14th Nov 2007 07:52
Bank Pekao SA14 November 2007 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the third quarter of 2007 prepared according to the International Financial Reporting Standards Selected financial statements translated into EUR in PLN ths. in EUR ths. Position 3 Quarters of 3 Quarters of 3 Quarters of 3 Quarters of 2007 2006 2007 2006Net interest income 1 856 507 1 735 540 484 551 443 068Net fee and commission 1 650 083 1 378 647 430 674 351 956incomeOperating profit 1 847 201 1 557 783 482 122 397 688Profit before income tax 1 962 311 1 621 547 512 166 413 966Net profit (loss) 1 598 987 1 321 098 417 338 337 264Net profit (loss) 1 595 656 1 320 011 416 469 336 986attributable to equityholders of the CompanyNet profit (loss) 3 331 1 087 869 278attributable to minorityinterestNet cash from operating 5 351 505 3 661 610 1 396 749 934 776activitiesNet cash used in investing (3 346 274) (1 200 581) (873 382) (306 497)activitiesNet cash from financing (1 472 010) (1 199 535) (384 196) (306 230)activitiesNet increase / decrease in 533 221 1 261 494 139 171 322 048cash and cash equivalentsTotal assets 75 759 922 68 551 148 20 055 572 17 208 773Amounts due to the Central 1 546 890 1 782 534 409 501 447 479BankAmounts due to other banks 6 624 885 3 469 241 1 753 775 870 903Amounts due to customers 55 987 623 51 130 674 14 821 343 12 835 615Minority interest 16 364 16 088 4 332 4 039Equity attributable to the 8 684 374 8 349 424 2 298 974 2 096 002Company's equity holdersShare capital 167 103 166 808 44 236 41 875Number of shares 167 103 098 166 808 257 167 103 098 166 808 257Book value per share (in 51,97 50,05 13,76 12,56PLN/EUR)Diluted book value per 51,91 50,02 13,74 12,56share (in PLN/EUR)Earnings per 1 ordinary 9,55 7,92 2,49 2,02share (in PLN/EUR)Diluted earnings per 1 9,54 7,91 2,49 2,02ordinary share (in PLN/EUR)Paid dividend per share (in 9,00 7,40 2,31 1,84PLN/EUR)Capital adequacy ratio 13,73 17,38 x xRisk weighted assets (*) 45 210 625 36 206 475 11 968 398 9 089 111Core funds (Tier I) (*) 6 208 488 6 535 554 1 643 544 1 640 656Supplementary funds (Tier - (85 477) - (21 458)II) (*)(*) Data as at 30thSeptember 2007 aredisclosed in accordancewith the Resolution 2/2007KNB. 1 Summary 2 Accounting principles adopted in the preparation of the quarterly report 3 Financial statements 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 three quarters 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 Shareholders Meetings 4.19 Assessment of the financial credibility of Bank Pekao S.A. 4.20 Information about integration of Bank Pekao S.A. and Bank BPH S.A. 4.21 Transactions of related entities 4.22 Factors which will affect the results of at least the next quarter 1 Summary In the third quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 555.8 million. The Group's net profit generated in three quarters of 2007 amounted to PLN1,599.0 million and was by PLN 277.9 million (21.0%) higher than in threequarters of 2006. The increase in the net profit was possible through an increased commercialactivity that translated into higher revenue, particularly fee and commissionand interest income, with operating costs under control and lower cost of risk. • In three quarters of 2007, the Group's total income amounted to PLN 3,864.4 million, PLN 414.0 million (12.0%) higher than in the comparable period of the previous year. The main growth driver in this period was fee and commission income, which increased by PLN 271.5 million (19.7%), primarily from commissions on investment products. • In three quarters of 2007 interest income amounted to PLN 1,866.4 million, PLN 121.0 million (6.9%) higher than in three quarters of 2006, mainly as a result of increasing volumes allowing to offset the impact of a lower yield on the debt securities portfolio. • In three quarters 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 28.1% compared with the end of 2006. Sales of PLN mortgage loans amounted to PLN 2,731.0 million (59.3% higher than in three quarters of 2006) contributing to a growth in mortgage loans stock of 39.2% in three quarters of 2007. The Bank continued its policy of offering PLN mortgage loans. Sales of the "Express Loan" in three quarters of 2007 amounted to PLN 1,568.6 million (8.5% higher than in comparable period of 2006) contributing to a growth in the stock of 16.1%. • Total overhead costs (including depreciation) in three quarters of 2007 amounted to PLN 1,884.6 million, PLN 152.6 million (8.8%) higher than in three quarters of 2006. Overhead costs were kept under control, the increase was mainly due to the increase of variable part of personnel costs and expansion in the Ukrainian market. In three quarters of 2007, the Group's cost / income ratio amounted to 48.8% and was 1.4 p.p. lower than in comparable period of 2006. • Impairment losses on loans and advances in three quarters of 2007 amounted to PLN 132.6 million and were PLN 28.1 million (17.5%) lower than in comparable period of the previous year, benefiting from the effective credit risk management and a good macroeconomic situation. The ratio of impaired receivables to total receivables decreased from 11.8% at the end of 2006 to 11.0% at the end of September 2007. • Savings of the Group's clients (customer deposits and mutual funds) increased by PLN 8,616.3 million, up by 11.9% in three quarters of 2007 resulting from an increase both in savings of individual clients and in corporate deposits. The savings of retail clients increased by PLN 4,623.5 million in three quarters of 2007 and exceeded the level of PLN 54 billion. In this period corporate deposits increased by PLN 3,992.8 million. • In three quarters of 2007, the gross loan portfolio grew by PLN 3,518.9 million, i.e. by 9.6%.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 of the CapitalGroup of the Bank Pekao S.A. for the first half 2007, published on 18thSeptember 2007. In the third 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 UniCredit BankLtd. after the merger with the Commercial Bank HVB Ukraine S.A. (purchased bythe Bank Pekao S.A. during the first quarter of 2007). 