BPKD.L Regulatory News (BPKD)

10 May 2007 08:43

Bank Pekao SA10 May 2007 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the first quarter of 2007 prepared according to the International Financial Reporting Standards 1 Summary 2 Accounting principles adopted in the preparation of the quarterly report 3 Financial statement 4 Additional information 4.1 The Group 4.2 Achievements of Bank Pekao S.A. 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) 4.3.3 Business activity in Ukraine 4.4 Results achieved in the first quarter of 2007 and the factors whichinfluenced these results 4.4.1 Results of the Group 4.4.2 The structure of the net profit 4.5 Segment reporting 4.6 Adjustments for provisions, deferred tax provision and assets 4.7 Write-offs for revaluation of assets 4.8 Information on contingent assets and liabilities 4.9 Share capital increase of Bank Pekao S.A. 4.10 Post balance sheet events 4.11 Seasonality or cyclical nature of the Bank's activity 4.12 Issuance, redemption and repayment of debt securities 4.13 Dividend paid 4.14 Effects of changes in the Group's structure 4.15 The position of the Management Board regarding the possibility of achievingpreviously published forecasts 4.16 The information about the shareholders owning at least 5% of the totalnumber of votes at the General Meeting of Bank Pekao S.A. 4.17 The Issuer's shares held by the Management and Supervisory Board members 4.18 Pending litigations 4.19 Assessment of the financial credibility of Bank Pekao S.A. 4.20 Appointment of the Management Board for new term of office 4.21 Distribution of net profit for the year 2006 4.22 Information about integration of Bank Pekao S.A. and Bank BPH S.A. 4.23 Transactions of related entities 4.24 Factors which will affect the results of at least the next quarter 1 Summary In the first quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 503.1 million, i.e. 20.3% higher than in the first quarterof 2006. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fee and commissionincome, with stable operating costs and lower cost of risk. • In the first quarter of 2007 the Group's total income amounted to PLN 1,221.5 million, i.e. PLN 87.5 million (7.7%) higher than last year. The main growth driver in this period was fee and commission income, which increased by 12.4%, primarily thanks to fee and commission income on investment products. • In the first quarter of 2007 interest income was PLN 19.3 million higher than last year, mainly as a result of increasing volumes allowing to offset the impact of lower yield on debt securities portfolio. • In the first quarter of 2007, the Group noted a continued positive trend in the results of its business activity, with successful sales of key products: PLN mortgage loans, consumer loans "Express Loan" and mutual funds. Sales of PLN mortgage loans amounted to PLN 710.7 million (75.3% higher than last year) contributing to a growth in the stock of 8.9% in the first quarter of 2007. Sales of the "Express Loan" in the first quarter of 2007 amounted to PLN 367.1 million contributing to a growth in the stock of 2.4% in the first quarter of 2007. The value of mutual funds increased by 12.5% compared with the end of 2006. • Overhead costs (including depreciation) in the first quarter of 2007 were kept under control and amounted to PLN 594.3 million, i.e. 2.0% higher than in the first quarter of 2006, mainly due to expenses related to the expansion in the Ukrainian market. In the first quarter of 2007 the Group's cost / income ratio amounted to 48.7% and was 2.7 p.p. lower than in the previous year. • In the first quarter of 2007, impairment losses on loans and advances amounted to PLN 43.6 million and were 25.3% lower than in the previous year. This resulted primarily from the continued effective credit risk management and improved macroeconomic situation. The ratio of impaired receivables to total receivables decreased from 11.8% at the end of 2006 to 11.5% at the end of March 2007 as a result of an increase in the total volume of receivables. • Savings of the Group's clients increased in the first quarter of 2007 by PLN 5,706.8 million, i.e. by 7.8% resulting from an increase both in the savings of individual clients and in corporate deposits. The savings of retail clients increased by PLN 2,521.3 million in the first quarter of 2007 and exceeded the level of PLN 52 billion. Corporate deposits increased by PLN 3,185.5 million in this period. • In the first quarter of 2007, the gross loan portfolio grew by PLN 1,801.8 million, i.e. by 4.9%. This growth was driven by successful sale of the "Express Loan" and PLN mortgage loans, as well as an increase in the volume of corporate loans. 2 Accounting principles adopted in the preparation of the quarterlyreport The interim consolidated financial statements of the Group of the Bank PekaoS.A. and the standalone financial statement of the Bank Pekao S.A. were preparedin compliance with the International Financial Reporting Standards (IFRS),published by the International Accounting Standards Board. The presented financial statement meets the requirements of the InternationalAccounting Standard 34 related to interim financial reports and of the Decree ofthe Council of Ministers dated 19th October 2005 on current and periodicinformation submitted by the issuers of securities. The consolidated financial statements of the Group and enclosed financialstatement of the Bank have been prepared in accordance with the accountingprinciples applied for the purpose of asset and liabilities valuation andmeasurement of financial results, as disclosed in the Bank Pekao S.A. Groupconsolidated financial statements and the financial statement of the Bank PekaoS.A. for the year ended as at 31st December 2006 and published as at 21st March2007. In the quarterly report there were no changes introduced in accountingprinciples applied to the preparation of the Bank financial statements for theyear 2006 and the Group consolidated financial statements for the year 2006.With respect to the first quarter 2007, a new accounting principle wasintroduced with respect to business combinations under common control of thesame Capital Group, which for the Bank is UniCredit Capital Group. As at the day of purchase or merger, in the consolidated balance sheet, theassets, the liabilities and the equity of the subsidiary entity under commoncontrol are disclosed using the existing book values. Income and expense itemsare recognized in the consolidated income statement prospectively, since the dayof purchase (merger). Any differences between the purchase price and the bookvalue of acquired net assets are recognized against the consolidated equity. Thehistorical data for previous periods are not restated. The above principle was introduced due to the purchase by the Bank Pekao S.A.100% of shares of Joint Stock Commercial Bank HVB Bank Ukraine from BayerischeHypo - Und Vereinsbank AG for which parent entity is UniCredito Italiano S.p.A. With the exception of the above mentioned information, the data in thisfinancial statement have been presented in order to ensure comparability. 