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Bank Pekao SA23 March 2006 47. Transactions with related entities The consolidated financial statements include the financial statements of BankPekao S.A. and financial statements of subsidiaries are listed in the followingtable: Entity name Registering body Percentage participation in the capital 31.12.2005 31.12.2004Bank Pekao (Ukraina) National Bank of Ukraine, 100,00 100,00 Ltd. National Bank Register. no. 265 Centralny Dom Maklerski District Court for the 100,00 100,00 Pekao S.A. capital city of Warsaw, XX Commercial Department of the National Court Registry Pekao Fundusz Kapitalowy District Court for the 100,00 100,00 Sp. z o.o. capital city of Warsaw, XIX Commercial Department of the National Court Registry Pekao Leasing Sp. Z o.o. District Court for the 100,00 100,00 capital city of Warsaw, XX Commercial Department of the National Court Registry Pekao Faktoring Sp. z District Court for the city 100,00 100,00 o.o. of Lublin, XI Commercial Department of the National Court Registry Pekao Pioneer Powszechne District Court for the 65,00 65,00 Towarzystwo Emerytalne capital city of Warsaw, XX S.A. Commercial Department of the National Court Registry Drukbank Sp. z o.o. District Court for the city 100,00 100,00 of Lublin, XI Commercial Department of the National Court Registry Centrum Kart S.A. District Court for the 100,00 100,00 capital city of Warsaw, XIX Commercial Department of the National Court Registry Pekao Financial Services District Court for the 100,00 100,00 Sp. z o.o. capital city of Warsaw, XX Commercial Department of the National Court Registry Pekao Development Sp. z District Court for the 100,00 100,00 o.o. capital city of Warsaw, XIX Commercial Department of the National Court Registry Pekao Access Sp. z o.o. District Court for the 55,26 55,26 capital city of Warsaw, XIX Commercial Department of the National Court Registry BDK Consulting Sp. z Executive Committee of the 99,99 99,99 o.o. City Council of Luck, no. 04051327£0060469 Bank Pekao S.A. is the holding company of the Bank Pekao S.A Capital Group.UniCredito Italiano SpA is the superior holding company. Information on subsidiaries and related and affiliated entities is provided inNote 29. The credit procedure applicable to the Bank's Management and entities related tothe Bank Under the Banking Law, credit transactions with members of the Bank's ManagementBoard and Supervisory Board as well as with the Bank's senior management andentities related thereto are subject to the Bylaws adopted by the Bank'sSupervisory Board. Members of the Bank's Management and entities capitally and organize relatedthereto may use lending facilities offered by the Bank on standard terms andconditions applied by the Bank. In particular, the Bank may not offer suchindividuals or entities better interest rates for lending facilities. Credit risk assessment follows methodologies used by the Bank with regard to thecustomer's segment and type of transaction. The Bylaws lay down detailed decision-making procedures applicable totransactions with such individuals and entities, including authority levels onwhich different decisions are allowed and competencies assigned thereto. Inparticular, concluding a transaction with a member of the Bank's ManagementBoard or Supervisory Board or with an entity capitally and organize relatedthereto, in amounts specified in the Bylaws, requires authorization of theBank's Management Board and Supervisory Board. Standard credit procedures are applied to entities affiliated with the Bank, andtransaction decisions are made exclusively from the Bank's Head Office level. Recivables due from affiliated entities Entity name Recivables Income from Recivables Income from as of 31 interest as of 31 interest December from related December from related 2005 entities in 2004 entities in 2005 2004 Group dominant company UniCredito Italiano SpA 35 554 2 181 64 728 47 780 Entities of Unicredito Italiano Group's excluding entities of Pekao S.A. Group's Hypo Vereinsbank AG 195 727 977 - - Bank 33 761 3 926 - - AustriaCreditanstalt Zagrebacka Banka d.d. 232 766 4 581 122 430 5 028 Unicredit Zagrebacka 154 420 9 495 163 160 6 797 Banka Bh d.d. Sarajewo Unicredit Factoring SpA 239 10 849 28 Unicredit Leasing 218 238 6 505 123 139 803 Romania SA Unibanka A.S. (ex 1 106 111 - 48 Pol'nobanka A.D.) Zivnostenska Banka A.S. - 103 5 020 29 Subsidiaries Fabryka Maszyn w 2 418 244 2 421 1 161 Janowie Lubelskim Sp. z o.o. Associated entities Hotel Jan III Sobieski 41 386 1 816 42 980 3 789 Sp. z o.o. Krajowa Izba - - - 85 Rozliczeniowa SA Grupa Inwestycyjna - - - 2 726 Nywig S.A. Fabryka Sprzetu - - - 26 Okretowego MEBLOMOR S.A. Joint ventures in which the entity is a partner Key managing staff of 2 2 - 10 the Bank or it's Parent Company Other related entities 66 8 94 1 Total 915 683 29 959 524 821 68 311 Deposits received from affiliated