14th Nov 2006 15:29
Bank Pekao SA14 November 2006 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the third quarter of 2006 prepared according to the International Financial Reporting Standards 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) 4.4 Results achieved in three quarters of 2006 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 Assessment of the financial credibility of Bank Pekao S.A. 4.19 Information about integration of Bank Pekao S.A. and Bank BPH S.A. 4.20 Transactions of related entities 4.21 Factors which will affect the results of at least the next quarter 1 Summary In this quarterly report the Bank and the Group present their results inaccordance with the International Financial Reporting Standards (IFRS). The Group's consolidated financial statements and the Bank's individualfinancial statements fulfil the requirements of International AccountingStandard - IAS 34 "Interim Financial Reporting". Net profit of the Group in the third quarter of 2006 was the best quarterlyresult achieved to date and amounted to PLN 455.9 million. In three quarters of2006 the net profit amounted to PLN 1,321.1 million, i.e. 17.0% higher than inthree quarters of 2005. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fee and commissionincome, with stable operating costs and lower cost of risk. • Group's income amounted to PLN 3,450.4 million in three quarters of 2006 and was 5.3% higher than in the previous year, with stable interest income and other income higher by 15.8%. • In three quarters of 2006, the Group noted a continued positive trend in the results of its business activity, with successful sales of key products: consumer loans "Express Loan", PLN mortgage loans, mutual funds and credit cards. Sales of the "Express Loan" in three quarters of 2006 were 22.1% higher than in the previous year reaching PLN 1,445.2 million. Sales of PLN mortgage loans amounted to PLN 1,714.1 million contributing to a growth in the stock of 30.5% in three quarters of 2006. The value of mutual funds increased by 9.6% and the number of credit cards increased by 51.8% compared with the end of 2005. • In three quarters of 2006, total overhead costs including depreciation were kept under control and amounted to PLN 1,732.0 million, i.e. were 0.3% lower than in the previous year. In three quarters of 2006, the Group's cost / income ratio amounted to 50.2% and was 2.8 p.p. lower than in the previous year. • In three quarters of 2006, impairment losses on loans and advances amounted to PLN 160.7 million and were 15.4% lower than in the previous year. This resulted primarily from the effective credit risk management and improved macroeconomic situation. The ratio of impaired receivables to total receivables decreased from 15.5% at the end of 2005 to 12.9% at the end of September 2006 (including also the effect of write-off of impaired loans of ca. PLN 557.7 million, being a first step in preparation for the sale of part of the old stock of non-performing loans). • Savings of the Group's clients increased by PLN 2,901.6 million, i.e. by 4.4% in three quarters of 2006 resulting from an increase both in the savings of individual clients and in corporate deposits. The savings of retail clients increased by PLN 1,964.7 million in three quarters of 2006 and exceeded the level of PLN 47 billion confirming Group's significant market share. Corporate deposits increased by PLN 937.0 million in three quarters of 2006. • In three quarters of 2006, the gross loan portfolio grew by PLN 1,258.0 million, i.e. by 3.8% despite the above mentioned write-off of old impaired loans. This growth was driven by successful sale of the "Express Loan", PLN mortgage loans and loans for SME, as well as an increase in the volume of corporate loans. 2 Accounting principles adopted in the preparation of the quarterlyreport The interim consolidated report of the Group of Bank Pekao S.A. and the standalone 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 interim consolidated financial statements and theinterim condensed financial statements of Bank Pekao S.A. for the period from1st January 2006 to 30th June 2006, published on 12th September 2006. There wereno changes of accounting principles in the third quarter of 2006 in comparisonto accounting principles applied for the preparation of the Group and the BankPekao S.A. for the first half of 2006. In this report the data have been presented to manner assuring comparability. 3 Financial statement Financial statements CONSOLIDATED INCOME STATEMENT (in III III III III'000 PLN) Quarter Quarters Quarter Quarters 2006 2006 2005 2005 period period period period from from from from 06-07-01 06-01-01 05-07-01 05-01-01 to to to 06-09-30 06-09-30 to 05-09-30 05-09-30 Interest income 968 754 2 823 787 969 551 2 923 867Interest expense (377 096) (1 088 (349 076) (1 171 247) 314)Net interest income 591 658 1 735 540 620 475 1 752 553Fee and commission income 505 906 1 536 822 448 064 1 278 147Fee and commission expense (56 135) (158 175) (48 250) (130 718)Net fee and commission income 449 771 1 378 647 399 814 1 147 429Dividend income 71 1 709 298 346Result on financial instruments at 3 178 22 575 3 087 56 273fair valueResult on investment securities 1 914 65 326 35 172 68 990Foreign exchange result 72 196 192 432 63 845 210 323Other operating income 36 287 125 268 59 625 195 095Other operating expenses (17 447) (71 108) (49 013) (153 473)Net other operating income 18 840 54 160 10 612 41 622Net impairment losses on financial (50 876) (160 636) (61 314) (189 943)assets and net provisions forguarantees and commitmentsOverhead costs (565 997) (1 731 (583 458) (1 736 970) 947)Operating profit 520 755 1 557 783 488 531 1 350 646Share of profit (loss) of 27 776 63 764 12 887 35 036associates and joint ventureentities valued at the equitymethodProfit before income tax 548 531 1 621 547 501 418 1 385 682Income tax expense (92 641) (300 449) (97 710) (256 581) Net profit for the period 455 890 1 321 098 403 708 1 129 101 1. Attributable to equity holders 455 019 1 320 011 404 345 1 131 641of the Company2. Attributable to minority 871 1 087 (637) (2 540)interest Earnings per share (in PLN pershare) - basic for the period 7,92 6,80 - diluted for the period 7,91 6,79 CONSOLIDATED BALANCE SHEET (in '000 PLN) 30.09.2006 31.12.2005 30.09.2005 ASSETS Cash and amounts due from Central 3 806 602 3 574 791 3 105 816 Bank Debt securities eligible for 4 026 6 106 8 649 rediscounting at Central Bank Loans and advances due from banks 9 057 060 6 966 026 8 530 654 Financial assets as held for trading 2 285 666 2 502 366 2 999 274 Derivative financial instruments 435 652 499 290 584 041 Other financial instruments at fair 1 721 755 1 781 317 1 677 983 value through profit or loss Loans and advances to customers 31 238 727 28 223 730 26 870 091 Net investment in the finance lease 871 723 745 891 673 063 Investment securities 15 921 560 14 490 772 14 189 525 1. Available for sale 15 487 447 11 902 898 11 633 281 2. Held to maturity 434 113 2 587 874 2 556 244 Assets of disposal