3 Financial statement Financial statements CONSOLIDATED INCOME STATEMENT (in I Quarter 2007 I Quarter 2006'000 PLN) period period from 07-01-01 from 06-01-01 to 07-03-31 to 06-03-31 Interest income 986 389 915 096Interest expense (393 321) (343 858)Net interest income 593 068 571 238Fee and commission income 580 548 506 209Fee and commission expense (63 402) (46 141)Net fee and commission income 517 146 460 068Dividend income 42 -Result on financial instruments at 25 658 2 527fair valueResult on investment securities 3 398 31 971Foreign exchange result 66 138 52 320Other operating income 32 312 49 267Other operating expenses (16 287) (33 416)Net other operating income 16 025 15 851Net impairment losses on financial (43 553) (58 375)assets and net provisions forguarantees and commitmentsOverhead costs (594 283) (582 391)Operating profit 583 639 493 209Share of profit (loss) of 33 769 20 762associates and joint ventureentities valued at the equitymethodProfit before income tax 617 408 513 971Income tax expense (114 300) (95 654) Net profit for the period 503 108 418 317 1. Attributable to equity holders 502 086 418 860of the Company2. Attributable to minority 1 022 (543)interest Earnings per share (in PLN pershare)- basic for the period 3,01 2,51- diluted for the period 3,00 2,51 CONSOLIDATED BALANCE SHEET (in '000 PLN) 31.03.2007 31.12.2006 31.03.2006Assets Cash and amounts due from Central Bank 4 257 412 3 577 924 3 484 022 Debt securities eligible for 3 245 2 519 5 254 rediscounting at the Central Bank Loans and advances to banks 11 751 807 10 512 877 8 302 448 Financial assets as held for trading 2 827 397 2 391 371 1 909 078 Derivative financial instruments 551 257 526 642 482 176 Other financial instruments at fair value 1 615 302 1 613 196 1 739 849 through profit or loss Loans and advances to customers 33 326 131 31 778 127 28 524 551 Net investment in the finance lease 1 074 085 966 607 783 493 Investment securities 14 462 684 13 000 067 16 225 668 1. Available for sale 14 169 841 12 574 657 13 600 564 2. Held to maturity 292 843 425 410 2 625 104 Assets of disposal group classifield as 628 8 784 159 503 held for sale Investments in associated undertakings 235 667 207 254 188 574 Intangible assets 589 943 608 884 617 909 Tangible fixed assets 1 417 973 1 445 460 1 413 202 Investment property 57 690 52 670 61 477 Income taxes 322 502 305 885 225 885 1. Current tax assets 1 371 1 491 660 2. Deferred income tax assets 321 131 304 394 225 225 Other assets 1 079 942 705 421 709 894Total assets 73 573 665 67 703 688 64 832 983 Liabilities and Shareholders' equity'Liabilities Amounts due to the Central Bank 1 670 267 2 045 278 1 895 029 Amounts due to other banks 3 967 027 2 009 976 2 105 329 Financial liabilities as held for trading 537 968 211 373 1 245 771 Derivative financial instruments 529 632 504 200 523 766 Amounts due to customers 55 180 059 51 793 583 48 494 093 Debt securities in issue 45 250 3 - Liabilities directly associated with - - 32 258 assets classified as held for sale Current income tax liabilities 270 281 202 148 63 879 Provisions for deferred income tax 354 - - Provisions 223 943 223 943 100 745 Other liabilities 1 884 507 1 820 557 1 551 855Total liabilities 64 309 288 58 811 061 56 012 725 Shareholders' equityCapital and reserves attributable to the 9 246 611 8 875 883 8 805 303Company's equity holders Share capital 167 103 166 808 166 733 Other capital and reserves 6 896 484 7 028 137 6 694 462 Prior and current year profits 2 183 024 1 680 938 1 944 108Minority interest 17 766 16 744 14 955Total Shareholders' equity 9 264 377 8 892 627 8 820 258Total liabilities and Shareholders' equity 73 573 665 67 703 688 64 832 983 Capital adequacy ratio 14,70 16,51 19,45Book value 9 246 611 8 875 883 8 805 303Number of shares 167 103 098 166 808 257 166 733 320Book value per share ( in PLN per share) 55,33 53,21 52,81Diluted numebr of shares 167 304 797 166 941 439 166 875 902Diluted book value per share (in PLN per 55,27 53,17 52,77share) CONSOLIDATED STATEMENT OF CHANGES I Quarter 2006 I Quarter 2007 2006IN SHAREHOLDERS' EQUITY period from period from period from(in '000 PLN ) 07-01-01 to 06-01-01 to 06-01-01 to 07-03-31 06-12-31 06-03-31 Shareholders equity at the beginning of the 8 892 627 8 422 726 8 422 726period1. Share capital at the beginning of the 166 808 166 482 166 482perioda) Increase 295 326 251- new shares issue 295 326 251b) Decrease - - -- redemptions - - -1. Share capital at the end of the period 167 103 166 808 166 7332. Earnings from previous years at the 1 680 938 1 521 895 1 521 895beginning of the perioda) Increase - 31 226 3 353- undistributed profits of prior period - - -- other - 31 226 3 353b) Decrease - (1 659 689) -- appropriation to general banking risk fund - (70 000) -- appropriation to other reserve capital - (346 418) -- appropriation to reserve capital - (8 890) -- dividend - (1 234 381) -- other - - -2. Earnings from previous years at the end 1 680 938 (106 568) 1 525 248of the period3. Other capital and reserves at the 7 028 137 6 718 913 6 718 913beginning of the perioda) Increase 42 255 466 036 28 321- appropriation of net profit - 425 308 -- share premium on issue of new shares 31 626 34 851 26 810- valuation of securities available for sale 9 347 - -(net)- employee share option proceeds 949 5 877 1 469- foreign exchange differences from 333 - 42valuation of foreign entities- other - - -b) Decrease (173 908) (156 812) (52 772)- valuation of securities available for sale - (110 976) (49 272)(net)- foreign exchange differences from - (10 080) -valuation of foreign entities- other (173 908) (35 756) (3 500)3. Other capital and reserves at the end of 6 896 484 7 028 137 6 694 462the period4. Net profit 502 086 1 787 506 418 860Shareholders' equity at the end of the 9 246 611 8 875 883 8 805 303periodMinority interest at the beginning of the 16 744 15 436 15 436perioda) Changes: 1 022 1 308 (481)- net profit 1 022 2 191 (543)- other - (883) 62Minority interest at the end of the period 17 766 16 744 14 955Total equity 9 264 377 8 892 627 8 820 258 CONSOLIDATED STATEMENT OF CASH FLOW I Quarter I Quarter 2007 2006(in '000 PLN) period from period from 07-01-01 to 06-01-01 to 07-03-31 06-03-31Cash flow from operating activities - indirect methodNet profit (loss) 502 086 418 860Adjustments: 2 679 632 1 689 119Deprecition 80 326 79 313Share of profit of associates (33 769) (20 762)Foreign exchange differences 20 818 12 927(Profit) loss on investing activities (12 760) (38 011)Impariment - (5)Interest and dividend (161 772) (199 030)Change in loans and advances to banks (6 497) (708 488)Change in financial assets as held for trading and other (438 132) 634 756financial instruments at fair value through profit orlossChange in derivative financial instruments (24 615) 17 114Change in loans and advances to customers (1 548 730) (299 969)Change in net investment in the finance lease (107 478) (37 602)Change in investment securities available for sale (35 734) -Change in deferred income tax assets (18 836) (32 282)Change in other assets (487 191) (185 213)Change in amounts due to banks 1 582 040 52 605Change in liabilities as held for trading 326 595 686 798Change in derivative financial instruments and other 25 432 (83 923)financial liabilitiy at fair value through profit orlossChange in amounts due to customers 3 386 476 1 646 216Change in debt securities in issue - -Change in provisions - (7 982)Change in other liabilities 70 172 114 200Income tax paid (69 959) (68 394)Carrent tax 133 246 126 851Net cash from operating activities 3 181 718 2 107 979 Cash flows from investing activitiesInvesting activity inflows 7 381 141 7 310 818Sale of subsidiaries and associates - -Sale of investment securities 7 270 367 7 187 127Sale of intangible assets and tangible fixed assets 137 6 039Other investing inflows 110 637 117 652Investing activity outflows (8 682 855) (8 908 691)Purchase of subsidiaries and associates - -Purchase of investment securities (8 645 927) (8 882 836)Purchase of intangible assets and tangible fixed assets (36 928) (25 825)Other investing outflows - (30)Net cash used in investing activities (1 301 714) (1 597 873) Cash flows from financing activitiesFinancing activity inflows 31 921 27 062Proceeds from loans and advances from other banks - -Proceeds from other loans and advances - -Issue of debt securities - -Increase of subordinated liabilities - -Issue of ordinary shares 31 921 27 062Sale of own shares - -Other financing inflows - -Financing activity outflows (4) (4)Repayments of loans and advances from other banks - -Repayments of other loans and advances - -Redemption of debt securities (4) (4)Decrease of subordinated liabilities - -Other financial liabilities - -Payments of financial lease liabilities - -Dividends and other payments to shareholders - -Other than payments to shareholders expenditures due to - -appropriation of profitPurchase of own shares - -Other financing outflows - -Net