investment in the (74 485) (181 963) (76 375) (113 977)finance leaseChange in investment securities (3 938) (39 672) 570 570available for saleChange in deferred income tax 820 (18 016) 333 (31 949)assetsChange in other assets 209 601 (277 590) (665 286) (850 499)Change in amounts due to banks 2 455 837 4 037 877 2 322 966 2 375 571Change in liabilities as held for (407 994) (81 399) (690 946) (4 148)tradingChange in derivative financial 146 678 172 110 44 888 (39 035)instruments and other financialliabilitiy at fair value throughprofit or lossChange in amounts due to (3 040 450) 346 026 1 371 931 3 018 147customersChange in debt securities in - - - -issueChange in provisions (4 457) (4 457) (10 674) (18 656)Change in other liabilities (247 738) (177 566) (146 181) (31 981)Income tax paid (299 800) (369 759) (48 212) (116 606)Current tax 117 798 251 044 112 481 239 332Net cash from operating (416 612) 2 765 106 672 270 2 780 249activities Cash flows from investingactivities Investing activity inflows 15 809 467 23 190 608 10 183 765 17 494 583Sale of subsidiaries and - - - -associatesSale of investment securities 15 477 509 22 747 876 9 918 097 17 105 224Sale of intangible assets and 462 599 2 320 8 359tangible fixed assetsOther investing inflows 331 496 442 133 263 348 381 000Investing activity outflows (15 239 365) (23 922 220) (9 794 324) (18 703 015)Purchase of subsidiaries and - - - -associatesPurchase of investment securities (15 139 847) (23 785 774) (9 723 747) (18 606 583)Purchase of intangible assets and (99 518) (136 446) (70 216) (96 041)tangible fixed assetsOther investing outflows - - (361) (391)Net cash used in investing 570 102 (731 612) 389 441 (1 208 432)activities Cash flows from financingactivities Financing activity inflows (3) 31 918 8 115 35 177Proceeds from loans and advances - - - -from other banksProceeds from other loans and - - - -advancesIssue of debt securities - - - -Increase of subordinated - - - -liabilitiesIssue of ordinary shares (3) 31 918 8 115 35 177Sale of own shares - - - -Other financing inflows - - - -Financing activity outflows (1 503 928) (1 503 932) (1 234 382) (1 234 386)Repayments of loans and advances - - - -from other banksRepayments of other loans and - - - -advancesRedemption of debt securities - (4) (1) (5)Decrease of subordinated - - - -liabilitiesOther financial liabilities - - - -Payments of financial lease - - - -liabilitiesDividends and other payments to (1 503 928) (1 503 928) (1 234 381) (1 234 381)shareholdersOther than payments to - - - -shareholders expenditures due toappropriation of profitPurchase of own shares - - - -Other financing outflows - - - -Net cash from financing (1 503 931) (1 472 014) (1 226 267) (1 199 209)activities Total net cash flow (1 350 441) 561 480 (164 556) 372 608Net change in cash and cash (1 350 441) 561 480 (164 556) 372 608equivalentsCash and casch equivalents at the 12 545 258 10 633 337 8 204 385 7 667 221beginning of the periodCash and cash equivalents at the 11 194 817 11 194 817 8 039 829 8 039 829end of the period QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT (in '000 PLN) II Quarter 2 Quarters II Quarter 2 Quarters 2007 period 2007 period 2006 period 2006 period from from from from 07-04-01 to 07-01-01 to 06-04-01 to 06-01-01 to 07-06-30 07-06-30 06-06-30 06-06-30 Interest income 1 001 163 1 967 746 924 019 1 824 170Interest expense (438 485) (837 950) (373 847) (724 368)Net interest income 562 678 1 129 796 550 172 1 099 802Fee and commission income 525 053 1 004 291 424 793 849 757Fee and commission expense (63 971) (117 621) (45 502) (82 998)Net fee and commission income 461 082 886 670 379 291 766 759Dividend income 90 706 243 055 170 025 170 025Result on financial instruments at 19 138 44 380 17 575 19 451fair valueResult on investment securities 7 253 10 651 31 441 63 412Foreign exchange result 71 214 136 883 67 129 119 190Other operating income 23 748 51 953 72 892 89 626Other operating expenses (13 016) (28 094) (17 218) (32 518)Net other operating income 10 732 23 859 55 674 57 108Net impairment losses on financial (35 267) (76 668) (51 042) (100 914)assets and net provisions forguarantees and commitmentsOverhead costs (573 668) (1 112 462) (538 281) (1 075 127)Operating profit 613 868 1 286 164 681 984 1 119 706Profit before income tax 613 868 1 286 164 681 984 1 119 706Income tax expense (116 546) (217 920) (99 763) (184 068) Net profit for the period 497 322 1 068 244 582 221 935 638 Earnings per share (in PLN pershare)- basic for the period 6,39 5,61- diluted for the period 6,39 5,61 BALNCE SHEET (in '000 PLN) 30.06.2007 31.12.2006 30.06.2006Assets Cash and amounts due from 4 329 485 3 573 882 3 026 392 Central Bank Debt securities eligible for 2 147 2 519 4 010 rediscounting at the Central Bank Loans and advances to banks 10 051 184 10 395 551 9 032 943 Financial assets held for 1 326 580 2 050 828 2 348 399 trading Derivative financial instruments 690 340 526 643 621 108 Other financial instruments at 1 509 910 1 613 195 1 689 741 fair value through profit or loss Loans and advances to customers 33 350 465 32 352 315 29 552 124 Investment securities 13 847 516 12 999 469 15 735 602 1. Available for sale 13 416 936 12 574 059 14 256 054 2. Held to maturity 430 580 425 410 1 479 548 Non-current assets held for sale 2 777 8 784 41 226 Shares in subsidiaries 1 143 827 671 100 514 668 Shares in associates 51 092 51 092 51 092 Intangible assets 579 699 597 050 601 922 Tangible fixed assets 1 361 472 1 399 804 1 398 189 Investment property 57 775 49 916 55 378 Income taxes 305 650 274 824 249 986 1. Current tax assets - - - 2. Deferred income tax assets 305 650 274 824 249 986 Other assets 512 104 409 783 1 262 604Total assets 69 122 023 66 976 755 66 185 384 Liabilities and Shareholders' equityLiabilities Amounts due to the Central Bank 1 606 898 2 045 278 1 838 971 Amounts due to other banks 5 400 281 1 926 999 4 322 283 Financial liabilities held for 126 230 203 408 501 116 trading Derivative financial instruments 676 290 504 194 568 706 Amounts due to customers 51 581 437 51 811 250 49 857 714 Debt securities in issue 8 12 12 Current income tax liabilities 81 180 201 631 93 828 Provisions for deferred income - - - tax Provisions 216 107 221 012 87 859 Other liabilities 1 333 409 1 442 806 1 247 895Total liabilities 61 021 840 58 356 590 58 518 384 Shareholders' equity