AS LATVIJAS PASTA BANKA · join the euro zone from 2014. The performance of the Bank as a...

AS LATVIJAS PASTA BANKA

Interim condensed financial statements

for the six-month period ended 30 June 2013


Interim condensed financial statements 000’LVL for the six-month period ended 30 June 2013

2

CONTENTS

Page

Management Report 3 - 4

The Council and the Board 5

Statement of Management’s Responsibility 6

Independent Auditors’ Report 7

Interim Condensed Financial Statements of the Bank:

Interim Condensed Statement of Comprehensive Income 8

Interim Condensed Statement of Financial Position 9

Interim Condensed Statement of Changes in Equity 10

Interim Condensed Statement of Cash Flows 11

Notes to the Interim Condensed Financial Statements 12 – 27



3

MANAGEMENT REPORT

Dear customers, cooperation partners and shareholders!

The management of AS Latvijas pasta banka (hereinafter also – the Bank) is proud to announce

that the Bank has closed the first half of the year 2013 and successfully retained and enhanced its

position and business profile in the local financial market.

2013 started with positive trends in the economy; however, the external environmental risks

remain related to future development in the euro zone. Because of decrease in economic growth

of main trade partners of Latvia, the Latvian export growth may slow down and its positive

effect on the economy as a whole can diminish. Latvian economic development is ensured not

only by export but also by demand in the domestic market. The increase of private consumption

is determined by gradual improvement of labour market – employment growth and labour wage

increase. Favourable ratings to the Latvian economy by international lenders and credit rating

agencies, confirms that the Latvian business environment stabilizes. It is also acknowledged by

the Economic and Financial Affairs Council`s (ECOFIN) decision made on 9 July for Latvia to

join the euro zone from 2014.

The performance of the Bank as a relatively new (this year marks the 5th anniversary of

establishment of the Bank) member of the local financial market is certainly assessed as positive

and approves the Bank's ability to meet challenges and operate in all conditions.

The core values of the Bank have not changed, namely, honesty – honest and fair attitude to all

Bank`s clients, professionalism – professional team, responsibility – high level of responsibility

for decisions made, loyalty – equal treatment to all the Bank’s clients and colleagues, quality –

convenient and qualitative Banking services to clients and competitiveness of the Bank’s

services, flexibility – the ability to adjust to the needs of the customers, safety – the clients can

be sure about their deposits and information provided in cooperation with the Bank.

The range of banking services is constantly extended, maintaining quality, as indicated by the

consistently and organically growing number of customers.

The Bank fully complies with all regulatory requirements. The capital adequacy ratio of the

Bank is 22.96% and it exceeds the minimum rate set by the law. The liquidity ratio is 94.05%,

which also exceeds the minimal requirement of 30% for several times as set by the law.

Based on the above, it appears that the Bank has all the abilities to successfully continue the

implementation of its operational strategy.



4

MANAGEMENT REPORT (continued)

Also in the future the important role in the Bank’s strategy is to be played by the administration

of wealthy client`s funds and products that meet the individual needs of our clients.

A priority in the Bank’s further strategy is payment card issuing and acceptance in POS

terminals and Internet, collaborating with wide-known organizations such as MasterCard, Visa,

Tieto, First Data, Global Payment using MasterCard acquiring licence for Europe and Visa

acquiring licence for Europe, thereby ensuring services for Internet sellers in the Europe.

The Bank's management is constantly monitoring the rapidly changing financial market

conditions being aware of their responsibility to clients and potential risks which are evaluated in

detail and administrated following prudent precaution principles, maintaining moderate level of

general risks.

In order to facilitate the further development of the Bank, in May 2013 the Bank has purchased a

building in Brivibas Street 54, Riga, Latvia and started work in the central office in the city

center.

The Bank is able to be a reliable partner for clients’ economic and personal activities,

maintaining stable and professional approach to cooperate on behalf of further development.

We wish to thank AS Latvijas pasta banka customers for their loyalty and look forward to further

common and beneficial business in the future!