cash from financing activities 31 917 27 058 Total net cash flow 1 911 921 537 164Net change in cash and cash equivalents 1 911 921 537 164Cash and casch equivalents at the beginning of the 10 633 337 7 667 221periodCash and cash equivalents at the end of the period 12 545 258 8 204 385 QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT (in '000 PLN) I Quarter 2007 I Quarter 2006 period period from 07-01-01 from 06-01-01 to 07-03-31 to 06-03-31 Interest income 966 583 900 151Interest expense (399 465) (350 521)Net interest income 567 118 549 630Fee and commission income 479 238 424 964Fee and commission expense (53 650) (37 496)Net fee and commission income 425 588 387 468Dividend income 152 349 -Result on financial instruments at 25 242 1 876fair valueResult on investment securities 3 398 31 971Foreign exchange result 65 669 52 061Other operating income 28 205 16 734Other operating expenses (15 078) (15 300)Net other operating income 13 127 1 434Net impairment losses on financial (41 401) (49 872)assets and net provisions forguarantees and commitmentsOverhead costs (538 794) (536 846)Operating profit 672 296 437 722Profit before income tax 672 296 437 722Income tax expense (101 374) (84 305) Net profit for the period 570 922 353 417 Earnings per share (in PLN pershare) - basic for the period 3,42 2,12- diluted for the period 3,41 2,12 BALNCE SHEET (in '000 PLN) 31.03.2007 31.12.2006 31.03.2006Assets Cash and amounts due from Central Bank 4 244 319 3 573 882 3 482 911 Debt securities eligible for rediscounting 3 245 2 519 5 254 at the Central Bank Loans and advances to banks 11 329 771 10 395 551 8 234 537 Financial assets held for trading 2 427 898 2 050 828 1 580 495 Derivative financial instruments 551 045 526 643 482 162 Other financial instruments at fair value 1 615 302 1 613 195 1 739 849 through profit or loss Loans and advances to customers 32 785 601 32 352 315 29 077 206 Investment securities 14 385 583 12 999 469 16 225 280 1. Available for sale 14 092 740 12 574 059 13 600 176 2. Held to maturity 292 843 425 410 2 625 104 Non-current assets held for sale 628 8 784 37 296 Shares in subsidiaries 997 208 671 100 514 667 Shares in associates 51 092 51 092 42 234 Intangible assets 574 546 597 050 609 267 Tangible fixed assets 1 365 845 1 399 804 1 396 222 Investment property 54 815 49 916 58 472 Income taxes 291 365 274 824 195 688 1. Current tax assets - - - 2. Deferred income tax assets 291 365 274 824 195 688 Other assets 894 697 409 783 425 665Total assets 71 572 960 66 976 755 64 107 205 Liabilities and Shareholders' equityLiabilities Amounts due to the Central Bank 1 666 345 2 045 278 1 895 029 Amounts due to other banks 2 959 746 1 926 999 2 086 910 Financial liabilities held for trading 511 049 203 408 1 203 175 Derivative financial instruments 529 613 504 194 523 781 Amounts due to customers 54 741 868 51 811 250 48 491 188 Debt securities in issue 8 12 12 Current income tax liabilities 259 848 201 631 60 822 Provisions for deferred income tax - - - Provisions 221 311 221 012 98 724 Other liabilities 1 450 153 1 442 806 1 218 588Total liabilities 62 339 941 58 356 590 55 578 229 Shareholders' equity Share capital 167 103 166 808 166 733 Profit for the year and retained earnings 2 299 461 1 728 539 1 860 196 Other capital and reserves 6 766 455 6 724 818 6 502 047Total Shareholders' equity 9 233 019 8 620 165 8 528 976Total liabilities and Shareholders' equity 71 572 960 66 976 755 64 107 205 Capital adequacy ratio 13,20 14,74 17,62 STATEMENT OF CHANGES IN EQUITY I Quarter 2006 I Quarter 2007 2006(in '000 PLN) period from period from period from 07-01-01 to 06-01-01 to 06-01-01 to 07-03-31 06-12-31 06-03-31 Shareholders equity at the beginning of the 8 620 165 8 196 258 8 196 258period 1. Share capital at the beginning of the 166 808 166 482 166 482period a) Increase 295 326 251 - new shares issue 295 326 251 b) Decrease - - - - redemptions - - - 1. Share capital at the end of the period 167 103 166 808 166 733 2. Retained earnings (loss) from previous 1 728 539 1 506 779 1 506 779years at the beginning of the period a) Increase - - - - profit for previous year - - - b) Decrease - (1 506 779) - - appropriation to general banking risk fund - (70 000) - - appropriation to reserve capital - (202 398) - - dividends - (1 234 381) - 2. Retained earnings (loss) at the end of 1 728 539 - 1 506 779the period 3. Other capital at the beginning of the 6 724 818 6 522 997 6 522 997period a) Increase 41 673 313 126 28 322 - appropriation of net profit - 272 398 - - issue of shares under its' nominal value 31 626 34 851 26 811 - valuation of securities available for 9 098 - -sale; in which: gains and losses from valuation of securities 11 317 - -available for saleprovision for deferred income tax (2 219) - - - valuation of management options 949 5 877 1 469 - foreign exchange differences on branches - - 42abroad b) Decrease (36) (111 305) (49 272) - valuation of securities available for sale; - (110 976) (49 272)in which: gains and losses from valuation of securities - (136 979) (60 695)available for saleprovision for deferred income tax - 26 003 11 423 - foreign exchange differences on branches (36) (329) -abroad 3. Other capital at the end of the period 6 766 455 6 724 818 6 502 047 4. Net profit 570 922 1 728 539 353 417 Shareholders' equity at the end of the period 9 233 019 8 620 165 8 528 976 CASH FLOW STATEMENT I Quarter I Quarter 2007 2006(in '000 PLN) period period from from 06-01-01 to 07-01-01 06-03-31 to 07-03-31Cash flow from operating activities - indirectmethod Net profit (loss) 570 922 353 417Adjustments: 2 287 891 1 621 867Depreciation 75 795 75 565Foreign exchange differences (7 292) 12 958(Profit) loss on investing activities (12 697) (72 557)Impairment - -Interest and dividend (313 318) (199 030)Change in loans and advances to banks (118 358) (700 548)Change in financial assets as held for trading (379 177) 678 860and other financial instruments at fair valuethrough profit or lossChange in derivative financial instruments (24 402) 17 128Change in loans and advances to customers (434 012) (349 211)Change in investment securities available for (37) 550saleChange in deferred income tax assets (18 760) (32 257)Change in other assets (463 206) (139 304)Change in amounts due to banks 653 814 37 628Change in liabilities as held for trading 307 641 657 245Change in derivative financial instruments 25 419 (83 908)Change in amounts due to customers 2 930 618 1 641 440Change in debt securities in issue - -Change in provisions 299 (6 289)Change in other liabilities 6 871 26 769Income tax paid (61 442) (59 733)Current tax 120 135 116 561Net cash from operating activities 2 858 813 1 975 284 Cash flows from investing activities Investing activity inflows 7 467 867 7 345 093Sale of subsidiaries and associates - -Sale of investment securities 7 211 447 7 227 314Sale of intangible assets and tangible fixed 72 127assetsOther investing inflows 256 348 117 652Investing activity outflows (8 872 (8 904 917) 298)Purchase of subsidiaries and associates (326 108) -Purchase of investment securities (8 518 (8 882 836) 583)Purchase of intangible assets and tangible (27 607) (22 081)fixed assetsOther investing outflows - -Net cash used in investing activities (1 404 (1 559 824) 431) Cash flows from financing activities Financing activity inflows 31 921 27 062Loans received from banks - -Loans received from other financial - -institutionsIssue of debt securities - -increase in subordinated liabilities - -Issue of ordinary shares 31 921 27 062Sale of own shares - -Other inflows - -Financing activity outflows (4) (5)Repayment of bank loans - -Repayment of loans received from other - -financial institutionsRedemption of debt securities (4) (5)Decrease of subordinated liabilities - -Repayment of other financial liabilities - -Repayment of pricipal amounts under finance - -lease agreementsDividends and other payments to shareholders - -Outflows from profi appropriation other than - -payments to shareholdersPurchase of own shares - -Other financing