Share capital 167 103 166 808 166 808 Profit for the year and retained 1 068 244 1 728 539 935 638 earnings Other capital and reserves 6 864 836 6 724 818 6 564 554Total Shareholders' equity 8 100 183 8 620 165 7 667 000Total liabilities and Shareholders' 69 122 023 66 976 755 66 185 384equity Capital adequacy ratio 12,84 14,74 16,31 STATEMENT OF CHANGES IN EQUITY 2 Quarters 2007 2006 2 Quarters 2006 (in '000 PLN) period from period from period from 07-01-01 06-01-01 06-01-01 to 07-06-30 to 06-12-31 to 06-06-30 Shareholders equity at the 8 620 165 8 196 258 8 196 258 beginning of the period 1. Share capital at the 166 808 166 482 166 482 beginning of the period a) Increase 295 326 326 - new shares issue 295 326 326 b) Decrease - - - - redemptions - - - 1. Share capital at the end of 167 103 166 808 166 808 the period 2. Retained earnings (loss) 1 728 539 1 506 779 1 506 779 from previous years at the beginning of the period a) Increase - - - b) Decrease (1 728 539) (1 506 779) (1 506 779) - appropriation to legal (15 000) - - capital - appropriation to general (100 000) (70 000) (70 000) banking risk fund - appropriation to reserve (109 611) (202 398) (202 398) capital - dividends (1 503 928) (1 234 381) (1 234 381) 2. Retained earnings (loss) at - - - the end of the period 3. Other capital at the 6 724 818 6 522 997 6 522 997 beginning of the period a) Increase 258 133 313 126 310 510 - appropriation of net profit 224 611 272 398 272 398 - issue of shares under its' 31 623 34 851 34 851 nominal value - valuation of management 1 899 5 877 2 939 options - foreign exchange differences - - 322 on branches abroad b) Decrease (118 115) (111 305) (268 953) - valuation of securities (117 830) (110 976) (268 953) available for sale; in which: (145 404) (136 979) (331 959) provision for deferred income 27 574 26 003 63 006 tax - foreign exchange differences (285) (329) - on branches abroad 3. Other capital at the end of 6 864 836 6 724 818 6 564 554 the period 4. Net profit 1 068 244 1 728 539 935 638 Shareholders' equity at the end 8 100 183 8 620 165 7 667 000 of the period CASH FLOW STATEMENT II Quarter 2 Quarters II Quarter 2 Quarters 2007 2007 2006 2006(in '000 PLN) period from period from period from period from 07-04-01 07-01-01 to 06-04-01 to 06-01-01 to to 07-06-30 07-06-30 06-06-30 06-06-30Cash flow from operatingactivities - indirect methodNet profit (loss) 497 322 1 068 244 582 221 935 638Adjustments: (562 154) 1 725 737 29 332 1 651 199Depreciation 75 605 151 400 75 034 150 599Foreign exchange differences 114 166 106 874 50 662 63 620(Profit) loss on investing (8 161) (20 858) 8 015 (64 542)activitiesImpairment 2 002 2 002 - -Interest and dividend (318 223) (631 541) (391 631) (590 661)Change in loans and advances to (7 635) (125 993) (468 850) (1 169 398)banksChange in financial assets as 1 206 710 827 533 (717 796) (38 936)held for trading and otherfinancial instruments at fairvalue through profit or lossChange in derivative financial (139 295) (163 697) (138 946) (121 818)instrumentsChange in loans and advances to (563 766) (997 778) (473 674) (822 885)customersChange in investment securities (3 942) (3 979) 15 565available for saleChange in deferred income tax 15 508 (3 252) (2 715) (34 972)assetsChange in other assets 382 978 (80 228) (850 007) -989 311Change in amounts due to banks 2 381 088 3 034 902 2 179 315 2 216 943Change in liabilities as held (384 819) (77 178) (702 059) (44 814)for tradingChange in derivative financial 146 677 172 096 44 925 (38 983)instrumentsChange in amounts due to (3 160 431) (229 813) 1 366 526 3 007 966customersChange in debt securities in - - - -issueChange in provisions (5 204) (4 905) (10 865) (17 154)Change in other liabilities (117 233) (110 362) (1 275) 25 494Income tax paid (279 215) (340 657) (39 821) (99 554)Current tax 101 036 221 171 102 479 219 040Net cash from operating (64 832) 2 793 981 611 553 2 586 837activities Cash flows from investingactivitiesInvesting activity inflows 15 786 750 23 254 617 10 275 432 17 620 525Sale of subsidiaries and - - - -associatesSale of investment securities 15 438 783 22 650 230 9 899 971 17 127 285Sale of intangible assets and 199 271 792 919tangible fixed assetsOther investing inflows 347 768 604 116 374 669 492 321Investing activity outflows (15 419 043) (24 291 341) (9 787 682) (18 692 599)Purchase of subsidiaries and (148 621) (474 729) - -associatesPurchase of investment (15 190 201) (23 708 784) (9 723 747) (18 606 583)securitiesPurchase of intangible assets (80 221) (107 828) (63 935) (86 016)and tangible fixed assetsOther investing outflows - - - -Net cash used in investing 367 707 (1 036 724) 487 750 (1 072 074)activities Cash flows from financingactivitiesFinancing activity inflows (3) 31 918 8 115 35 177Loans received from banks - - - -Loans received from other - - - -financial institutionsIssue of debt securities - - - -increase in subordinated - - - -liabilitiesIssue of ordinary shares (3) 31 918 8 115 35 177Sale of own shares - - - -Other inflows - - - -Financing activity outflows (1 503 928) (1 503 932) (1 234 381) (1 234 386)Repayment of bank loans - - - -Repayment of loans received from - - - -other financial institutionsRedemption of debt securities - (4) - (5)Decrease of subordinated - - - -liabilitiesRepayment of other financial - - - -liabilitiesRepayment of pricipal amounts - - - -under finance lease agreementsDividends and other payments to (1 503 928) (1 503 928) (1 234 381) (1 234 381)shareholdersOutflows from profi - - - -appropriation other thanpayments to shareholdersPurchase of own shares - - - -Other financing outflows - - - -Net cash from financing (1 503 931) (1 472 014) (1 226 266) (1 199 209)activities Total net cash flow (1 201 056) 285 243 (126 963) 315 554Net change in cash and cash (1 201 056) 285 243 (126 963) 315 554equivalentsCash and cash equivalents at the 12 063 704 10 577 405 8 131 091 7 688 574beginning of the periodCash and cash equivalents at the 10 862 648 10 862 648 8 004 128 8 004 128end of the period 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 30th June 2007 consists of Bank Pekao S.A asthe parent entity and 13 subsidiary entities. During the second quarter of 2007Bank Pekao S.A. has classified the shares of Access Sp. z o.o. as non-currentassets held for sale in consistence with IFRS 5 "Non-current assets held forsale and