entities Entity name Deposits as Interest Deposits as Interest of 31st expense from of 31st expense December related December 2004 from 2005 entities for related 2005 entities for 2004 The Parent Entity for the Group UniCredito Italiano 197 122 3 140 168 SpA Entities of Unicredito Italiano Group's excluding entities of Pekao S.A. Group's Hypo Vereinsbank AG 2 658 - - - Bank 1 390 1 098 - - AustriaCreditanstalt Banque Monegasque de - 1 1 - Gestion S.A. Unibanka A.S. (ex 375 12 461 91 Pol'nobanka A.D.) UniCredit Romania - 19 1 92 2 Bucharest Unicredit Leasing 181 448 - - - Romania S.A. Pionier Pekao 116 911 4 141 65 344 3 051 Towarzystwo Funduszy Inwestycyjnych S.A. Subordinated entities Fabryka Maszyn w 4 1 132 1 Janowie Lubelskim Sp. z o.o. Joint-venture entities Affililated entites Xelion Doradcy 36 723 1 264 12 916 1 163 Inwestycyjni Sp. z o.o. Hotel Jan III Sobieski 605 13 1 102 14 Sp. z o.o. Pioneer Pekao 90 004 3 041 42 031 1 192 Investment Management S.A. Krajowa Izba 6 149 1 483 118 Rozliczeniowa SA Grupa Inwestycyjna - - 11 8 Nywig S.A. Fabryka Sprzetu 87 - 36 1 Okretowego MEBLOMOR S.A. Key managing staff of 1 545 57 1 287 60 the Bank or it's Parent Company Other related entities 25 - 4 - Total 431 997 9 900 128 040 5 869 The off-balance sheet exposure related to: financing of related entities as of31st December 2005 amounted to PLN 1 473 ths. (as of 31.12.2004 PLN 879 ths.);related to guaranting amounted to PLN 103 204 ths. (as of 31.12.2004 PLN 84 560ths.); credit cards limits towards related entities as of 31st December 2005amounted to PLN 117 ths. (as of 31.12.2004 PLN 107 ths.). Fee and commission income from related entities in 2005 amounted to PLN 373 572ths.(in 2004: PLN 294 587 ths.) As of 31st December 2005 the impairment write down related to non-performingamounts due from related entities amounted to PLN 30 035 ths. and pertained toHotel Jan III Sobieski Sp. z o.o. Impairment loss during the in 2005 pertaining to non-performing amounts due fromrelated entities amounted to PLN 791 ths. PLN and related to Hotel Jan IIISobieski Sp. z o.o. In 2005 income on release of impairment write downs on non-performing amountsdue from related entities amounted to PLN 4 426 ths. and pertained to Hotel JanIII Sobieski Sp. z o.o. In 2005 the share capital of Xelion Doradcy Inwestycyjni Sp. z o.o. wasincreased by PLN 50 000 ths. The Bank possess 50% share in the company. Thenumber of shares possessed by the Bank increased by 25 000 up to 25 025 ths. Management Board and Supervisory Board Remuneration 2005 2004 Management Board of the Bank Short-term employee benefits* 13 313 12 999Post- employment term benefits - -Other long- term benefits - -Termination benefits - 2 400Share-based payments** 5 595 2 089Total 18 908 17 488Supervisory Board of the Bank Short-term employee benefits* 462 435Post-employment term benefits - -Other long- term benefits - -Termination benefits - -Share-based payments** - -Total 462 435Grand total 19 370 17 923 (*) Short term employee benefits comprise of: base salaries, bonuses and otherbenefits, in particular cost of life insurance polices, health insurance andhealthcare, children education costs. Decision about the bonuses for 2005 was not yet taken by the Supervisory Board,however the Bank Has established a reserve for that bonus amounting to PLN 3 820thousand, included above. (**) The value of Share-based payments was established as part of Payroll/Employee Expenses recognized by the Group, according to IFRS 2 during thereporting period, representing the amortization of initial fair value of options(pre-emptive rights to take up the Bank's shares) pertaining to options grantedto members of the Management Board of the Bank. Detailed information about theemployee share program, including the method of the options fair valueestimation are presented in the note 42 "Employee benefits". In 2005 and in 2004, Management Board Members did not receive any compensation,in any form, nor are they entitled to any such amounts receivable fromsubsidiaries, jointly controlled companies, and associated companies of theBank. In 2005 and in 2004, Supervisory Board Members did not receive any compensation- in any form, and they do not have any receivables by that title fromsubsidiaries, jointly controlled companies, and associated companies. Remuneration of members of the Management Boards and Supervisory Boards of thesubsidiary companies 2005 2004 Management Board of the Bank Short-term employee benefits 11 087 10 799After employment term benefits - -Other long- term benefits - -Benefits regarding termination of job 608 902agreement Share-based payments - -Total 11 695 11 701Supervisory Board of the Bank Short-term employee benefits 143 156After employment term benefits - -Other long- term benefits - -Benefits regarding termination of job - -agreement Share-based payments - -Total 143 156 48. Mergers No mergers occurred in 2005 or in 2004. 