outflows - -Net cash from financing activities 31 917 27 057 Total net cash flow 1 486 299 442 517Net change in cash and cash equivalents 1 486 299 442 517Cash and cash equivalents at the beginning of 10 577 405 7 688 574the periodCash and cash equivalents at the end of the 12 063 704 8 131 091period Selected financial statements translated into EUR: in '000 in '000 PLN EUR Position I Quarter I Quarter I Quarter I Quarter of 2007 of 2006 of 2007 of 2006Net interest income 593 068 571 238 151 823 148 543Net fee and commission income 517 146 460 068 132 388 119 635Operating profit 583 639 493 209 149 410 128 253Profit before income tax 617 408 513 971 158 054 133 652Net profit (loss) 503 108 418 317 128 794 108 778Net profit (loss) attributable to 502 086 418 860 128 532 108 919equity holders of the CompanyNet profit (loss) attributable to 1 022 (543) 262 (141)minority interestNet cash from operating activities 3 181 718 2 107 979 814 509 548 153Net cash used in investing (1 301 (1 597 (333 235) (415 507)activities 714) 873)Net cash from financing activities 31 917 27 058 8 171 7 036Net increase / decrease in cash and 1 911 921 537 164 489 446 139 683cash equivalentsTotal assets 73 573 64 832 19 013 16 473 665 983 740 050Amounts due to the Central Bank 1 670 267 1 895 029 431 649 481 497Amounts due to other banks 3 967 027 2 105 329 1 025 204 534 931Amounts due to customers 55 180 48 494 14 260 12 321 059 093 256 593Minority interest 17 766 14 955 4 591 3 800Equity attributable to the 9 246 611 8 805 303 2 389 614 2 237 290Company's equity holdersShare capital 167 103 166 733 43 185 42 364Number of shares 167 103 166 733 167 103 166 733 098 320 098 320Book value per share (in zl/EUR) 55,33 52,81 14,30 13,42Diluted book value per share (in zl 55,27 52,77 14,28 13,41/EUR)Earnings per 1 ordinary share (in 3,01 2,51 0,77 0,65zl/EUR)Diluted earnings per 1 ordinary 3,00 2,51 0,77 0,65share (in zl/EUR)Declared or paid dividend per share 9,00 7,40 2,31 1,84(in zl/EUR)Capital adequacy ratio 14,70 19,45 x xRisk weighted assets 41 761 31 894 10 792 8 104 006 013 938 354Core funds (Tier I) 6 384 974 6 278 116 1 650 077 1 595 171Supplementary funds (Tier II) (5 794) 96 872 (1 497) 24 614 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 31st March 2007 consists of the Bank PekaoS.A as the parent entity and 13 subsidiary entities. In the first quarter of2007 the Group's structure has changed with comparison to the Group structurepresented as at 31st December 2006. The change results from acquisition ofshares of Joint Stock Commercial Bank HVB Ukraine by Bank Pekao that wascompleted on 30th March 2007. The following entities are included in the consolidated financial statements asat 31st March 2007: No Name of company Core activity % of Status Consolidation shareholder's method share capital 1. Bank Pekao S.A. banking - parent - 2. UniCredit Bank Ltd. (f. banking 100.00 subsidiary full Bank Pekao (Ukraina) Ltd.) 3. Joint Stock Commercial Bank banking 100.00 subsidiary full HVB Bank Ukraine 4. Centralny Dom Maklerski brokerage 100.00 subsidiary full Pekao S.A. 5. Pekao Fundusz Kapitalowy financial 100.00 subsidiary full Sp. z o.o. 6. Pekao Leasing Sp. z o.o. leasing 100.00 subsidiary full 7. Pekao Faktoring Sp. z o.o. financial 100.00 subsidiary full 8. Pekao Pioneer Powszechne financial 65.00 subsidiary full Towarzystwo Emerytalne S.A. 9. Drukbank Sp. z o.o. no activities 100.00 subsidiary full performed10. Centrum Kart S.A. financial 100.00 subsidiary full11. Pekao Financial Services financial 100.00 subsidiary full Sp. z o.o.12. Pekao Access Sp. z o.o. consulting 55.26 subsidiary full13. BDK Consulting Sp. z o.o. consulting, 99.99 subsidiary full hotels, transportation14. SARL Pekao Immobilier real estate 100.00 subsidiary non- management consolidatedSARL Pekao Immobilier was not consolidated with the use of the full method, due toimmateriality of it's financial data in comparison to the size of the operations ofthe whole Group. Company in consolidated financial statement was recognized at thecost of purchase.Other listed below exposures of the Group constitute investments in the associatedentities and are recognized in the consolidated report of the Group with the use ofthe equity method. Company CPF Management due to immateriality of it's financial datawas recognized at the cost of purchase. 1. Anica System S.A. information 33.84 / 13.49 subsidiary equity technology 2. Central Poland Fund LLC financial 53.19 subsidiary equity intermediary 3. Xelion. Doradcy Finansowi auxiliary, 50.00 subsidiary equity Sp. z o.o. financial and insurance 4. Pioneer Pekao Investment financial 49.00 subsidiary equity Management S.A. intermediary 5. Pirelli Pekao Real Estate real estate 25.00 subsidiary equity Sp. z o.o management 6. Krajowa Izba Rozliczeniowa chamber of 22.96 subsidiary equity S.A. settlement 7. CPF Management mutual funds 40.00 subsidiary not valuated management under equity method - does not operate 4.2 Achievements of Bank Pekao S.A. Commercial activity Good performance in the first quarter of 2007 was primarily the result of afurther development in Bank's business activity. The continuous efforts werefocused on offering key products, in particular PLN mortgage loans, consumerloans and mutual funds. In the first quarter of 2007, the sales of PLN mortgage loans amounted to PLN710.7 million (75.3% higher compared to the first quarter of 2006) contributingto a growth in the stock of 8.9% compared to the end of 2006. The Bank continuedits policy of offering PLN mortgage loans. Sales of the "Express Loan" in the first quarter of 2007 amounted to PLN 367.1million contributing to a growth in the stock of 2.4% in the first quarter of2007. The Pekao Group confirmed its leading position in the mutual funds market - atthe end of March 2007 market share of mutual funds managed by PPIM S.A. amountedto 22.3%. Key commercial indicators: 31.03.2007 31.12.2006 ChangeTotal number of PLN current accounts (in 3,054.8 3,054.4 0.4thousand) *of which packages 2,220.9 2,221.1 (0.2)Number of mortgage loans accounts (in 77.5 74.7 2.8thousand)Number of "Express Loans" accounts (in 341.0 328.4 12.6thousand)Number of mutual fund registers (in 876.6 828.9 47.7thousand)**Payment cards (in thousand)*** 2,734.1 2,744.6 (10.5)Credit 254.8 244.8 10.0Charge 203.3 211.9 (8.6)Debit (including Maestro) 2,276.0 2,287.9 (11.9)Total number of outlets (in items) 777 782 (5)Total number of ATMs (in items) 1,270 1,262 8 * number of accounts including accounts of pre-paid cards ** sold in Bank's network *** the number of cards is calculated according to the definition used byinternational payment organizations Visa andMasterCard 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. As at 31st March 2007, the net assets value of mutual funds under management ofPioneer Pekao TFI S.A., a company managed by Pioneer Pekao Investment ManagementS.A. (in which the Bank holds a 49% share), amounted to PLN 26,170.7 million andwas higher by PLN 2,907.3 million compared with the end of 2006. As at 31stMarch 2007, the Company had 1,028.8 thousand open accounts (an increase by 5.5%in the first quarter of 2007). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 31.03.2007 31.12.2006 Change Net assets value of Pioneer Pekao 26,170.7 23,263.4 2,907.3TFI- bond and money market funds 5,317.5 5,584.7 (267.2)- equity funds 6,844.4 4,901.9 1,942.5- balanced funds 14,008.8 12,776.8 1,232.0 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) In the first quarter of 2007 CDM provided the full scope of services (permittedto brokerage houses), excluding asset management. In the first quarter of 2007 the Company achieved: - a 34.9% share in the bond trading volume at the Warsaw StockExchange, - a 9.2% share in the stock trading volume at the Warsaw StockExchange, - a 5.2% share in the futures trading volume at the Warsaw StockExchange. At the end of March 2007 CDM maintained 146.6 thousand investment accounts andits market share was 15.8%. CDM offered also on-line access to investmentaccounts, allowing its customers to buy and sell all instruments listed on theWarsaw Stock Exchange and on the OTC market (CeTO) through the Internet. As atthe end of March 2007 CDM maintained 22.3 thousand on-line accounts, i.e. a 2.6thousand increase in comparison with the end of 2006. 