3 Financial statements Financial statements CONSOLIDATED INCOME STATEMENT (in III Quarter 3 Quarters III Quarter 3 Quarters'000 PLN) 2007 period 2007 period 2006 period 2006 period from from from from 07-07-01 to 07-01-01 to 06-07-01 to 06-01-01 to 07-09-30 07-09-30 06-09-30 06-09-30 Interest income 1 122 255 3 177 740 968 754 2 823 787Interest expense (479 549) (1 321 233) (377 096) (1 088 247)Net interest income 642 706 1 856 507 591 658 1 735 540Fee and commission income 622 516 1 866 867 505 906 1 536 822Fee and commission expense (80 955) (216 784) (56 135) (158 175)Net fee and commission income 541 561 1 650 083 449 771 1 378 647Dividend income 119 2 180 71 1 709Result on financial instruments at 5 494 50 597 3 178 22 575fair valueResult on investment securities 5 545 16 707 1 914 65 326Foreign exchange result 82 800 220 451 72 196 192 432Other operating income 53 856 116 704 36 287 125 268Other operating expenses (17 010) (48 808) (17 447) (71 108)Net other operating income 36 846 67 896 18 840 54 160Net impairment losses on financial (40 233) (132 572) (50 876) (160 636)assets and net provisions forguarantees and commitmentsOverhead costs (643 504) (1 884 648) (565 997) (1 731 970)Operating profit 631 334 1 847 201 520 755 1 557 783Share of profit (loss) of 36 821 115 110 27 776 63 764associates and joint ventureentities valued at the equitymethodProfit before income tax 668 155 1 962 311 548 531 1 621 547Income tax expense (112 373) (363 324) (92 641) (300 449) Net profit for the period 555 782 1 598 987 455 890 1 321 098 1. Attributable to equity holders 554 410 1 595 656 455 019 1 320 011 of the Company2. Attributable to minority 1 372 3 331 871 1 087 interest Earnings per share (in PLN per share) - basic for the period 9,55 7,92- diluted for the period 9,54 7,91 CONSOLIDATED BALANCE SHEET (in '000 PLN) CONSOLIDATED BALANCE SHEET 30.09.2007 31.12.2006 30.09.2006 (in PLN '000) ASSETS Cash and amounts due from 3 894 012 3 577 924 3 806 602 Central Bank Debt securities eligible 2 055 2 519 4 026 for rediscounting at the Central Bank Loans and advances to 10 886 924 10 512 877 9 057 060 banks Financial assets as held 2 400 852 2 391 371 2 285 666 for trading Derivative financial 641 153 526 642 435 652 instruments Other financial 1 493 452 1 613 196 1 721 755 instruments at fair value through profit or loss Loans and advances to 35 056 118 31 778 127 31 238 727 customers Net investment in the 1 199 196 966 607 871 723 finance lease Investment securities 16 478 658 13 000 067 15 921 560 1. Available for sale 15 959 472 12 574 657 15 487 447 2. Held to maturity 519 186 425 410 434 113 Assets of disposal group 1 382 8 784 51 135 classifield as held for sale Investments in associated 239 432 207 254 181 139 undertakings Intangible assets 604 559 608 884 595 423 Tangible fixed assets 1 463 184 1 445 460 1 418 238 Investment property 60 659 52 670 54 621 Income taxes 292 332 305 885 272 855 1. Current tax assets 5 167 1 491 21 2. Deferred income tax 287 165 304 394 272 834 assets Other assets 1 045 954 705 421 634 966TOTAL ASSETS 75 759 922 67 703 688 68 551 148 LIABILITIES AND SHAREHOLDERS'EQUITY Liabilities Amounts due to the Central 1 546 890 2 045 278 1 782 534 Bank Amounts due to other banks 6 624 885 2 009 976 3 469 241 Financial liabilities as 437 843 211 373 1 083 584 held for trading Derivative financial 600 084 504 200 480 074 instruments Amounts due to customers 55 987 623 51 793 583 51 130 674 Debt securities in issue 41 803 3 2 Liabilities directly - - - associated with assets classified as held for sale Current income tax 50 612 202 148 135 746 liabilities Provisions for deferred 295 - - income tax Provisions 223 319 223 943 166 691 Other liabilities 1 545 830 1 820 557 1 937 090Total liabilities 67 059 184 58 811 061 60 185 636 Shareholders' equityCapital and reserves 8 684 374 8 875 883 8 349 424attributable to the Company'sequity holders Share capital 167 103 166 808 166 808 Other capital and reserves 7 065 795 7 028 137 6 969 173 Prior and current year 1 451 476 1 680 938 1 213 443 profitsMinority interest 16 364 16 744 16 088Total Shareholders' equity 8 700 738 8 892 627 8 365 512TOTAL LIABILITIES AND 75 759 922 67 703 688 68 551 148SHAREHOLDERS' EQUITY Capital adequacy ratio 13,73 16,51 17,38Book value 8 684 374 8 875 883 8 349 424Number of shares 167 103 166 808 257 166 808 257 098Book value per share ( in PLN 51,97 53,21 50,05per share)Diluted numebr of shares 167 292 166 941 439 166 935 209 458Diluted book value per share 51,91 53,17 50,02(in PLN per share) CONSOLIDATED STATEMENT OF CHANGES 3 Quarters 2006 3 Quarters 2007 2006 IN SHAREHOLDERS' EQUITY period from period period from(in PLN '000) 07-01-01 to from 06-01-01 to 07-09-30 06-01-01 06-09-30 to 06-12-31Shareholders equity at the beginning of the 8 892 627 8 422 726 8 422 726period a) adjustment related to IFRS/IAS - - - introduction b) change of consolidation method - - - c) adjustment due to fundamental errors - - - Adjusted shareholders equity at the 8 892 627 8 422 726 8 422 726beginning of the period 1. Share capital at the beginning of the 166 808 166 482 166 482period a) Increase 295 326 326 - new shares issue 295 326 326 b) Decrease - - - - redemptions - - - 1. Share capital at the end of the period 167 103 166 808 166 808 2. Earnings from previous years at the 1 680 938 1 521 895 1 521 895beginning of the period a) Increase - 31 226 31 226 - undistributed profits of prior period - - - - other - 31 226 31 226 b) Decrease (1 825 119) (1 659 (1 659 689) 689) - appropriation to general banking risk (100 000) (70 000) (70 000) fund - appropriation to other reserve capital (158 757) (346 418) (346 418) - appropriation to reserve capital (27 856) (8 890) (8 890) - dividend (1 503 928) (1 234 (1 234 381) 381) - other (34 578) - - 2. Earnings from previous years at the end (144 181) (106 568) (106 568) 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 321 084 466 036 464 945 - appropriation of net profit 286 613 425 308 425 308 - share premium on issue of new shares 31 623 34 851 34 851 - valuation of securities available for - - - sale (net) - employee share option proceeds 2 848 5 877 4 408 - foreign exchange differences from valuation - - 159 of foreign entities- other - - 219 b) Decrease (283 425) (156 812) (214 685) - valuation of securities available for (112 830) (110 976) (182 414) sale (net) - foreign exchange differences from valuation (243) (10 080) - of foreign entities- other (170 352) (35 756) (32 271) 3. Other capital and reserves at the end of 7 065 796 7 028 137 6 969 173 the period 4. Net profit 1 595 656 1 787 506 1 320 011 Shareholders' equity at the end of the 8 684 374 8 875 883 8 349 424period Minority interest at the beginning of the 16 744 15 436 15 436period a) Changes: (380) 1 308 652 - net profit 3 331 2 191 1 087 - other (3 711) (883) (435) Minority interest at the end of the period 16 364 16 744 16 088 Total equity 8 700 738 8 892 627 8 365 512 CONSOLIDATED STATEMENT OF CASH FLOW III Quarter 3 Quarters III Quarter 3 Quarters 2007 2007 2006 2006(in PLN '000) period from period from period from period from 07-07-01 to 07-01-01 to 06-07-01 to 06-01-01 to 07-09-30 07-09-30 06-09-30 06-09-30Cash flow from operating activities -indirect method Net profit (loss) 554 410 1 595 656 455 019 1 320 011Adjustments: 2 031 989 3 755 849 426 016 2 341 599Deprecition 82 602 243 319 82 513 240 808Share of profit (loss) associates (36 821) (115 110) (27 776) (63 764)Foreign exchange differences 126 888 227 189 29 762 93 445(Profit) loss on investing activities (8 229) (29 636) (2 128) (48 869)Impariment - - 2 (11 530)Interest and dividend (216 182) (608 124) (181 220) (603 466)Change in loans and advances to banks (84 351) (156 914) 104 254 (1 061 351)Change in financial assets as held for (590 673) 110 263 380 922 276 262trading and other financial instrumentsat fair value through profit or lossChange in derivative financial 49 424 (114 511) 185 466 63 638instrumentsChange in loans and advances to customers (1 110 934) (3 277 527) (2 188 027) (3 012 917)Change in net investment in the finance (50 626) (232 589) (11 855) (125 832)leaseChange in investment securities available (85) (39 757) (1 330) (760)for saleChange in deferred income tax assets 