Best regards,

Biomins Kajems

Chairman of the Council

Boriss Ulmans

Chairman of the Board

Riga, 15 August 2013



5

THE COUNCIL AND THE BOARD

The Council

The Council of the Bank as at 30 June 2013

Name Position Date of appointment

Biomins Kajems Chairman of the Council 13/10/2008

Jūlija Kozlova Council Member 13/10/2008

Guntars Grīnvalds Council Member 13/10/2008

The Board

The Board of the Bank as at 30 June 2013

Name Position Date of appointment

Boriss Ulmans Chairman of the Board 05/09/2008

Arnis Kalveršs Board Member 05/09/2008

Dairis Krūmiņš Board Member 27/03/2012

On behalf of the Bank’s management:

Biomins Kajems Boriss Ulmans

Chairman of the Council Chairman of the Board




6

STATEMENT OF MANAGEMENT’S RESPONSIBILITY

The management of AS LATVIJAS PASTA BANKA (hereinafter – the Bank) are responsible

for the preparation of the Bank’s interim condensed financial statements. These financial

statements are prepared in accordance with IAS 34 as adopted by the European Union on a going

concern basis. Appropriate accounting policies have been applied on a consistent basis in

preparing the Bank’s financial statements. Prudent and reasonable judgments and estimates have

been made by the management in the preparation of the financial statements.

The Bank’s financial statements set out on pages 8 to 27 are prepared in accordance with the

source documents and present fairly the financial position of the Bank as at 30 June 2013 and the

results of its operations and cash flows for the six-month period ended 30 June 2013.

The management of the Bank are responsible for the maintenance of proper accounting records,

the safeguarding the Bank’s assets, and the prevention and detection of fraud and other

irregularities in the Bank. They are also responsible for operating the Bank in compliance with

the Law on Credit Institutions, regulations of the Financial and Capital Market Commission and

other legislation of the Republic of Latvia applicable to credit institutions.

On behalf of the Bank’s management:






7

AUDITORS’ REPORT



8

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

Notes

Six-month period ended

30.06.2013 30.06.2012

Interest and similar income 6 1 131 1 106

Interest and similar expense 6 (212) (443)

Net interest income 919 663

Commission and fee income 7 1 187 1 009

Commission and fee expense 7 (433) (338)

Net commission and fee income 754 671

Net trading income 301 45

Other income 19 10

Net operating income 1 993 1 389

Administrative expense 8 (858) (512)

Amortisation/ depreciation (44) (41)

Other expense (138) (150)

Operating expense (1 040) (703)

Net provisions for doubtful assets 6 (1)

Profit before tax 959 685

Corporate income tax 9 (146) (104)

Net profit for the period 813 581

Revaluation reserve (205) 12

Total comprehensive income 608 593

Profit per share (LVL) 0.13 0.09

The accompanying notes on pages 12 to 27 form an integral part of these interim condensed

financial statements.

The Bank’s financial statements set out on pages 8 to 27 were approved by the Board on 15

August 2013 and by the Council on 15 August 2013.






