24th Mar 2006 14:58
Bank Pekao SA24 March 2006 PART 2A Securities available for sale according to maturities: - up to 1 - between 1and - between 3 - between 1 - above 5 Undefined Total month 3 months months and 1 and 5 years years maturity year31 December 2005 Book Average Book Average Book Average Book Average Book Average Book Book Average value yield. value yield. value yield. value yield. value yield. value value yield. (%) (%) (%) (%) (%) (%)Securities availablefor sale- issued by central 87 631 4,50 - - - - - - - - - 87 631 4,50banks- issued by other - - - - 45 535 4,24 - - - - - 45 535 4,24banks- issued by other - - - - - - 32 940 2,71 - - - 32 940 2,71financial entities- issued by non - - - - - - 119 747 4,75 276 331 4,89 - 396 078 4,85financial entities - issued by the State 212 174 4,30 215 944 4,07 1 880 270 4,41 6 086 340 4,81 2 435 908 5,04 - 10 830 636 4,77Treasury - issued by local - - 157 4,93 94 178 4,56 387 106 5,15 25 409 5,17 - 506 850 5,04governments Shares in otherentities- listed - - - - - - - - - - - -- not listed - - - - - - - - - - 2 830 2 830 Total 299 805 4,36 216 101 4,07 2 019 983 4,42 6 626 133 4,82 2 737 648 5,03 2 830 11 902 500 4,77 Including interest - 15 051 16 834 122 616 33 642 188 143 Securities available for sale according to maturities: - up to 1 - between 1and - between 3 - between 1 - above 5 years Undefined Total month 3 months months and 1 and 5 years maturity year31 December 2005 Book Average Book Average Book Average Book Average Book Average Book Book Average value yield. value yield. value yield. value yield. value yield. value value yield. (%) (%) (%) (%) (%) (%)Securities availablefor sale- issued by other - - 4 974 6,74 94 920 2,73 20 376 7,46 - - - 120 270 3,70banks- issued by other 28 918 6,84 - - - - - - - - - 28 918 6,84financial entities- issued by non 2 788 6,83 6 158 6,83 - - 107 011 6,57 279 365 7,19 - 395 322 7,01financial entities - issued by the State 29 885 6,57 172 689 6,81 2 231 884 6,69 3 879 082 5,94 2 634 623 4,63 - 8 948 163 5,76Treasury - issued by local - - - - 84 917 6,50 428 592 7,38 50 229 7,65 - 563 738 7,27authorities Shares in otherentities- listed - - - - - - - - - - - -- not listed - - - - - - - - - - 42 073 42 073 Total 61 591 6,71 183 821 6,81 2 411 721 6,53 4 435 061 6,11 2 964 217 4,93 42 073 10 098 484 5,85 Including interest - 12 071 8 148 78 432 19 742 - 118 393 Securities held to maturity according to maturities - up to 1 - between 1and - between 3 - between 1 - above 5 years Undefined Total month 3 months months and 1 and 5 years maturity year31 December 2005 Book Average Book Average Book Average Book Average Book Average Book Book Average value yield. value yield. value yield. value yield. value yield. value value yield. (%) (%) (%) (%) (%) (%)Securities held tomaturity- issued by central 193 155 4,50 - - - - - - - - - 193 155 4,50banks - issuedby other - - - - 36 872 6,88 23 308 7,94 - - - 60 180 7,29financial entities- issued by the State - - 26 936 6,23 2 120 899 7,94 26 108 4,04 160 596 5,68 - 2 334 539 7,72Treasury Total 193 155 4,50 26 936 6,23 2 157 771 7,92 49 416 5,88 160 596 5,68 - 2 587 874 7,47 Including interest - 1 881 33 345 944 7 468 43 638 Securities held to maturity according to maturities: - up to 1 - between 1 - between 3 - between 1 - above 5 years Undefined Total month and 3 months months and 1 and 5 years maturity year31 December 2004 Book Average Book Average Book Average Book Average Book Average Book Book Average value yield. value yield. value yield. value yield. value yield. value value yield. (%) (%) (%) (%) (%) (%)Securities held tomaturity- issued by other - - - - - - 58 651 7,27 - - - 58 651 7,27financial entities- issued by the State 29 936 6,67 783 266 9,71 1 786 574 6,16 2 067 251 8,13 169 486 5,69 - 4 836 513 7,56Treasury - issued by local - - - - - - 34 809 2,95 - - - 34 809 2,95governments Total 29 936 6,67 783 266 9,71 1 786 574 6,16 2 160 711 8,02 169 486 5,69 - 4 929 973 7,53 Including interest - 21 747 43 36 768 7 895 66 453 25. Non-current assets held for sale The assets and the liabilities related to disposal of 75% of shares in PekaoDevelopment Sp. z o.o. as well as certain investment properties of the Bank,which meet IFRS 5 criteria concerning classification of non-current assets asheld for sale, have been presented by the Bank in the balance sheet inaccordance with IFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations as respectively "Non-current assets held for sale" and "Liabilitiesrelated to non-current assets held for sale". On 15 February 2006, the agreement on disposal of 75% of shares in PekaoDevelopment Sp. z o.o. has been concluded by the Bank. The transaction issupposed to be finalized by the end of March 2006 after having obtained apermission of the Office of Competition and Consumer Protection. The impact of the disposal on the Bank's assets as of 31 December 2005 is asfollows: Non-current assets held for sale na dzien 31 grudnia 2005 rokuShares in Pekao Development Sp. z o.o. (100%) 35 430 Properties 2 220 Total non-current assets held for sale 37 650 As the expected proceedings from disposal of the assets exceed the carryingvalue of these assets, they have been recognized at the carrying value. 26. Investments in subsidiaries entities Selected data about shares in subsidiaries entitiesas of 31 December 2005 Company Registered Core Total Total Revenues Profit/ Proportion Book office capital assets liabilities Loss of share value of capital shares heldBank Pekao (Ukraine) Luck, Banking 138 104 104 629 7 133 422 82,84 26 647Luck Ltd. UkraineCentralny Dom Maklerski Warsaw Brokerage 1 361 1 056 479 49 992 92 426 100,00 181 716Pekao S.A. 860Pekao Faktoring Sp. z Lublin Financial 535 824 475 272 25 255 9 585 100,00 50 268o.o.Pekao Fundusz Warsaw Financial 49 230 128 1 403 (138) 100,00 51 380Kapitalowy Sp. z o.o.Pekao Pioneer Warsaw Financial 382 825 1 965 1 588 8 093 65,00 88 126Powszechne TowarzystwoEmerytalne S.A.Pekao Financial Warsaw Financial 29 086 4 432 524 13 012 100,00 4 500Services Sp. z .o.o servicesPekao Leasing Sp. Warsaw Leasing 791 050 715 677 61 968 828 100,00 82 896z.o.o.Centrum Kart S.A. Warsaw Financial 37 696 7 390 1 069 2 577 100,00 17 592 supportPekao Access Sp. z o.o. Warsaw Business 2 837 170 94 503 100,00 1 728 consultingDrukbank Sp. z o.o. Lublin Not 13 498 - 33 19 100,00 9 764 operatingPekao Immobilier Paris, Real estate 69 - - ( 8) 100,00 49s.a.r.l France managementTotal 514 666 as of 31 December 2004 Company Registered Core Total Total Revenues Profit/ Proportion Book office capital assets liabilities Loss of share value of capital shares heldBank Pekao (Ukraine) Luck, Banking 36 474 11 739 2 578 (1 514) 78,55 21 340Luck Ltd. UkraineCentralny Dom Warsaw Brokerage 1 265 170 651 195 122 77 733 100,00 181 716Maklerski Pekao S.A. 650Pekao Faktoring Sp. z Lublin Financial 354 360 300 710 37 378 6 622 100,00 50 268o.o.Pekao Fundusz Warsaw Financial 53 809 273 - 1 057 100,00 51 380Kapitalowy Sp. z o.o.Pekao Pioneer Warsaw Financial 30 071 703 17 136 5 623 65,00 88 126Powszechne TowarzystwoEmerytalne S.A.Pekao Financial Warsaw Financial 23 939 1 435 29 762 8 842 100,00 4 500Services Sp. z .o.o servicesPekao Leasing Sp. Warsaw Leasing 685 309 607 132 76 838 1 217 100,00 82 896z.o.o.Centrum Kart S.A. Warsaw Financial 32 274 1 518 40 460 880 100,00 17 592 supportPekao Development Sp. Warsaw Real estate 163 314 99 986 117 326 7 637 100,00 35 430z o.o. managementPekao Access Sp. z Warsaw Business 3 550 226 5 344 933 100,00 1 728o.o. consultingDrukbank Sp. z o.o. Lublin Not 5 910 - 29 (1 682) 100,00 9 764 operatingPekao Immobilier Paris, Real estate 64 - - (8) 100,00 61s.a.r.l France managementTotal 544 801 Change in share in subsidiaries Balance as at 31.12.2004 544 801a) increase 5 307- purchase and increase of share capital 5 307b) decrease (12)- sale or remission of share capital (35 430)- classified as non-current