23 421 5 405 (16 017) (47 966)Change in other assets (226 302) (503 892) 858 514 8 015Change in amounts due to banks 78 644 4 116 521 (1 071 549) 1 304 022Change in liabilities as held for trading 307 869 226 470 528 759 524 611Change in derivative financial (76 226) 95 884 (88 580) (127 615)instruments and other financialliabilitiy at fair value through profitor lossChange in amounts due to customers 3 848 014 4 194 040 1 264 650 4 282 797Change in debt securities in issue 41 800 41 800 - -Change in provisions 3 833 (624) 76 620 57 964Change in other liabilities (89 486) (267 052) 463 623 431 968Income tax paid (109 179) (478 938) (69 224) (185 830)Carrent tax 68 588 319 632 108 637 347 969Net cash from operating activities 2 586 399 5 351 505 881 035 3 661 610 Cash flows from investing activities Investing activity inflows 6 222 111 29 412 719 14 042 141 31 536 724Sale of subsidiaries and associates 22 598 22 598 - -Sale of investment securities 6 168 967 28 916 843 14 003 991 31 109 215Sale of intangible assets and tangible 30 629 450 8 809fixed assetsOther investing inflows 30 516 472 649 37 700 418 700Investing activity outflows (8 836 773) (32 758 (14 034 (32 737 993) 290) 305)Purchase of subsidiaries and associates - - - -Purchase of investment securities (8 705 001) (32 490 (13 965 (32 572 775) 655) 238)Purchase of intangible assets and (131 772) (268 218) (68 705) (164 746)tangible fixed assetsOther investing outflows - - 70 (321)Net cash used in investing activities (2 614 662) (3 346 274) 7 851 (1 200 581) Cash flows from financing activities Financing activity inflows - 31 918 - 34 851Proceeds from loans and advances from - - - -other banksProceeds from other loans and advances - - - -Issue of debt securities - - - -Increase of subordinated liabilities - - - -Issue of ordinary shares - 31 918 - 34 851Sale of own shares - - - -Other financing inflows - - - -Financing activity outflows 4 (1 503 928) - (1 234 386)Repayments of loans and advances from - - - -other banksRepayments of other loans and advances - - - -Redemption of debt securities 4 - - (5)Decrease of subordinated liabilities - - - -Other financial liabilities - - - -Payments of financial lease liabilities - - - -Dividends and other payments to - (1 503 928) - (1 234 381)shareholdersOther than payments to shareholders - - - -expenditures due to appropriation ofprofitPurchase of own shares - - - -Other financing outflows - - - -Net cash from financing activities 4 (1 472 010) - (1 199 535) Total net cash flow (28 259) 533 221 888 886 1 261 494Net change in cash and cash equivalents (28 259) 533 221 888 886 1 261 494Cash and casch equivalents at the 11 194 817 10 633 337 8 039 829 7 667 221beginning of the periodCash and cash equivalents at the end of 11 166 558 11 166 558 8 928 715 8 928 715the period QUARTERLY INDIVIDUAL FINANCIAL REPORT QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT (in '000 PLN) III Quarter 3 Quarters III Quarter 3 Quarters 2007 period 2007 2006 period 2006 from period from period 07-07-01 to from 06-07-01 to from 07-09-30 07-01-01 06-09-30 06-01-01 to to 07-09-30 06-09-30Interest income 1 045 128 3 012 874 951 447 2 775 617Interest expense (465 135) (1 303 (382 904) (1 107 085) 272)Net interest income 579 993 1 709 789 568 543 1 668 345Fee and commission income 516 193 1 520 484 431 529 1 281 286Fee and commission expense (73 523) (191 144) (49 417) (132 415)Net fee and commission income 442 670 1 329 340 382 112 1 148 871Dividend income 64 243 119 - 170 025Result on financial instruments at 9 371 53 751 2 675 22 126fair valueResult on investment securities 5 401 16 052 1 914 65 326Foreign exchange result 80 657 217 540 71 805 190 995Other operating income 30 212 82 165 33 291 122 917Other operating expenses (11 296) (39 390) (15 135) (47 653)Net other operating income 18 916 42 775 18 156 75 264Net impairment losses on financial (10 624) (87 292) (47 389) (148 303)assets and net provisions forguarantees and commitmentsOverhead costs (571 366) (1 683 (522 496) (1 597 828) 623)Operating profit 555 082 1 841 246 475 320 1 595 026Profit before income tax 555 082 1 841 246 475 320 1 595 026Income tax expense (101 878) (319 798) (83 958) (268 026) Net profit for the period 453 204 1 521 448 391 362 1 327 000 Earnings per share (in PLN per share) - basic for the period 9,11 7,96- diluted for the period 9,10 7,95 BALANCE SHEET (in PLN '000) 30.09.2007 31.12.2006 30.09.2006ASSETS Cash and amounts due from Central 3 875 515 3 573 882 3 803 938 Bank Debt securities eligible for 2 055 2 519 4 026 rediscounting at the Central Bank Loans and advances to banks 10 565 057 10 395 551 8 909 958 Financial assets held for trading 1 975 407 2 050 828 1 979 875 Derivative financial instruments 640 935 526 643 435 646 Other financial instruments at fair 1 493 398 1 613 195 1 721 755 value through profit or loss Loans and advances to customers 34 072 992 32 352 315 31 779 482 Investment securities 16 464 467 12 999 469 15 921 114 1. Available for sale 15 945 281 12 574 059 15 487 001 2. Held to maturity 519 186 425 410 434 113 Non-current assets held for sale 1 382 8 784 49 848 Shares in subsidiaries 1 143 827 671 100 670 910 Shares in associates 51 092 51 092 51 092 Intangible assets 584 668 597 050 585 841 Tangible fixed assets 1 384 080 1 399 804 1 389 394 Investment property 58 132 49 916 51 710 Income taxes 259 360 274 824 245 161 1. Current tax assets - - - 2. Deferred income tax assets 259 360 274 824 245 161 Other assets 830 917 409 783 429 976TOTAL ASSETS 73 403 284 66 976 755 68 029 726 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank 1 546 890 2 045 278 1 782 534 Amounts due to other banks 5 300 524 1 926 999 3 415 479 Financial liabilities held for 437 843 203 408 1 035 989 trading Derivative financial instruments 600 041 504 194 480 079 Amounts due to customers 55 366 964 51 811 250 51 141 622 Debt securities in issue 8 12 12 Current income tax liabilities 45 090 201 631 132 573 Provisions for deferred income tax - - - Provisions 220 073 221 012 164 348 Other liabilities 1 326 432 1 442 806 1 730 822Total liabilities 64 843 865 58 356 590 59 883 458 Shareholders' equity Share capital 167 103 166 808 166 808 Profit for the year and retained 1 521 448 1 728 539 1 327 000 earnings Other capital and reserves 6 870 868 6 724 818 6 652 460TOTAL SHAREHOLDERS' EQUITY 8 559 419 8 620 165 8 146 268TOTAL SHAREHOLDERS' EQUITY AND 73 403 284 66 976 755 68 029 726LIABILITIES Capital adequacy ratio 12,04 14,74 15,54 STATEMENT OF CHANGES IN EQUITY 3 Quarters 2006 3 Quarters 2007 2006(in PLN '000) period from period from period from 07-01-01 06-01-01 06-01-01 to 07-09-30 to 06-12-31 to 06-09-30 Shareholders equity at the beginning 8 620 165 8 196 258 8 196 258of the period a) adjustment related to IFRS/IAS - - -introduction b) adjustment due to fundamental - - -errors Adjusted shareholders equity at the 8 620 165 8 196 258 8 196 258beginning of the period 1. Share capital at the beginning of 166 808 166 482 166 482the 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 808period 2. Retained earnings (loss) from 1 728 539 1 506 779 1 506 779previous years at the beginning of theperioda) Increase - - - - profit for previous year - - - b) Decrease (1 728 539) (1 506 779) (1 506 779) - appropriation to legal capital (15 000) - - - appropriation to general banking (100 000) (70 000) (70 000)risk fund - appropriation to reserve capital (109 611) (202 398) (202 398) - 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 beginning of 6 724 818 6 522 997 6 522 997the period a) Increase 259 082 313 126 311 877 - appropriation of net profit 224 611 272 398 272 398 - issue of shares under its' nominal 31 623 34 851 34 851value - valuation of securities available - - -for sale (net); in which: gains and losses from valuation of - - -securities available for saleprovision for deferred income tax - - - - valuation of management options 2 848 5 877 4 408 - foreign exchange differences on - - 220branches abroad b) Decrease (113 032) (111 305) (182 414) - valuation of securities available (112 785) (110 976) (182 414)for sale (net); in which: gains and losses from valuation of (139 215) (136 979) (225 123)securities available for saleprovision for deferred income tax of the 26 430 26 003 42 709securities portfolio valuation- foreign exchange differences on (247) (329) -branches abroad 3. Other capital at the end of the 6 870 868 6 724 818 6 652 460period 4. Net profit 1 521 448 1 728 539 1 327 000 Shareholders' equity at the end of the 8 559 419 8 620 165 8 146 268period CASH FLOW STATEMENT III Quarter 3 Quarters III Quarter 3 Quarters 2007 2007 2006 2006(in PLN '000) period from period from period from period from 07-07-01 to 07-01-01 to 06-07-01 to 06-01-01 to 07-09-30 07-09-30 06-09-30 06-09-30Cash flow from operating activities- indirect method Net profit (loss) 453 204 1 521 448 391 362 1 327 000Adjustments: 2 129 139 3 854 876 496 390 2 147 589Depreciation 76 420 227 820 79 474 230 073Foreign exchange differences 116 510 223 384 29 668 93 288(Profit) loss on investing (7 845) (28 703) (1 684) (66 226)activitiesImpairment - 2 002 - -Interest and dividend (215 797) (847 338) (181 220) (771 881)Change in loans and advances to (83 838) (209 831) 98 418 (1 070 980)banksChange in financial assets as held (632 315) 195 218 336 510 297 574for trading and other financialinstruments at fair value throughprofit or lossChange in derivative financial 49 405 (114 292) 185 462 63 644instrumentsChange in loans and advances to (722 435) (1 720 213) (2 227 374) (3 050 259)customersChange in investment securities (262) (4 241) (1 347) (782)available for saleChange in deferred income tax assets 45 146 41 894 (15 472) (50 444)Change in other assets (317 875) (398 103) 828 881 (160 430)Change in amounts due to banks (159 765) 2 875 137 (963 241) 1 253 702Change in liabilities as held for 311 613 234 435 534 873 490 059tradingChange in derivative financial (76 249) 95 847 (88 627) (127 610)instrumentsChange in amounts due to customers 3 785 527 3 555 714 1 283 908 4 291 874Change in debt securities in issue - - - -Change in provisions 3 966 (939) 76 489 59 335Change in other liabilities (7 638) (118 000) 481 976 507 470Income tax paid (92 163) (432 820) (59 733) (159 287)Current tax 56 734 277 905 99 429 318 469Net cash from operating activities 2 582 343 5 376 324 887 752 3 474 589 Cash flows from investing activities Investing activity inflows 6 189 123 29 443 740 14 042 038 31 662 563Sale of subsidiaries and associates - - - -Sale of investment securities 6 168 669 28 818 899 14 003 991 31 131 276Sale of intangible assets and 22 293 347 1 266tangible fixed assetsOther investing inflows 20 432 624 548 37 700 530 021Investing activity outflows (8 795 401) (33 086 (14 176 (32 869 742) 811) 410)Purchase of subsidiaries and - (474 729) (156 242) (156 242)associatesPurchase of investment securities (8 694 876) (32 403 (13 965 (32 572 660) 655) 238)Purchase of intangible assets and (100 525) (208 353) (54 914) (140 930)tangible fixed assetsOther investing outflows - - - -Net cash used in investing (2 606 278) (3 643 002) (134 773) (1 206 847)activities Cash flows from financing activities Financing activity inflows - 31 918 - 35 177Loans received from banks - - - -Loans received from other financial - - - -institutionsIssue of debt securities - - - -Increase in subordinated liabilities - - - -Issue of ordinary shares - 31 918 - 35 177Sale of own shares - - - -Other inflows - - - -Financing activity outflows - (1 503 932) - (1 234 386)Repayment of bank loans - - - -Repayment of loans received from - - - -other financial institutionsRedemption of debt securities - (4) - (5)Decrease of subordinated liabilities - - - -Repayment of other financial - - - -liabilitiesRepayment of pricipal amounts under - - - -finance lease agreementsDividends and other payments to - (1 503 928) - (1 234 381)shareholdersOutflows from profi appropriation - - - -other than payments to shareholdersPurchase of own shares - - - -Other financing outflows - - - -Net cash from financing activities - (1 472 014) - (1 199 209) Total net cash flow (23 935) 261 308 752 979 1 068 533Net change in cash and cash (23 935) 261 308 752 979 1 068 533equivalentsCash and cash equivalents at the 10 862 648 10 577 405 8 004 128 7 688 574beginning of the periodCash and cash equivalents at the end 10 838 713 10 838 713 8 757 107 8 757 107of the period 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 30th September 2007 consists of Bank PekaoS.A as the parent entity and 11 subsidiary entities. The following entities are included in the consolidated financial report as at30th September 2007: No Company's name 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 Kapita(3) financial 100.00 subsidiary full owy 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. BDK Consulting Sp. z o.o. consulting, 99.99 subsidiary full hotels, transportation12. 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. Central Poland Fund LLC financial 53.19 associated Equity intermediary2. Xelion. Doradcy Finansowi auxiliary, 50.00 associated Equity Sp. z o.o. financial and insurance3. Pioneer Pekao Investment financial 49.00 associated equity Management S.A. intermediary4. Pirelli Pekao Real Estate real estate 25.00 associated equity Sp. z o. o. management5. Krajowa Izba chamber of 22.96 associated equity Rozliczeniowa S.A. settlement6. CPF Management mutual funds 40.00 associated not valuated management-does under equity not operate method In the third quarter of 2007 there were the following changes in the structureof the related parties of the Bank in relation to the presented one for thesecond quarter of 2007: Subsidiary entities: - disposal of the whole participation in Pekao Access Sp. z o.o. owned by the Bank, - change in the Group structure deriving from the merger of the UniCredit Bank Ltd. (acquirer) with the Commercial Bank HVB Ukraine S.A. (merged). Associated entities: - disposal of the whole participation in Anica System S.A. owned by the Bank. The table below presents information on disposal of subordinated entities : (PLN thousand)Company's name Proceeds on sale Cost of sale Gross profit on salePekao Access Sp. z o.o. 820 499 321Anica System S.A. 22,598 5,554 17,044Total 23,418 6,053 17,365 On 3rd September 2007 the merger of the UniCredit Bank Ltd (acquirer) with theCommercial Bank HVB Ukraine S.A. (merged) took place. The above merger transaction, as a business combination of the entities undercommon control was accounted for in accordance with the accounting policyadopted consistently in the Group; the acquirer entity has disclosed the assetsand liabilities of the merged entity using their book values only adjusted forthe standardization of the accounting principles of the merged entity, while thecomparative data regarding the historical periods were presented withoutrestatements. Net assets acquired during the business combination are the following (in PLN*ths.): No. Item name Amount 1. Cash and cash balance due from 361,925 banks 2. Receivables due from customers 1,179,545 3. Financial assets as held for 144,551 trading 4. Financial assets held for sale 12,186 5. Tangible fixed assets and 3,986 intangible assets 6. Other assets 1,742 7. Liabilities due to banks (914,463) 8. Liabilities due to customers (563,945) 9. Debt securities in issue (43,557) 10. Other liabilities (14,801) 11. Total net assets 167,169 * The following exchange rate of 1 UAH for PLN 0.5574 was applied in accordancewith the Table no: 170/A/NBP/2007 as at 03.09.2007 published by the NationalBank of Poland. 4.2 Achievements of Bank Pekao S.A. Commercial activity Bank Pekao S.A. is a universal, commercial bank, offering a full range ofbanking services to both individual and corporate clients, operating in Polandand abroad. Pekao Group's subsidiary financial institutions operate in banking,asset management, pension funds, brokerage, leasing and factoring markets. Good performance in three quarters 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. Sales of PLN mortgage loans amounted to PLN 2,731.0 million (59.3% higher thanin three quarters of 2006) contributing to a growth in the stock of 39.2% inthree quarters of 2007. The Bank continued its policy of offering PLN mortgageloans. Sales of the "Express Loan" in three quarters of 2007 amounted to PLN 1,568.6million (8.5% higher than in three quarters of 2006) contributing to a growth inthe stock of 16.1% in three quarters of 2007. Pioneer Pekao TFI S.A. mutual funds were distributed through the network of BankPekao S.A., CDM Pekao S.A. and Xelion. Doradcy Finansowi Sp. z o.o. branches.Total assets of Pioneer Pekao TFI S.A. mutual funds increased in three quartersof 2007 by PLN 6,537.9 million (28.1%). The Pekao Group confirmed its leadingposition in the mutual funds market - at the end of September 2007 market shareof mutual funds managed by PPIM S.A. amounted to 21.2%. 30.09.2007 31.12.2006 ChangeTotal number of PLN current accounts (in 3,083.0 3,054.4 28.6thousand) *of which packages 2,240.0 2,221.1 18.9Number of mortgage loans accounts (in 85.7 74.7 11.0thousand)Number of "Express Loans" accounts (in 384.7 328.4 56.3thousand)Number of mutual fund registers (in 1,045.5 828.9 216.6thousand)**Payment cards (in thousand)*** 2,757.1 2,744.6 12.5Credit 286.5 244.8 41.7Charge 188.6 211.9 (23.3)Debit (including Maestro) 2,282.0 2,287.9 (5.9) * 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. The Bank makes the superior physical distribution available to its clients, withthe most convenient network footprint countrywide. Distribution network issupplemented with teams of Relationship Managers and a network of PrivateBanking offices. The number of customers using alternative distribution channelssuch as call centre and internet banking platform is systematically growing.Pekao24 Service (for retail and SME clients) and PekaoBiznes24 (for corporateclients) facilitate the management of financial assets, and scope of services isbeing systematically extended. The Bank cares for increasing the security ofusing the services by modern logging systems as well as supporting the customerswith the knowledge of safe usage of internet and internet banking. 30.09.2007 31.12.2006 ChangeTotal number of outlets (in items) 774 782 (8)Total number of ATMs (in items) 1,272 1,262 10Number of customers actively using Pekao24(in thousand)Retail clients 832.7 707.6 125.1SME segment 35.7 33.7 2.0Number of customers actively using 8.9 6.1 2.8PekaoBiznes24 (in thousand) 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. As at 30th September 2007, 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 29,801.3million and was higher by PLN 6,537.9 million compared with the end of 2006. Asat 30th September 2007, the Company had 1,217.3 thousand open accounts(an increase by 24.9% since the beginning 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) 30.09.2007 31.12.2006 Change Net assets value of Pioneer Pekao 29,801.3 23,263.4 6,537.9TFI- bond and money market funds 4,649.3 5,584.7 (935.4)- equity funds 11,117.2 4,901.9 6,215.3- balanced funds 14,034.8 12,776.8 1,258.0 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) CDM (Central Brokerage House) provides the full scope of permitted brokerageservices excluding asset management. In three quarters of 2007, the Company continued its successful performancedespite challenging market conditions. At the end of September 2007, CDM maintained over 151.0 thousand investmentaccounts and its market share was 15.3%. CDM also offered on-line access toinvestment accounts, allowing its customers to buy and sell all instrumentslisted on the Warsaw Stock Exchange and on the OTC market (CeTO) through theInternet. As at 30th September 2007, CDM maintained 26.0 thousand on-lineaccounts, 6.3 thousand more than at 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 On 3rd September 2007 the legal and operational merger of UniCredit Bank and HVBUkraine took place resulting from the acquisition of 100% shares of HVB Ukraineon 30th March 2007. The joint bank operates under the name UniCredit Bank Ltd. At the end of September 2007 UniCredit Bank operated through a network of 35branches, serving over 47 thousand individual clients and almost 1.5 thousandcorporate clients. Additionally the company developed its network of sale pointsfor payment cards and consumer loans, increasing the number to 140 points as atthe end of the third quarter of 2007. 