discontinued operations". In consequence, the assets and theliabilities of this company were disclosed adequately at items "Non-currentassets held for sale" and "Liabilities relating to assets held for sale" in theconsolidated Group financial statements. The following entities are included in the consolidated financial report as at30th June 2007: No Name of company Core activity % of Status Consolidation shareholder's method share capital 1. Bank Pekao S.A. banking - parent - 2. UniCredit Bank Ltd. ( f. banking 100.00 subsidiary full Bank Pekao (Ukraina) Ltd.) 3. Joint Stock Commercial banking 100.00 subsidiary full Bank HVB - Bank Ukraine 4. Centralny Dom Maklerski brokerage 100.00 subsidiary full Pekao S.A. 5. Pekao Fundusz Kapitalowy financial 100.00 subsidiary full Sp. z o.o. 6. Pekao Leasing Sp. z o.o. leasing 100.00 subsidiary full 7. Pekao Faktoring Sp. z o.o. financial 100.00 subsidiary full 8. Pekao Pioneer Powszechne financial 65.00 subsidiary full Towarzystwo Emerytalne S.A. 9. Drukbank Sp. z o.o. no activities 100.00 subsidiary full performed 10. Centrum Kart S.A. financial 100.00 subsidiary full 11. Pekao Financial Services financial 100.00 subsidiary full Sp. z o.o. 12. Pekao Access Sp. z o.o. consulting 55.26 subsidiary full 13. BDK Consulting Sp. z o.o. consulting, 99.99 subsidiary full hotels, transportation 14. SARL Pekao Immobilier real estate 100.00 subsidiary non- management consolidated SARL Pekao Immobilier was not consolidated with the use of the full method, due toimmateriality of it's financial data in comparison to the size of the operations ofthe whole Group. Company in consolidated financial statement was recognized at thecost of purchase. Other listed below exposures of the Group constitute investments in the associatedentities and are recognized in the consolidated report of the Group with the use ofthe equity method. Company CPF Management due to immateriality of it's financialdata was recognized at the cost of purchase. 1. Anica System S.A. information 33.84 / 13.49 subsidiary equity technology 2. Central Poland Fund LLC financial 53.19 subsidiary equity intermediary 3. Xelion. Doradcy Finansowi auxiliary, 50.00 subsidiary equity Sp. z o.o. financial and insurance 4. Pioneer Pekao Investment financial 49.00 subsidiary equity Management S.A. intermediary 5. Pirelli Pekao Real Estate real estate 25.00 subsidiary equity Sp. z o. o. management 6. Krajowa Izba chamber of 22.96 subsidiary equity Rozliczeniowa S.A. settlement 7. CPF Management mutual funds 40.00 subsidiary not valuated management - under equity does not method operate 4.2 Achievements of Bank Pekao S.A. Commercial activity Good performance in the first half of 2007 was primarily the result of a furtherdevelopment in Bank's business activity. The continuous efforts were focused onoffering key products, in particular PLN mortgage loans, consumer loans andmutual funds. In the first half of 2007, the sales of PLN mortgage loans amounted to PLN1,734.3 million (70,0% higher compared to the first half of 2006) contributingto a growth in the stock of 23.4% compared to the end of 2006. The Bankcontinued its policy of offering PLN mortgage loans. Sales of the "Express Loan" in the first half of 2007 amounted to PLN 938.4million contributing to a growth in the stock of 10.5% in the first half of2007. The Pekao Group confirmed its leading position in the mutual funds market - atthe end of June 2007 market share of mutual funds managed by PPIM S.A. amountedto 22.1%. Key commercial indicators: 30.06.2007 31.12.2006 ChangeTotal number of PLN current accounts (in 3,068.3 3,054.4 13.9thousand) *of which packages 2,225.7 2,221.1 4.5Number of mortgage loans accounts (in 81.1 74.7 6.4thousand)Number of "Express Loans" accounts (in 363.1 328.4 34.7thousand)Number of mutual fund registers (in 982.8 828.9 153.9thousand)**Payment cards (in thousand)*** 2,746.2 2,744.6 1.6Credit 271.8 244.8 26.9Charge 196.5 211.9 (15.4)Debit (including Maestro) 2,277.9 2,287.9 (10.0)Total number of outlets (in items) 774 782 (8)Total number of ATMs (in items) 1,274 1,262 12 * number of accounts including accounts of pre-paid cards ** sold in Bank's network *** the number of cards is calculated according to the definition used byinternational payment organizations Visa and MasterCard 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. As at 30th June 2007, 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 30,922.5 million andwas higher by PLN 7,659.1 million compared with the end of 2006. As at 30th June2007, the Company had 1,150.4 thousand open accounts (an increase by 18.0% inthe first half of 2007). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 30.06.2007 31.12.2006 Change Net assets value of Pioneer Pekao TFI 30,922.5 23,263.4 7,659.1- bond and money market funds 4,882.0 5,584.7 (702.7)- equity funds 11,574.6 4,901.9 6,672.7- balanced funds 14,465.9 12,776.8 1,689.1 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) In the first half of 2007 CDM provided the full scope of services (permitted tobrokerage houses), excluding asset management. After 6 months of 2007 the Company achieved: - a 31.8% share in the bond trading volume at the Warsaw Stock Exchange,- a 8.4% share in the stock trading volume at the Warsaw Stock Exchange,- a 5.2% share in the futures trading volume at the Warsaw Stock Exchange. At the end of June 2007 CDM maintained 150.1 thousand investment accounts andits market share was 15.5%. CDM offered also on-line access to investmentaccounts, allowing its customers to buy and sell all instruments listed on theWarsaw Stock Exchange and on the OTC market (CeTO) through the Internet. As at30th June 2007 CDM maintained 24.8 thousand on-line accounts, i.e. a 5.1thousand increase in comparison with the end of 2006. In order to further focus on the company's core business, organizational andlegal changes are being analysed. 