assets held for sale -- impairment in value of equity (9)- foreign exchange differences (3)Balance as at 31.12.2005 514 666 Balance as at 31.12.2003 466 672a) increase 130 134- purchase and increase of share capital 130 134b) decrease (52 005)- sale and remission of share capital (51 316)- impairment in value of equity (679)- foreign exchange differences (10)Balance as at 31.12.2004 544 801 Investments in subsidiaries 2005 2004- in banks 26 647 21 340- in other financial institutions 476 478 476 478- in other non-financial institutions 11 541 46 983Total 550 096 544 801 27. Investment in associates entities Selected data in associates entitiesAs of 31 December 2005 year Company Registered Core capital Total Total Revenues Profit/ Proportion Book office assets liabilities Loss of share value of capital shares heldKrajowa Izba Rozliczeniowa Warsaw Clearing house 107 519 13 723 97 828 29 019 22,96 1 250S.A.Pioneer Pekao Investment Warsaw Financial 315 845 96 971 558 549 106 200 49,00 14 995Management S.A. intermediaryXelion Doradcy Finansowi Warsaw Financial and 44 321 3 868 3 084 (22 921) 50,00 25 057Sp.z o.o. insurance supportHotel Jan III Sobieski Warsaw Hotels 135 146 264 804 51 821 19 202 23,81 -Sp.z o.o.CPF Management Tortola, Investment - - - - 40,00 - British Virgin funds Islands management - not operatingCental Poland Fund LLC Wilmington, Financial 1 961 41 (578) (1 026) 53,19 932 Deleware, USA intermediaryTotal 42 234 As of 31 December 2004 year Company Registered Core capital Total Total Revenues Profit/ Proportion Book office assets liabilities Loss of share value of capital shares heldKrajowa Izba Rozliczeniowa Warsaw Clearing house 114 828 9 955 132 139 30 869 22,96 1 250S.A.Grupa Inwestycyjna NYWIG Warsaw Financial - 62 483 2 850 12 24,60 369S.A. advisoryPioneer Pekao Investment Warsaw Financial 198 674 40 693 434 338 74 481 49,00 14 995Management S.A. intermediaryXelion Doradcy Finansowi Warsaw Financial and 19 589 3 105 2 150 (22 221) 50,00 6 687Sp.z o.o. insurance supportHotel Jan III Sobieski Warsaw Hotels 135 760 256 646 53 048 50 025 23,81 -Sp.z o.o.CPF Management Tortola, Fnvestment - - - - 40,00 - British Virgin funds Islands management - not operatingCental Poland Fund LLC Wilmington, Financial 14 764 98 - 1 639 53,19 5 389 Deleware, USA intermediaryTotal 28 690 Change in shares in associates Balance as at 31.12.2004 28 690a) increase 25 000- purchase and increase of share capital 25 000b) decrease (11 456)- sale and remission of share capital (1 715)- impairment in value of equity (9 741)Balance as at 31.122005 42 234 Balance as at 31.12.2003 159 367a) increase 159- purchase and increase of share capital 159b) decrease (130 836)- sale and remission of share capital (117 494)- impairment in value of equity (13 342)Balance as at 31.12.2004 28 690 Investments in associates entities 31.12.2005 r. 31.12.2004 r.- in banks - -- in other financial institutions 42 234 28 321- in other non-financial institutions - 369Total 42 234 28 690 Change in shares in joint ventures entities Balance as at 31.12.2003 2 089a) increase -- purchase and increase of share capital -b) decrease (2 089)- sale and remission of share capital (2 089)- impairment in value of equity -Balance as at 31.12.2004 - 28. Intangible assets 2005 Development Licenses Other(*) Total costGross book valueOpening balance 69 777 813 511 81 534 964 822Additions, including: - 326 161 769 162 095Acquisition - 69 155 166 155 235Other additions - 257 6 603 6 860Transfers from intangibles 919 115 181 (116 100) -in progressDisposals, including: - (24 227) (6 276) (30 503)Liquidation - (24 068) (5) (24 073)Other disposals - (159) (6 271) (6 430) Closing balance 70 696 904 791 120 927 1 096 414 Accumulated depreciationOpening balance 23 811 317 695 5 334 346 840Amortization 14 114 119 230 4 356 137 700Liquidation - (24 068) (5) (24 073)Other changes in value - (24) (77) (101) Closing balance 37 925 412 833 9 608 460 366 Impairment write-offsOpening balance - - - -Other changes in value - - - - Closing balance - - - - Net book valueOpening balance 45 966 495 816 76 200 617 982Closing balance 32 771 491 958 111 319 636 048* Other movements include in particular intangibles in progressBank has no amounts of intangible assets whose deed title is restricted.2004 Development Licenses Other(*) Total costGross book valueOpening balance 59 973 661 551 71 607 793 131Additions, including: - 636 178 113 178 749Acquisition - 4 175 604 175 608Other additions - 632 2 509 3 141Transfers from intangibles 9 804 154 295 (164 099) -in progressDisposals - (2 971) (4 087) (7 058) Closing balance 69 777 813 511 81 534 964 822 Accumulated depreciationOpening balance 11 263 217 961 4 454 233 678Amortization 12 548 102 657 3 269 118 474Other changes in value - (2 923) (2 389) (5 312) Closing balance 23 811 317 695 5 334 346 840 Impairment write-offsOpening balance - - - -Other changes in value - - - - Closing balance - - - - Net book valueOpening balance 48 710 443 590 67 153 559 453Closing balance 45 966 495 816 76 200 617 982* Other movements include in particular intangibles in progress 29. Tangible fixed assets 31.12.2005 31.12.2004Tangible fixed assets:a) Fixed assets, including: 1 392 399 1 468 125Land and buildings 1 121 324 1 176 962Machinery and equipment 238 095 259 288Means of transport 17 989 10 193Other tangible fixed assets 14 991 21 682b) Capital work in progress and 29 990 52 084prepayments for capital work in progress Tangible fixed assets 1 422 389 1 520 209 Annual ended December Land and Machinery Means of Other Total31, 2005 buildings and transport tangible tangible equipment fixed fixed assets assetsOpening balance as of 1 599 959 916 217 32 975 297 873 2 847 024January 1, 2005Increases, including: 56 750 69 797 12 110 3 532 142 189Acquisitions - - 99 64 163Transfer from 30 175 69 538 4 3 452 103 169tangibles underconstructionOther 26 575 259 12 007 16 38 857Decreases, including: (73 384) (21 273) (7 334) (10 639) (112 630)Liquidation and sale (13 726) (19 750) (7 329) (10 409) (51 214)Transfer to (523) - - - (523)non-current assetshold to saleOther (59 135) (1 523) (5) (230) (60 893) Closing balance 1 583 325 964 741 37 751 290 766 2 876 583 DepreciationOpening balance as of 415 072 656 515 22 782 276 191 1 370 560January 1, 2005Increases, including: 57 169 90 247 4 075 10 044 161 535Depreciation of the 56 538 90 247 4 075 10 044 160 904periodOther 631 - - - 631Decreases, including: (18 005) (20 530) (7 095) (10 460) (56 090)Liquidation and sale (6 697) (18 748) (7 095) (10 293) (42 833)Transfer to (145) - - - (145)non-current assetsheld for sale:including (12) - - - (12)depreciationOther (11 163) (1 782) - (167) (13 112) Closing balance 454 236 726 232 19 762 275 775 1 476 005 Impairmentwrite-downsOpening balance 7 925 414 - - 8 339Decreases (160) - - - (160) Closing balance 7 765 414 - - 8 179 Net valueOpening balance 1 176 962 259 288 10 193 21 682 1 468 125 Closing balance 1 121 324 238 095 17 989 14 991 1 392 399 Annual ended December Land and Machinery Means of Other Total31, 2004 buildings and transport tangible tangible equipment fixed fixed assets assetsOpening balance as of 1 598 341 911 320 32 438 315 871 2 857 970January 1, 2004Increases, including: 32 172 70 109 4 076 3 101 109 458Acquisitions 144 - 56 87 287Transfer from 20 825 57 973 4 020 3 009 85 827tangibles underconstructionOther 11 203 12 136 - 5 23 344Decreases, including: (30 554) (65 212) (3 539) (21 099) (120 404)Liquidation and sale (12 970) (65 209) (3 528) (8 707) (90 414)Other (17 584) (3) (11) (12 392) (29 990)OtherClosing balance 1 599 959 916 217 32 975 297 873 2 847 024 DepreciationOpening balance as of 365 396 610 061 22 515 279 836 1 277 808January 1, 2004Increases, including: 63 194 109 982 3 490 15 168 191 834Depreciation for the 60 118 99 962 3 490 15 168 178 738periodOther 3 076 10 020 - - 13 096Decreases, including : (13 518) (63 528) (3 223) (18 813) (99 082)Liquidation and sale (5 498) (63 459) (3 223) (8 533) (80 713)Other (8 020) (69) - (10 280) (18 369) Closing balance 415 072 656 515 22 782 276 191 1 370 560 Impairment write-downsBeginning value 8 160 405 - - 8 565Increases - 957 - - 957Decreases (235) (948) - - (1 183) Closing balance 7 925 414 - - 8 339Net book valueBeginning value 1 224 785 300 854 9 923 36 035 1 571 597 Closing balance 1 176 962 259 288 10 193 21 682 1 468 125 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 1st January2004, and it used this fair value as the deemed cost determined for that dayThe effect of adjustments made on that account as of 1st January 2004 ispresented in the following reconciliation of net assets as of 1st January 2004.The aggregate amount of fair value used was PLN 148.888 ths. (mainly propertiesand buildings).As of 31st December 2005 assets under construction amounted to PLN 29 990 ths.