49. Repo and reverse repo transactions Bank increases it's funds by sales transactions with the repurchase promisegranted (repo and sell-buy back) at the same price increased by interests. 31.12.2005 31.12.2004 Assets Balance Assets Fair Balance Fair Value Value Value Value Liabilities LiabilitiesFinancial assets held for trading - up to 1 month 691 455 691 879 2 211 874 2 212 018- between 1and 3 months 97 053 97 094 107 239 107 239- between 3 months and 1 8 382 8 410 16 578 16 578year Total financial assets 796 890 797 383 2 335 691 2 335 835held for trading Financial assets available for sale - up to 1 month 15 020 15 037 - -Total financial assets 15 020 15 037 - -available for sale Total 811 910 812 420 2 335 691 2 335 835 Bank purchase securities with the resale promise granted in the future(reverse-repo and buy-sell back) at the same price increased by interests. 31.12.2005 31.12.2004 Net Value Hedged Net Value Hedged Assets Fair Assets Fair Assets Value Assets Value Amounts due from banks - up to 1 month 588 500 586 887 486 340 486 315Total Amounts due from 588 500 586 887 486 340 486 315banks Loans and advances to customers - up to 1 month - - 388 938 388 919Total loans and - - 388 938 388 919advances to customers Total 588 500 586 887 875 278 875 234 50. Company's Social Benefits Fund ("ZFSS") The Social Benefits Fund Act of 4th March 1994, with subsequent amendmentsintroduced the requirement to create a Company's Social Benefits Fund by allemployers employing over 20 employees. The Bank and Group companies employingover 20 staff have created the ZFSS Fund and are making periodic charges to theZFSS Funds in amounts prescribed by the Act. Apart that, the Company contributedto the Fund in kind of fixed assets. The aim of the ZFSS Fund is financing ofsocial activity in benefit of the employees and subsidizing the social premises.The liabilities of the ZFSS Fund represent the cumulated value of charges madeby the Company towards the ZFSS Fund decreased by the amount of non-returnableexpenditures of the ZFSS Fund. In the consolidated balance sheet the Group netted the ZFSS Fund's assetsagainst the ZFSS Fund's value, due to the fact that the assets of the ZFSS Funddo not represent the assets of the Group. For this reason the amount pertainingto the ZFSS Fund in the consolidated balance sheet as of 31st December 2005 and31st December 2004 was nil. The below table sets forth the categories and book values of assets, fund valueand costs related to Social Benefits Fund: 31.12.2005 31.12.2004 Advances to employees 47 501 51 920Cash in the current account 1 907 26 520Assets of ZFSS 49 408 78 440Value of ZFSS 49 408 78 440 2005 2004 Charges made towards the ZFSS in the 17 625 16 584period 51. Acquisition of HVB shares by UniCredito Italiano S.p.A. On 17 November 2005, the parent company of Capital Group of Bank Pekao S.A. -UniCredito Italiano S.p.A. acquired 705,108,946 shares of Bayerische Hypo- undVereinsbank Aktiengesellschaft ("HVB") representing 93.93% of total votingrights on the HVB Shareholders' Meeting. In consequence, UCI gained control overHVB - the ultimate parent company (i.a. for Bank BPH S.A.) - as well as overBank Austria Creditanstalt AG ("BACA") - the member of the HVB Group and theimmediate majority shareholder of Bank BPH S.A. As a result of the above described event, UCI holds 20 397 584 sharesrepresenting 71.03% of shareholders' capital and entitling to 20 397 585 votingrights representing 71.03% of total voting rights at the Bank BPH S.A.Shareholders' Meeting, however, under the condition that BACA cannotsuccessfully exercise the voting rights from Bank BPH S.A. shares until the dateof the receipt of the approval of the Banking Supervision Commission for theexercising of the voting rights and the date of fulfillment of the otherrequirements. As at 31.12.2005 the book value of outstanding interbank placements and depositswith Bank BPH S.A. amounted to PLN 178 438,9 thousands (assets) and PLN100 478,8 thousands (liabilities). 52. First time adoption of International Financial Reporting Standards This note presents the reconciliation of net assets as of 1 January 2004 and asof 31 December 2004 (as well as net assets as of 1 January 2005) and thereconciliation of net financial result for the year ended on 31 December 2004between the previously published financial information according to PolishAccounting Standards and the transformed comparative data according toInternational Financial Reporting Standards disclosed in these financialstatements. A comparison of the balance sheet according to PAS and IFRS was also presentedas of 31 December 2004 and 1 January 2005 as well as a comparison of the profitand loss account for the year ended on 31 December 2004 according to PAS andIFRS. The Group prepared these financial statements based on IFRS 1. Note 2 to thesefinancial statements includes a description