4.3.3 Business activity in Ukraine Considering the attractiveness of the Ukrainian economy and prospects fordevelopment of Ukrainian banking sector, Bank Pekao S.A. together withUniCredito Group have prepared a new strategy regarding business activity inUkraine. The strategy is aiming to create a strong banking organizationconducting activities both in the retail and corporate market segments. Development of retail business is realised through organic growth and networkexpansion on the base of UniCredit Bank Ltd. (UniCredit Bank) fully owned byBank Pekao. In order to strengthen the position in the retail market, UniCreditBank in an innovative and dynamic way is developing the network of branches inUkraine. At the end of June 2007 UniCredit Bank operated through network of 26branches. The activity in corporate segment has expanded through acquisition of JointStock Commercial Bank HVB Bank Ukraine (HVB Ukraine) by Bank Pekao S.A. Bank HVBUkraine offers full range of products and services for local and internationalclients, concentrating on large and medium companies segment and is graduallydeveloping the scope of services in private banking. On 30th March 2007 BankPekao S.A. purchased 100% shares of HVB Ukraine as a result of entering by BankPekao S.A., by virtue of the assignment agreement as of 20th December 2006,concluded with Bank UniCredito Italiano S.p.A. (UCI), into rights of UCI,arising from the sale agreement of 1,098,342 ordinary shares of HVB Ukraine,concluded on 12th September 2006 between UCI as the purchaser and BayerischeHypo- Und Vereinsbank AG as the seller. At the end of June 2007 HVB Ukraineoperated through network of 5 branches. According to the strategy, it is planned that the integration of both banksoperating on the Ukrainian market will be completed in September 2007. As aresult of these activities a universal bank operating in all of the marketsegments will be created. According to information provided by UniCredito Italiano on 5th July 2007 BankAustria Creditanstalt AG, a member of UniCredit Group, has signed an agreementto acquire approximately 95% of the share capital of Ukrsotsbank from the groupof investors represented by Interpipe Group. The structure of the Ukrainianoperations belonging to the UniCredit Group will be finally assessed followingthe transaction completion expected in last quarter of 2007 and after completionof the Spin-off transaction and of the transfer of control of Bank BPH. 4.4 Results achieved in the first half of 2007 and the factors whichinfluenced these results 4.4.1 Results of the Group In the second quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 540.1 million. In the first half of 2007 the net profit amounted to PLN 1,043.2 million, i.e.20.6% higher than in the first half of 2006. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fees and commissionsand interest income, with operating costs kept under control and lower cost ofrisk. The increase in the net profit was also influenced by consolidation of HVBUkraine. In comparable terms (excluding the effect of consolidation of HVBUkraine) the net profit growth in the first half of 2007 was 18.8% higher thanin comparable period of 2006. The results are confirming high efficiency of the Pekao Group. Good results of Bank Pekao S.A. were accompanied by positive results of theGroup's companies. The consolidated profit and loss account for the first half of 2007 and firsthalf of 2006 is presented below: (PLN million) I H 2007 I H 2006 ChangeNet interest income * 1,216.6 1,150.5 5.7%Fee and commission income 1,108.5 928.9 19.3%Dividend income 2.1 1.6 31.3%Trading income 53.4 76.3 (30.0%)FX income 137.7 120.2 14.6%Other operating income / cost net 31.0 35.3 (12.2%)Total income 2,549.3 2,312.8 10.2%Overhead costs (including depreciation) (1,241.1) (1,166.0) 6.4%Personnel (660.4) (606.3) 8.9%Non-personnel (419.9) (401.4) 4.6%Depreciation (160.8) (158.3) 1.6%Operating income 1,308.2 1,146.8 14.1%Impairment losses on loans and advances (92.3) (109.8) (15.9%)Share in net profit (loss) of the 78.3 36.0 117.5%associatesPre-tax profit 1,294.2 1,073.0 20.6%Tax charge (251.0) (207.8) 20.8%Net profit 1,043.2 865.2 20.6%Attributable to equity holders of the 1,041.2 865.0 20.4%CompanyAttributable to minority interest 2.0 0.2 x * including income on SWAP transactions. The Group's income In the first half of 2007, the Group's total income amounted to PLN 2,549.3million and was PLN 236.5 million (10,2%) higher than in the comparable periodof the previous year. In comparable terms (excluding the effect of consolidationof HVB Ukraine) the total income was 8.9% higher than in the prior year. The main growth driver in this period was fee and commission income, whichincreased by 19.3%, primarily thanks to commissions on investment products. In the first half of 2007 interest income was PLN 66.1 million higher than lastyear (including the effect of HVB Ukraine's consolidation of PLN 24.1 million)mainly as a result of increasing volumes allowing to offset the impact of loweryield on debt securities portfolio. The Group's overhead costs (including depreciation) Overhead costs (including depreciation) in the first half of 2007 amounted toPLN 1,241.1 million, i.e. 6.4% higher than in the first half of 2006. Incomparable terms (excluding the effect of consolidation of HVB Ukraine) the overhead costs were 5.8% higher than in the previous year. The total overheadcosts were kept under control and increased mainly due to personnel costs growthrelated to improving results and also due to the expansion in the Ukrainianmarket. In the first half of 2007, the Group's cost / income ratio amounted to 48.7% andwas 1.7 p.p. lower than in the first half of 2006. As at the end of June 2007, the Bank had 14,326 employees, i.e. a reduction of36 employees compared with the end of 2006, and the Group had 15,942 employees,i.e. 295 employees more than at the end of 2006. The increase of employment inthe Group results mainly from including HVB Ukraine in the Group and increasedactivity of UniCredit Bank. Impairment losses on loans and advances In the first half of 2007, impairment losses on loans and advances amounted toPLN 92.3 million and were 15.9% lower than in the first half of the previousyear. This resulted primarily from the effective credit risk management andimproved macroeconomic situation. The ratio of impaired receivables to totalreceivables decreased from 11.8% at the end of 2006 to 11.3% at the end of June2007 as a result of an increase in the total volume of receivables (includingalso the effect of consolidation of HVB Ukraine). Loans In the first half of 2007 the gross loans portfolio grew by PLN 2,473.1 million,i.e. by 6.8%. (PLN million) 30.06.2007 31.12.2006 ChangeGross loans (principal)* 38,976.4 36,503.3 6.8%corporate (principal) 27,516.8 26,233.4 4.9%retail (principal) 11,459.6 10,269.9 