(as of31st December 2004 PLN 50 137 ths.).The amount of damages received and recognized in the profit and loss, inrelation to fixed assets lost in 2005 was PLN 1 542 ths.There are no barriers concerning fixed assets in relation to obligationsecurity.The operational lease payments recognized as expense in 2005 amounted to PLN101 774 ths. (in 2004 amounted to PLN 106 844 ths.)The operational lease payments recognized as income in 2005 amounted to PLN 17856 ths. (in 2004 amounted to PLN 19 639 ths.). Agreement LiabilitiesBy 31st December 2005, the Bank concluded with its contractors agreements forpurchase in the future of intangible assets for amount of PLN 50 179 ths.including PLN 50 179 ths. in 2006, and of tangible fixed assets for amount ofPLN 21 067 ths. including PLN 21 067 ths. in 2006 (by 31st December 2004, theBank concluded with its contractors agreements for purchase in 2005 ofintangible assets for amount of PLN 56 000 ths. and of tangible fixed assets foramount of PLN 13 227 ths.). 30. Investment property The Bank measures the investment property using the historical cost concept.There are no restrictions related to the right to sell and to transfer theprofit attributable to investment property owned by the Bank. Changes in value of the investment property: 31.12.2005 31.12.2004Gross valueOpening balance as of beginning period 71 069 82 073Increase of balance 29 030 112Acquisitions of real estate - 93Activation of subsequent outlays - -Transfer from own real estate 29 030 19Other changes - -Decrease of balance (8 909) (11 116)Transfer to assets hold to sale (2 957) -Other changes (5 952) (11 116) Value as of the end of the period 91 190 71 069 Depreciation write-offsOpening balance as of beginning period 18 738 19 917Increase of balance 13 517 1 631Activation of subsequent outlays - -Transfer from own real estate 11 266 158Other changes - -Depreciation 2 251 1 473Differences in exchange rates (2 823) (2 810)Transfer to non-current assets held for sale (1 115) -including depreciation (52) -Other changes (1 708) (2 810) Value as of the end of the period 29 432 18 738 Depreciation write-offs due to loss of valueOpening balance as of beginning period 3 775 4 366Increase: 15 -Transfer from own real estate 15 -Decrease: (202) (591)Differences in exchange rates (202) (591) Value as of the end of the period 3 588 3 775 Net balance valueOpening balance as of beginning period 48 556 57 790 Value as of the end of the period 58 170 48 556 Future value of investment property as of 31st December 2005 amounted to PLN78 506 ths. (as of 31st December 2004 amounted to PLN 67 507 ths.). Fair valuewas made on the basis of independent valuer who holds a recognised and relevantprofessional qualification. The following amounts of income and expenses were recognized in profit and lossin relation with investment property: 2005 2004Income on rental of investment property 2 612 4 193Direct operational expenses (including 537 909repair and maintenence) related toinvestment property bringing rental incomeDirect operational expenses (including 403 -repair and maintenence) related toinvestment property not bringing rentalincome 31. Other assets 31.12.2005 31.12.2004Prepaid expenses 8 354 10 744Perpetual usufruct rights 8 590 8 867Accrued income 22 953 92 094Other assets 2 210 3 924Interbank and interbranch settlements 6 243 6 842Other debtors 237 197 340 723 Total other assets 285 547 463 194 Prepaid expenses concerning single kind of expenditure, which incurred in profitand loss account are reconciled in accordance with time periods in futurereporting periods. 32. Assets used to pledge liabilities As of 31 December 2005, the portfolio of securities available for sale includestwo-year treasury bonds with a nominal value of PLN 16 500 ths. (as of 31December 2004 - PLN 17 106 ths.) used as collateral for the loan extended by theBank Guarantee Fund. The amount of payables which the collateral refers to isPLN 12 816 ths. (as at 31 December 2004 - PLN 14 828 ths.)As of 31 December 2005, the portfolio of securities available for sale alsoincludes treasury bonds with nominal value of PLN 591 320 ths. (as of 31December 2004 - PLN 0 ths.) used as collateral for securities sold under repotransactions. The amount of liabilities which the collateral refers to is PLN619 353 ths. (as of 31 December 2004 - PLN 0 ths.).The following table presents the balance sheet value of assets pledged ascollateral for the liabilities. 31.12.2005 31.12.2004Treasury two-year bonds 16 194 15 818constituting security of loansreceived from Bankowy FunduszGwarancyjnyTreasury bonds security of 619 014 -liabilities due to sold securitieswith granted repurchase promise 33. Amounts due to the Central Bank 31.12.2005 31.12.2004Received creditsUp to 1 month - -From 1 month to 3 months 55 197 52 825From 3 months to 1 year 168 348 145 331From 1 to 5 years 1 057 280 980 770Over 5 years 653 406 942 161Interest charged 16 479 30 656 Total amounts due to Central Bank 1 950 710 2 151 743 34. Amounts due to other banks 31.12.2005 31.12.2004Current accounts 1 359 397 581 739Deposits of other banks 449 168 475 011Received credits and loans 77 424 82 285Money transfer 20 653 21 398Repo transactions 81 706 186 281Interest accrued 5 253 4 082 Total amounts due to other banks 1 993 601 1 350 796 The variable interest rate due to banks amounts to PLN 281 853 ths. (as of31.12.2004: PLN 189 161 ths.), fixed interest rate due to banks amounts to PLN1 685 842 ths. (as of 31.12.2004: PLN 1 136 155 ths.).Amounts due to other banks according to maturitiesBy remaining maturity 31.12.2005 31.12.2004Current accounts 1 359 397 581 739Future liabilities withmaturity period of:Up to 1 month 300 662 551 028From 1 month to 3 months 45 731 45 347From 3 months to 1 year 180 090 60 451From 1 to 5 years 77 348 81 995Over 5 years 4 467 4 756Financial resources under 20 653 21 398wayInterest charged 5 253 4 082Total 1 993 601 1 350 796 35. Financial liabilities held for trading 31.12.2005 31.12.2004Liabilities due to short 545 930 438 219securitiesTotal liabilities held for 545 930 438 219trading 36. Amounts due to customers 31.12.2005 31.12.2004Amounts due to business entities 16 972 928 13 533 621Current accounts and overnight deposits 8 741 266 7 919 272Deposits and time money 8 184 346 5 572 761Other 25 584 18 767Interest accrued 21 732 22 821Amounts due to budget entities 3 986 829 2 800 385Current accounts and overnight deposits 2 188 458 2 033 936Deposits and time money 1 794 200 763 834Interest accrued 4 171 2 615Amounts due to individuals 25 206 466 27 471 978Current accounts and overnight deposits 10 083 802 9 536 828Deposits and time money 15 070 190 17 838 856Other 3 743 2 991Interest accrued 48 731 93 303Repo transactions 683 525 2 054 380Deposits 683 021 2 046 820Interest accrued 504 7 560 Total amounts due to customers 46 849 748 45 860 364 By remaining maturity 31.12.2005 31.12.2004Current accounts and 21 013 526 19 490 036overnight depositsFuture liabilities withmaturity period of:Up to 1 month 14 384 322 13 062 981From 1 month to 3 months 5 578 235 6 832 637From 3 months to 1 year 4 705 002 4 745 978From 1 to 5 years 489 875 969 560Over 5 years 574 323 611 115Other 29 327 21 758Interest accrued 75 138 126 299 Total 46 849 748 45 860 364 Variable interest rate amounts due to customers amounts to PLN 25 507 931 ths.