group classifield 51 135 167 366 - as held for sale Investments in associated 181 139 167 814 162 074 undertakings Intangible assets 595 423 645 457 627 007 Tangible fixed assets 1 418 238 1 441 141 1 469 430 Investment properties 54 621 61 259 97 114 Income taxes 272 855 182 180 178 711 1. Current tax assets 21 886 321 2. Deferred income tax assets 272 834 181 294 178 390 Other assets 634 966 516 450 994 506TOTAL ASSETS 68 551 148 61 971 956 62 167 938 LIABILITIESLiabilities Amounts due to the Central Bank 1 782 534 1 950 710 2 005 195 Amounts due to other banks 3 469 241 1 997 043 3 224 005 Financial liabilities as held for 1 083 584 558 973 571 038 trading Derivative financial instruments 480 074 607 689 696 374 Amounts due to customers 51 130 674 46 847 877 45 591 524 Debt securities in issue 2 4 3 Liabilities directly associated with - 39 663 - assets classified as held for sale Current income tax liabilities 135 746 5 621 42 663 Provisions for deferred income tax - 1 3 449 Provisions 166 691 108 727 94 127 Other liabilities 1 937 090 1 432 922 1 855 936Total liabilities 60 185 636 53 549 230 54 084 314 EquityCapital and reserves attributable to the 8 349 424 8 407 290 8 067 805Company's equity holders Share capital 166 808 166 482 166 482 Other capital and reserves 6 969 173 6 718 913 6 795 970 Prior and current year profits 1 213 443 1 521 895 1 105 353Minority interest 16 088 15 436 15 819Total equity 8 365 512 8 422 726 8 083 624TOTAL LIABILITIES 68 551 148 61 971 956 62 167 938 Capital adequacy ratio 17,38 19,47 19,62Book value 8 349 424 8 407 290 8 067 805Number of shares 166 808 166 481 166 481 257 687 687Book value per share ( in PLN per share) 50,05 50,50 48,46Diluted numebr of shares 166 935 166 558 166 543 617 940 189Diluted book value per share (in PLN per 50,02 50,48 48,44share) CONSOLIDATED STATEMENT OF CHANGES III 2005 year III Quarters Quarters 2006 2005IN SHAREHOLDERS' EQUITY from from from(in '000 PLN ) 1 Jan 2006 1 Jan 2005 1 Jan 2005 to to to 30 Sep 31 Dec 30 Sep 2006 2005 2005Shareholders equity at the beginning of 8 422 726 8 023 481 8 023 481the perioda) adjustment related to IFRS/IAS - (192 460) (192 460)introductionb) change of consolidation method - - -c) adjustment due to fundamental errors - - -Adjusted shareholders equity at the 8 422 726 7 831 021 7 831 021beginning of the period1. Share capital at the beginning of the 166 482 166 482 166 482perioda) Increase 326 - -- new shares issue 326 - -b) Decrease - - -- redemptions - - -1. Share capital at the end of the 166 808 166 482 166 482period2. Earnings from previous years at the 1 521 895 1 512 265 1 512 265beginning of the perioda) adjustment related to IFRS/IAS - (192 460) (192 460)introductionb) change of consolidation method - - -2. Adjusted earnings from previous years 1 521 895 1 319 805 1 319 805at the end of the perioda) Increase 34 118 1 761 -- adjustment related to IFRS/IAS - - -introduction- other 34 118 1 761 -b) Decrease (1 662 (1 337 (1 346 581) 383) 093)- appropriation to general banking risk (70 000) - -fund- appropriation to other reserve capital (346 418) (271 900) (277 518)- appropriation to reserve capital (8 890) - -- dividend (1 234 (1 065 (1 065 381) 483) 483)- other (2 892) - (3 092)2. Earnings from previous years at the (106 568) (15 817) (26 288)end of the period3. Other capital and reserves at the 6 718 913 6 325 958 6 334 393beginning of the perioda) Increase 462 324 393 691 462 074- appropriation of net profit 425 308 271 900 277 518- share premium on issue of new shares 32 230 - -- valuation of securities available for - 107 867 182 686sale (net)- employee share option proceeds 4 408 11 893 22- foreign exchange differences on 159 - -subordinated companies- foreign exchange differences on 219 - -branches abroad- other - 2 031 1 848b) Decrease (212 064) (736) (497)- valuation of securities available for (182 414) - -sale (net)- foreign exchange differences on - (736) (497)valuation of foreign branches for theprevious years- other (29 650) - -3. Other capital and reserves at the end 6 969 173 6 718 913 6 795 970of the period4. Net profit 1 320 011 1 537 712 1 131 641Shareholders' equity at the end of the 8 349 424 8 407 290 8 067 805periodMinority interest at the beginning of 15 436 18 776 18 776the perioda) Decrease 652 (3 340) (2 957)- net profit 1 087 (2 860) 1 899- other (435) (480) (4 856)Minority interest at the end of the 16 088 15 436 15 819periodTotal equity 8 365 512 8 422 726 8 083 624 CONSOLIDATED STATEMENT OF CASH FLOW III III III III Quarter Quarters Quarter Quarters 2006 2006 2005 2005 Cumulative(in '000 PLN) period period period period from from from from 06-07-01 06-01-01 05-07-01 05-01-01 to to to to 06-09-30 06-09-30 05-09-30 05-09-30Cash flow from operating activities -indirect method Net profit (loss) 455 019 1 320 011 404 345 1 131 641Adjustments: 428 637 2 343 894 212 683 (619 001)Deprecition 82 513 240 808 77 771 239 015Share of profit of associates (27 776) (63 764) (12 887) (35 036)Foreign exchange differences 29 762 93 445 51 303 (149 052)(Profit) loss on investing activities (2 128) (48 869) (37 383) (70 114)Impariment 2 (11 530) - -Interest and dividend (181 220) (603 466) (199 982) (662 783)Change in loans and advances to banks 104 254 (1 061 (185 989) (530 220) 351)Change in financial assets as held for 380 922 276 262 (432 106) (144 765)trading and other financial instrumentsat fair value through profit or lossChange in derivative financial 185 466 63 638 47 653 (80 559)instrumentsChange in loans and advances to (2 188 (3 012 (130 359) (1 120customers 027) 917) 924)Change in net investment in the finance (11 855) (125 832) (34 561) (125 739)leaseChange in investment securities (1 330) (760) - -available for saleChange in deferred income tax assets (16 017) (47 966) (11 571) (106 747)Change in other assets 858 514 8 015 (151 238) (317 472)Change in amounts due to banks (1 071 1 304 022 1 093 893 1 744 900 549)Change in liabilities as held for 528 759 524 611 480 614 (19 081)tradingChange in derivative financial (88 580) (127 615) (39 883) 72 691instruments and other financialliabilitiy at fair value through profitor lossChange in amounts due to customers 1 264 650 4 282 797 (402 247) (230 121)Change in debt securities in issue - - - -Change in provisions 76 620 57 964 (12 049) (6 486)Change in other liabilities 466 244 434 263 171 467 837 243Income tax paid (69 224) (185 830) (172 991) (293 983)Current tax 108 637 347 969 113 228 380 232Net cash from operating activities 883 656 3 663 905 617 028 512 640 Cash flows from investing activities Investing activity inflows 14 042 141 31 536 724 10 204 153 25 709 440Sale of investment securities 14 003 991 31 109 215 10 154 457 25 357 483Proceeds from sale of intangible assets 450 8 809 1 224 3 279and tangible fixed assetsOther investing inflows 37 700 418 700 48 472 348 678Investing activity outflows (14 034 (32 737 (9 856 (23 927 290) 305) 835) 896)Purchase of associates - - - (25 000)Purchase of investment securities (13 965 (32 572 (9 793 (23 731 655) 238) 573) 