9

CONDENSED STATEMENT OF FINANCIAL POSITION

Notes 30.06.2013 31.12.2012

ASSETS

Cash and balances with the Bank of Latvia 10 4 221 3 076

Due from credit institutions 11 10 855 14 040

Available-for-sale financial assets 13 7 219 6 705

Derivative financial instruments 55 -

Loans and receivables 12 9 408 8 506

Held-to-maturity financial investments 13 19 062 23 034

Property, plant and equipment 5 085 27

Intangible assets 344 367

Other assets 471 1 146

Prepaid expense and accrued income 85 66

Total assets 56 805 56 967

LIABILITIES

Due to credit institutions 15 3 403 -

Liabilities at amortised cost 45 718 49 253

Deposits from customers 16 44 839 47 847

Subordinated liabilities 17 879 1 406

Derivative financial instruments 23 -

Current tax liabilities - 3

Deferred tax liabilities 82 46

Other liabilities 349 1 049

Deferred income and accrued expense 207 135

Total liabilities 49 782 50 486

EQUITY ATTRIBUTABLE TO THE BANK’S

SHAREHOLDERS

Paid-in share capital 18 6 200 6 200

Asset revaluation reserve 13 10 215

Accumulated loss - 66

Profit for the period 813 -

Total equity attributable to the Bank’s shareholders 7 023 6 481

Total equity 7 023 6 481

Total liabilities and equity 56 805 56 967










10

CONDENSED STATEMENT OF CHANGES IN EQUITY

Bank

Paid in share

capital

Fair value

revaluation

reserve of

available-

for-sale

financial

assets

Retained

earnings /

(Accumula-

ted loss)

Total

Balance as at 31 December 2011 6 200 (63) (974) 5 163

Total comprehensive income - 12 581 593

Balance as at 30 June 2012 6 200 (51) (393) 5 756

Total comprehensive income - 266 459 725

Balance as at 31 December 2012 6 200 215 66 6 481

Dividends paid - - (66) (66)

Total comprehensive income - (205) 813 608

Balance as at 30 June 2013 6 200 10 813 7 023










11

CONDENSED STATEMENT OF CASH FLOWS


30.06.2013 30.06.2012

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 959 685

Amortisation/ depreciation 44 41

(Decrease) / increase in provisions for doubtful debts (6) 1

Unrealised foreign exchange loss / (gain) 69 (51)

Increase in cash and cash equivalents from operating activities

before changes in assets and liabilities

1 066

676

Increase in balances due from credit institutions (79) (1 272)

Increase in loans and receivables (896) (161)

Decrease in other assets 591 103

Increase in balances due to credit institutions - 54

Decrease in deposits from customers (3 008) (49)

Decrease in other liabilities (605) (74)

Corporate income tax paid (1) -

Cash used in operating activities (2 932) (723)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment (5 078) (7)

Decrease / (increase) in held-to-maturity financial investments 3 761 (6 299)

Increase in available-for-sale financial assets (610) (3 093)

Cash and cash equivalents used in investing activities (1 927) (9 399)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid (66) -

Decrease in subordinated liabilities (527) (527)

Increase in subordinated liabilities - 879

Cash and cash equivalents (used in) / generated from financing

activities (593) 352

Net cash flows for the period (5 452) (9 770)

Cash and cash equivalents at the beginning of the period 12 887 15 227

Foreign exchange (loss) /gain (69) 51

Cash and cash equivalents at the end of the period 7 366 5 508






Chairman of the Council

Chairman of the Board




12

NOTE 1 GENERAL INFORMATION

AS Latvijas pasta banka (hereinafter – the Bank) is a joint stock company registered in the

Republic of Latvia and operating according to the laws of the Republic of Latvia and the licence

issued by the Financial and Capital Market Commission on 12 September 2008.

The registered office of AS Latvijas pasta banka is at Brivibas iela 54, Riga, LV-1011, Latvia.

The Bank has the head office and two customer service centres. The core business activity of the

Bank comprises local and international payments, attraction of deposits, issue and servicing of

payment cards, issue of loans, securities and foreign exchange transactions.

According to the Commercial Law of the Republic of Latvia, the general shareholders’ meeting

has a right and duty to decide on the approval of the annual report.

NOTE 2 BASIS OF PREPARATION

(a) Statement of compliance

These interim condensed financial statements of AS Latvijas pasta banka are prepared in

accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. These

interim condensed financial statements do not include all the information and disclosures

required in the complete financial statements and should be read in conjunction with the Bank’s

financial statements for the financial year ended 31 December 2012.

(b) Going concern

The financial statements are prepared on the going concern basis. The Bank’s management have

analysed the Bank’s financial position, availability of financial resources as well as the impact of

the financial crisis on the future operations of the Bank. The bank operates using development

strategy based on an assumption that the initial Pasta Banka project is not supported and the

initial development strategy cannot be implemented. This strategy will be applied until it is

confirmed legally that the initial strategy is or is not feasible. The Bank’s strategy is aimed at

creating a bank servicing certain customers and developing customised products and service

technologies.