(as at 31.12.2004 amounted to PLN 26 181 354 ths), fixed rate amounts due tocustomers amounts to PLN 21 237 352 ths. (as at 31.12.2004 PLN 19 530 953 ths.) 37. Debt securities in issue 31.12.2005 31.12.2004Liabilities due to issue of bonds 17 22 479Interest accrued - 726 Total liabilities due to issue of debt 17 23 205securities 31.12.2005 31.12.2004 Balance value Average Balance Average effective value effective rate (%) rate (%)Liabilities due to issue ofmaturity period of:Up to 1 month - - - -From 1 month to 3 months - - - -From 3 months to 1 year - - 23 205 6,40From 1 to 5 years 17 - - -Over 5 years - - - - Total 17 - 23 205 6,40 The Bank never has defaulted on repayment of principal or interest or redemptionits own securities. 38. Other liabilities 31.12.2005 31.12.2004 Deferred income 100 932 117 701Holiday pay accrual 31 520 33 293Other accruals 171 597 145 905Provision for administrative costs 66 843 7 213Other costs to be paid 4 546 3 305Other creditors 380 495 452 203Inter-bank and inter-branch 435 886 84 646settlements Total other liabilities 1 191 819 844 266 39. Provisions 2005 Reserve for Reserve Reserve Reserve for Reserves Other Total restructurings for for granted for reserves matters old-age liabilities general of pensions and risk dispute guaranteesBalance as 9 000 11 081 57 516 16 270 248 453 1 755 344 075of 31December2004IAS 39 - - - - (248 453) - (248 453)adjustmentBalance as 9 000 11 081 57 516 16 270 - 1 755 95 622of 1January2005Creation / 3 529 10 378 4 449 54 847 - - 73 203revaluationof reservesUse of (7 939) - (1 522) - - - (9 461)reservesDissolution - (1 656) - (53 342) - (1 731) (56 729)of reservesDifferences - 4 - 483 - (24) 463in exchangeratesOther - (152) - 2 067 - - 1 915changesBalance as 4 590 19 655 60 443 20 325 - - 105 013of 31December2005 2004 Reserve for Reserve Reserve Reserve for Reserves Other Total restructurings for for granted for reserves matters old-age liabilities general of pensions and risk dispute guarantees Balance as 21 765 23 529 49 246 32 102 248 453 2 195 377 290of 31December2003Creation / 9 000 8 377 10 242 38 965 - - 66 584revaluationof reservesUse of (21 760) (178) (1 972) (2 333) - - (26 243)reservesDissolution - (18 187) - (50 385) - (158) (68 730)of reservesDifferences (5) (109) - (1 958) - (282) (2 354)in exchangeratesOther - (2 351) - (121) - - (2 472)changesBalance as 9 000 11 081 57 516 16 270 248 453 1 755 344 075of 31December2004 40. Lease transactions Receivables related to operating leasesThe Bank is the lessor of buildings representing the investment properties underthe operating lease agreements.The amount of future minimum lease payments expected to be received undernon-cancelable operating leases can be summarized as follows: 31.12.2005 31.12.2004 Below 1 year 3 940 4 181From 1 to 5 year 3 179 4 582Over 5 years 2 300 2 848Total 9 419 11 611Finance leasesMoreover, the Bank is the lessee of a car vehicle fleet under the finance leaseagreements concluded with the subsidiary - Pekao Leasing Sp. z o.o.The carrying value of assets subject to finance leases as at 31 December 2005amounted to PLN11 174 ths.The amount of future minimum lease payments expected to be paid undernon-cancelable finance leases can be summarized as follows: 31.12.2005 Below 1 year 2 627 From 1 to 5 year 8 547 Over 5 years - Total 11 174 As at the day 31 st December 2004, Bank has any transactions due from financelease. 41. Employee benefits Employee share programsOptions for the Bank's shares are granted as a part of the incentive program forsenior management essential to the success of the Bank's strategy, set byresolution of Extraordinary General Meeting of Bank Polska Kasa Opieki S.A from25 July 2003.The program involve a contingent increase of the Bank's share capital by issuingfollowing shares received in exchange for bonds with pre-emptive rights to takeup the Bank's shares. +------------+----------+----------+-----------+-------------------------+|Type of |Number of | Nominal |The issue |Establish basis of share ||shares |options |value of 1|price of |issue price || | | share |one share | |+------------+----------+----------+-----------+-------------------------+|Bearer | 830 000| 1 PLN| 108,37 PLN|the average of closing ||common | | | |prices of the Bank's ||shares , | | | |shares quoted at the ||F-share | | | |Warsaw Stock Exchange in || | | | |July and August 2003 |+------------+----------+----------+-----------+-------------------------+|Bearer | 830 000| 1 PLN| 123,06 PLN|the average of closing ||common | | | |prices of the Bank's ||shares , | | | |shares quoted at the ||G-share | | | |Warsaw Stock Exchange in || | | | |February and March 2004 |+------------+----------+----------+-----------+-------------------------+ After realization the pre-emptive rights to take up the Bank's shares, theshares are recognized in Bank's equity.The incentive program will be implemented within the confines of sub program(each splited into II instalment ) at the following parameters : +------------------+--------------------------+--------------------------+| | Program based on F-share | Program based on G-share || | issue | issue |+------------------+--------------------------+--------------------------+|Expiry date | 31 December 2010 | 31 December 2012 |+------------------+--------------------------+--------------------------+|Realization price | 108,37 | 123,06 |+------------------+-------------+------------+------------+-------------+|Number of options | 415 000 | 415 000 | 415 000 | 415 000 |+------------------+-------------+------------+------------+-------------+|Criteria to rights|1. Executive of individual|1. Executive of individual||purchase |purposes in confines of |purposes in confines of || |the MBO program during the|the MBO program during the|| |2003 year, |2003 year, || |2. Remaining at contract |2. Remaining at contract || |of employment within |of employment within || |Bank's capital group |Bank's capital group || |employee as at the date of|employee as at the date of|| |option rights execution, |option rights execution, || +-------------+------------+------------+-------------+| |3. |3. |3. |3. || |Realization |Realization |Realization |Realization || |of assumed |of assumed |of assumed |of assumed || |ROE for the |ROE for the |ROE for the |ROE for the || |2004 year |2005 year |2006 year |2007 year |+------------------+-------------+------------+------------+-------------+|Fair Value as at | 6 462 | 4 696 | 3 568 | 6 462 ||31 December 2005 | | | | ||('000. PLN) | | | | |+------------------+-------------+------------+------------+-------------+| Assumptions of the fair value model adopted on the day of granted || rights: |+------------------+--------------------------+--------------------------+|Dividend rate (%) | 4,27 | 5,12 |+------------------+--------------------------+--------------------------+|Volatility index | 31,75 | 31,75 ||(%) | | |+------------------+-------------+------------+------------+-------------+|Risk-free interest| 5,33 | 5,41 | 6,66 | 6,70 ||rate (%) | | | | |+------------------+-------------+------------+------------+-------------+|Foreseen option | 4,76 | 5,26 | 6,18 | 6,68 ||validity period | | | | ||(in years) | | | | |+------------------+-------------+------------+------------+-------------+|Weighted average | 112,50 | 125,00 ||of stock price (in| | ||PLN) | | |+------------------+--------------------------+--------------------------+Fair value of the pre-emptive rights to take up the Bank's shares granted inperiod to 31 December 2005 as at day 