664)Purchase of intangible assets and (68 705) (164 746) (63 262) (171 232)tangible fixed assetsOther investing outflows 70 (321) - -Net cash used in investing activities 7 851 (1 200 347 318 1 781 544 581) Cash flows from financing activities Financing activity inflows (2 621) 32 556 - 2Issue of debt securities - - - 2Issue of ordinary shares (2 621) 32 556 - -Financing activity outflows - (1 234 - (1 088 386) 688)Redemption of debt securities - (5) - (22 479)Dividends and other payments to - (1 234 - (1 065shareholders 381) 483)Other financing outflows - - - (726)Net cash from financing activities (2 621) (1 201 - (1 088 830) 686) Total net cash flow 888 886 1 261 494 964 346 1 205 498Net change in cash and cash equivalents 888 886 1 261 494 964 346 1 205 498Cash and casch equivalents at the 8 039 829 7 667 221 7 517 578 7 276 426beginning of the periodCash and casch equivalents at the end of 8 928 715 8 928 715 8 481 924 8 481 924the period QUARTERLY INDIVIDUAL FINANCIAL REPORT QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT (in '000 PLN) III Quarter III Quarters III Quarter III Quarters 2006 period 2006 period 2005 period 2005 period from from from from 06-07-01 to 06-01-01 to 05-07-01 to 05-01-01 to 06-09-30 06-09-30 05-09-30 05-09-30 Interest income 951 447 2 775 617 955 235 2 882 381Interest expense (382 904) (1 107 272) (358 919) (1 206 594)Net interest income 568 543 1 668 345 596 316 1 675 787Fee and commission income 431 529 1 281 286 378 780 1 094 710Fee and commission expense (49 417) (132 415) (40 685) (109 891)Net fee and commission income 382 112 1 148 871 338 095 984 819Dividend income - 170 025 174 96 747Result on financial instruments at 2 675 22 126 3 605 55 468fair valueResult on investment securities 1 914 65 326 35 902 69 720Foreign exchange result 71 805 190 995 62 284 208 850Other operating income 33 291 122 917 17 642 68 291Other operating expenses (15 135) (47 653) (16 368) (54 744)Net other operating income 18 156 75 264 1 274 13 547Net impairment losses on financial (47 389) (148 303) (58 613) (185 233)assets and net provisions forguarantees and commitmentsOverhead costs (522 496) (1 597 623) (541 964) (1 610 250)Operating profit 475 320 1 595 026 437 073 1 309 455Profit before income tax 475 320 1 595 026 437 073 1 309 455Income tax expense (83 958) (268 026) (86 820) (228 264) Net profit for the period 391 362 1 327 000 350 253 1 081 191 Earnings per share (in PLN pershare) - basic for the period 7,96 6,49 - diluted for the period 7,95 6,49 BALANCE SHEET (in '000 PLN) BALNCE SHEET (in '000 PLN) 30.09.2006 31.12.2005 30.09.2005ASSETS Cash and amounts due from Central Bank 3 803 938 3 573 613 3 104 638 Debt securities eligible for rediscounting 4 026 6 106 8 649 at Central Bank Loans and advances due from banks 8 909 958 7 000 770 8 506 844 Financial assets held for trading 1 979 875 2 217 887 2 717 824 Derivative financial instruments 435 646 499 290 584 041 Other financial instruments at fair value 1 721 755 1 781 317 1 677 983 through profit or loss Loans and advances to customers 31 779 482 28 727 143 27 249 401 Investment securities 15 921 114 14 490 374 14 188 707 1. Available for sale 15 487 001 11 902 500 11 632 463 2. Held to maturity 434 113 2 587 874 2 556 244 Non-current assets held for sale 49 848 37 650 - Investments in subsidiaries 670 910 514 666 544 790 Investments in associates 51 092 42 234 47 060 Intangible assets 585 841 636 048 617 004 Tangible fixed assets 1 389 394 1 422 389 1 448 682 Investment properties 51 710 58 170 44 154 Income taxes 245 161 152 008 158 907 1. Current tax assets - - - 2. Deferred income tax assets 245 161 152 008 158 907 Other assets 429 976 285 547 621 883TOTAL ASSETS 68 029 726 61 445 212 61 520 567 LIABILITIESLiabilities Amounts due to the Central Bank 1 782 534 1 950 710 2 005 195 Amounts due to other banks 3 415 479 1 993 601 3 233 748 Financial liabilities held for trading 1 035 989 545 930 533 477 Derivative financial instruments 480 079 607 689 696 374 Amounts due to customers 51 141 622 46 849 748 45 523 453 Debt securities issued 12 17 17 Current income tax liabilities 132 573 4 427 38 611 Provisions 164 348 105 013 90 367 Other liabilities 1 730 822 1 191 819 1 488 483Total liabilities 59 883 458 53 248 954 53 609 725 Equity Share capital 166 808 166 482 166 482 Prior and current year profit 1 327 000 1 506 779 1 148 554 Other capital and reserves 6 652 460 6 522 997 6 595 806Total equity 8 146 268 8 196 258 7 910 842TOTAL LIABILITIES 68 029 726 61 445 212 61 520 567 Capital adequacy ratio 15,54 17,95 17,65 STATEMENT OF CHANGES IN EQUITY III 2005 year III Quarters Quarters 2006 2005(in '000 PLN) from 1 Jan from 1 Jan from 1 Jan 2006 to 30 2005 to 31 2005 to 30 Sep 2006 Dec 2005 Sep 2005Shareholders equity at the beginning of the 8 196 258 7 896 096 7 896 096perioda) adjustment related to IFRS/IAS - (192 460) (192 460)introductionb) adjustment due to fundamental errors - - -Adjusted shareholders equity at the 8 196 258 7 703 636 7 703 636beginning of the period1. Share capital at the beginning of the 166 482 166 482 166 482perioda) Increase 326 - -- new shares issue 326 - -b) Decrease - - -- redemptions - - -1. Share capital at the end of the period 166 808 166 482 166 4822. Retained earnings (loss) from previous 1 506 779 1 602 824 1 602 824years at the beginning of the perioda) adjustments related to IFRS/IAS - (192 460) (192 460)introduction2. Adjusted retained earnings from previous 1 506 779 1 410 364 1 410 364years at the beginning of the perioda) Increase - - -b) Decrease (1 506 779) (1 343 001) (1 343 001)- appropriation to general banking risk fund (70 000) - -- appropriation to reserve capital (202 398) (277 518) (277 518)- appropriation from earnings to reserve - - -capital- dividends (1 234 381) (1 065 483) (1 065 483)2. Retained earnings at the end of the - 67 363 67 363period3. Other capital at the beginning of the 6 522 997 6 126 790 6 126 790perioda) Increase 311 877 396 693 469 327- appropriation of net profit 272 398 277 518 277 518- issue of shares under its' nominal value 34 851 - -- valuation of securities available for - 107 282 182 101sale; in which: - 130 707 224 666provision for deferred income tax - (23 425) (42 565)- valuation of management options 4 408 11 893 9 708- foreign exchange differences on branches 220 - -abroadb) Decrease (182 414) (486) (311)- valuation of securities available for (182 414) - -sale; in which: (225 123) - -provision for deferred income tax 42 709 - -- foreign exchange differences on branches - (486) (256)abroad- other changes - - (55)3. Other capital at the end of the period 6 652 460 6 522 997 6 595 8064. Net profit 1 327 000 1 439 416 1 081 191Shareholders' equity at the end of the 8 146 268 8 196 258 7 910 842period CASH FLOW STATEMENT III III III III Quarter Quarters Quarter Quarters (current cumulative (previous cumulative year) (current year) (previous year) year)(in '000 PLN) from from From from 1 July 1 Jan 2006 1 July 1 Jan 2005 2006 to to 2005 to to 30 Sep 30 Sep 30 Sep 30 Sep 2006 2006 2005 