Monitoring of the Bank’s capital sufficiency is performed by:

- the analysis in accordance with the Bank's minimum capital requirement calculation

procedure set out in the reports at least once a month;

- evaluating the significant risks to the Bank to cover the amount of capital required and

the amount of capital available for 3-year planning period at least once a year and every

month, comparing to the actual Bank's financial performance with planned;

- performing an active assessment of the quality and the required provision calculations at

least once a quarter.

In long-term capital crisis, the Bank's capital crisis management plan predicts to use its capital

reserves, attract subordinated deposits or to ask shareholders to raise the Bank's capital.

Having analysed the key risks related to the present and potential economic situation in Latvia,

the development of the banking industry as well as the change on the Bank`s central office to the

Riga centre, the Bank has selected to pursue the following strategy:



13

- As a priority, to offer its services to legal entities, forming the customer portfolio based on

customised services;

- Along with legal entities, to offer equal customised services also to high-income and ultra-

high income private individuals;

- To be present in Latvia, Russia, Ukraine, EEA;

- To define as the priority business activity the following:

issue and acceptance of payment cards via POS terminals and the Internet, in

cooperation with such well-known organizations such as MasterCard, Visa, Tieto,

First Data, Global Payment using MasterCard acquiring license to Europe and

Visa acquiring license to Europe, thus providing services to Internet marketers

across Europe,

placement of capital in financial instruments,

issuance of credit cards to private individuals,

issue of loans to legal entities based on the moderately conservative risk

approach, especially financing of current assets and transportation flows;

The Bank has set the target capital adequacy ratio of at least 20 per cent for 2013.

(c) Functional and presentation currency

These financial statements are reported in thousands of lats (LVL’000), unless otherwise stated.

The functional currency of the Bank is the Latvian lat (LVL).

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as disclosed below, in preparing these interim condensed financial statements, the Bank

consistently applied accounting policies in line with those used for the financial period ended 31

December 2012.

Income tax expense is recognised in each interim period based on the best estimate of the

weighted average effective annual income tax rate expected for the full financial year. Amounts

accrued for income tax expense in one interim period may have to be adjusted in a subsequent

interim period of that financial year if the estimate of the weighted average effective annual

income tax rate changes. Interim period income tax expense is accrued using the tax rate that

would be applicable to expect total annual earnings, that is, the estimated average annual

effective income tax rate is applied to the pre-tax income of the interim period.

The interim condensed financial statements are prepared in accordance with IAS 34 Interim

financial reporting as adopted by European Union. These interim condensed financial statements

should be read in conjunction with the 2012 full annual financial statements prepared in

accordance with International financial reporting standards (IFRS) endorsed in the European

Union.

The accounting methods used in the preparation of the year 2012 annual financial statements, are

not changed for preparation of the interim condensed financial statements.

Certain new standards and interpretations have been published that become effective for the

accounting periods beginning on or after 1 January 2013 or later periods and which are not

relevant to the Bank or are not yet endorsed by the EU:



14

Amendment IAS 19 'Accounting for Employee benefits' (effective for accounting

periods beginning on 1 January 2013 or later).

IFRS 10 "Consolidated Financial Statements" (effective for accounting periods

beginning on 1 January 2013 or later, approved by EU in December 2012 for reporting


IFRS 11 "Joint arrangements" (effective for accounting periods beginning on 1

January 2013 or later, approved by EU in December 2012 for reporting periods

beginning on 1 January 2014 or later).

IFRS 12 'Disclosure of interests in other entities' (effective for accounting periods

beginning on 1 January 2013 or later, pproved by EU in December 2012 for reporting


Amendment 10., 11. and 12. Application of IFRS (effective for accounting periods

beginning on1 January 2013or later, approved by EU on December 2012 for reporting


IFRS 13 "Fair Value Measurement" (effective for accounting periods beginning on 1

January 2013 or later, approved by EU on December 2012).