31 December 2005 amounted to 17 488 ths PLNand it is settled over time during the estimated period in which rights toacquire the Bank's shares are granted to participating individuals.Costs of payroll in 2005 year was increased by PLN 11 895 ths. (in 2004: PLN 4800 ths.).Fair value of the pre-emptive rights to take up the Bank's shares was recognizedas of the day of granting options (pre-emptive rights to take up the Bank'sshares) based on the Black-Scholes model for appraisal of dividend-yieldingstock options, according to expectations of the Management Board concerning thenumber of rights to be exercised. The amount of the employee share program isadjusted as of every balance sheet date if expectations of the Management Boardchange concerning the number of rights to be exercised. No efficiency/resultsdata except those related to the price of shares ("market conditions") are takeninto account in the assessment of transactions settled in capital instruments.The expected effective term of the pre-emptive rights to take up the Bank'sshares is determined on the basis of historic data and does not need tospecifically define all possible exercise scenarios.The expected volatility index reflects the assumption according to which thehistoric volatility index.No other parameters related to the granting of pre-emptive rights to take up theBank's shares were taken into account in the assessment of the fair value. 42. Contingent liabilities LitigationAs of 31st December 2005 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 387 The total value of them was PLN 634 104ths. and EUR 36 008 ths.According to the issuer's Management Board opinion only one of the largestproceedings, that have been in progress against the Bank during the reportingperiod, give rise to risk of cash outflow as a result of fulfilling theobligation.Mittal Steel Poland S.A. (till now Ispat Polska Stal S.A.) against Bank PekaoS.A. The subject of litigation: devoid the execution in totality deed executivei.e. the Bank execution deed issued by the Bank and demand adjudge from Bankamount PLN 14 193 ths. with statutory interests since date of prosecution, thedate of action in the course of proceedings - 01.03.2005Arthur Bras/MTA against Bank Pekao S.A. - branch in ParisThe subject of litigation: unwarranted crediting; the quarrel subject valueamounted EUR 7.622 ths; the date of action in the course of proceedings -17.04.2000As of the reporting day it was not possible to reliably estimate the value ofpotential cash outflow related to these proceedings.As regards all other significant proceedings in progress against the Bank, therisk of cash outflow is nominal.Financial obligations granted 31.12.2005 31.12.2004Granted financial liabilities in 11 513 678 10 738 450total:- towards financial entities 1 203 449 1 890 271- towards non-financial entities 9 825 563 8 458 122- towards the budget 484 666 390 057Including: granted irrevocable 11 241 291 10 540 989liabilitiesThe Bank granted fixed-rate financial commitments (which expose the Bank tointerest rate risk) in the nominal amount of PLN 2 112 883 ths. (for 31 December2004 amounts to PLN 1 462 738 ths. The below table presents granted fixed-rate financial commitments according totheir maturities 31.12.2005 31.12.2004Granted fixed-rate financial 2 112 883 1 462 738liabilities in total:- with maturity date within a year of 567 783 542 271the balance day- with maturity date within more than 1 545 100 920 467a year of the balance dayincluding: granted irrevocable 2 112 883 1 462 738liabilities Guarantees granted 31.12.2005 31.12.20041) Liabilities granted towards 151 813 117 443financial entities:- guarantees 125 231 98 225- sureties 10 400 7 300- confirmed export letters of credit 16 182 11 9182) Liabilities granted towards 1 197 107 752 900non-financial entities:- guarantees 1 197 084 752 664- sureties 23 2363) Liabilities granted towards the 47 389 61 223budget:- guarantees 43 639 57 473- endorsements 3 750 3 750 Granted liabilities in total 1 396 309 931 566 Sub issue programAs of 31 December 2005 in the Bank were no securities programs subject to subissue. As of 31.12.2004 Starostwo Powiatowe Zdunska Wola Community's Bonds wassubjected by the Bank sub-issue, nominal value sub-issued securities being inBank's portfolio amounted to PLN 8 400 ths.Assets held as collateral for conditional liabilitiesAs of 31st December 2005 there were no assets held as collateral againstconditional liabilities. As of 31st December 2004 the deposit placed withUniCredito Italiano New York, amounting to USD 9 336 ths. ,represented acollateral of a guarantee granted to UniCredito Italiano New York, in amount ofUSD 25 019 ths. 43. Share capital SHARE CAPITAL (STRUCTURE)Series Type Type of Type of Number Value of Manner Date of Right to / of privileged limitation of series / of registration dividendIssue shares shares shares shares issue capital (as of) according coverage to nominal value A bearer - - 137 137 650 paid in 21.12.1997 1.01.1998 common 650 full shares 000 B bearer - - 7 690 7 690 paid in 6.10.1998 1.01.1998 common 000 full shares C bearer - - 10 630 10 631 paid in 12.12.2000 1.01.2000 common 632 full shares D bearer - - 9 777 9 777 paid in 12.12.2000 1.01.2000 common 571 full shares E bearer - - 373 374 paid in 29.08.2003 1.01.2003 common 644 full shares H bearer - - 359 360 paid in 12.08.2004 1.01.2004 common 840 full sharesTotal number of shares 166 481 687Total share capital in 166 482thousand PLNNominal value of one share = 1.00PLN 2005 in shares Shares issued and paid in Total fullBalance as of the 166 481 687 166 481 687beginning of the period Balance as of the end 166 481 687 166 481 687of the period The Bank has implemented an Incentive Program involving the issue of convertiblebonds. As of31 December 2005 no shares to replace the convertible bonds were issued. For adetailed description of the program, see Note 41. 44. Reserves, current year end prior year profit 31.12.2005 31.12.2004ReservesReserve Capital 1 550 341 1 550 341- Share premium 1 361 034 1 361 034- Other 189 307 189 307Revaluation reserve 96 719 (10 076)- Valuation of the portfolio of financial 118 929 (13 429)assets available for sale- Deferred tax (23 094) 1 983- Other 884 1 370General banking risk fund 1 067 850 1 067 850Other reserve capital 3 790 599 3 513 080Bonds convertible into stocks - capital 17 488 5 595constituentTotal reserves 6 522 997 6 126 790Prior and current year profitPrior years profit 67 363 365 912Profit for the period 1 439 416 1 236 912 Total prior and current year profit 1 506 779 1 602 824 45. Additional information for the cash flow statement a) Cash and cash equivalents Balance items 31.12.2005 31.12.2004Cash, amounts due from Central Bank* 2 192 483 2 557 524Receivables from banks up to 3 month 5 496 091 4 219 285 Financial resources and equivalents of 7 688 574 6 776 809financial resources presented in the cashflow statements\* The item "Cash, amounts due from Central Bank " does not include the NBP Bondin amount of PLN 1 381 130 ths. (31.12.2004 - PLN 1 377 588 ths.) Limited availability cash and cash equivalents as of 31 December 2005 amountedto PLN1 555 238 ths. (as of 31 December 2004 PLN 1 622 256 ths). b) Explanation of the differences between changes of the balance sheet amountsshown in the cash flow statement The differences between changes of the balance sheet amounts and changes shownin the cash flow statement resulted from IAS 39 adjustments: impairment andvaluation of loans and receivables at amortized cost using the effectiveinterest rate. The differences concern the following cash flow statementcaptions:- changes of loans and receivables;- changes of deferred income tax assets; and- changes of the provisions. 