2005Cash flow from operating activities -indirect method Net profit (loss) 391 362 1 327 000 350 253 1 081 191Adjustments: 496 390 2 147 589 306 057 (186 404)Depreciation 79 474 230 073 74 043 224 683Foreign exchange differences 29 668 93 288 58 353 (148 380)(Profit) loss on investing activities (1 684) (66 226) (37 388) (70 188)Impairment - - - 6 630Interest and dividend (181 220) (771 881) (199 982) (759 247)Change in loans and advances to banks 98 418 (1 070 (115 811) (55 881) 980)Change in financial assets as held 336 510 297 574 (438 742) (119 883)for trading and other financialinstruments at fair value throughprofit or lossChange in derivative financial 185 462 63 644 47 668 (80 560)instrumentsChange in loans and advances to (2 227 (3 050 (2 477) (1 186customers 374) 259) 056)Change in investment securities (1 347) (782) 53 223 -available for saleChange in deferred income tax assets (15 472) (50 444) (56 213) (104 936)Change in other assets 828 881 (160 430) (134 083) (155 493)Change in amounts due to banks (963 241) 1 253 702 1 103 314 1 736 404Change in liabilities as held for 534 873 490 059 447 617 95 258tradingChange in derivative financial (88 627) (127 610) (39 883) 72 691instrumentsChange in amounts due to customers 1 283 908 4 291 874 (505 715) (336 911)Change in debt securities in issue - - - -Change in provisions 76 489 59 335 (12 133) (5 254)Change in other liabilities 481 976 507 470 154 236 650 013Income tax paid (59 733) (159 287) (179 779) (293 502)Current tax 99 429 318 469 89 809 344 208Net cash from operating activities 887 752 3 474 589 656 310 894 787 Cash flows from investing activities Investing activity inflows 14 042 31 662 563 10 204 094 25 765 828 038Sale of investment securities 14 003 31 131 276 10 154 415 25 340 350 991Proceeds from sale of intangible 347 1 266 1 206 2 940assets and tangible fixed assetsOther investing inflows 37 700 530 021 48 473 422 538Investing activity outflows (14 176 (32 869 (9 852 (23 908 811) 410) 387) 053)Purchase of associates - - - (25 000)Purchase of subsidiaries (156 242) (156 242) - -Purchase of investment securities (13 965 (32 572 (9 793 (23 721 655) 238) 572) 791)Purchase of intangible assets and (54 914) (140 930) (58 815) (161 262)tangible fixed assetsNet cash used in investing activities (134 773) (1 206 351 707 1 857 775 847) Cash flows from financing activities Financing activity inflows - 35 177 - 17Issue of debt securities - - - 17Issue of ordinary shares - 35 177 - -Financing activity outflows - (1 234 - (1 088 386) 688)Redemption of debt securities - (5) - (22 479)Dividends and other payments to - (1 234 - (1 065shareholders 381) 483)Other financing outflows - - - (726)Net cash from financing activities - (1 199 - (1 088 209) 671) Total net cash flow 752 979 1 068 533 1 008 017 1 663 891Net change in cash and cash 752 979 1 068 533 1 008 017 1 663 891equivalentsCash and cash equivalents at the 8 004 128 7 688 574 7 432 683 6 776 809beginning of the periodCash and cash equivalents at the end 8 757 107 8 757 107 8 440 700 8 440 700of the period (F+/- D) Selected financial statements translated into EUR: in zl in EUR ths. ths. Position III III III III Quarters Quarters Quarters Quarters of 2006 of 2005 of 2006 of 2005Net interest income 1 735 540 1 752 553 443 068 431 844Net fee and commission income 1 378 647 1 147 429 351 956 282 736Operating profit 1 557 783 1 350 646 397 688 332 811Profit before income tax 1 621 547 1 385 682 413 966 341 444Net profit (loss) 1 321 098 1 129 101 337 264 278 220Net profit (loss) attributable to equity 1 320 011 1 131 641 336 986 278 846holders of the CompanyNet profit (loss) attributable to 1 087 (2 540) 278 (626)minority interestNet cash from operating activities 3 632 067 512 640 927 234 126 319Net cash used in investing activities (1 200 1 781 544 (306 497) 438 988 581)Net cash from financing activities (1 169 (1 088 (298 688) (268 262) 992) 686)Net increase / decrease in cash and cash 1 261 494 1 205 498 322 048 297 045equivalentsTotal assets 68 551 62 167 17 208 15 872 107 938 763 935Amounts due to the Central Bank 1 782 534 2 005 195 447 479 511 973Amounts due to other banks 3 469 241 3 224 005 870 903 823 164Amounts due to customers 51 130 45 591 12 835 11 640 674 524 615 587Minority interest 16 088 15 819 4 039 4 039Equity attributable to the Company's 8 349 424 8 067 805 2 096 002 2 059 900equity holdersShare capital 166 808 166 482 41 875 42 507Number of shares 166 808 166 481 166 808 166 481 257 687 257 687Book value per share ( in zl/EUR per 50,05 48,46 12,56 12,37share)Diluted book value per share (in zl/EUR 50,02 48,44 12,56 12,37per share)Earnings per 1 ordinary share (in zl/EUR 7,92 6,80 2,02 1,68per share)Diluted earnings per 1 ordinary share (in 7,91 6,79 2,02 1,67zl/EUR per share)Declared or paid dividend per share (in 7,40 6,40 1,81 1,42zl/EUR per share)Capital adequacy ratio 17,38 19,62 x xRisk weighted assets 36 206 32 075 9 089 111 8 189 750 475 976Core funds 6 535 554 6 748 460 1 640 656 1 723 040Supplementary funds (85 477) 171 875 (21 458) 43 884 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 30th September 2006 consists of Bank PekaoS.A as the parent entity and 12 subsidiary entities. The structure of the Groupas at 30th September 2006 has changed in comparison to the structure presentedas at 30th June 2006. The change results from the disposal of 86,68% of shares of Fabryka Maszyn Sp. zo.o. in Janow Lubelski that took place on 3rd August 2006. Due to immaterialityof financial data, they were not taken into consolidation with the use of thefull method. The effect of disposal of 86,68% shares of Fabryka Maszyn in Janow Lubelski Sp.z o.o. was as follows (PLN ths.): +-------------------------------------------+------------+|Revenues | 12,243|+-------------------------------------------+------------+|Balance sheet value of shares (including | 11,961||cost of sales) | |+-------------------------------------------+------------+|Gross income | 282|+-------------------------------------------+------------+ The following entities are included in the consolidated financial report as at30th September 2006: No Name of company Core activity % of Status Consolidation shareholder's method share capital1. Bank Pekao S.A. banking - parent -2. UniCredit Bank Ltd. ( banking 100,00 subsidiary full before Bank Pekao (Ukraina) Ltd. )3. Centralny Dom Maklerski brokerage 100,00 subsidiary full Pekao S.A.4. Pekao Fundusz Kapitalowy financial 100,00 subsidiary full Sp. z o.o.5. Pekao Leasing Sp. z o.o. leasing 100,00 subsidiary full6. Pekao Faktoring Sp. z financial 100,00 subsidiary full o.o.7. Pekao Pioneer Powszechne financial 65,00 subsidiary full Towarzystwo Emerytalne S.A.8. Drukbank Sp. z o.o. no activities 100,00 subsidiary full performed9. Centrum Kart S.A. financial 100,00 subsidiary full10. Pekao Financial Services financial 100,00 subsidiary full Sp. z o.o.11. Pekao Access Sp. z o.o. consulting 55,26 subsidiary full12. BDK Consulting Sp. z consulting, 99,99 subsidiary full o.o. hotels, transportation13. 