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 three quarters of 2007 and the factors whichinfluenced these results 4.4.1 Results of the Group In the third quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 555.8 million. The Group's net profit generated in three quarters of 2007 amounted to PLN1,599.0 million and was PLN 277.9 million (21.0%) higher than in three quartersof 2006. The increase in the net profit was possible through an increased commercialactivity that translated into higher revenue, particularly fee and commissionand interest income, with operating costs under control and lower cost of risk. The results confirm high efficiency of the Pekao Group. Return on average equity(ROE) increased from 21.0% in three quarters of 2006 to 24.7% in three quartersof 2007. Good results of Bank Pekao S.A. were accompanied by positive results of theGroup's other subsidiary companies. The consolidated profit and loss account for three quarters of 2007 and threequarters 2006 is presented below: (PLN million) 3 Q 2007 3 Q 2006 ChangeNet interest income * 1,866.4 1,745.4 6.9%Fee and commission income 1,650.1 1,378.6 19.7%Dividend income 2.2 1.7 29.4%Trading income 61.6 78.1 (21.1%)FX income 216.2 192.4 12.4%Other operating income / cost net 67.9 54.2 25.3%Total income 3,864.4 3,450.4 12.0%Overhead costs (including depreciation) (1,884.6) (1,732.0) 8.8%Operating income 1,979.8 1,718.4 15.2%Impairment losses on loans and advances (132.6) (160.7) (17.5%)Share in net profit (loss) of the 115.1 63.8 80.4%associatesPre-tax profit 1,962.3 1,621.5 21.0%Tax charge (363.3) (300.4) 20.9%Net profit 1,599.0 1,321.1 21.0%Attributable to equity holders of the 1,595.7 1,320.0 20.9%CompanyAttributable to minority interest 3.3 1.1 200.0% * Including income on SWAP transactions. The Group's income In three quarters of 2007, the Group's total income amounted to PLN 3,864.4million, PLN 414.0 million (12.0%) higher than in the comparable period of theprevious year. The main growth driver in this period was fee and commission income, whichincreased by PLN 271.5 million (19.7%), primarily from commissions on investmentproducts. (PLN million) 3 Q 2007 3 Q 2006 ChangeFee and commission income 1,650.1 1,378.6 19.7%of which commissions on investment 623.3 416.6 49.6%products Another factor influencing the total income was interest income, which amountedto PLN 1,866.4 million, PLN 121.0 million (6.9%) higher than in three quartersof 2006, mainly as a result of increasing volumes allowing to offset the impactof a lower yield on the debt securities portfolio. 3 Q 2007 3 Q 2006 ChangeNet interest income * (PLN million) 1,866.4 1,745.4 6.9%Net interest margin %** 4.0 4.2 (0.2 p.p.) * Including income on SWAP transactions. ** Excluding BSB and SBB transactions. The Group's overhead costs (including depreciation) Total overhead costs (including depreciation) in three quarters of 2007 amountedto PLN 1,884.6 million, PLN 152.6 million (8.8%) higher than in three quartersof 2006. (PLN million) 3 Q 2007 3 Q 2006 ChangeOverhead costs (including depreciation) (1,884.6) (1,732.0) 8.8%Personnel costs (998.1) (905.1) 10.3%Non-personnel costs (643.3) (588.3) 9.3%Depreciation (243.2) (238.6) 1.9% Overhead costs were kept under control, the increase was mainly due to theincrease of variable part of personnel costs and expansion in the Ukrainianmarket. In three quarters of 2007, the Group's cost / income ratio amounted to 48.8% andwas 1.4 p.p. lower than in comparable period of 2006. As at the end of September 2007, the Bank had 14,259 employees, a reduction of103 employees compared with the end of 2006, and the Group had 16,117 employees,470 employees more than at the end of 2006. The increase in the number ofemployees came mainly from increased employment in Ukraine also including theeffect of consolidation of HVB Ukraine. Impairment losses on loans and advances In three quarters of 2007, impairment losses on loans and advances amounted toPLN 132.6 million and were PLN 28.1 million (17.5%) lower than in comparableperiod of the previous year, benefiting from the effective credit riskmanagement and a good macroeconomic situation. (PLN million) 30.09.2007 31.12.2006 ChangeGross credit and loans 39,987.9 36,444.3 9.7%not impaired 35,594.6 32,153.2 10.7%impaired 4,393.3 4,291.1 2.4%Impairment losses (3,912.3) (3,830.2) 2.1%Interest 181.8 133.2 36.5%Total net value 36,257.4 32,747.3 10.7% The ratio of impaired receivables to total receivables decreased from 11.8% atthe end of 2006 to 11.0% at the end of September 2007 as a result of an increasein the total volume of receivables (including the effect of the consolidation ofHVB Ukraine). Loans In three quarters of 2007 the gross loans portfolio grew by PLN 3,518.9 million,i.e. by 9.6%. (PLN million) 30.09.2007 31.12.2006 ChangeGross loans (principal)* 40,022.2 36,503.3 9.6%corporate (principal) 27,811.0 26,233.4 6.0%retail (principal) 12,211.2 10,269.9 18.9% * 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 in three quarters of 2007 was driven by growth of PLNmortgage loans (by PLN 1,879.2 million) and "Express Loan" (by PLN 375.4million), as well as growth of corporate loans (by PLN 1,577.6 million) whichincludes the effect of consolidation of HVB Ukraine. Savings Savings of the Group's clients (customer deposits and mutual funds) increased byPLN 8,616.3 million, up by 11.9% in three quarters of 2007 resulting from anincrease both in savings of individual clients and in corporate deposits. Highervolume of savings of the Group's clients reported as at 30th September 2007 isalso influenced by consolidation of HVB Ukraine. The savings of retail clients increased by PLN 4,623.5 million in three quartersof 2007 as a result of a dynamic increase in mutual funds (by PLN6,537.9 million). At the end of September 2007 total retail savings exceeded the level of PLN 54billion. Corporate deposits increased in three quarters of 2007 by PLN 3,992.8 million. (PLN million) 30.09.2007 31.12.2006 ChangeDeposits (principal) 51,524.8 49,446.4 4.2%corporate (principal) 27,124.7 23,131.9 17.3%retail (principal) 24,400.1 26,314.5 (7.3%)Pioneer Pekao TFI mutual funds 29,801.3 23,263.4 28.1%incl. distributed through the 26,948.1 21,359.7 26.2%Group's networkTotal savings 81,326.1 72,709.8 11.9%incl. retail 54,201.4 49,577.9 9.3% 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 2007 3 Q 2006 Net profit of Bank Pekao S.A. 1,521.4 1,327.0Entities consolidated under full method Centralny Dom Maklerski Pekao S.A. 153.2 104.4Pekao Fundusz Kapita(3)owy Sp. z o.o.* 19.5 1.9Pekao Leasing Sp. z o.o. 12.5 8.8Pekao Financial Services Sp. z o.o. 11.5 7.7Pekao Pioneer PTE S.A. 9.6 6.4Pekao Faktoring Sp. z o.o. 5.7 7.3Centrum Kart S.A. 2.3 2.5Drukbank Sp. z o.o. ** 0.1 0.0Pekao Access Sp. z o.o. (0.1) 1.1UniCredit Bank Ltd.*** (9.5) (3.3)Pekao Development Sp. z o.o. **** - 6.5Entities valued under equity method Pioneer Pekao Investment Management S.A. 102.4 67.8Pirelli Pekao Real Estate Sp. z o.o. **** 12.9 (1.3)Krajowa Izba Rozliczeniowa S.A. 4.2 4.1Central Poland Fund LLC 0.0 0.0Xelion. Doradcy Finansowi Sp. z o.o. (5.7) (8.2)Exclusions and consolidation adjustments *** (241.0) (211.6)***Net profit (loss) of the Group 1,599.0 1,321.1 * The result of the company includes valuation of entities under equity methodas well as the influence of sale of shares of Anica System S.A. ** The result does not include the effect of sale of shares of UniCredit BankLtd. inside the Group. *** The result of the company for three quarters of 2007 includes the result ofUniCredit Bank and the result of Bank HVB Bank Ukraine S.A. since the beginningof the second quarter up till the integration with UniCredit Bank. **** Equity valuation of the subsidiary since the second quarter 2006 due tosale of 75% of shares which took place on 3rd April 2006. ***** Includes transactions within the Group, including dividends fromsubsidiaries for the year 2006 paid in 2007 (of which PLN 138.0 million fromCDM) and associates and opening balance amendments. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank for three quartersof 2007 and three quarters of 2006 are as follows: (PLN million) 3 Q 2007 3 Q 2006 Change Net interest income* 1,719.6 1,678.2 2.5%Non-interest income 1,892.7 1,662.8 13.8%Total income 3,612.3 3,341.0 8.1%Overhead costs (including depreciation) (1,683.8) (1,597.7) 5.4%Operating income 1,928.5 1,743.3 10.6%Impairment losses on loans and advances (87.3) (148.3) (41.1%)Pre-tax profit 1,841.2 1,595.0 15.4%Net profit 1,521.4 1,327.0 14.6% * Including income on SWAP operations The main items of the Bank's balance sheet at the end of September 2007 incomparison with the end of 2006 are as follows: 30.09.2007 31.12.2006 Change Total gross loans in PLN million* 37,532.8 35,891.2 4.6%Impaired receivables to total receivables in 10.8 11.0 (0.2 p.p.)%Total deposits in PLN million* 50,922.3 49,472.2 2.9%Total assets in PLN million 73,403.3 66,976.8 9.6%Mutual funds distributed through the Bank's 24,044.8 18,881.2 27.3%network in PLN millionCapital adequacy ratio in % 12.0 14.7 (2.7 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 three quarters of 2007: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 917.6 1,191.8 1,068.3 3,177.7External interest expense 267.4 812.8 241.0 1,321.2Net external interest 650.2 379.0 827.3 1,856.5incomeInternal interest income 971.7 875.8 (1,847.5) 0.0Internal interest expense 429.9 816.1 (1,246.0) 0.0Net internal interest 541.8 59.7 (601.5) 0.0incomeNet interest income 1,192.0 438.7 225.8 1,856.5Non interest income 1,570.3 337.6 100.0 2,007.9Total income 2,762.3 776.3 325.8 3,864.4 Allocated assets 14,052.1 24,219.2 30,956.9 69,228.2Unallocated assets 6,531.7 Total assets 75,759.9 Allocated liabilities 29,834.4 25,118.0 8,995.1 63,947.5Unallocated liabilities 11,812.4 Total liabilities 75,759.9 Information on main segments' results for three quarters of 2006*: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 742.0 995.7 1,086.1 2,823.8External interest expense 256.3 657.5 174.4 1,088.2Net external interest 485.7 338.2 911.7 1,735.6incomeInternal interest income 909.4 716.0 (1,625.4) 0.0Internal interest expense 321.2 707.8 (1,029.0) 0.0Net internal interest 588.2 8.2 (596.4) 0.0incomeNet interest income 1,073.9 346.4 315.3 1,735.6Non interest income 1,299.1 334.9 80.8 1,714.8Total income 2,373.0 681.3 396.1 3,450.4 Allocated assets 11,548.6 20,192.9 31,991.2 63,732.7Unallocated assets 4,818.5 Total assets 68,551.1 Allocated liabilities 30,784.9 18,157.2 7,677.3 56,619.4Unallocated liabilities 11,931.7 Total liabilities 68,551.1 * Data comparable with three quarters of 2007, different than published forthree quarters of 2006 due to changes in methodology for allocation of revenuesby segment. The methodology applied by the Bank in allocation of interest income/expense between segments is based on the application of market interest ratesto segment 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. 30.09.2007 31.12.2006 30.09.2007 31.12.2006Total provisions 223.3 223.9 220.1 221.0of which:provisions for off-balance 105.6 112.7 105.6 112.6sheet liabilitiesprovisions for liabilities to 76.2 69.2 75.0 68.0employeesother provisions 41.5 42.0 39.5 40.4Provision for deferred tax 0.3 0.0 0.0 0.0Deferred tax assets 287.2 304.4 259.4 274.8 4.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. 3 Q 2007 3 Q 2006 3 Q 2007 3 Q 2006Total (132.6) (160.7) (87.3) (148.3)for loan receivables (139.2) (88.5) (93.0) (76.5)for off-balance sheet 6.5 (71.8) 6.5 (71.8)liabilitiesfor financial assets 0.1 (0.4) (0.8) 0.0 4.8 Information on contingent assets and liabilities (PLN million) 30.09.2007 31.12.2006Contingent liabilities granted and 33,198.2 27,588.5receivedLiabilities granted: 20,913.8 19,117.1Financial 18,395.4 16,801.8Guarantees 2,518.4 2,315.3Liabilities received: 12,284.4 8,471.4Financial 1,704.2 635.3Guarantees 10,580.2 7,836.1Financial derivatives 144,301.7 76,540.1currency transactions 70,519.1 28,929.9interest rate transactions 71,764.7 46,301.7securities transactions 2,017.9 1,308.5Other 11,103.4 11,287.9Total off-balance sheet items 188,603.3 115,416.5 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. In theissue HVB Ukraine offered bonds with put option, common, interest bearing,registered, with discount to the face value. For the first two years the couponinterest is fixed at 8.8% p.a., the interest rate for the last two years will beannounced two weeks before the put option date. The date of the bond maturity is18th January 2010 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 16th May 2007 and the date ofdividend payment - 1st June 2007. All the Bank's shares are ordinary shares. 4.13 Effects of changes in the Group's structure The changes in the Group's structure are described in section 4.1. 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 September 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% shareholders Total 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 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 88,446 shares ofBank Pekao S.A. The table below presents the number of shares held by theManagement Board Members: 30.09.2007 30.06.2006 Change Jan Krzysztof Bielecki 10,000 20,000 (10,000) Luigi Lovaglio 65,357 65,357 0 Marian Wazynski 13,089 13,089 0 Total 88,446 98,446 (10,000) The Bank Pekao S.A. Capital Group is running an incentive programme in the formof management stock options. The Programme covers the Management Board of theBank, the remaining managerial staff, key employees for realisation of Bank'sstrategy, as well as employees of subsidiaries. The persons who meet therequirements set in the Programme will be able to acquire the Bank's shares. As at the date of submitting this report the incentive programme for 2004includes 44 persons for a total 691,921 shares, 265,584 of which will be able tobe purchased by the management. The Members of the Supervisory Board did notparticipate in the management stock options programme. The table below presents the number of management stock options held by theManagement Board Members: 30.09.2007 30.06.2006 ChangeJan Krzysztof Bielecki 80,000 80,000 0Luigi Lovaglio 65,357 65,357 0Paolo Iannone 46,000 46,000 0Christopher Kosmider 46,000 46,000 0Marian Wazynski 28,227 28,227 0Total 265,584 265,584 0 4.17 Pending litigations In the third 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 289. The total value of them was PLN 738.5million. The number of legal proceedings concerning the receivables was 2.447 attotal value of PLN 805.8 million. The value of legal proceedings concerning theliabilities of the Group in the third quarter of 2007 does not exceed 10% of theissuer's equity. 