4.3.3 Business activity in Ukraine Considering the attractiveness of the Ukrainian economy and prospects fordevelopment of Ukrainian banking sector, Bank Pekao S.A. together withUniCredito Group have prepared a new strategy regarding business activity inUkraine. The strategy is aiming to create a strong banking organizationconducting activities both in the retail and corporate market segments. Development of retail business is realised through organic growth and networkexpansion on the base of UniCredit Bank Ltd. (UniCredit Bank) fully owned byBank Pekao. In order to strengthen the position in the retail market, UniCreditBank in an innovative and dynamic way is developing the network of branches inUkraine. At the end of March 2007 UniCredit Bank operated through network of 16branches in Kiev, Odesa, Luck and Dnipropetrovsk. The activity in corporate segment has expanded through acquisition of JointStock Commercial Bank HVB Bank Ukraine (HVB Ukraine) by Bank Pekao S.A. Bank HVBUkraine offers full range of products and services for local and internationalclients, concentrating on large and medium companies segment and is graduallydeveloping the scope of services in private banking. On 30th March 2007 BankPekao S.A. purchased 100% shares of HVB Ukraine as a result of entering by BankPekao S.A., by virtue of the assignment agreement as of 20th December 2006,concluded with Bank UniCredito Italiano S.p.A. (UCI), into rights of UCI,arising from the sale agreement of 1,098,342 ordinary shares of HVB Ukraine,concluded on 12th September 2006 between UCI as the purchaser and BayerischeHypo- Und Vereinsbank AG as the seller. At the end of March 2007 HVB Ukraineoperated through network of 5 branches in Donetsk, Dnipropetrovsk, Odesa,Kharkiv and Lviv. According to the strategy, it is planned that the integration of both banksoperating on the Ukrainian market will be completed by the end of 2007. As aresult of these activities a universal bank operating in all of the marketsegments will be created. 4.4 Results achieved in the first quarter of 2007 and the factorswhich influenced these results 4.4.1 Results of the Group In the first quarter of 2007 the Group achieved quarterly record net profitwhich amounted to PLN 503.1 million, i.e. 20.3% higher than in the first quarterof 2006. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fees and commissionsand interest income, with operating costs kept under control and lower cost ofrisk. The results of the first quarter are confirming increasing efficiency of thePekao Group. Good results of Bank Pekao S.A. were accompanied by positive results of theGroup's companies. The consolidated profit and loss account for the first quarter of 2007 and firstquarter of 2006 is presented below: (PLN million) I Q 2007 I Q 2006 ChangeNet interest income * 592.6 573.3 3.4%Fee and commission income 517.2 460.1 12.4%Dividend income 0.0 0.0 xTrading income 29.5 32.4 (9.0%)FX income 66.2 52.3 26.6%Other operating income / cost net 16.0 15.9 0.6%Total income 1,221.5 1,134.0 7.7%Overhead costs (including depreciation) (594.3) (582.4) 2.0%Personnel (308.6) (301.9) 2.2%Non-personnel (205.5) (200.6) 2.4%Depreciation (80.2) (79.9) 0.4%Operating income 627.2 551.6 13.7%Impairment losses on loans and advances (43.6) (58.4) (25.3%)Share in net profit (loss) of the 33.8 20.8 62.5%associatesPre-tax profit 617.4 514.0 20.1%Tax charge (114.3) (95.7) 19.4%Net profit 503.1 418.3 20.3%Attributable to equity holders of the 502.1 418.9 19.9%CompanyAttributable to minority interest 1.0 (0.6) x * including income on SWAP transactions. The Group's income In the first quarter of 2007, the Group's total income amounted to PLN 1,221.5million and was PLN 87.5 million (7.7%) higher than in the comparable period ofthe previous year. The main growth driver in this period was fee and commission income, whichincreased by 12.4%, primarily thanks to commissions on investment products. In the first quarter of 2007 interest income was PLN 19.3 million higher thanlast year, mainly as a result of increasing volumes allowing to offset theimpact of lower yield on debt securities portfolio. The Group's overhead costs (including depreciation) Overhead costs (including depreciation) in the first quarter of 2007 were keptunder control and amounted to PLN 594.3 million, i.e. 2.0% higher than in thefirst quarter of 2006 mainly due to expenses related to the expansion in theUkrainian market . In the first quarter of 2007, the Group's cost / income ratio amounted to 48.7%and was 2.7 p.p. lower than in the previous year. As at the end of March 2007, the Bank had 14,308 employees, i.e. a reduction of54 employees compared with the end of 2006, and the Group had 15,795 employees,i.e. 148 employees more than at the end of 2006. The increase of employment inthe Group results mainly from including HVB Ukraine (176 employees at the end ofMarch 2007) in the Group. Impairment losses on loans and advances In the first quarter of 2007, impairment losses on loans and advances amountedto PLN 43.6 million and were 25.3% lower than in the previous year. Thisresulted primarily from the effective credit risk management and improvedmacroeconomic situation. The ratio of impaired receivables to total receivables(1) decreased from 11.8% at the end of 2006 to 11.5% at the end of March 2007 asa result of an increase in the total volume of receivables (including also theeffect of consolidation of HVB Ukraine). Loans In the first quarter of 2007 the gross loans portfolio grew by PLN 1,801.8million, i.e. by 4.9%. (PLN million) 31.03.2007 31.12.2006 ChangeGross loans (principal)* 38,305.1 36,503.3 4.9%corporate (principal) 27,678.2 26,233.4 5.5%retail (principal) 10,626.9 10,269.9 3.5% * including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities and BSBtransactions. The growth of loans by PLN 1,801.8 million in the first quarter of 2007 wasdriven by growth of PLN mortgage loans and "Express Loan" ("PozyczkaEkspresowa"), as well as growth of corporate loans and consolidation of HVBUkraine. In comparable terms (excluding the effect of consolidation of HVBUkraine) the gross loans portfolio grew in the first quarter of 2007 by PLN534.9 million, i.e. by 1.5%. Savings Savings of the Group's clients increased by PLN 5,706.8 million, i.e. by 7.8% inthe first quarter of 2007 resulting from an increase both in savings ofindividual clients and in corporate deposits. Higher volume of savings of theGroup's clients reported as at 31st March 2007 is also influenced byconsolidation of HVB Ukraine. In comparable terms (excluding the effect ofconsolidation of HVB Ukraine) savings of the Group's clients increased by PLN 5,229.2 million, i.e. by 7.2%. The savings of retail clients increased by PLN 2,521.3 million in the firstquarter of 2007 as a result of an increase in mutual funds (by PLN 2,907.3million). At the end of March 2007 total retail savings exceeded the level of PLN 52billion. Corporate deposits increased in the first quarter of 2007 by PLN 3,185.5million. (PLN million) 31.03.2007 31.12.2006 ChangeDeposits (principal) 52,245.9 49,446.4 5.7%corporate (principal) 26,317.4 23,131.9 13.8%retail (principal) 25,928.5 26,314.5 (1.5%)Pioneer Pekao TFI mutual funds 26,170.7 23,263.4 12.5%incl. distributed through the 23,823.9 21,359.7 11.5%Group's networkTotal savings 78,416.6 72,709.8 7.8%incl. retail 52,099.2 49,577.9 5.1% 4.4.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) I Q 2007 I Q 2006 Net profit of Bank Pekao S.A. 570.9 353.4Entities consolidated under full method Centralny Dom Maklerski Pekao S.A. 45.7 31.4Pekao Financial Services Sp. z o.o. 3.7 2.8Pekao Pioneer PTE S.A. 2.9 2.3Pekao Leasing Sp. z o.o. 2.5 4.1Pekao Faktoring Sp. z o.o. 1.7 2.4Pekao Fundusz Kapitalowy Sp. z o.o.