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 operationsof the whole Group. The company in consolidated financial statements wasrecognized at the cost 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 useof the equity method. Company CPF Management due to immateriality of it'sfinancial data was recognized at the cost of purchase. Companies classified asheld for sale were recognized in accordance with IFRS 5 "Non - Current assets anddiscontinued operations". 1. Anica System S.A. information 33,84 / 13,49 subsidiary equity technology2. Central Poland Fund LLC financial 53,19 subsidiary equity intermediary3. Xelion. Doradcy auxiliary, 50,00 subsidiary equity Finansowi Sp. z o.o. financial and insurance4. Pioneer Pekao Investment financial 49,00 subsidiary equity Management S.A. intermediary5. Pirelli Pekao Real real estate 25,00 subsidiary equity Estate Sp. z o. o. management6. Krajowa Izba chamber of 22,96 subsidiary equity Rozliczeniowa S.A. settlement7. CPF Management mutual funds 40,00 subsidiary not valuated management- under equity method does not operate7. Hotel Jan III Sobieski hotel 37,50 subsidiary held for sale Sp. z o.o.8. Fabryka Sprzetu manufacturing 23,81 subsidiary held for sale Okretowego of ships "Meblomor" S.A. equipment 4.2 Achievements of Bank Pekao S.A. Commercial activity The performance in three quarters of 2006 was primarily the result of a furtherdevelopment in Bank's business activity. The key success factor was theincreased sales pace, particularly in consumer loans, PLN mortgage loans andmutual funds. In three quarters of 2006, sales of the "Express Loan" ("Pozyczka Ekspresowa")were 22.1% higher than in three quarters of 2005 with total sales reaching PLN1,445.2 million, of which PLN 534 million sold in the third quarter alone. In three quarters of 2006, the sales of mortgage loans amounted to PLN 1,714.1million (38.1% higher compared to three quarters of 2005) with PLN 694 millionof mortgage loans sold in the third quarter alone. The Bank continued its policyof offering PLN mortgage loans. In three quarters of 2006, the volume of loans for SME has also increased (by15.6%) which resulted form significant growth of sale of those loans. The Pekao Group confirmed its leading position in the mutual funds market - atthe end of September 2006 market share of mutual funds managed by PPIM S.A.amounted to 24.9%. Key commercial indicators: 30.09.2006 31.12.2005 ChangeTotal number of PLN current accounts (in 3,044.9 3,019.2 25.7thousand) *of which packages 2,210.9 2,176.9 34.0Number of mortgage loans accounts (in 70.2 60.3 9.9thousand)Number of "Express Loans" accounts (in 279.9 166.6 113.3thousand)Number of mutual fund registers (in 770.4 665.3 105.1thousand)**Payment cards (in thousand)*** 2,724.0 2,673.8 50.2Credit 222.2 146.4 75.8Charge 224.1 269.2 (45.1)Debit (including Maestro) 2,277.7 2,258.2 19.5Total number of outlets (in items) 782 778 4Total number of ATMs (in items) 1,259 1,244 15 * 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 September 2006, the net assets value of mutual funds under managementof Pioneer Pekao TFI S.A., a company managed by Pioneer Pekao InvestmentManagement S.A. (in which the Bank holds a 49% share), amounted to PLN 21,079.9million and was higher by PLN 1,842.4 million compared with the end of 2005. Asat 30th September 2006, the Company had 905.2 thousand open accounts(an increase by 12.4% since the beginning of 2006). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 30.09.2006 31.12.2005 Change Net assets value of Pioneer Pekao 21,079.9 19,237.5 1,842.4TFI- bond and money market funds 6,417.8 9,308.0 (2,890.2)- equity funds 3,289.1 1,586.5 1,702.6- balanced funds 11,373.0 8,343.0 3,030.0 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) In three quarters of 2006, CDM provided the full scope of services (permitted tobrokerage houses), excluding asset management. After 9 months of 2006, the Company achieved: - a 33.2% share in the bond trading volume at the Warsaw StockExchange, - a 12.8% share in the stock trading volume at the Warsaw StockExchange, - a 7.5% share in the futures trading volume at the Warsaw StockExchange. At the end of September 2006 CDM maintained 139.2 thousand investment accountsand its market share was 15.8%. 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 atthe end of September 2006 CDM maintained 17.6 thousand on-line accounts, i.e. a2.3 thousand increase in comparison to the end of 2005. 4.4 Results achieved in three quarters of 2006 and the factors whichinfluenced these results 4.4.1 Results of the Group In the third quarter of 2006 the Group achieved another quarterly record netprofit which amounted to PLN 455.9 million. Net profit of the Group after three quarters of 2006 amounted to PLN 1,321.1million, i.e. 17.0% higher than in the previous year. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fee and commissionincome, with stable operating costs and lower cost of risk. The results of the third quarter are confirming growing efficiency of the PekaoS.A. 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 three quarters of 2006 and 2005is presented below: (PLN million) 3 Q 2006 3 Q 2005 ChangeNet interest income * 1,745.4 1,745.4 0.0%Fee and commission income 1,378.6 1,147.4 20.1%Dividend income 1.7 0.4 xTrading income 78.1 132.4 (41.0%)FX income 192.4 210.3 (8.5%)Other operating income / cost net 54.2 41.6 30.3%Total income 3,450.4 3,277.5 5.3%Overhead costs (including depreciation) (1,732.0) (1,736.9) (0.3%)Personnel (905.1) (898.8) 0.7%Non-personnel (588.3) (596.6) (1.4%)Depreciation (238.6) (241.5) (1.2%)Operating income 1,718.4 1,540.6 11.5%Impairment losses on loans and advances (160.7) (189.9) (15.4%)Share in net profit (loss) of the 63.8 35.0 82.3%associatesPre-tax profit 1,621.5 1,385.7 17.0%Tax charge (300.4) (256.6) 17.1%Net profit 1,321.1 1,129.1 17.0%Attributable to equity holders of the 1,320.0 1,131.6 16.6%CompanyAttributable to minority interest 1.1 (2.5) x * including income on SWAP transactions. The Group's income In three quarters of 2006, the Group's income amounted to PLN 3,450.4 millionand was by PLN 172.9 million (5.3%) higher than in the comparable period of theprevious year. The growth in income was due to the development of business activity, supportedby pro-sales activities relating to the key products of both the Bank and theother Group companies. The main growth driver in this period was fee andcommission income, which increased by 20.1%, primarily thanks to commissions oninvestment products and loans. Interest income after three quarters of 2006 achieved the same level as lastyear. Increasing volume of loans contributed to offsetting the impact ofdeclining interest rates in the market. The Group's overhead costs (including depreciation) Overhead costs (including depreciation) after three quarters of 2006 remainedunder control and amounted to PLN 1,732.0 million, i.e. were 0.3% lower comparedwith the previous year. After three quarters of 2006, the Group's cost / income ratio amounted to 50.2%and was by 2.8 p.p. lower than