46. Transactions with related entities Presented below financial data concerning Bank Pekao S.A. as a holding companyand financial data concerning subsidiaries.The financial statements of Bank Pekao S.A. and financial statements ofsubsidiaries are listed in the following table: Entity name Registering body Percentage participation in the capital 31.12.2005 31.12.2004Bank Pekao (Ukraina) Ltd. National Bank of Ukraine, 82,84 78,55 National Bank Register. no. 265Centralny Dom Maklerski District Court for the 100,00 100,00Pekao S.A. capital city of Warsaw, XX Commercial Department of the National Court RegistryPekao Fundusz Kapitalowy District Court for the 100,00 100,00Sp. z o.o. capital city of Warsaw, XIX Commercial Department of the National Court RegistryPekao Leasing Sp. Z o.o. District Court for the 100,00 100,00 capital city of Warsaw, XX Commercial Department of the National Court RegistryPekao Faktoring Sp. z District Court for the 100,00 100,00o.o. city of Lublin, XI Commercial Department of the National Court RegistryPekao Pioneer Powszechne District Court for the 65,00 65,00Towarzystwo Emerytalne capital city of Warsaw, XXS.A. Commercial Department of the National Court RegistryDrukbank Sp. z o.o. District Court for the 100,00 100,00 city of Lublin, XI Commercial Department of the National Court RegistryCentrum Kart S.A. District Court for the 100,00 100,00 capital city of Warsaw, XIX Commercial Department of the National Court RegistryPekao Financial Services District Court for the 100,00 100,00Sp. z o.o. capital city of Warsaw, XX Commercial Department of the National Court RegistryPekao Development Sp. z District Court for the 100,00 100,00o.o. capital city of Warsaw, XIX Commercial Department of the National Court RegistryPekao Access Sp. z o.o. District Court for the 55,26 55,26 capital city of Warsaw, XIX Commercial Department of the National Court RegistryPekao Immobilier s.a.r.l Chambre de commerce 100,00 100,00Bank Pekao S.A. is the holding company of the Bank Pekao S.A Capital Group.UniCredito Italiano S.p.A. is the superior holding company. Information on subsidiaries and related and affiliated entities is provided inNotes 26 and 27. 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 financially and organizationally related thereto are subject to theBylaws adopted by the Bank's Supervisory Board. 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. Members of the Bank's Management and entities financially and organizationallyrelated thereto may use lending facilities offered by the Bank on standard termsand conditions applied by the Bank. In particular, the Bank do not offer suchindividuals or entities preferential terms and conditions for lendingfacilities. Credit risk assessment follows methodologies used by the Bank with regard to thecustomer's segment and type of transaction. Standard credit procedures are applied to entities affiliated with the Bank, andtransaction decisions are made exclusively from the Bank's Head Office level. Loan and lending facilities granted to affiliated entities Entity name Credits Income from Credits Income from and loans interest and loans interest as of 31 from as of 31 from December related December related 2005 entities in 2004 entities in 2005 2004 Group dominant companyUniCredito Italiano 35 554 2 181 64 728 47 780S.p.A.Entities of UnicreditoItaliano Group'sexcluding entities ofPekao S.A. Group'sHypo Vereinsbank AG 195 727 977 - -Bank AustriaCreditanstalt 33 761 3 926 - -Zagrebacka Banka d.d. 232 766 4 581 122 430 5 028Unicredit Zagrebacka 154 420 9 495 163 160 6 797Banka Bh d.d. SarajewoUnicredit Factoring SpA 239 10 849 28Unicredit Leasing Romania 218 238 6 505 123 139 803SAUnibanka A.S. (ex 1 106 111 - 48Pol'nobanka A.D.)Zivnostenska Banka A.S. - 103 5 020 29SubsidiariesBank Pekao (Ukraina) Ltd. 90 302 846 4 490 14Pekao Leasing Sp. z o.o. 681 075 28 592 583 534 29 362Pekao Faktoring Sp. z 394 778 15 653 248 448 19 275o.o.Centralny Dom Maklerski - - 5 15S.A.Pekao Development Sp. z 62 709 1 089 68 602 761o.o.Fabryka Maszyn w Janowie 2 418 244 2 421 926Lubelskim Sp. z o.o.Associated entitiesHotel Jan III Sobieski 41 386 1 816 42 980 3 789Sp. z o.o.Krajowa Izba - - - 85Rozliczeniowa SAGrupa Inwestycyjna Nywig - - - 2 726S.A.F-ka Sprzetu Okretowego - - - 26MEBLOMORKey managing staff of the 2 2 - 10Bank or it's ParentCompanyOther related entities 66 8 94 1Total 2 144 547 76 139 1 429 900 117 503 Deposits received from affiliated entitiesEntity name Deposits Interest Deposits for Interest for 2005 expense from 2004 expense from related related entities for entities for 2005 2004 Group dominant companyUniCredito Italiano SpA 197 122 3 140 168Entities of UnicreditoItaliano Group'sexcluding entities ofPekao S.A. Group'sHypo Vereinsbank A.G. 2 658 - - -Bank 1 390 1 098 - -AustriaCreditanstaltBanque Monegasque de - 1 1 -Gestion S.A.Unibanka A.S. (ex 375 12 461 91Pol'nobanka A.D.)UniCredit Romania - 19 1 92 2BucharestUnicredit Leasing 181 448 - - -Romania S.A.Pionier Pekao 116 911 4 141 65 344 3 051Towarzystwo FunduszyInwestycyjnych S.ASubsidiariesBank Pekao (Ukraina) 550 17 9 297 44Ltd.Pekao Leasing Sp. z 1 350 1 364 91 183 584o.o.Pekao Faktoring Sp. z 885 8 456 46o.o.Centralny Dom Maklerski 779 440 38 012 847 955 36 964S.A.Pekao Fundusz 26 310 1 230 21 241 98Kapitalowy Sp. z o.o.Pekao Pioneer 34 653 1 588 27 251 1 086Powszechne TowarzystwoEmerytalne S.A.Drukbank Sp. z o.o. 697 33 695 29Centrum Kart S.A. 29 107 328 18 058 209Pekao Financial 13 421 523 9 071 297Services Sp. z o.o.Pekao Development Sp. z 14 627 411 6 162 403o.o.Pekao Access Sp. z o.o. 2 044 90 2 654 84Pekao Uslugi - - - 994KorporacyjneFabryka Maszyn w 4 1 132 1Janowie Lubelskim Sp. zo.o.Affililated entitesXelion Doradcy 36 723 1 264 12 916 1 163Inwestycyjni Sp. z o.o.Hotel Jan III Sobieski 605 13 1 102 14Sp. z o.o.Pioneer Pekao 90 004 3 041 42 031 1 192Investment ManagementS.A.Krajowa Izba 6 149 1 483 118Rozliczeniowa SAGrupa Inwestycyjna - - 11 8Nywig S.A.F-ka Sprzetu Okretowego 87 - 36 1MEBLOMOR S.A.Key managing staff of 1 545 57 1 287 60the Bank or it's ParentCompanyOther related entities 25 - 4 -Total 1 335 081 53 504 1 162 063 46 707 The off-balance sheet exposure related to: financing of related entities as of31st December 2005 amounted to PLN 867 211 ths. (as of 31.12.2004 PLN 771 665ths.); related to guarantying amounted to PLN 103 204 ths. (as of 31.12.2004 PLN85 265 ths.); credit cards limits towards related entities as of 31st December2005 amounted to PLN 117 ths. (as of 31.12.2004 PLN 107 ths.). Fee and commission income from related entities in 2005 amounted to PLN 316 309ths.(in 2004: PLN 259 998 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. was raisedby PLN 50 000 ths. The Bank possesses 50% share in the company. The number ofshares possessed by the Bank increased by 25 000 up to to 25 025 ths. In 2005 the share capital of Bank Pekao (Ukraina) Ltd. was raised by amount ofPLN 5 307 ths. Transactions with related entities are based on standard market rates andconditions. 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 41 "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. 47. Mergers No mergers occurred in 2005 and in 2004. 48. 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 Fair Balance Assets Fair Balance Value Value Value Value Liabilities LiabilitiesFinancial assets held fortrading- up to 1 month 680 563 680 951 2 149 155 2 149 299- between 1and 3 months 69 675 69 620 91 378 91 378Total financial assets 750 238 750 571 2 240 533 2 240 677held for tradingFinancial assets availablefor sale- up to 1 month 15 020 15 037 - -Total financial assets 15 020 15 037 - -available for saleTotal 765 258 765 608 2 240 533 2 240 677 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 Assets Fair Assets Assets Value Fair ValueAmounts due from banks- up to 1 month 567 904 566 291 486 340 486 315Total Amounts due from banks 567 904 566 291 486 340 486 315Loans and advances tocustomers- up to 1 month - - 196 301 196 282Total loans and advances to - - 196 301 196 282customersTotal 567 904 566 291 682 641 682 597 49. 