IAS 27 (revised in 2011) "Separate Financial Statements" (effective for accounting

periods beginning io 1 January 2013 or later, approved by EU on December 2012 for

reporting periods beginning on 1 January 2014 or later).

IAS 28 (revised in 2011) "Associates and joint ventures' (effective for accounting

periods beginning on 1 January 2013 or later, approved by EU on December 2012 for

reporting periods beginning on 1 January 2014 or later).

Amendment IFRS 7 "Financial Instruments: Disclosures" for financial assets and

financial liabilities netting `(effective for accounting periods beginning on 1 January

2013 or later).

Amendment IAS 32'Financial Instruments: Disclosures "for financial assets and

financial liabilities netting (effective for accounting periods beginning on 1 January 2014

or later).

Amendments IFRS 1 "First time adoption`, on government loans" (effective for

accounting periods beginning on 1 January 2013 or later, is not yet approved in the EU).

International Financial Reporting Standards Improvements (issued in May 2012,

most of the improvement are effective for reporting periods beginning on 1 January 2013

or later, they are not yet endorsed by the EU):

- IFRS 1 'First time adoption";

- IAS 1 'Financial Statement presentation";

- IAS 16 "Property, plant & equipment";

- IAS 32 'Financial Instruments: Presentation";

- IAS 34 "Interim Financial Reporting".

Amendment IFRS 10, IFRS 12 and IAS 27 for investment companies (effective for

accounting periods beginning on 1 January 2014 or later, is not yet approved in the EU).

IFRS 9 "Financial Instruments - classification and measurement '(effective for

annual periods beginning on 1 January 2015 or later, and it is not yet approved in the

EU).

IFRIC 20 "Stripping costs in the production phase of a surface mine" (effective for

accounting periods beginning on 1 January 2013 or later).

The Bank evaluates the potential effect, if any, of these new standards and interpretations on the




15

NOTE 4 RISK MANAGEMENT

All the aspects of the Bank’s risk management objectives and policies are consistent with those

disclosed in the Bank’s financial statements for the period ended 31 December 2012.

NOTE 5 JUDGMENTS AND ESTIMATES

The preparation of interim financial statements requires the management to make judgments,

estimates and assumptions that affect the adoption of accounting policies, the reported amounts

of assets, liabilities, income and expense. Accordingly, actual results could differ from those

estimates. The significant areas of judgment regarding the adoption of accounting policies and

the key sources of estimate uncertainty used in preparing these interim condensed financial

statements are consistent with those used in the financial statements for the financial period

ended 31 December 2012.

NOTE 6 NET INTEREST INCOME


30.06.2013 30.06.2012

Interest income

Due from credit institutions 126 80

Loans and receivables 379 323

Securities 626 703

Incl. held to maturity 533 628

available for sale 93 75

Total interest income: 1 131 1 106

Interest expense

Due to credit institutions (1) (59)

Non-bank deposits (169) (332)

Payments to the Deposit Guarantee Fund (42) (52)

Total interest expense: (212) (443)

Net interest income 919 663



16

NOTE 7 NET COMMISSION AND FEE INCOME


30.06.2013 30.06.2012

Commission and fee income

Service fee for account maintenance and cash

transactions

252

127

Asset management 65 50

Payment card transactions 743 594

Brokerage services 71 168

Guarantees, loans, letters of credit 56 70

Total commission and fee income: 1 187 1 009

Commission and fee expense

Correspondent bank services (54) (35)

Payment card transactions (356) (266)

Brokerage operations (17) (31)

Other bank transactions (6) (6)

Total commission and fee expense: (433) (338)

Net commission and fee income 754 671

NOTE 8 ADMINISTRATIVE EXPENSES


30.06.2013 30.06.2012

Personnel remuneration expenses

Council and Board remuneration 36 24

Personnel remuneration 498 285

State compulsory social insurance contributions 129 75

Total personnel remuneration expenses: 663 384

Rent and exploitation expenses 51 45

Non-refundable value added tax 33 24

Communications (telephone, post) 17 11

IT equipment and software related expenses 20 11

Professional and legal services 14 11

Office supplies and other office expenses 7 7

Other personnel related expenses 12 14

Real estate tax 9 -

Other administrative expenses 20 4

Non business related expenses 12 1

Total other expenses: 195 128

Administrative expenses 858 512

On 30 June 2013 number of employees in the Bank was 121 (on 30 June 2012 – 83).