of optional exemptions allowed underIFRS 1, which the Group has used. Accounting principles (policies) according to IFRS differ in many respects fromthe Polish accounting principles (policies). See below for a discussion ofdifferences between IFRS and PAS, which significantly affected the net financialresult and net assets in 2004 and 2005. Recognition of assets and liabilities based on amortized cost The International Accounting Standard 39 requires that certain financial assetsshould be recognized at amortized cost using the effective interest rate method. Previously the Group used fair value to recognize securities available for sale,for which interest revenues are recognized using the effective interest ratemethod. Securities held to maturity, financial lease receivables, and centralinvestment-related receivables and payables were recognized at amortized costusing the effective interest rate method. Other financial assets and liabilitieswere recognized according to the amount payable increased with linearly accruedinterest. The Group took advantage of the exemption from the requirement to transformcomparative data pertinent to IAS 32, IAS 39. Comparative data concerning thatstandards were prepared using previously applied accounting principles(policies). The exception is IFRS 39 to which comparable data were preparedexcept two areas: provision related with impairment calculation amortized costvaluation with applied effective rate of loans and receivables. As of 1 January 2005 the Group made adjustments related to the recognition ofother financial assets and liabilities at amortized cost using the effectiveinterest rate method, as required under IAS 39. The results of adjustments madeas of 1 January 2005 were disclosed in the following reconciliation of netassets as of 1 January 2005 and in the comparison of the balance sheet based onIFRS as of 31 December 2004 (without applying IAS 32, 39) and the balance sheetbased on IFRS as of 1 January 2005. Impairment of financial assets According to IAS 39,a financial asset is depreciated if its balance sheet valueis higher than its estimated economic value. As of the balance sheet date, aneconomic entity is required to assess if there is objective evidence confirmingsuch impairment of the financial asset. Such evidence may include informationabout the issuer's significant financial difficulties or actual violation of anagreement by e.g. failure to pay interest or principal or falling behind withpayments. If the depreciation occurs, the revaluation write-down will amount tothe difference between the asset's balance sheet value and the current value ofexpected, future discounted cash flows using the initial effective interest rate(economic value) for financial assets recognized at cost and using the currentinterest rate as well as for financial assets recognized at fair value. According to the Polish Accounting Standards (PAS), banks at least once aquarter review and classify their credit exposures into different risk groups(standard receivables, monitored receivables, substandard receivables, badreceivables and lost receivables). Classification is based on how long thereceivables have been overdue and what the economic and financial situation ofthe borrower is. Special purpose provisions for credit exposures are created atleast in amounts required of provisions applicable to different risk groups(from 1.5% to 100% of the purpose provision basis). In addition, under PAS the required specific provisions for credit exposures: - related to retail lending facilities and loans classified as "standard" - arediminished by a 25% provision for general risk; - classified as "monitored" - to be diminished by a 25% provision for generalrisk, created under Article 130 of the Banking Law. The Group took advantage of the exemption from the requirement to transformcomparative data pertinent to IAS 32, IAS 39. For those standards, the IFRS wereadopted on 1 January 2005. Comparative data concerning those standards wereprepared using previously applied accounting principles (policies). As of 1 January 2005 the Group made adjustments related to the recognition ofother financial assets and liabilities at amortized cost using the effectiveinterest rate method, as required under IAS 39. The results of adjustments madeas of 1 January 2005 were disclosed in the following reconciliation of netassets as of 1 January 2005 and in the comparison of the balance sheet based onIFRS as of 31 December 2004 (without applying IAS 32, 39) and the balance sheetbased on IFRS as of 1 January 2005. Financial Assets and liabilities portfolios according to IAS 39 The IAS 39 lays down definitions of portfolios other than those defined in PAS.The requirement to move some financial instruments between portfolios resultsfrom the requirement to classify financial instruments in different portfoliosaccording to IAS 39. In addition, pursuant