* 1.5 0.5Centrum Kart S.A. 0.6 1.1Drukbank Sp. z o.o. ** 0.0 0.0Pekao Development Sp. z o.o. *** - 6.5Pekao Access Sp. z o.o. 0.0 0.0UniCredit Bank Ltd. / Bank Pekao (Ukraina) (7.0) 0.2Ltd. in Luck**/****Joint Stock Commercial Bank HVB Bank Ukraine - -*****Entities valued under equity method Pioneer Pekao Investment Management S.A. 29.8 21.5Pirelli Pekao Real Estate Sp. z o.o. 4.1 -Krajowa Izba Rozliczeniowa S.A. 1.5 1.4Central Poland Fund LLC 0.0 0.0Xelion. Doradcy Finansowi Sp. z o.o. (2.3) (2.5)Exclusions and consolidation adjustments *** (152.5) (6.8)***Net profit (loss) of the Group 503.1 418.3 * the result of the company includes the valuation of associates based on equitymethod, ** the result of UniCredit Bank Ltd. includes the share of Bank through itssubsidiary Drukbank Sp. z o. o., *** equity valuation of the subsidiary since the II quarter 2006 due to sale of75% of shares which took place on 3rd April 2006, **** change in the name of the company, ***** the result of the company will be included in the income statement sincethe day of acquisition, ****** includes transactions within the Group, including dividends fromsubsidiaries (of which PLN 138.0 million from CDM) and associates and openingbalance amendments. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank for the firstquarter of 2007 and first quarter of 2006 are as follows: (PLN million) I Q 2007 I Q 2006 Change Net interest income* 566.6 551.7 2.7%Non-interest income 685.9 472.7 45.1%Total income 1,252.5 1,024.4 22.3%Overhead costs (including depreciation) (538.8) (536.8) 0.4%Operating income 713.7 487.6 46.4%Impairment losses on loans and advances (41.4) (49.9) (17.0%)Pre-tax profit 672.3 437.7 53.6%Net profit 570.9 353.4 61.5% * including income on SWAP operations The main items of the Bank's balance sheet at the end of March 2007 incomparison with the end of 2006 are as follows: 31.03.2007 31.12.2006 Change Total gross loans in PLN million* 36,395.2 35,891.1 1.4%Impaired receivables to total receivables 11.0 11.0 (0.0 p.p.)in %Total deposits in PLN million* 51,849.2 49,472.2 4.8%Total assets in PLN million 71,573.0 66,976.8 6.9%Mutual funds sold in Bank's network in PLN 21,191.1 18,881.2 12.2%millionCapital adequacy ratio in % 13.2 14.7 (1.5 p.p.) * the nominal value 4.5 Segment reporting Segment reporting of the Pekao Group covers following areas: - Retail banking area - full-range of banking activity related toretail clients and small and micro companies with annual turnover not exceedingPLN 10 million, and also income of companies consolidated under the full methodand assigned to retail activity, - Corporate banking area - full-range of banking activity related tomedium and large companies, and also income of companies consolidated under thefull method and assigned to corporate activity, - Treasury and Investment activities area - Bank's involvement oninter-bank market, in debt securities and capital investments in companies,which are not a part of other segments, and also income of companiesconsolidated under the full method and assigned to this activity. Information on main segments' results for the first quarter of 2007: (PLN million) Retail Corporate Treasury Total activity activity and Group Investment activityExternal interest income 288.0 355.6 342.8 986.4 External interest expense 91.4 235.3 66.6 393.3 Net external interest 196.6 120.3 276.2 593.1income Internal interest income 315.0 260.6 (575.6) 0.0 Internal interest expense 126.6 256.3 (382.9) 0.0 Net internal interest 188.4 4.3 (192.7) 0.0income Net interest income 385.0 124.6 83.5 593.1 Non interest income 493.7 101.5 33.2 628.4 Total income 878.7 226.1 116.7 1,221.5 Allocated assets 13,243.5 24,558.9 30,998.2 68,800.6 Unallocated assets 4,773.1 Total assets 73,573.7 Allocated liabilities 30,868.1 23,917.1 6,206.7 60,992.0 Unallocated liabilities 12,581.7 Total liabilities 73,573.7 Information on main segments' results for the first quarter of 2006*: (PLN million) Retail Corporate Treasury and Total Group activity activity Investment activityExternal interest income 239.3 325.2 350.6 915.1External interest expense 85.1 220.9 37.9 343.9Net external interest 154.2 104.3 312.7 571.2incomeInternal interest income 295.8 235.9 (531.7) 0.0Internal interest expense 102.7 232.5 (335.2) 0.0Net internal interest 193.1 3.4 (196.5) 0.0incomeNet interest income 347.3 107.7 116.2 571.2Non interest income 435.0 94.3 33.5 562.8Total income 782.3 202.0 149.7 1,134.0 Allocated assets 10,308.4 20,793.5 29,245.6 60,347.5Unallocated assets 4,485.5 Total assets 64,833.0 Allocated liabilities 30,262.6 18,481.5 4,154.4 52,898.5Unallocated liabilities 11,934.5 Total liabilities 64,833.0 * data comparable with the first quarter of 2007, different than published thefirst quarter of 2006 due to changes in methodology for allocation of revenuesby segment. The methodology applied by the Bank in allocation of interest income/expense between segments is based on the application of market interest ratesto segment product volumes, pricing for liquidity, term to maturity and currencystructure. 4.6 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 31.03.2007 31.12.2006 31.03.2007 31.12.2006Total provisions 223.9 223.9 221.3 221.0of which:provisions for off-balance 110.6 112.7 110.6 112.6sheet liabilitiesprovisions for liabilities to 71.5 69.2 70.3 68.0employeesother provisions 41.8 42.0 40.4 40.4Provision for deferred tax 0.4 0.0 0.0 0.0Deferred tax assets 321.1 304.4 291.4 274.8 4.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. I Q 2007 I Q 2006 I Q 2007 I Q 2006Total (43.6) (58.4) (41.4) (49.9)for loan receivables (45.7) (60.0) (43.5) (51.5)for off-balance sheet 2.1 1.6 2.1 1.6liabilitiesfor financial assets 0.0 0.0 0.0 0.0 4.8 Information on contingent assets and liabilities (PLN ths.) 31.03.2007 31.12.2006Contingent liabilities granted and 31,869,531 27,588,457receivedLiabilities granted: 19,757,865 19,117,047financial 16,952,645 16,801,746guarantees 2,805,220 2,315,301Liabilities received: 12,111,666 8,471,410financial 2,110,916 635,350guarantees 10,000,750 7,836,060Financial derivatives 99,127,844 76,540,128currency transactions 36,055,325 28,929,919Interest rate transactions 55,601,355 46,301,739securities transactions 7,471,164 1,308,470Other 11,833,878 11,287,931Total off-balance sheet items 142,831,253 115,416,516 4.9 Share capital increase of Bank Pekao S.A. Since the beginning of the 2007 until the day of submitting this report sharecapital of the Bank has been increased by the total amount of PLN 294,841 as aresult of issue of 294,841 series F ordinary bearer shares. The share capital ofthe Bank amounts currently to PLN 167,103,098 and is divided into: - 137,650,000 series A ordinary bearer shares with nominal value of PLN 1.00(one) each, - 7,690,000 series B ordinary bearer shares with nominal value of PLN 1.00 (one)each, - 10,630,632 series C ordinary bearer shares with nominal value of PLN 1.00(one) each, - 9,777,571 series D ordinary bearer shares with nominal value of PLN 1.00 (one)each, - 373,644 series E ordinary bearer shares with nominal value of PLN 1.00 (one)each, - 621,411 series F ordinary bearer shares with nominal value of PLN 1.00 (one)each, - 359,840 series H ordinary bearer shares with nominal value of PLN 1.00 (one)each. The total number of votes at the Bank's General Shareholders Meeting under allissued shares is 167,103,098. The increase was conducted as a result ofregistration on buyers accounts of 294,841 series F ordinary bearer sharesissued within the conditional share capital increase on the base of ResolutionNo. 7 of the Extraordinary General Shareholders Meeting of the Bank conducted on25th July 2003 on contingent increase of the statutory capital, exclusion of thepre-emptive rights on the series F and G shares of the Bank and amendment to theStatute of the Bank. Bank's conditional share capital increase have been registered by WarsawDistrict Court, XIX Economic Division of the National Court Registry on 17thSeptember 2003, which was reported by Bank in current report 107/2003 dated 19thSeptember 2003. 