in the previous year. As at the end of September 2006, the Bank had 14,560 employees (a reduction of258 employees compared with the end of 2005), and the Group had 15,771 employees(171 employees less than at the end of 2005, which includes the decrease inemployment due to divestment of Pekao Development Sp. z o.o.). Impairment losses on loans and advances In three quarters of 2006, impairment losses on loans and advances amounted toPLN 160.7 million and were 15.4% lower than in the previous year. This resultedprimarily from the effective credit risk management and improved macroeconomicsituation. The ratio of impaired receivables to total receivables(1) decreasedfrom 15.5% at the end of 2005 to 12.9% at the end of September 2006 as a resultof an increase in the volume of not impaired receivables and a decrease in thevolume of impaired receivables (including also the effect of the write-off ofca. PLN 557.7 million of impaired loans, being a first step in preparation forthe sale of part of the old stock of non-performing loans). Loans In the third quarter of 2006 the Management Board of Bank Pekao S.A. decided towrite off the balance sheet the loans and advances that fulfill the followingcriteria: lack of expected future recoveries and full coverage of the balancesheet exposure with the allowance accounts. Loans of the notional value of PLN557.7 million have been written off. (PLN million) 30.09.2006 31.12.2005 ChangeGross loans (principal)* 34,493.2 33,235.2 3.8%corporate (principal) 25,039.2 25,058.2 (0.1)%retail (principal) 9,454.0 8,177.0 15.6% * including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities andsettlements relating to securities trading In three quarters of 2006 the gross loans portfolio grew by PLN 1,258.0 million,i.e. by 3.8% despite the above mentioned write-off of old impaired loans. Savings Savings of the Group's clients increased by PLN 2,901.6 million, i.e. by 4.4% inthree quarters of 2006 resulting from an increase both in the savings ofindividual clients and in corporate deposits. The savings of retail clients increased by PLN 1,964.6 in three quarters of 2006as a result of increase in deposits (by PLN 122.2 million) and in mutual funds(by PLN 1,842.4 million). At the end of September 2006 total retail savings reached the PLN 47 billionlevel confirming Group's significant market share. Corporate deposits increased by PLN 937.0 million in three quarters of 2006. (PLN million) 30.09.2006 31.12.2005 ChangeDeposits (principal) 47,072.9 46,013.7 2.3%corporate (principal) 21,056.6 20,119.6 4.7%retail (principal) 26,016.3 25,894.1 0.5%Pioneer Pekao TFI mutual funds 21,079.9 19,237.5 9.6%incl. distributed through the 19,713.1 18,009.2 9.5%Group's networkTotal savings 68,152.8 65,251.2 4.4%incl. retail 47,096.3 45,131.6 4.4% 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) 3 Q 2006 3 Q 2005Net profit of Bank Pekao S.A. 1,327.0 1,081.2Net profit (loss) of entities consolidated 143,3 116,8under full methodCentralny Dom Maklerski Pekao S.A. 104,4 71,6Pekao Leasing Sp. z o.o. 8,8 2,5Pekao Financial Services Sp. z o.o. 7,7 10,5Pekao Faktoring Sp. z o.o. 7,3 6,0Pekao Development Sp. z o.o. * 6,5 18,6Pekao Pioneer PTE S.A. 6,4 4,7Centrum Kart S.A. 2,5 1,5Pekao Fundusz Kapitalowy Sp. z o.o.** 1,9 0,6Pekao Access Sp. z o.o. 1,1 0,6Drukbank Sp. z o.o. 0,0 0,0UniCredit Bank Ltd. / Bank Pekao (Ukraine) (3,3) 0,2Ltd. in Luck***Net profit (loss) of entities valued under 62,4 34,4equity methodPioneer Pekao Investment Management S.A. 67,8 38,6Krajowa Izba Rozliczeniowa S.A. 4,1 4,8Central Poland Fund LLC 0,0 (0,3)Pirelli Pekao Real Estate Sp. z o.o. **** (1,3) -Xelion. Doradcy Finansowi Sp. z o.o. (8,2) (8,8)Grupa Inwestycyjna Nywig S.A. - 0,1Exclusions and consolidation adjustments**** (211.6) (103.3)*Net profit (loss) of the Group 1,321.1 1,129.1 * equity valuation of the subsidiary since the II quarter 2006 due to sale of75% of shares which took place on 3th April 2006. Net profit presented equals toI quarter 2006 result, ** the result of the company includes the valuation of associates based onequity method, *** change in the name of the company, **** Bank's share in net result for II and III quarter 2006, ***** includes transactions within the Group, including dividends fromsubsidiaries and associates. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank are as follows: (PLN million) 3 Q 2006 3 Q 2005 Change Net interest income* 1,678.2 1,668.6 0.6%Non-interest income 1,662.8 1,436.3 15.8%Total income 3,341.0 3,104.9 7.6%Overhead costs (including depreciation) (1,597.7) (1,610.3) (0.8%)Operating income 1,743.3 1,494.7 16.6%Impairment losses on loans and advances (148.3) (185.2) (19.9%)Pre-tax profit 1,595.0 1,309.5 21.8%Net profit 1,327.0 1,081.2 22.7% * including income on SWAP operations The main items of the Bank's balance sheet at the end of September 2006 incomparison with the end of 2005 are as follows: 30.09.2006 31.12.2005 Change Total gross loans in PLN million* 33,843.2 32,748.7 3.3%Impaired receivables to total receivables 12.1 14.7 (2.6 p.p.)in %Total deposits in PLN million* 47,094.8 46,062.3 2.2%Total assets in PLN mil. 68,029.7 61,445.2 10.7%Mutual funds sold in Bank's network in PLN 17,297.5 15,539.0 11.3%millionCapital adequacy ratio in % 15.5 18.0 (3.5 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 three quarters of 2006: (PLN million) Retail Corporate Treasury Total activity activity and Group investment activityExternal interest income 746.9 990.7 1,086.2 2,823.8 External interest expense 268.4 648.2 171.7 1,088.3 Net external interest 478.5 342.5 914.5 1,735.5income Internal interest income 938.5 704.8 (1,643.3) 0.0 Internal interest expense 320.3 704.8 (1,025.1) 0.0 Net internal interest 618.2 0.0 (618.2) 0.0income Net interest income 1,096.7 342.5 296.3 1,735.5 Non interest income 1,311.5 325.2 78.2 1,714.9 Total income 2,408.2 667.7 374.5 3,450.4 Allocated assets 11,672.0 20,683.0 30,707.5 63,062.5 Unallocated assets 5,488.6 Total assets 68,551.1 Allocated liabilities 31,456.2 17,390.5 7,780.9 56,627.6 Unallocated liabilities 11,923.5 Total liabilities 68,551.1 Information on main segments' results for the three quarters of 2005*: (PLN million) Retail Corporate Treasury Total activity activity and Group investment activityExternal interest income 670.5 1,177.4 1,076.0 2,923.9 External interest 332.0 736.1 103.3 1,171.4expense Net external interest 338.5 441.3 972.7 1,752.5income Internal interest income 1,070.0 729.6 (1,799.6) 0.0 Internal interest 342.7 761.5 (1,104.2) 0.0expense Net internal interest 727.3 (31.9) (695.4) 0.0income Net interest income 1,065.8 409.4 277.3 1,752.5 Non interest income 1,090.8 329.9 104.3 1,525.0 Total income 2,156.6 739.3 381.6 3,277.5 Allocated assets 9,655.9 19,623.4 27,666.1 56,945.4 Unallocated assets 5,222.5 Total assets 62,167.9 Allocated liabilities 30,907.1 16,428.6 3,897.8 51,233.5 Unallocated liabilities 10,934.4 Total liabilities 62,167.9 * data comparable with three quarters of 2006, different than published forthree quarters of 2005 due to changes in methodology for allocation of revenuesby segment. 