11.6% * including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities and BSBtransactions. The growth of loans by PLN 2,473.1 million in the first half of 2007 was drivenby growth of PLN mortgage loans and "Express Loan" ("Pozyczka Ekspresowa"), aswell as growth of corporate loans and consolidation of HVB Ukraine. Incomparable terms (excluding the effect of consolidation of HVB Ukraine) thegross loans portfolio grew in the first half of 2007 by PLN 1,282.9 million,i.e. by 3.5%. Savings Savings of the Group's clients increased by PLN 8,723.2 million, i.e. by 12.0%in the first half of 2007 resulting from an increase both in savings ofindividual clients and in corporate deposits. Higher volume of savings of theGroup's clients reported as at 30th June 2007 is also influenced byconsolidation of HVB Ukraine. In comparable terms (excluding the effect ofconsolidation of HVB Ukraine) savings of the Group's clients increased by PLN8,213.3 million, i.e. by 11.3%. The savings of retail clients increased by PLN 5,350.7 million in the first halfof 2007 as a result of a dynamic increase in mutual funds (by PLN 7,659.1million). At the end of June 2007 total retail savings almost reached the level of PLN 55billion. Corporate deposits increased in the first half of 2007 by PLN 3,372.5 million. (PLN million) 30.06.2007 31.12.2006 ChangeDeposits (principal) 50,510.5 49,446.4 2.2%corporate (principal) 26,504.4 23,131.9 14.6%retail (principal) 24,006.1 26,314.5 (8.8%)Pioneer Pekao TFI mutual funds 30,922.5 23,263.4 32.9%incl. distributed through the 28,128.8 21,359.7 31.7%Group's networkTotal savings 81,433.0 72,709.8 12.0%incl. retail 54,928.6 49,577.9 10.8% 4.4.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) I H 2007 I H 2006 Net profit of Bank Pekao S.A. 1,068.2 935.6Entities consolidated under full method Centralny Dom Maklerski Pekao S.A. 113.9 75.5Joint Stock Commercial Bank HVB Bank Ukraine* 15.2 -Pekao Leasing Sp. z o.o. 10.0 6.4Pekao Financial Services Sp. z o.o. 7.2 4.9Pekao Pioneer PTE S.A. 5.7 4.0Pekao Faktoring Sp. z o.o. 3.2 4.8Pekao Fundusz Kapitalowy Sp. z o.o.** 2.5 1.4Centrum Kart S.A. 1.2 1.7Drukbank Sp. z o.o. *** 0.0 0.0Pekao Access Sp. z o.o. (0.1) 0.8UniCredit Bank Ltd. / Bank Pekao (Ukraina) (20.6) (0.1)Ltd. in Luck****Pekao Development Sp. z o.o. ***** - 6.5 Entities valued under equity methodPioneer Pekao Investment Management S.A. 66.7 43.5Pirelli Pekao Real Estate Sp. z o.o. **** 12.0 (5.5)Krajowa Izba Rozliczeniowa S.A. 2.5 2.6Central Poland Fund LLC 0.0 0.0Xelion. Doradcy Finansowi Sp. z o.o. (4.2) (5.4)Exclusions and consolidation adjustments ****** (240.2) (211.5)Net profit (loss) of the Group 1,043.2 865.2 * the result of the company in the second quarter of 2007, ** the result of the company includes the valuation of associates based onequity method, *** the result does not include the effect of sale of shares of UniCredit BankLtd. inside the Group, **** change in the name of the company, ***** equity valuation of the subsidiary since the II quarter 2006 due to saleof 75% of shares which took place on 3rd April 2006, ****** includes transactions within the Group, including dividends fromsubsidiaries (of which PLN 138.0 million from CDM) and associates and openingbalance amendments. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank for the first halfof 2007 and first half of 2006 are as follows: (PLN million) I H 2007 I H 2006 Change Net interest income* 1,132.6 1,106.3 2.4%Non-interest income 1,342.7 1,189.4 12.9%Total income 2,475.3 2,295.7 7.8%Overhead costs (including depreciation) (1,112.5) (1,075.1) 3.5%Operating income 1,362.8 1,220.6 11.7%Impairment losses on loans and advances (76.7) (100.9) (24.0%)Pre-tax profit 1,286.1 1,119.7 14.9%Net profit 1,068.2 935.6 14.2% * including income on SWAP operations The main items of the Bank's balance sheet at the end of June 2007 in comparisonwith the end of 2006 are as follows: 30.06.2007 31.12.2006 Change Total gross loans in PLN million* 37,023.6 35,891.1 3,2%Impaired receivables to total receivables 11.0 11.0 0.0 p.p.in %Total deposits in PLN million* 49,996.9 49,472.2 1,1%Total assets in PLN million 69,122.0 66,976.8 3,2%Mutual funds sold in Bank's network in PLN 24,940.0 18,881.2 32,1%millionCapital adequacy ratio in % 12.8 14.7 (1.9 p.p.) * the nominal value 4.5 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 half of 2007: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 593.7 758.2 703.6 2,055.5External interest expense 175.0 519.1 147.6 841.7Net external interest 418.7 239.1 556.0 1,213.8incomeInternal interest income 632.0 560.3 (1,192.3) 0.0Internal interest expense 267.0 525.4 (792.4) 0.0Net internal interest 365.0 34.9 (399.9) 0.0incomeNet interest income 783.7 274.0 156.1 1,213.8Non interest income 1,059.6 220.4 55.5 1,335.5Total income 1,843.3 494.4 211.6 2,549.3 Allocated assets 14,233.1 24,170.4 27,795.6 66,199.1Unallocated assets 4,992.0Total assets 71,191.1 Allocated liabilities 29,243.8 23,928.3 7,063.9 60,236.0Unallocated liabilities 10,955.1Total liabilities 71,191.1 Information on main segments' results for the first half of 2006*: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 484.1 653.1 717.9 1,855.1External interest expense 168.0 443.6 99.6 711.2Net external interest 316.1 209.5 618.3 1,143.9incomeInternal interest income 593.5 477.9 (1,071.4) 0.0Internal interest expense 207.8 466.2 (674.0) 0.0Net internal interest 385.7 11.7 (397.4) 0.0incomeNet interest income 701.8 221.2 220.9 1,143.9Non interest income 876.4 228.5 64.0 1,168.9Total income 1,578.2 449.7 284.9 2,312.8 Allocated assets 10,948.8 20,007.3 30,297.0 61,253.1Unallocated assets 5,539.9Total assets 66,793.0 Allocated liabilities 30,397.6 19,275.6 5,911.6 55,584.8Unallocated liabilities 11,208.2Total liabilities 66,793.0 * data comparable with the first half of 2007, different than published in thefirst half of 2006 due to changes in methodology for allocation of revenues bysegment. The methodology applied by the Bank in allocation of interest income/expense between segments is based on the application of market interest rates tosegment product volumes, pricing for liquidity, term to maturity and currencystructure. 