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 employing over 20 staff havecreated the ZFSS Fund and are making periodic charges to the ZFSS Funds inamounts prescribed by the Act. Apart that, the Company contributed to the Fundin kind of fixed assets. The aim of the ZFSS Fund is financing of socialactivity in benefit of the employees and subsidizing the social premises. Theliabilities of the ZFSS Fund represent the cumulated value of charges made bythe Company towards the ZFSS Fund decreased by the amount of non-returnableexpenditures of the ZFSS Fund. In the balance sheet the Bank netted the ZFSS Fund's assets against the ZFSSFund's value, due to the fact that the assets of the ZFSS Fund do not representthe assets of the Bank. For this reason the amount pertaining to the ZFSS Fundin the balance sheet as of 31st December 2005 and 31st 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 31.12.2004Advances to employees 45 259 49 732Cash in the current account 1 292 25 633Assets of ZFSS 46 551 75 365Value of ZFSS 46 551 75 365 2005 2004Charges made towards the ZFSS in the 16 311 15 822period 50. Acqusition of HVB shares by UniCredito Italiano S.p.A. On 17 November 2005, the parent company of Bank Pekao S.A. - UniCredito ItalianoS.p.A. acquired 705 108 946 shares of Bayerische Hypo- und VereinsbankAktiengesellschaft ("HVB") representing 93.93% of total voting rights on the HVBShareholders' Meeting. In consequence, UCI gained control over HVB - theultimate parent company (i.a. for Bank BPH S.A.) - as well as over Bank AustriaCreditanstalt AG ("BACA") - the member of the HVB Group and the immediatemajority 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). 51. 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 Bank prepared these financial statements based on IFRS 1. Note 2 to thesefinancial statements includes a description of optional exemptions allowed underIFRS 1, which the Bank 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 Bank 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 Bank took advantage of the exemption from the requirement to transformcomparative data pertinent to IAS 32 and IAS 39. Comparative data concerningthat standards 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 Bank 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 and IAS 39) and the balancesheet based 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" - are diminished by a 25% provision for general risk; • classified as "monitored" - to be diminished by a 25% provision for general risk, created under Article 130 of the Banking Law. The Bank 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 Bank 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 39 and 32) and the balancesheet based on IFRS as of 1 January 2005. Financial Assets and liabilities portfolios according to IAS 39The 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 Bank 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 Bank 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 theBank'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 Bank 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 Bank 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, except retained earnings and anyrevaluation surplus, by applying the general price index for the period ofhyperinflation. Such retrospective application would result in an increase ofshare capital and other capitals and a corresponding decrease in retainedearnings. The scope of financial statement consolidation/ Subsidiaries Valuation In accordance with IAS 27 and 28 the Bank recognize shares in subsidiariesentities accordance to costs. Previously subsidiaries entities were recognized by Bank recognized subsidiariesin financial at equity method. Executed changes had influence on capital for theday of Bank's conversion into IFRS. Share based payments The Bank 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). Balance sheet as of 31 December 2004 PAS IFRS (*) IFRS Position Note 31.12.2004 Adjustment 31.12.2004 Adjust- 01.01.2005 mentAssetsCash and amounts due from Central Bank (1) 2 557 524 1 377 588 3 935 112 3 935 112Debt securities eligible for (2) 8 768 - 8 768 8 768rediscounting at the Central BankAmounts due from banks (3) 5 465 909 490 689 5 956 598 5 956 598Financial assets held for trading (4) 2 279 769 659 434 2 939 203 2 939 203Derivative financial instruments (5) 231 176 272 305 503 481 503 481Other financial instruments at fair (6) - 1 336 721 1 336 721 1 336 721value through profit or lossLoans and advances to customers (7) 28 101 184 (1 567 475) 26 533 709 (470 483) 26 063 226Investment securities (8) 16 968 250 (1 939 793) 15 028 457 15 028 4571. Available for sale 10 098 484 10 098 484 10 098 4842. Held to maturity 6 869 766 (1 939 793) 4 929 973 4 929 973Shares in subsidiares (9) 622 910 (78 109) 544 801 544 801Shares in joint-ventures - - -Shares in associates (10) 102 225 (73 535) 28 690 28 690Intangible assets 617 982 - 617 982 617 982Tangible fixed assets (11) 1 433 336 86 873 1 520 209 520 209Investment property (12) - 48 556 48 556 48 556Income taxes (13) 77 213 (10 247) 66 966 96 5361. Current tax assets 11 009 11 009 11 0092. Deferred income tax assets 77 213 (21 256) 55 957 29 570 85 527Other assets (14) 831 662 (368 468) 463 194 463 194Total assets 59 297 908 234 539 59 532 447 (440 913) 59 091 534 LiabilitiesAmounts due to the Central Bank 2 151 743 - 2 151 743 2 151 743Amounts due to other banks (15) 1 164 499 186 297 1 350 796 1 350 796Financial liabilities held for trading (16) - 438 219 438 219 438 219Derivative financial instruments (17) 334 023 289 660 623 683 623 683Amounts due to customers (18) 43 805 985 2 054 379 45 860 364 45 860 364Debt securities in issue 23 205 - 23 205 23 205Current income tax liabilities - - - -Provisions for deferred income tax - - -Provisions 344 075 - 344 075 (248 453) 95 622Other liabilities (19) 3 570 753 (2 726 487) 844 266 844 266Total liabilities 51 394 283 242 068 51 636 351 (248 453) 51 387 898 EquityShare capital 166 482 - 166 482 166 482Reserves (20) 6 292 886 (166 096) 6 126 790 6 126 790Prior and current year profits (21) 1 444 257 158 567 1 602 824 (192 460) 1 410 364T o t a l e q u i t y 7 903 625 (7 529) 7 896 096 (192 460) 7 703 636T o t a l l i a b i l i t i e s 59 297 908 234 540 59 532 447 (440 913) 59 091 534 (*) Without changes due to amortized cost measurement of loans and advancesusing EIR and without changes relating to impairment of loans and advances Description of adjustments as at 31.12.2004 Assets(1) Cash and amounts due from Central Bank(a) Reclassification of existing investment 1 377 588 portfolios Total impact of the above changes 1 377 588(2) Amounts due from banks(a) Recognition of sell-buy back and 486 340 buy-sell back(b) Reclassification of other amounts due to 9 800 banks(c) Reclassification of existing investment 255 portfolios(d) Elimination of restricted interest, which under PAS were (5 706) presented as liabilities Total impact of the above changes 490 689 (3) Financial assets held for trading(a) Recognition of sell-buy back and 1 996 155 buy-sell back(b) Reclassification of existing investment (1 336 portfolios 721) Total impact of the above changes 659 434(4) Derivative financial instruments(a) Reclassification of fair value of derivatives 273 312(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 investment 1 336 721 portfolios Total impact of the above changes 1 336 721 (6) Loans and advances to customers(a) Reclassification of existing investment 561 950 portfolios(b) Recognition of sell-buy back and 196 301 buy-sell back(c) Elimination of restricted interest, which under PAS were (2 325 presented as liabilities 726) Total impact of the above changes (1 567 475)(d) Adjustment as of 01.01.2005 related to IAS 39 - impairment and valuation at amortized cost using the effective percentage (470 483) rate(7) Investment