4.6 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 30.09.2006 31.12.2005 30.09.2006 31.12.2005Total provisions 166.7 108.7 164.3 105.0of which:provisions for off-balance 91,6 20.3 91.5 20.3sheet liabilitiesprovisions for liabilities to 61,5 66.0 60.4 65.0employeesother provisions 13,6 22.4 12.4 19.7Provision for deferred tax 0.0 0.0 0.0 0.0Deferred tax assets 272.8 181.3 245.2 152.0 4.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. 3 Q 2006 3 Q 2005 3 Q 2006 3 Q 2005Total (160.6) (189.9) (148.3) (185.2)for loan receivables (88.4) (192.4) (76.5) (187.7)for off-balance sheet (71.8) 2.5 (71.8) 2.5liabilitiesfor financial assets (0.4) 0.0 (0.0) 0.0 4.8 Information on contingent assets and liabilities (PLN ths.) 30.09.2006 31.12.2005Contingent liabilities granted and 21,839,176 15,994,786receivedLiabilities granted: 17,467,499 12,404,368financial 15,486,485 10,990,273guarantees 1,981,014 1,414,095Liabilities received: 4,371,677 3,590,418financial 1,429,514 457,353guarantees 2,942,163 3,133,065Financial derivatives 79,770,114 65,182,224currency transactions 26,182,087 25,795,810Interest rate transactions 50,423,969 38,548,574securities transactions 3,164,058 837,840Other 7,108,427 6,615,255Total off-balance sheet items 108,717,717 87,792,265 4.9 Post balance sheet events Sale of shares of Jan III Sobieski by Bank Pekao S.A. On 31st October 2006 the Bank concluded an agreement with Europa Hawk S.a.r.l.with its seat in Luxemburg (as the Purchaser) on the sale of shares of Hotel JanIII Sobieski limited liability company by virtue of which the Bank sold toPurchaser 142,876 shares of face value equal to PLN 540 for each share,constituting 49.398 % of Hotel Jan III Sobieski limited liability companycapital and carrying the right to 49.398% of votes at the Hotel Jan III SobieskiGeneral Meeting of Shareholders for the total price of EUR 11,135,697.00. The net book value of the sold share in the Bank's books is equal to PLN45,922,418.23. The sold assets has been classified as short-term investment. The Bank shall hold no shares of Hotel Jan III Sobieski limited liabilitycompany following the aforementioned transaction. 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 registered bonds with pre-emptive rights to take up the Bank's F andG shares The Bank issued 415 thousand registered A series bonds and 415 thousandregistered B series bonds with pre-emptive rights to take up the Bank's F seriesshares, and 415 thousand registered C series bonds and 415 thousand registered Dseries bonds with pre-emptive rights to take up the Bank's G series shares. 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. The Bonds were issued on the basis of Resolution No. 6 of the Bank'sExtraordinary General Meeting dated 25th July 2003 on the issue of registeredbonds under an incentive programme. 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. The Bank acquired 88,430 registered series A bonds from Pekao Faktoring Sp. zo.o., for the purpose of redemption, and the total of 326,570 series A bondsfrom eligible persons, upon the request thereof for early redemption, pursuantto the implementation of the right of priority to take up the Bank's sharesensuing from the bonds, for the purpose of redemption thereof. As at the day of submitting this report, all the pre-emptive rights to take up Fseries shares pursuant to the implementation of the right of priority ensuingfrom the A series bonds were executed. B series bonds are available for purchase from the Trustee by the eligiblepersons until 30th December 2006. Bonds of the other series will be available for purchase from the Trustee by theeligible persons in the following periods: - C series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2006 until 30th December 2007. - D series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2007 until 30th December 2008. All Bonds which are not sold off by the Trustee by 30th December 2006, 2007 and2008 respectively shall be acquired by the Bank on 31st December 2006, 2007 and2008 respectively to be redeemed at their nominal value. The execution of the pre-emptive rights to take up F and G series shares can beexercised in the following periods: - in respect of B series bonds - from 1st January 2007 to 31st December2010, - in respect of C series bonds - from 1st January 2008 to 31st December2012, - in respect of D series bonds - from 1st January 2009 to 31st December2012. 4.12 Dividend paid Pursuant to Resolution No. 8 of the General Meeting of Bank Pekao S.A., PLN 7.40per one share was appropriated for the payment of dividend for 2005, i.e. 15.6%higher compared to the dividend for 2004 (PLN 6.40 per one share). Theex-dividend date was determined at 19th May 2006 and the date of dividendpayment at 2nd June 2006. All the Bank's shares are ordinary shares. 4.13 Effects of changes in the Group's structure In the third quarter of 2006 there were no significant changes in the Group'sstructure. 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 2006. 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 September 2006 31st December 2005UniCredito 88,121,725 52.83% 88,121,725 52.93%Italiano S.p.A.Other 78,686,532 47.17% 78,359,962 47.07%shareholdersTotal 166,808,257 100.00% 166,481,687 100.00% Since the beginning of the 2006 share capital of the Bank has been increased bythe total amount of PLN 326,570 as a result of issue of series F ordinary bearershares. According to the information known by the Bank, as at the date of submittingthis report no significant changes were made in the shareholding structure. 4.16 The Issuer's shares held by the Management and Supervisory Boardmembers According to the Bank's knowledge, as at the date of submitting this report themembers of the Bank's management and supervisory bodies held 48,513 shares ofBank Pekao S.A. All these shares were held by members of the Bank's management. 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 incentive programme for 2003 covers 39 people on the day of conveying thereport, with a total of 294,841 shares, 126,635 of which will be available forthe management. The incentive programme for 2004 includes 44 persons for a total 691,921 shares,391,348 of which will be able to be purchased by the management. 4.17 Pending litigations In the third quarter of 2006 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 392. The total value of them was PLN 680.5million. The number of legal proceedings concerning the receivables was 2.839 attotal value of PLN 969.4 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 thethird quarter of 2006, as well as all the proceedings together do not create anythreat to financial liquidity of the Bank. 4.18 Assessment of the financial credibility of Bank Pekao S.A. Standard & Poor's On 19th September 2006 Standard & Poor's Ratings Services made the decision tokeep the ratings of the Bank unchanged on the following level: - Long-term: A-, - Outlook: Stable, - Short-term: A-2. Fitch Ratings On 28th September 2006 Management Board of Bank Pekao S.A. was informed thatFitch Ratings: - has revised the Bank's Outlook on Issuer Default Ratings ("IDR") fromStable to Positive, - has affirmed the ratings on the following level: - IDR rating: A, - Short-term: F1, - Individual rating: C, - Support rating: 1. 