4.6 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 30.06.2007 31.12.2006 30.06.2007 31.12.2006 Total provisions 219.5 223.9 216.1 221.0of which:provisions for off-balance 103.9 112.7 103.8 112.6sheet liabilitiesprovisions for liabilities to 73.8 69.2 72.6 68.0employeesother provisions 41.8 42.0 39.7 40.4Provision for deferred tax 0.4 0.0 0.0 0.0Deferred tax assets 332.1 304.4 305.6 274.8 4.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. I H 2007 I H 2006 I H 2007 I H 2006 Total (92.3) (109.8) (76.7) (100.9)for loan receivables (100.8) (117.5) (84.3) (108.6)for off-balance sheet 8.5 7.7 8.5 7.7liabilitiesfor financial assets 0.0 0.0 (0.9) 0.0 4.8 Information on contingent assets and liabilities (PLN ths.) 30.06.2007 31.12.2006 Contingent liabilities granted and 31,578,680 27,588,457receivedLiabilities granted: 19,369,125 19,117,047Financial 16,905,168 16,801,746Guarantees 2,463,957 2,315,301Liabilities received: 12,209,555 8,471,410Financial 1,840,477 635,350Guarantees 10,369,078 7,836,060Financial derivatives 130,158,253 76,540,128currency transactions 51,759,301 28,929,919interest rate transactions 68,259,587 46,301,739securities transactions 10,139,365 1,308,470Other 10,248,170 11,287,931Total off-balance sheet items 171,985,103 115,416,516 4.9 Post balance sheet events No significant events occurred after the balance sheet date which were notreflected in the financial statements. 4.10 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. 4.11 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 415 thousand registered A series bonds and 415thousand registered B series bonds with pre-emptive rights to take up the Bank'sF series shares, and 415 thousand registered C series bonds and 415 thousandregistered D series bonds with pre-emptive rights to take up the Bank's G seriesshares. 1,660 of the Bank's registered bonds were allocated to Pekao Faktoring (theBank's subsidiary) acting as the Trustee, and registered in the Bonds Registerof Centralny Dom Maklerski Banku Pekao S.A. Each Bond entitles to take up 1 ordinary bearer share of the Bank. The nominal value of one bond is PLN 0.01. The issue price of one bond is equalto its nominal value. The bonds do not bear interest. The bonds are not secured. The issue price of F series shares amounts to PLN 108.37, and of G series sharesPLN 123.06. 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 bondswere executed. C series bonds are available for purchase from the Trustee by the eligiblepersons until 30th December 2007. D series bonds will be available for purchase from the Trustee by the eligiblepersons in the period from the 31st day after the date of the GeneralShareholders' Meeting, approving financial statements for the financial year2007 until 30th December 2008. Bank acquired 120,159 registered series B bonds from Pekao Faktoring Sp. z o.o.,for the purpose of redemption, and the total of 294,841 series B 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. All Bonds which are not sold off by the Trustee by 30th December 2007 and 2008shall be acquired by the Bank on 31st December 2007 and 2008 respectively to beredeemed at their nominal value. The execution of the pre-emptive rights to take up G series shares can beexercised in the following periods: - in respect of C series bonds - from 1st January 2008 to 31st December 2012, - in respect of D series bonds - from 1st January 2009 to 31st December 2012. Issuance of bonds of Joint Stock Commercial Bank HVB Bank Ukraine On 24th January 2006 HVB Ukraine issued 79,000 bonds of face value 1,000 UAHeach bond, of total face value 79,000,000 UAH. The purpose of this issue was toacquire the funds for financing the development of the lending activity. Theissue offering was addressed to the selected investors. In the issue HVB Ukraineoffered bonds with put option, common, interest bearing, registered, withdiscount to the face value. For the first two years the coupon interest is fixedat 8.8% p.a., the interest rate for the last two years will be announced twoweeks before the put option date. The date of the bond maturity is 18th January2010 and the put option date is 22nd January 2008. 4.12 Dividend paid Pursuant to Resolution No. 8 of the Ordinary General Meeting of Bank Pekao S.A.dated 26th April 2007, PLN 9.00 per one share was appropriated for the paymentof dividend for 2006, i.e. 21.6% higher compared to the dividend for 2005 (PLN7.40 per one share). The ex-dividend date was determined at 16th May 2007 andthe date of dividend payment at 1st June 2007. All the Bank's shares areordinary shares. 4.13 Effects of changes in the Group's structure There were no changes in the Group's structure in the second quarter of 2007. 4.14 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published the forecast of financial results for 2007. 4.15 The information about the 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 30th June 2007 31st December 2006 UniCredito 88,121,725 52.73% 88,121,725 52.83%Italiano S.p.A.Other 78,981,373 47.27% 78,686,532 47.17%shareholdersTotal 167,103,098 100.00% 166,808,257 100.00% Since the beginning of the 2007 until the day of submitting this report sharecapital of the Bank has been increased by the total amount of PLN 294,841 as aresult of issue of 294,841 series F ordinary bearer shares. The share capital ofthe Bank amounts currently to PLN 167,103,098. The share of UniCredito ItalianoS.p.A. in the share capital and the total number of votes at the General Meetingamounts to 52.73% while the share of other shareholders stands for 47.27%. 4.16 The Issuer's shares held by the Management and Supervisory Board Members According to the Bank's knowledge, as at the date of submitting this report themembers of the Bank's management and supervisory bodies held 98,446 shares ofBank Pekao S.A.: Mr. Jan Krzysztof Bielecki - 20,000 shares, Mr. Luigi Lovaglio- 65,357 shares and Mr. Marian Wazynski - 13,089 shares. The Members of theSupervisory Board did not hold any shares of the Bank. The number of shares heldby the management has not changed in comparison to the number stated in theprevious quarterly statement. 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. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from incentive programme for theyear 2003 were executed. As at the date of submitting this report the incentive programme for 2004includes 44 persons for a total 691,921 shares, 265,584 of which will be able tobe purchased by the management: Mr. Jan Krzysztof Bielecki - 80,000 shares, Mr.Luigi Lovaglio - 65,357 shares, Mr. Paolo Iannone - 46,000 shares, Mr.Christopher Kosmider - 46,000 shares and Mr. Marian Wazynski - 28,227 shares.The number of shares available to be purchased by the management has not changedin comparison to the number stated in the previous quarterly statement. TheMembers of the Supervisory Board did not participate in the management stockoptions programme. 