4.10 Post balance sheet events UniCredit selects GE Money in the BPH disposal process On the 27th April 2007 the Management Board of Bank Pekao S.A. has informed thatit has received from UniCredito Italiano S.p.A. ("UniCredit"), StrategicInvestor of the Bank, information placed below: UniCredit is planning to transfer its stake in the Polish Bank BPH aftercompletion of the spin-off of a part of the Bank BPH business (the bank afterthe spin-off is referred to as "New BPH"). Following a competitive process,UniCredit has selected GE Money EMEA, a leading provider of financial andconsumer credit services, to enter into exclusive negotiations to complete thesale process. UniCredit would like to complete this process by the end of 2007,subject to agreement between both parties and the receipt of all requiredregulatory approvals. UniCredit is confident that negotiations will be successfully concluded prior tothe de-merger becoming effective. In line with the provisions of the Agreementconcluded on 19th April 2006 between the Ministry of State Treasury of theRepublic of Poland and UniCredit concerning integration of its bankingactivities in Poland, UniCredit plans that completion of the transfer of New BPHshares will take place as soon as possible following registration of thede-merger. 4.11 Seasonality or cyclical nature of the Bank's activity The demand for the financial services offered by the Bank is stable, and so theimpact of seasonal changes is immaterial. Due to the nature of the Bank'sactivity, it is not subject to seasonal or cyclical changes. 4.12 Issuance, redemption and repayment of debt securities Issuance of bonds of Bank Pekao S.A. The Bank issued 415 thousand registered A series bonds and 415 thousandregistered B series bonds with pre-emptive rights to take up the Bank's F seriesshares, and 415 thousand registered C series bonds and 415 thousand registered Dseries bonds with pre-emptive rights to take up the Bank's G series shares. 1,660 of the Bank's registered bonds were allocated to Pekao Faktoring (theBank's subsidiary) acting as the Trustee, and registered in the Bonds Registerof Centralny Dom Maklerski Banku Pekao S.A. The Bonds were issued on the basis of Resolution No. 6 of the Bank'sExtraordinary General Meeting dated 25th July 2003 on the issue of registeredbonds under an incentive programme. Each Bond entitles to take up 1 ordinary bearer share of the Bank. The nominal value of one bond is PLN 0.01. The issue price of one bond is equalto its nominal value. The bonds do not bear interest. The bonds are not secured. The issue price of F series shares amounts to PLN 108.37, and of G series sharesPLN 123.06. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from the A and B series bondswere executed. Bonds of the other series will be available for purchase from the Trustee by theeligible persons in the following periods: - C series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2006 until 30th December 2007. - D series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2007 until 30th December 2008. Bank acquired 120,159 registered series B bonds from Pekao Faktoring Sp. z o.o.,for the purpose of redemption, and the total of 294,841 series B bonds fromeligible persons, upon the request thereof for early redemption, pursuant to theimplementation of the right of priority to take up the Bank's shares ensuingfrom the bonds, for the purpose of redemption thereof. All Bonds which are not sold off by the Trustee by 30th December 2007 and 2008shall be acquired by the Bank on 31st December 2007 and 2008 respectively to beredeemed at their nominal value. The execution of the pre-emptive rights to take up G series shares can beexercised in the following periods: - in respect of C series bonds - from 1st January 2008 to 31st December2012, - in respect of D series bonds - from 1st January 2009 to 31st December2012. Issuance of bonds of Joint Stock Commercial Bank HVB Bank Ukraine On 24th January 2006 HVB Ukraine issued 79,000 bonds of face value 1,000 UAHeach bond, of total face value 79,000,000 UAH. The purpose of this issue was toacquire the funds for financing the development of the lending activity. Theissue offering was addressed to the selected investors. In the issue HVB Ukraineoffered bonds with put option, common, interest bearing, registered, withdiscount to the face value of 1,978 ths. UAH. For the first two years the couponinterest is fixed at 8.8% p.a., the interest rate for the last two years will beannounced two weeks before the put option date. The date of the bond maturity is18th January 2010 and the put option date is 22nd January 2008. 4.13 Dividend paid Pursuant to Resolution No. 8 of the Ordinary General Meeting of Bank Pekao S.A.dated 26th April 2007, PLN 9.00 per one share was appropriated for the paymentof dividend for 2006, i.e. 21.6% higher compared to the dividend for 2005 (PLN7.40 per one share). The ex-dividend date was determined at 16th May 2007 andthe date of dividend payment at 1st June 2007. All the Bank's shares areordinary shares. 4.14 Effects of changes in the Group's structure The changes in the Group's structure are described in section 2 and 4.1 4.15 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published the forecast of financial results for 2007. 4.16 The information about the shareholders owning at least 5% of thetotal number of votes at the General Meeting of Bank Pekao S.A. The shareholders of Bank Pekao S.A. owning directly or indirectly through theirsubsidiaries at least 5% of the total number of voting rights at the GeneralMeeting of Bank Pekao S.A. are as follows: Shareholder's # of shares Share in share # of shares Share in share name and votes at capital and and votes at capital and the General total number of the General total number of Meeting votes at the Meeting votes at the General Meeting General Meeting 31st March 2007 31st December 2006UniCredito 88,121,725 52.73% 88,121,725 52.83%Italiano S.p.A.Other 78,981,373 47.27% 78,686,532 47.17%shareholdersTotal 167,103,098 100.00% 166,808,257 100.00% Since the beginning of the 2007 until the day of submitting this report sharecapital of the Bank has been increased by the total amount of PLN 294,841 as aresult of issue of 294,841 series F ordinary bearer shares. The share capital ofthe Bank amounts currently to PLN 167,103,098. The share of UniCredito ItalianoS.p.A. in the share capital and the total number of votes at the General Meetingamounts to 52.73% while the share of other shareholders stands for 47.27%. 4.17 The Issuer's shares held by the Management and Supervisory Boardmembers According to the Bank's knowledge, as at the date of submitting this report themembers of the Bank's management and supervisory bodies held 98,446 shares ofBank Pekao S.A. All these shares were held by members of the Bank's management.The change in the number of shares in relation to the amount reported in theprevious quarterly report stems from taking up Bank's shares ensuing fromincentive programme for 2003 as well as the changes in the Bank's ManagementBoard. The Bank Pekao S.A. Capital Group is running an incentive programme in the formof management stock options. The Programme covers the Management Board of theBank, the remaining managerial staff, key employees for realisation of Bank'sstrategy, as well as employees of subsidiaries. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from incentive programme for theyear 2003 were executed. As at the date of submitting this report the incentive programme for 2004includes 44 persons for a total 691,921 shares, 265,584 of which will be able tobe purchased by the management. The change in the number of shares available tobe purchased by the management stems from changes in the Bank's ManagementBoard. 