4.19 Information about integration of Bank Pekao S.A. and Bank BPH S.A. On 12th November 2006 the Management Board of Bank Pekao S.A passed a resolutionon the intention to integrate Bank Pekao S.A. with Bank BPH S.A., in a way ofBank BPH S.A.'s spin-off by transfer of a part of Bank BPH S.A.'s property in aform of a organised part of enterprise to Bank Pekao S.A., in exchange of sharesof Bank Pekao S.A., which will be taken up by the shareholders of Bank BPH S.A. The decision on the intention to integrate the Banks through Bank BPH S.A.'sspin-off and conducting the integration of the Banks in a way of Bank BPH S.A.'sspin-off by transfer of the part of Bank BPH S.A.'s property is justified by theinterest of both Banks, their shareholders, and customers. As a result of thetransfer of the part of Bank BPH S.A.'s property onto Bank Pekao S.A. thebenefits of the scale effect, in the broad sense, shall be gained. The customers- both retail and corporate - will benefit from the range of the operationsconducted by Bank Pekao S.A. As a consequence of this integration UniCredito Italiano S.p.A., being themajority shareholder of both Banks, will consolidate banking operationsconducted in Poland within its Group. Integration of the Banks by way ofdividing Bank BPH S.A. is consistent with the provisions of the Agreementconcluded on 19 April 2006 by and between the Ministry of State Treasury of theRepublic of Poland and UniCredito Italiano S.p.A. concerning integration of theBanks. On 12th November 2006 the Management Board of Bank Pekao S.A. passed also aresolution determining, for the purposes of the Bank BPH S.A.'s spin-off plan, ashare allocation ratio, i.e. a ratio according to which the shareholders of BankBPH S.A. will take up the shares of Bank Pekao S.A. in relation to Bank BPHS.A.'s spin-off. According to the share allocation ratio determined by theManagement Board of Bank Pekao S.A., each shareholder of Bank BPH S.A. willreceive 3,3 of Bank Pekao S.A. shares for each share of Bank BPH S.A. held,maintaining their shareholding in Bank BPH S.A. 4.20 Transactions of related entities In three quarters of 2006, the Bank and its subsidiaries have not concluded anytransactions with related entities other than typical and routine transactionswhose aggregate value exceeded the equivalent of EUR 500 thousand. In three quarters of 2006, 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 (ex known as Bank Pekao(Ukraina) Ltd.) On the day of 24th July 2006, the Extraordinary General Meeting of Shareholdersof UniCredit Bank Ltd. adopted a conditional resolution (anchored to the consentof the National Bank of Ukraine) on the UniCredit Bank Ltd. capital increasefrom the amount of UAH 41,247,155.85 by the amount of UAH 250,227,900.00 to theamount of UAH 291,475,055.85. On 7th September 2006 the Register of Banks in the National Bank of Ukraine,after received approval from National Bank of Ukraine, registered the amendmentsto the Articles of Association of UniCredit Bank Ltd. regarding the amount ofthe capital of UniCredit Bank Ltd. Registered capital amounts to UAH 291,475,055.85. Bank now holds a total stake of UAH 284,397,320.85, i.e. 97.57% of UniCreditBank Ltd. capital and carrying 97.57% of votes at the General Meeting ofShareholders of UniCredit Bank Ltd. The remaining 2.43% of shares in theregistered capital of UniCredit Bank Ltd. worth the total of UAH 7,077,735.00 isheld by "Drukbank" Sp. z o.o. (a 100%-owned subsidiary of the Bank), carrying2.43% of votes at the General Meeting of Shareholders of UniCredit Bank Ltd. Sale of financial assets by Pekao Fundusz Kapitalowy Sp. z o.o. On 3rd August 2006 Pekao Fundusz Kapitalowy Sp. z o.o. subsidiary of the Bank(PFK) divested of to Komas OY, the company seated in Jyvaskyla in Finland, 1share in Fabryka Maszyn Sp. z o.o. w Janowie Lubelskim (FMJ) with the par valueof PLN 15,754,944.62, and comprising a 86.68% stake in the Company's sharecapital, and carrying 86.68% of votes on the General Meeting of FMJ for theprice amounting in total EUR 3,125,000.00 that states PLN 12,242,812.50. The net book value of the sold share in FMJ is equal to PLN 11,938,761.95. Thesold asset have been classified as long-term investment. In the result of this transaction, PFK and the Bank indirectly does not have anyshare in FMJ company. Acquiring shares in Jan III Sobieski Sp. z o.o. On 19th September 2006 the District Court in Warsaw registered the capitalincrease of the company Jan III Sobieski Sp. z o.o. with its registered seat atWarsaw in which Bank acquired 142,276 shares of PLN 540 value each and of totalnominal value amounting PLN 76,829,040. The acquisition price was equal to thenominal value of the shares. Following the registration the share capital of the Company equals to PLN156,187,980.00 and is divided into 289,237 shares with nominal value of PLN 540each. Bank owns 142,876 shares of Hotel Jan III Sobieski Sp. z o.o. (of nominalvalue of PLN 77,153,040) constituting 49.398% of the capital and entitling to49.398% of votes at the General Meeting of Shareholders of Hotel Jan IIISobieski Sp. z o.o. The acquisition of Company's shares is treated as the short term investment andis the result of Company's debt conversion to Bank. The gross and net value ofconverted debt amounts to PLN 76,829,040.00 and PLN 45,922,418.23 respectively. On 31st October 2006 the Bank concluded an agreement with Europa Hawk S.a.r.l.on the sale of shares of Hotel Jan III Sobieski limited liability company. 4.21 Factors which will affect the results of at least the next quarter Bank Pekao S.A. and its subsidiaries mainly run their business on the territoryof Poland which therefore makes Bank's results dependent on economic developmentof the country and economic trends. Polish economy expands at high rate due to both strong internal demand andexport. It is expected, that these positive trends observed in economydevelopment will continue in the next quarters. High growth rate will have impact on inflation increase, however there isexpectation of stable interest rate environment in Poland till the end ofcurrent year. Fast economic growth makes favourable conditions for banking activities. Furtheracceleration of growth rate in retail and corporate customers loans and in thelevel of retail savings is observed. Improvement in corporate financialsituation as well as continuation in declining unemployment decrease the costsof credit risk. It is expected that all above trends will continue also in thenext quarters.-------------------------- (1) loans and advances to customers including buy-sell-back transactions and notquoted securities, debt securities eligible for rediscounting at the CentralBank and net investment in the finance lease This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BPKD.L