4.17 Pending litigations In the second quarter of 2007 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 306. The total value of them was PLN 731.4million. The number of legal proceedings concerning the receivables was 2.579 attotal value of PLN 874.7 million. The legal proceedings involving the largest amounts in receivables groupinclude: - The action brought by Bank Pekao S.A., Paris branch against LA HUPPEregarding the vindication of the loan receivables. The value of the subject oflitigation amounts to EUR 23.6 million. The proceedings were instituted onDecember 23rd, 1998. - The statement of claims for the payment brought by Bank Pekao S.A.against Salomon Industries S.A. and Pekao Leasing Sp. z o.o. (mainintervention). The value of the subject of litigation amounts to PLN 67.4million. The proceedings were instituted on January 23rd, 2006. - The statement of claims for the payment brought by Bank Pekao S.A.against Royal Grant S.A. and Pekao Leasing Sp. z o.o. (main intervention). Thevalue of the subject of litigation amounts to PLN 53.5 million. The proceedingswere instituted on January 23rd, 2006. According to the issuer's opinion any single proceeding that was in progress incourts, appropriate bodies of arbitration or public administration bodies in thesecond quarter of 2007, as well as all the proceedings together do not createany threat to financial liquidity of the Bank. 4.18 Claims regarding the resolutions of the Bank's Ordinary Shareholders Meeting Plaintiff to the court to make invalid and repeal resolutions of Bank's AGM On 14th of June 2007 Bank received from Bank's shareholder, who on the AnnualGeneral Meeting of the Bank on 26th of April 2007 represented 50 votes, aplaintiff to the court to make invalid resolutions No. 10 of the AGM of the Bankof 26th April 2007 and to repeal resolutions No. 4-9 and 11-18 of the AGM of26th April 2007. In the Bank's opinion the whole plaintiff is groundless. Dismissal of the motion for measure for conservation of a claim for cancelingthe resolution no. 5 of the Ordinary Shareholders Meeting of the Bank regardingapproval of the Bank's financial statement for year 2006 On 18th June 2007 the Bank received the statement of the Circuit Court inWarsaw, XX Economical Division of 11th June 2007 on dismissal of the Bankshareholder's motion for measure for conservation of a claim for canceling theresolution no. 5 of the Ordinary Shareholders Meeting of the Bank of 26th April2007 through suspending the registration proceedings conducted in front of theDistrict Count for the city of Warsaw, XII Economical Division of the NationalCourt Register. Presenting justification for the dismissal of the motion theCourt indicated that the plaintiff (applicant) has not demonstrated theexistence of prerequisites enabling possibility of effective protection of claimand moreover the manner of conservation of a claim as demanded by the plaintiffis not in conjunction with the proceedings in question. The sentence is not final. On 20th June 2007 the Court received a complaint fromthe plaintiff against the statement on dismissal of the motion for measure forconservation of the claim. Until the date of submitting this report the Bank has not received either thesummons to cancel the resolution no. 5 of the Ordinary Shareholders Meeting ofthe Bank of 26th April 2007 or a complaint against the statement on dismissal ofthe motion for measure for conservation of the claim. Submission of a claim to overrule the resolutions No. 11 of the OrdinaryShareholders Meeting of the Bank dated 26th April 2007 on acknowledgment offulfilling the duties of President of the Management Board of the Bank Mr. JanKrzysztof Bielecki for the year 2006 On 30th July 2007 Bank received a claim filled by the Bank's shareholder tooverrule the resolutions No 11 of the Ordinary Shareholders Meeting of the Bankdated 26th April 2007 on acknowledgment of fulfilling the duties of President ofthe Management Board of the Bank Mr. Jan Krzysztof Bielecki for the year 2006. The Bank's shareholder on the Annual General Meeting of the Bank represented 1vote. In the Bank's opinion the entire claim is groundless. 4.19 Assessment of the financial credibility of Bank Pekao S.A. As at 30th June 2007, 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 4.20 Management and Supervisory Boards of the Bank Appointment of the Management Board for new term of office On 26th April 2007, the Supervisory Board appointed the following Members of theManagement Board for the period of common term of office, lasting three years,beginning as of 27th April 2007: 1. Jan Krzysztof Bielecki as President, CEO,2. Luigi Lovaglio as Vice President, General Manager,3. Paolo Iannone as Member of the Management Board,4. Christopher Kosmider as Member of the Management Board,5. Marian Wazynski as Member of the Management Board. Appointment of members of the Supervisory Board The Extraordinary General Meeting of Bank Pekao S.A. held on 25th July 2007appointed Mr. Federico Ghizzoni and Mr. Krzysztof Pawlowski as members of theSupervisory Board of Bank Pekao S.A. for the current common term of office ofthe Supervisory Board. The Supervisory Board of Bank Pekao S.A. appointed Mr. Federico Ghizzoni to theposition of Deputy Chairman of the Supervisory Board. In June 2007 Mr. Andrea Moneta, Deputy Chairman and Member of the SupervisoryBoard and Mr. Jerzy Starak, Member of the Supervisory Board submittedresignations from their positions in the Supervisory Board of the Bank effectivefrom 24th July 2007. As of 25th July 2007 the composition of the Supervisory Board is the following: 1. Jerzy Woznicki - Chairman of the Supervisory Board,2. Paolo Fiorentino - Deputy Chairman, Secretary of the Supervisory Board,3. Federico Ghizzoni - Deputy Chairman of the Supervisory Board,4. Pawel Dangel - Member of the Supervisory Board,5. Fausto Galmarini - Member of the Supervisory Board,6. Oliver Greene - Member of the Supervisory Board,7. Enrico Pavoni - Member of the Supervisory Board,8. Leszek Pawlowicz - Member of the Supervisory Board,9. Krzysztof Pawlowski - Member of the Supervisory Board. 