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 2007, as well as all the proceedings together do not create anythreat to financial liquidity of the Bank. 4.18 Claims regarding the resolutions of the Bank's Shareholders Meetings On 14th of June 2007 Bank received from Bank's shareholder, who on the GeneralMeeting represented 50 votes, a plaintiff to the court to make invalidresolutions No. 10 and to repeal resolutions No. 4-9 and 11-18 of the AGM of26th April 2007. On 30th July 2007 Bank received a claim filled by the Bank's shareholder, who onthe General Meeting represented 1 vote, to overrule the resolutions No 11 of theOrdinary Shareholders Meeting of the Bank dated 26th April 2007. On 13th August 2007, the Bank received a claim filled by the Bank's shareholder,who on the General Meeting represented 1 vote to overrule the resolutions No. 4of the Extraordinary Shareholders Meeting of the Bank dated 27th April 2007 onthe integration of Bank with Bank BPH S.A. performed in way of Bank BPH S.A.spin - off by transferring a part of Bank BPH S.A. property in a form of anorganized part of enterprise to Bank. The Bank replied to the above mentioned claims, stating that each of thoseplaintiffs is groundless. On 18th June 2007 the Bank received the statement on dismissal of the Bankshareholder's motion for measure for conservation of a claim for cancelling theresolution no. 5 of the Ordinary Shareholders Meeting of the Bank of 26th April2007 through suspending the registration proceedings. On 20th June 2007 theCourt received a complaint from the plaintiff against the statement on dismissalof the motion for measure for conservation 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. 4.19 Assessment of the financial credibility of Bank Pekao S.A. As at 30th September 2007, Bank Pekao S.A. had the following financialcredibility ratings: 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 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 S(1)dowy 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 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 as of theday of entry into register of entrepreneurs of the National Court Registry ofthe increase of the share capital of Bank Pekao S.A. by the issuance of theShares of Spin-off Issue. The Banking Supervisory Commission (KNB) adopted the resolution on consent toimplement the Spin-off of Bank BPH S.A. (BPH). This enables the transfer of apart of BPH's property in a form of the organized part of enterprise to the BankPekao in return for shares of the Bank, which will be taken up by theshareholders of BPH. The resolution adopted by KNB caused that one of the keyconditions for BPH Spin-off execution has been fulfilled. The Polish Financial Supervision Authority approved the issue prospectusconcerning Shares of Spin-off Issue, the prospectus was published on 15thOctober 2007. The Bank has collected all legal consents from the regulatorybodies, a motion has been submitted requesting relevant entries into theregister of entrepreneurs of the National Court Registry. In the current phase of the integration, which is preceding the legal spin offof Bank BPH, both Pekao and BPH are actively working on finalizing thepreparation of the operational merger and to put in action all the necessaryactions that will guarantee a smooth transition to the clients that will betransferred to Pekao and to the clients that will remain in BPH. The work of thetaskforces is progressing with the target to minimize the timing of theoperational merger. 4.21 Transactions of related entities In the third quarter of 2007, the Bank and its subsidiaries have not concludedany transactions with related entities other than typical and routinetransactions which aggregate value exceeded the equivalent of EUR 500 thousand. In the third 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. Sale of shares of Pekao Access Ltd On 13th September 2007, Bank Pekao S.A. sold in favour of Mr. Tomasz Rudawskiand Adam Gorecki domiciled at Warsaw, 205 shares with the total par value of PLN114,595 (PLN 559 each) of Pekao Access Ltd. comprising a 55.25% stake in thecompany's share capital and representing the same percentage of votes at theshareholders meeting, classified as a long-term investment, for the price of PLN820,000 which was the equivalent of the net book value on the balance sheet ofBank, of which 76 shares was purchased by Mr. Tomasz Rudawski and 129 by AdamGorecki. The transaction was preceded by the change of the name of the companyfrom "Pekao Access Sp. z o.o." to "Access Sp. z o.o.". Sale of financial assets On 28th September 2007, Pekao Fundusz Kapita(3)owy Sp. z o.o. (the Bank'ssubsidiary, PFK) divested of to Asseco Poland Spo(3)ka Akcyjna (Buyer),1,526,900 common bearer shares of Anica System Spo(3)ka Akcyjna (Anica), withthe par value of PLN 0.20 each, totalling the par value of PLN 305,380,comprising 33.84% of Anica's capital and carrying 13.49% votes on the GeneralShareholders Meeting of Anica for the total price of PLN 22,598,120. The bookvalue of the Anica shares divested of stands at PLN 4,376,255.80 in PFK ledger.The assets divested of have been classified as a long-term investment. The Buyer is not related company either to the Bank or to PFK. In the result of the transaction referred to above, PFK, and indirectly the Bankdo not hold any Anica's shares. 4.22 Factors which will affect the results of at least the next quarter The Polish economy is expanding at high rate due to strong domestic demand,which makes favourable conditions for banking activities. Fast growth rate inretail loans and corporate customers loans, as well as in the assets of mutualfunds is observed. The increase of household incomes is conducive to theincrease of households savings. Low level of investments in years 2000-2005 as well as high emigration for workto UE countries cause a growing disproportion between the very fast growth rateof internal demand and substantially lower growth of supply possibilities of theeconomy. As a result the growth rate of work efficiency does not keep up withhigh growth of wages and the foreign trade deficit deepens. It is to also beexpected that companies profitability will decrease. These occurrencesaccompanied by increases of global prices of energy and food significantlyincrease the risk of inflation growth forcing the Monetary Policy Council toincrease interest rates. In the fourth quarter of 2007 and in the year 2008further increases of interest rates are expected. Disturbances on the international financial markets related to the crisis on theAmerican mortgage loans market are other negative occurrences, which decreasethe availability of foreign financing and also increase the risk of globaleconomy slow-down and deeper price adjustment on the stock market, which inreturn threatens the outflow of savings from mutual funds. It should be taken into account that there is a higher credit risk in the caseof companies caused by transient deterioration of their finances linked toincreasing cost of work and higher cost of credit. However, fast increase ofaverage households incomes will considerably balance the risk related to highercosts of debt service, with a risk increase regarding households with incomeslower than average. Bank Pekao S.A. is well secured against the influence of negative macroeconomicfactors. The Bank maintains its liquidity in adequacy to the scale and complexity of theconducted activity according to the regulations of the Banking Law. The Bank'sfunding position is not dependent on the inter-banking market - the Bank ismainly a creditor on this market. The Bank follows a prudent policy with respect to the assumption of credit risk,by applying established safety rules to lending activity in the individualmarket segments as well as necessary instruments limiting asset exposure to thecredit risk, especially in respect of mortgage loans. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BPKD.L