to the exemption included in IFRS 1,the Group was also entitled to assign its financial instruments to financialasset at fair value through profit and loss or available for sale portfolios. In view of the above, the Group categorized financial instruments as financialassets or liabilities recognized at fair value through profit and loss oravailable for sale as of 1 January 2004. The movement of financial instrumentsbetween portfolios measured pursuant to different principles did not affect theGroup's financial result. The effect of hyperinflationary economy The International Accounting Standard 29 "Financial Reporting InHyperinflationary Economies" (IAS 29) requires that assets and liabilitiesdisclosed in a period of hyperinflation should be recognized in current pricesas of the end of the hyperinflation reporting period and be the basis formeasuring assets and liabilities in financial statements for the periods tocome. This standard is applicable for non-monetary balance sheet items.Significant non-monetary items for the Group include fixed assets, sharesclassified as non-current assets, and equity. From 1982 to 1984 and from 1988 to1996 the Bank operated in a hyperinflationary economy. The Bank did not applyIAS 29 in previous years when performing fixed assets revaluation as of 1January 1995, in accordance with applicable Polish regulations in force, inorder to reflect the inflation's impact on their balance sheet value by adoptingrevaluation indexes determined by the Ministry of Finance for respective groupsof fixed assets. This revaluation was performed in compliance with IAS 29, asthe Bank did not use the general price indices nor did it perform a fixed assetsrevaluation as of 31 December 1996. Taking advantage of the exemption allowed by IFRS 1, the Group recognizedselected items of tangible assets acquired before the period of hyperinflationat a fair value as of the day of transition to IFRS, that is, as of 1 January2004, and it used this fair value as the deemed cost determined for that day. The effect of adjustments made on that account as of 1 January 2004 is presentedin the following reconciliation of net assets as of 1 January 2004. Theaggregate amount of non-current assets (mainly properties and buildings) as of 1January was PLN 148 888 ths. IAS 29 "Financial Reporting in Hyperinflationary Economies" requires to restateall components of of owners' equity, exept retained earnings and any revaluationsurplus, by applying the general price index for the period of hyperinflation.Such retrospective application would result in an increase of share capital andother capitals and a corresponding decrease in retained earnings. The scope of financial statement consolidation In accordance with the IFRS, consolidated financial statements should includeall subsidiaries and shares in joint ventures that are significant for thefinancial statement. Companies are exempt from the consolidation requirement ifthey are acquired only for resale or if there are long-term limitations on theflow of funds to the holding company. So far, the Bank adopted the full consolidation method to financial statementsof all of its major subsidiaries and related entities except for non-financialbusinesses which are not providers of ancillary banking services. According toIAS 27 the subsidiaries: Pekao Financial Services, Pekao Access and PekaoDevelopment were consolidated using the full consolidation method. Previouslythose companies were valued using the equity method. Share based payments The Group applied IFRS 2 with reference to capital instruments that were grantedafter 7 November 2002, if these capital instruments were not acquired until 1January 2005. Therefore, under the IFRS 2, it was required to include only thecapital part of bonds with pre-emptive rights to take up the Bank's shares,granted to the Bank's employees as part of the Incentive Program. General risk provision In accordance with IAS 30, general risk provisions are not to be part ofliabilities Instead, they should be disclosed as a separate item of theundistributed result. The value of the general provision which is presented inthe undistributed result, as required by IAS, is PLN 248.453 ths. as of 1January 2005. The aforementioned adjustments resulting from differences between therequirements of PAS and IFRS affected the value of assets/income tax provisionas of 1 January 2004, 31 December 2004, and 1 January 2005. The below tables present a comparison of financial data published previouslywith comparative data converted in accordance with IFRS (data according to PASare presented in the new classification). Consolidated balance sheet as of 31 December 2004 PAS IAS (*) IFRS (**) Position Note 31.12.2004 Adjustment 31.12.2004 Adjustment 01.01.2005 r. r. Assets Cash and balances with (1) 2 561 676 1 377 599 3 939 275 - 3 939 275Central Bank Debt securities eligible 8 768 - 8 768 - 8 768for