4.21 Information about integration of Bank Pekao S.A. and Bank BPH S.A. On 27th April 2007, the Extraordinary General Meeting of Bank Pekao S.A. passeda resolution on the integration of Bank Pekao S.A. with Bank BPH S.A., performedin a way of the spin-off of Bank BPH S.A. by transferring a part of Bank BPHS.A. property in a form of an organized part of enterprise to Bank Pekao S.A. The Division by Spin-off of Bank BPH S.A. shall be performed according to theprinciples specified in detail in the Spin-off Plan, agreed by Bank Pekao S.A.and Bank BPH S.A. on 15th November 2006, announced in the Court and EconomicJournal ("Monitor Sadowy i Gospodarczy") No. 239 dated 8th December 2006. In exchange for the part of Bank BPH S.A. property in a form of an organizedpart of enterprise, Bank BPH S.A. shareholders shall take up Bank Pekao S.A.Series I ordinary bearer shares with the nominal value of 1 PLN each, issued inrelation to the integration of Bank Pekao S.A. with Bank BPH S.A., performedthrough the Division by Spin-off ("Shares of Spin-off Issue"), in observance ofthe ratio 1 : 3.3. In relation to the integration of Bank Pekao S.A. with Bank BPH S.A., the sharecapital of Bank Pekao S.A. shall be increased with the amount of 94,763,559 PLN,i.e. up to the amount of 261,866,657 PLN, by the issuance in a public offer of94,763,559 Series I ordinary bearer shares with the nominal value of 1 PLN each,in order to allot Shares of Spin-off Issue to Bank BPH S.A. shareholders whoshall also become the Bank Pekao S.A. shareholders on the spin-off day. The Shares of Spin-off Issue will entitle to participation in the profitsdisbursed commencing from 1st January 2008. The General Meeting authorized and obligated the Bank Pekao S.A. Management Board to perform all legal and factual acts necessary to execute this resolution, among other things to prepare, conduct and register the Division by Spin-off, toprepare and conduct the public offer for Shares of Spin-off Issue, to admitShares of Spin-off Issue to regulated trading carried out by the Warsaw StockExchange. Integration of Bank Pekao S.A. with Bank BPH S.A. shall be performed upon obtaining all the consents and permissions required by the provisions of law, as ofthe day of entry into register of entrepreneurs of the National Court Registryof the increase of the share capital of Bank Pekao S.A. by the issuance of theShares of Spin-off Issue. Bank Pekao S.A. has conducted further activities necessary to obtain requiredapprovals from regulatory bodies, including providing additional information andanswering questions raised during dedicated meetings with authorities. The Bankhas continued preparations aiming to achieve operational readiness for theintegration, leveraging on best practices and experience of both organisations. 4.22 Transactions of related entities In the second quarter of 2007, the Bank and its subsidiaries have not concludedany transactions with related entities other than typical and routinetransactions whose aggregate value exceeded the equivalent of EUR 500 thousand. In the second quarter of 2007, the Bank and its subsidiaries did not give anysureties or guarantees in respect of loans or advances to any single entity or asubsidiary of that entity, as a result of which the total value of the existingsureties and guarantees would equal 10% of the Bank's equity. Registration of UniCredit Bank Ltd. capital increase (formerly known as BankPekao (Ukraina) Ltd.) On the day of 24th May 2007, UniCredit Bank Ltd. (Bank's subsidiary) notifiedBank Pekao S.A. that on 17th May 2007 the Register of Ukrainian Banks in theNational Bank of Ukraine NBU registered the amendments to the Articles ofAssociation of UniCredit Bank Ltd. regarding the increase of share capital ofUniCredit Bank Ltd. by the amount of UAH 252,198,414.15 UAH which amounts to theequivalent of PLN 141,508,530.18. On the day of 7th March 2007, the Extraordinary General Meeting of Shareholdersof UniCredit Bank Ltd. adopted a conditional resolution (anchored to the consentof the National Bank of Ukraine) on the increase of share capital of UniCreditBank Ltd. by the amount of UAH 252,198,414.15 UAH, which amounted to theequivalent of PLN 148,620,525.46. Upon registration by the National Bank of Ukraine NBU of relevant amendments tothe Bank's Articles of Association regarding the capital increase, the sharecapital of UniCredit Bank Ltd. has been increased from the amount of UAH291,475,055.85 to the amount of UAH 543,673,470.00. Bank Pekao S.A. now holds a total stake of UAH 543,673,470.00, i.e. 100% of theshare capital of UniCredit Bank Ltd. carrying 100% votes at the General Meetingof Shareholders of UniCredit Bank Ltd. 4.23 Factors which will affect the results of at least the next quarter Bank Pekao S.A. and its subsidiaries are operating predominantly on theterritory of Poland. Therefore, the results of the Bank will be influenced bythe economic events occurring in this country and the worldwide events thatinfluence the domestic economy. Polish economy expands at high rate due to both strong internal demand andexport. It is expected, that high economic growth will continue in thenext quarters. It is visible that there is a growing pressure on the remuneration increasewhich is a consequence of fast decrease in unemployment and good financialresults achieved by the business entities. Growth of salaries faster than thegrowth of efficiency may lead to inflation increase. Feasibility of this risksupports the high probability of further growth of interest rates. Fast economic growth makes favourable conditions for banking activities. Fastgrowth rate in retail loans and corporate customers loans, as well as in theassets of mutual funds is observed. Improvement in corporate financial situationas well as continuation in declining unemployment decrease the costs of creditrisk. It is expected that all above trends will continue also in the nextquarters. Taking into consideration the strategy of increasing activity on the Ukrainianmarket, the Group results may be increasingly dependent on economic trends inUkraine. Currently the scale of this activity is not significant to the resultsof the Group. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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