4.18 Pending litigations In the first quarter of 2007 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 342. The total value of them was PLN 750,7million. The number of legal proceedings concerning the receivables was 2,407 attotal value of PLN 867,0 million. The value of legal proceedings concerning theliabilities of the Group in the first quarter of 2007 does not exceed 10% of theissuer's equity. According to the issuer's opinion any single proceeding that was in progress incourts, appropriate bodies of arbitration or public administration bodies in thefirst quarter of 2007, as well as all the proceedings together do not create anythreat to financial liquidity of the Bank. 4.19 Assessment of the financial credibility of Bank Pekao S.A. On 29th March 2007 Standard & Poor's Ratings Services informed about upgradingof the Bank's long-term rating to level "A" from "A-" and short-term rating tolevel "A-1" from "A-2". As at 31st March 2007, Bank Pekao S.A. had the following financial credibilityratings: Fitch Ratings Long-term rating (IDR) A Short-term rating F1 Individual rating B/C Support rating 1 Outlook of IDR Positive Standard and Poor's Long-term rating A Short-term rating A-1 Outlook Stable Moody's Investors Service Ltd. (The Bank has not ordered Moody's rating) Long-term deposit rating A2 Short-term deposit rating Prime-1 Financial strength C Outlook Stable 4.20 Appointment of the Management Board for new term of office On 26th April 2007, the Supervisory Board appointed the following Members of theManagement Board for the period of common term of office, lasting three years,beginning as of 27th April 2007: 1. Jan Krzysztof Bielecki as President, CEO,2. Luigi Lovaglio as Vice President, General Manager,3. Paolo Iannone as Member of the Management Board,4. Christopher Kosmider as Member of the Management Board,5. Marian Wazynski as Member of the Management Board. 4.21 Distribution of net profit for the year 2006 On 26th April 2007, the Ordinary General Meeting of Bank Pekao S.A. resolved thedistribution of net profit for 2006 in the amount of PLN 1,728,538,988.65allocating: - 1,503,927,882.00 PLN to dividend i.e. 9.00 PLN for one share of theBank, - 109,611,106.65 PLN to the reserve equities, - 100,000,000.00 PLN to the general risk fund, - 15,000,000.00 PLN to the obligatory reserve equity. The date of determining the right to dividend is set on 16th May 2007. The date of paying out the dividend is set on 1st June 2007. 4.22 Information about integration of Bank Pekao S.A. and Bank BPH S.A. On 27th April 2007, the Extraordinary General Meeting of Bank Pekao S.A. passeda resolution on the integration of Bank Pekao S.A. with Bank BPH S.A., performedin a way of the spin-off of Bank BPH S.A. by transferring a part of Bank BPHS.A. property in a form of an organized part of enterprise to Bank Pekao S.A. The Division by Spin-off of Bank BPH S.A. shall be performed according to theprinciples specified in detail in the Spin-off Plan, agreed by Bank Pekao S.A.and Bank BPH S.A. on 15th November 2006, announced in the Court and EconomicJournal ("Monitor Sadowy i Gospodarczy") No. 239 dated 8th December 2006. In exchange for the part of Bank BPH S.A. property in a form of an organizedpart of enterprise, Bank BPH S.A. shareholders shall take up Bank Pekao S.A.Series I ordinary bearer shares with the nominal value of 1 PLN each, issued inrelation to the integration of Bank Pekao S.A. with Bank BPH S.A., performedthrough the Division by Spin-off ("Shares of Spin-off Issue"), in observance ofthe ratio 1 : 3.3. In relation to the integration of Bank Pekao S.A. with Bank BPH S.A., the sharecapital of Bank Pekao S.A. shall be increased with the amount of 94,763,559 PLN,i.e. up to the amount of 261,866,657 PLN, by the issuance in a public offer of94,763,559 Series I ordinary bearer shares with the nominal value of 1 PLN each,in order to allot Shares of Spin-off Issue to Bank BPH S.A. shareholders whoshall also become the Bank Pekao S.A. shareholders on the spin-off day. The Shares of Spin-off Issue will entitle to participation in the profitsdisbursed commencing from 1st January 2008. The General Meeting authorized and obligated the Bank Pekao S.A. Management Board to perform all legal and factual acts necessary to execute this resolution, among other things to prepare, conduct and register the Division by Spin-off, toprepare and conduct the public offer for Shares of Spin-off Issue, to admitShares of Spin-off Issue to regulated trading carried out by the Warsaw StockExchange. Integration of Bank Pekao S.A. with Bank BPH S.A. shall be performed upon obtaining all the consents and permissions required by the provisions of law, as ofthe day of entry into register of entrepreneurs of the National Court Registryof the increase of the share capital of Bank Pekao S.A. by the issuance of theShares of Spin-off Issue. 4.23 Transactions of related entities In the first quarter of 2007, the Bank and its subsidiaries have not concludedany transactions with related entities other than typical and routinetransactions whose aggregate value exceeded the equivalent of EUR 500 thousand. In the first quarter of 2007, the Bank and its subsidiaries did not give anysureties or guarantees in respect of loans or advances to any single entity or asubsidiary of that entity, as a result of which the total value of the existingsureties and guarantees would equal 10% of the Bank's equity. Acquisition of 100% shares in Joint Stock Commercial Bank HVB Bank Ukraine On 30th March 2007 Bank Pekao S.A. purchased 1,098,342 ordinary shares with thenominal value of UAH 100 each share in Joint Stock Commercial Bank HVB BankUkraine with its seat in Kiev, in Ukraine (HVB Ukraine), of a total nominalvalue of shares of UAH 109,834,200, which constitutes the equivalent of PLN63,352,366.56, for the price of EUR 84,276,544.55, which constitutes theequivalent of PLN 326,108,089.14. The acquisition of 100% shares of HVB Ukraine was effected as a result ofentering by Bank Pekao S.A., by virtue of the assignment agreement as of 20thDecember 2006, concluded with Bank UniCredito Italiano S.p.A. (UCI), into rightsof UCI, arising from the sale agreement of 1,098,342 ordinary shares of HVBUkraine, concluded on 12th September 2006 between UCI as the purchaser andBayerische Hypo- Und Vereinsbank AG as the seller. Bank Pekao S.A. currently holds shares of the total nominal value of UAH109,834,200, which constitute 100% of the share capital of HVB Ukraine and giveright to 100% votes at the general shareholders meeting of HVB Ukraine. The acquisition of shares of HVB Ukraine is a long-term capital investment andit is related to the Bank Pekao S.A. strategy to intensify its presence on theUkrainian market and it is in compliance with the Resolution of the BankingSupervision Commission No 20/KNB/06 dated 5th April 2006 concerning issuingconsent to exercising right to vote at the general meeting of shareholders ofBank BPH S.A. 4.24 Factors which will affect the results of at least the next quarter Bank Pekao S.A. and its subsidiaries are operating predominantly on theterritory of Poland. Therefore, the results of the Bank will be influenced bythe economic events occurring in this country and the worldwide events thatinfluence the domestic economy. Polish economy expands at high rate due to both strong internal demand andexport. It is expected, that these positive trends observed in economydevelopment will continue in the next quarters. Fast economic growth makes favourable conditions for banking activities. Fastgrowth rate in retail loans, growth of corporate customers loans and in thelevel of savings is observed. Improvement in corporate financial situation aswell as continuation in declining unemployment decrease the costs of creditrisk. It is expected that all above trends will continue also in the nextquarters. Taking into consideration the strategy of increasing activity on the Ukrainianmarket, the Group results may be increasingly dependent on economic trends inUkraine. Currently the scale of this activity is not significant to the resultsof the Group. End-------------------------- (1) loans and advances to customers, debt securities eligible for rediscountingat the Central Bank and net investment in the finance lease This information is provided by RNS The company news service from the London Stock Exchange