rediscounting at the Central Bank Loans and advances to (2) 5 470 793 490 684 5 961 477 - 5 961 477banks Financial assets as held (3) 2 485 330 710 441 3 195 771 - 3 195 771for trading Derivative financial (4) 231 177 272 305 503 482 - 503 482instruments Other financial (5) - 1 336 721 1 336 721 - 1 336 721instruments at fair value through profit or loss Loans and advances to (6) 28 208 809 (1 989 278)26 219 531 (470 483) 25 749 048customers Net investment in the (7) - 547 324 547 324 - 547 324finance lease Investment securities (8) 16 979 940 (1 943 483) 15 036 457 - 15 036 457 1. Available for sale 10 110 174 (3 690) 10 106 484 - 10 106 4842. Held to maturity 6 869 766 (1 939 793) 4 929 973 - 4 929 973 Investments in associated (9) 198 787 (74 125) 124 662 - 124 662undertakings Intangible assets (10) 628 382 3 543 631 925 - 631 925Tangible fixed assets (11) 1 449 501 92 327 1 541 828 - 1 541 828Investment property (12) - 102 869 102 869 - 102 869Income taxes (13) 99 194 (1 425) 97 769 29 570 127 3391. Current tax assets - 13 131 13 131 - 13 1312. Deferred income tax 99 194 (14 556) 84 638 29 570 114 208assets Other assets (14) 1 011 407 (281 919) 729 488 - 729 488Total assets 59 333 764 643 583 59 977 347 (440 913) 59 536 434 Liabilities Amounts due to the Central 2 151 743 - 2 151 743 - 2 151 743Bank Amounts due to other banks (15) 1 089 830 242 727 1 332 557 - 1 332 557Financial liabilities as (16) - 590 119 590 119 - 590 119held for trading Derivative financial (17) 334 023 289 660 623 683 - 623 683instruments Amounts due to customers (18) 43 753 576 2 068 069 45 821 645 - 45 821 645Debt securities in issue 23 205 - 23 205 - 23 205Current income tax (19) - 256 256 - 256liabilities Provisions for deferred (20) - 1 222 1 222 - 1 222income tax Provisions (21) 348 271 795 349 066 (248 453) 100 613Other liabilities (22) 3 712 163 (2 651 793) 1 060 370 - 1 060 370Total liabilities 51 412 811 541 055 51 953 866 (248 453) 51 705 413 - Equity - Capital and reserves 7 903 625 101 080 8 004 705 (192 460) 7 812 245attributable to the Company's equity holders Share capital 166 482 - 166 482 - 166 482Reserves (23) 6 486 054 (160 096) 6 325 958 6 325 958Prior and current year (24) 1 251 089 261 176 1 512 265 (192 460) 1 319 805profits Minority interest (25) 17 328 1 448 18 776 - 18 776T o t a l e q u i t y 7 920 953 102 528 8 023 481 (192 460) 7 831 021Total equity and 59 333 764 643 583 59 977 347 (440 913) 59 536 434liabilities (*) Without changes due to amortized cost measurement of loans and advancesusing EIR and without changes relating to impairment of loans and advances. (**) Including also changes due to amortized cost measurement of loans andadvances using EIR and impairment of loans and advances. ASSETS 1 Cash and balances with Central Bank (a) Reclassification of existing 1 377 588 investment portfolios (b) Change of consolidation perimeter - 11 extension of line-by-line method Total impact of the above changes 1 377 599 2 Loans and advances to banks (a) Recognition of sell-buy back and 486 339 buy-sell back (b) Reclassification of other amounts due 9 800 to banks (c) Reclassification of existing 255 investment portfolios (d) Elimination of restricted interest, (5 706) which under PAS were presented as liabilities (e) Change of consolidation perimeter - (4) extension of line-by-line method Total impact of the above changes 490 684 3 Financial assets as held for trading (a) Recognition of sell-buy back and 2 043 425 buy-sell back (b) Reclassification of existing (1 332 984) investment portfolios Total impact of the above changes 710 441 4 Derivative financial instruments (a) Reclasisification of fair value of 273 312 derivatives (b) Recognition of sell-buy back and (1 007) buy-sell back Total impact of the above changes 272 305 5 Other financial instruments at fair value through profit or loss (a) Reclassification of existing 1 336 721 investment portfolios Total impact of the above changes 1 336 721 6 Loans and advances to customers (a) Reclassification of existing 561 950 investment portfolios (b) Recognition of sell-buy back and 388 938 buy-sell back (c) Elimination of restricted interest, (2 325 726) which under PAS were presented as liabilities (d) Reclassification of finance leases (547 324) (e) Change of consolidation perimeter - (67 116) extension of line-by-line method Total impact of the above changes (1 989 278) (f) Adjustment due to amortized cost and (470 483) impairment measurement of loans 7 Net investment in the finance lease (a) Reclassification of finance leases 547 324 from loans Total impact of the above changes 547 324 8 Investment securities (a) Change of consolidation perimeter - 47 extension of line-by-line method (b) Reclassification of existing (1 943 530) investment portfolios Total impact of the above changes (1 943 483) 9 Investments in associated undertakings (a) Change of consolidation perimeter - (74 