securities(a) Reclassification of existing investment (1 939 portfolios 793) Total impact of the above changes (1 939 793)(8) Shares in subsidiares(a) Change of a scope of consolidation and presentation of the (78 109) investment in subsidiaries Total impact of the above changes (78 109)(9) Shares in associates(a) Change of presentation of the investment (73 535) in associaties(b) Total impact of the above changes (73 535)(10) Tangible fixed assets(a) Correction related to revaluation of part of fixed assets to 144 142 deemed cost(b) Reclassification of investment fixed assets to Investment (48 601) property(c) Reclassification of perpetual usufruct rights to Other assets (8 668) Total impact of the above changes 86 873(11) Investment property(a) Reclassification of investment fixed assets from Tangible 48 556 fixed assets Total impact of the above changes 48 556(12) Income taxes(a) Reclassification of current tax assets 11 009 from Other assets(b) Adjustment related to IFRS/IAS (21 256) introduction Total impact of the above changes (10 247)(c) Adjustment as of 01.01.2005 related to IAS 39 - impairment and 29 570 valuation at amortized cost using the effective percentage rate(13) Other assets(a) Reclassification of perpetual usufruct rights from Tangible 8 868 fixed assets(b) Reclassification of fair value of derivatives from other (281 162) assets(c) Derecognition of assets attribute to the Company Social Fund (75 365)(d) Reclassification of current tax assets to Income taxes (11 009)(e) Reclassification of other amounts due to (9 800) banks Total impact of the above changes (368 468) Liabilities(14) Amounts due to other banks(a) Recognition of sell-buy back and 186 297 buy-sell back Total impact of the above changes 186 297(15) Financial liabilities held for trading(a) Reclassification of financial liabilities held for trading 438 219 Total impact of the above changes 438 219(16) Derivative financial instruments(a) Reclassification of fair value of derivatives 290 267(b) Recognition of sell-buy back and (607) buy-sell back Total impact of the above changes 289 660 (17) Amounts due to customers(a) Recognition of sell-by-back and 2 054 379 buy-sell-back Total impact of the above changes 2 054 379(18) Provisions Adjustment as of 01.01.2005 related to IAS 39 - impairment (248 453) elimination(19) Other liabilities(a) reclasificatio of deferred income 15 819(b) Elimination of restricted interest (2 331 432)(c) Reclassification of fair value of derivatives (298 159)(d) Derecognition of assets attribute to the Company Social Fund (75 365)(e) Amendment to equity valuation method (37 350) Total impact of the above changes (2 726 487)(20) Prior and current year profits(a) Correction related to valuation of subordinated companies 8 760(b) Correction realted to share-based payments per IFRS 2 5 595(c) Reversal of revaluation reserve relating to fixed assets (179 425)(d) Adjustment of deferred tax related to IFRS/IAS introduction (1 026) Total impact of the above changes (166 096)(21) Retained earnings(a) Correction related to revaluation reserve relating to fixed 179 425 assets(b) Adjustment of net profit described furtherer 148 888(c) Recognition of sell-buy back and buy-sell back 188(d) Correction related to valuation of subordinated companies (25 193)(e) Correction related to share-based payments per IFRS 2 (795)(f) Adjustment of deferred tax related to IFRS/IAS introduction (37 856)(g) Adjustment of net profit described furtherer (106 090) Total impact of the above changes 158 567(h) Adjustment as of 01.01.2005 related to IAS 39 - impairment and (192 460) valuation at amortized cost using the effective percentage rate(22) Reserves(a) Correction related to valuation of subordinated companies 8 761(b) Correction realted to share-based payments per IFRS 2 5 595(c) Reversal of revaluation reserve relating to fixed assets (179 425)(d) Adjustment of deferred tax related to IFRS/IAS introduction (1 026) Total impact of the above changes (166 095)(*) Without changes due to amortized cost measurement of loans and advancesusing EIR and without changes relating to impairment of loans and advances Reconciliation of net assets previously published under PAS with the comparativedata, restated under IFRS: As of 01.01.2004Net equity according to PAS 7 156 027Changes:subsidiary shares valuation (14 674)total recognized sell-bay-back and buy sell-back 188change in fixed assets 148 888adjustment of deferred tax (39 717)Total changes 94 685Net equity according to IAS 7 250 712 As of 31.12.2004Net equity according to PAS 7 903 625Changes :subsidiary shares valuation (114 158)total recognized sell-bay-back and buy sell-back (501)perpetual usufruct rights 199change in fixed assets 144 141accrued fees adjustment (15 819)adjustment of deferred tax (21 391)Total changes (7 529)Net equity according to IAS 7 896 096 As of 1.01.2005Net equity according to PAS 7 903 625Changes:subsidiary shares valuation (114 159)impairment of loans and valuation at amortized cost (222 030)total recognized sell-bay-back and buy sell-back (501)perpetual usufruct rights 199change in fixed assets 144 141accrued fees adjustment (15 819)adjustment of deferred tax 8 180Total changes (199 989)Net equity according to IAS 7 703 636 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 loss statement for transition to statement for 01.01-31.12.04 IFRS 01.01-31.12.04 (PAS) (MSSF*)Interest income 3 676 607 29 256 /1 3 705 863Interest expense (1 519 439) (71 700) /1 (1 591 139)Fee and commission income 1 527 884 (15 819) /2 1 512 065Fee and commission expense (142 227) - (142 227)Dividend income - 41 081 /4 41 081Result on financial 4 890 41 755 /1 46 645instruments at fair valueResult on investment 13 569 - 13 569securitiesForeign exchange result 284 094 - 284 094Other operating income 122 014 7 962 /4 129 976Other operating expenses (80 406) (141) /3 (80 547)Net impairment losses on (334 818) (5 354) /4 (340 172)financial assets and netprovisions for guarantees andcommitmentsOverhead costs (2 142 123) (9 965) (2 152 088) (4 406) /3 (759) /4 (4 800) /5Profit before income tax 1 410 045 17 075 1 427 120Share of profit (loss) of 140 790 (140 790) /4 -associates and joint ventureentities valued at the equitymethodIncome tax expense (207 834) 17 626 / (190 208) 1-5Net profit for the period 1 343 001 (106 089) 1 236 912(*) Without changes due to amortized cost measurement of loans andadvances using EIR and without changes relating to impairment of loansand advances Changes::1/ recognition of adjustments related to financial assets and liabilities dueto sell-buy-back and buy- sell-back transactions2/ adjustments due to amortization of fees and commissions over time3/ adjustments to depreciation costs due to the revaluation of some fixed assets and property rights4/ adjustments related to the revaluation of equity investments5/ inclusion of share-based payments according to IFRS 52. Events after the balance sheet date The Bank's share capital increaseAs 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 Jan Krzysztof Bielecki President, CEO Date First Name/Family Position/Function Signature Name Luigi Lovaglio Deputy President, COO Date First Name/Family Position/Function Signature Name Sabina Olton Deputy President Chief Accountant Date First Name/Family Position/Function Signature Name Przemyslaw Figarski Member of Management Date First Name/Family Position/Function Signature Name Irene Grzybowski Member of Management Date First Name/Family Position/Function Signature Name Paolo Iannone Member of Management Date First Name/Family Position/Function Signature Name Christopher Member of Management Kosmider Date First Name/Family Position/Function Signature Name Marian Wazynski Member of Management Date First Name/Family Position/Function Signature Name This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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