125) extension of line-by-line method Total impact of the above changes (74 125) 10 Intangible assets (a) Change of consolidation perimeter - 4 417 extension of line-by-line method (b) Correction of goodwill (874) Total impact of the above changes 3 543 11 Tangible fixed assets (a) Correction related to revaluation of 144 142 part of fixed assets to deemed cost (b) Change of consolidation perimeter - 7 190 extension of line-by-line method (c) Reclassification of investment fixed (50 131) assets to Investment property (d) Reclassification of perpetual usufruct (8 874) rights to Other assets Total impact of the above changes 92 327 12 Investment property (a) Reclassifiaction of investment fixed 52 738 assets from Other assets (b) Reclassifiaction of investment fixed 50 131 assets from Tangible fixed assets Total impact of the above changes 102 869 13 Income taxes (a) Reclassification of current tax assets 13 131 from Other assets (b) Adjustment of deferred tax (14 556) Total impact of the above changes (1 425) (c) Adjustment of deferred tax 29 570 14 Other assets (a) Change of consolidation perimeter - 141 248 extension of line-by-line method (b) Reclassification of perpetual usufruct 9 073 rights from Tangible fixed assets (c) Reclasisification of fair value of (281 206) derivatives (d) Derecognition of assets attributable (75 365) to the Company Social Fund (e) Correction valuation of Invetment (52 738) property (f) Reclassification of current tax assets (13 131) to Income taxes (g) Reclassification of receivables (9 800) Total impact of the above changes (281 919) LIABILITIES 15 Amounts due to other banks (a) Recognition of sell-buy back and 186 298 buy-sell back (b) Reclassification of amounts due to 65 500 subordinated entities (c) Change of consolidation perimeter - (9 071) extension of line-by-line method Total impact of the above changes 242 727 16 Financial liabilities as held for trading (a) Reclassification of financial 590 119 liabilities held for trading Total impact of the above changes 590 119 17 Derivative financial instruments (a) Reclasisification of fair value of 290 267 derivatives from Other liabilities (b) Recognition of sell-buy back and (607) buy-sell back Total impact of the above changes 289 660 18 Amounts due to customers (a) Recognition of sell-buy back and 2 142 385 buy-sell back (b) Reclassification of amounts due to (65 500) subordinated entities (c) Change of consolidation perimeter - (8 816) extension of line-by-line method Total impact of the above changes 2 068 069 19 Current income tax liabilities (a) Reclassification of current tax 256 liabilities from Other liabilities Total impact of the above changes 256 20 Provisions for deferred income tax (a) Change of consolidation perimeter - 3 427 extension of line-by-line method (b) Correction valuation of Investment (2 205) property Total impact of the above changes 1 222 21 Provisions (a) Change of consolidation perimeter - 795 extension of line-by-line method Total impact of the above changes 795 (b) Reversal of General Risk Reserve (248 453) 22 Other liabilities (a) Change of consolidation perimeter - 39 305 extension of line-by-line method (b) reclassification of deferred income 15 819 and reserves (c) Elimination of restricted interest (2 331 432) (d) reclassification of fair value of (298 160) derivatives (e) Derecognition of liabilities (75 365) attributable to the Company Social Fund (f) Correction of negative goodwill (1 704) (g) Adjustment of current tax liabilities (256) Total impact of the above changes (2 651 793) 23 Reserves (a) Correction of retained earnings 21 854 (b) Corrections related to share-based 5 595 payments per IFRS 2 (c) Change of consolidation perimeter - 425 extension of line-by-line method (d) Reversal of revaluation reserve (179 425) relating to fixed assets (e) Correction valuation of Investment (7 519) property (f) Adjustment of deferred tax (1 026) Total impact of the above changes (160 096) 24 Prior and current year profits (a) Reversal of revaluation reserve 179 425 relating to fixed assets (b) Correction related to revaluation of 148 888 part of fixed assets to deemed cost (c) Correction of negative goodwill 12 615 (d) Change of consolidation perimeter - 1 169 extension of line-by-line method (e) Recognition of sell-buy back and 188 buy-sell back (f) Adjustment of deferred tax (31 556) (g) Current year profit - changes (25 010) described further (h) Correction of retained earnings (21 854) (i) Correction valuation of Investment (1 894) property (j) Corrections related to share-based (795) payments per IFRS 2 Total impact of the above changes 261 176 (k) Adjustment due to amortized cost and (222 030) impairment measurement of loans (l) Adjustment of deferred tax 29 570 Total impact of the above changes (192 460) 25 Minority interest (a) Change of consolidation perimeter - 1 448 extension of line-by-line method Total impact of the above changes 1 448 Reconciliation of net assets previously published under PAS with the comparativedata, restated under IFRS: As at 1 January 2004 Net equity according to PAS 7 156 027changes: subsidiary shares valuation 18 330total recognized sell-bay-back and buy 188sell-back change in fixed assets 148 888change in consolidation rules (3 609)adjustment of deferred tax (33 280)total changes 130 517Net equity according to IAS as at 1 January 7 286 5442004 As at 31 December 2004 Net equity according to PAS 7 903 625changes:: subsidiary shares valuation (12 518)total recognized sell-bay-back and buy (501)sell-back change in fixed assets 144 341change in consolidation rules 3 529accrued fees adjustment (15 819)valuation of investment property (1 338)adjustment of deferred tax (16 614)total changes 101 080Net equity according to IAS as at 31 8 004 705December 2004 As at 1 January 2005 Net equity according to PAS 7 903 625changes: subsidiary shares valuation (12 518)impairment of loans and valuation and (222 030)amortized cost total recognized sell-bay-back and buy (501)sell-back change in fixed assets 144 341change in consolidation rules 3 529accrued fees adjustment (15 819)valuation of investment property (1 338)adjustment of deferred tax 12 956total changes (91 380)Net equity according to IAS as at 1 January 7 812 2452005 Profit and Loss account for the 2004 - a comparison of previously publishedfinancial data with comparative data converted in accordance with IFRS (dataaccording to PAS are presented in the new classification)Item Profit and loss Effect of Profit and statement 2004 transition to loss (PAS) IFRS statement for 2004 (MSSF*) Interest income 3 737 192 28 651 3 765 843 (605) /1 29 256 /2 Interest expense (1 480 082) (70 917) (1 550 999) 783 /1 (71 700) /2 Fee and commission income 1 708 651 10 986 1 719 637 26 805 /1 (15 819) /3 Fee and commission expense (165 926) 2 811 /1 (163 115)Dividend income 9 - 9Result on financial 13 907 41 755 /2 55 662instruments at fair value Result on investment 14 076 - 14 076securities Foreign exchange result 285 172 3 846 /1 289 018Other operating income 187 118 120 377 307 495 128 037 /1 (7 660) /6 Other operating expenses (147 131) (111 683) (258 814) (108 536) /1 1 931 /4 (5 078) /6 Net impairment losses on (354 069) - (354 069)financial assets and net provisions for guarantees and commitments Overhead costs (2 289 936) (43 501) (2 333 437) (32 856) /1 (5 845) /4 (4 800) /5 Amortization of goodwill on (1 250) 1 250 /6 -subordinated entities Amortization of negative 4 700 (4 700) /6 -goodwill on subordinated entities Share of profit (loss) of 54 134 (17 977) /1 36 157associates and joint venture entities valued at the equity method Profit before income tax 1 566 565 ( 39 102) 1 527 463Income tax expense (227 514) 14 509 (213 005) (3 031) /1 17 540 / 2-6 Net profit for the period 1 339 051 (24 593) 1 314 4581. Attributable to equity 1 343 001 (25 010) 1 317 991holders of the Company 2. Attributable to minority (3 950) 417 /1 (3 533)interest (*) Without changes due to amortized cost measurement of loans and advancesusing EIR and without changes relating to impairment of loans and advances Changes: : 1/ change in the scope of consolidation (inclusion of the new subsidiarycompanies) 2/ recognition of adjustments related to financial assets and liabilities due tosell-buy-back and buy- sell-back transactions 3/ adjustments due to amortization of fees and commissions over time 4/ adjustments to depreciation costs due to the revaluation of some fixed assetsand property rights 5/ inclusion of share-based payments according to IFRS 2 6/ adjustments related to the revaluation of equity investments 53. Events after the balance sheet date The Bank's share capital increase As of 16 January 2006 share capital of the Bank was increased at amount PLN186 755 as of 6 February 2006 at amount PLN 5 169 in result of issue 191 924 Fseries bearer shares. Above events required any adjustments in financial statements as of 31 December2005 Signatures of all members of the Management Board 21.03.2006 Jan Krzysztof Bielecki President, CEO Date First Name/Family Position/Function Name 21.03.2006 Luigi Lovaglio Deputy President, COO Date First Name/Family Position/Function Name 21.03.2006 Sabina Olton Deputy President Chief Accountant Date First Name/Family Position/Function Name 21.03.2006 Przemyslaw Figarski Member of Management Date First Name/Family Position/Function Name 21.03.2006 Irene Grzybowski Member of Management Date First Name/Family Position/Function Name 21.03.2006 Paolo Iannone Member of Management Date First Name/Family Position/Function Name 21.03.2006 Christopher Member of Management Kosmider Date First Name/Family Position/Function Name 21.03.2006 Marian Wazynski Member of Management Date First Name/Family Position/Function Name This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BPKD.L