17

NOTE 9 CORPORATE INCOME TAX

Corporate income tax expense comprises the following items:


30.06.2013 30.06.2012

Current corporate income tax charge for the reporting period 111 -

Deferred corporate income tax 35 104

Total corporate income tax expense 146 104

30.06.2013 31.12.2012

Deferred corporate income tax liability:

Accumulated excess of tax depreciation over accounting

depreciation 87 53

Deferred corporate income tax asset:

Temporary difference on vacation reserve (10) (7)

Other deferred tax assets 5 -

Deferred income tax liability 82 46

NOTE 10 CASH AND BALANCES WITH THE BANK OF LATVIA

30.06.2013 31.12.2012

Cash 1 287 532

Balances with the central bank 2 934 2 544

Total 4 221 3 076

Balances with central bank include cash on the correspondent account and a short-term deposit

with the Bank of Latvia. According to the instructions of the Bank of Latvia, the Bank’s average

monthly balance on its correspondent account may not be less than the compulsory reserve

calculated for the balance of liabilities included in the reserve basis on the last day of the month.

As at 30 June 2013, the Bank’s compulsory reserve requirement was LVL 1 751 thousand (31

December 2012: LVL 1 922 thousand).



18

NOTE 11 DUE FROM CREDIT INSTITUTIONS

30.06.2013 31.12.2012

Amounts due on demand 6 436 9 811

Credit institutions registered in Latvia 112 4 183

Credit institutions registered in the EU 2 474 3 183

Credit institutions of other countries 3 850 2 445

Term deposits 4 419 4 229

Credit institutions registered in Latvia 1 357 2 430

Credit institutions of other countries 3 062 1 799

Total 10 855 14 040

The Bank’s average interest rates applicable for the balances due from credit institutions in the

first half of 2013 are as follows: LVL 0.171% USD 0.191%, EUR 0.144%. (in the first half of

2012 - LVL 0.317% USD 0.723%, EUR 0.238%).

NOTE 12 LOANS

(a) Loans and receivables by customer profile

30.06.2013 31.12.2012

Private non-financial companies 8 034 7 840

Financial institutions 179 84

Households 1 276 669

Total loans 9 489 8 593

Impairment (81) (87)

Total net loans 9 408 8 506

(b) Loans and receivables by geographical profile

30.06.2013 31.12.2012

Residents of Latvia 8 891 8 285

Residents of EU Member States 105 34

Residents of other countries 493 274






19

(c) Loans and receivables by types

30.06.2013 31.12.2012

Commercial loans 2 229 3 085

Industrial loans 908 683

Finance leases 497 542

Credit card loans 54 60

Mortgage loans 2 145 1 117

Factoring 1 042 556

Other loans 2 548 2 466

Cash with financial institutions 66 84




(d) Significant credit risk concentration

As at 30 June 2013, the Bank had 6 borrowers or group of related borrowers whose aggregate

liabilities to the Bank exceeded 10% of the Bank’s capital (31 December 2012 – 6 borrowers or

groups of related borrowers). The total liabilities of the borrower or group of related borrowers

whose aggregate liabilities to the Bank exceeded 10% of the Bank’s share capital on 30 June

2013 was LVL 4 969 thousand or 80% of the Bank’s share capital (31 December 2012 – LVL 5

443 thousand or 86% of the Bank’s share capital).



20

NOTE 13 FINANCIAL ASSETS

a) Investments in financial assets by portfolios

30.06.2013 31.12.2012

Available-for-sale financial assets

Debt securities issued by the Latvian government 1 015 -

Debt securities issued by EU central governments 1 974 2 390

Debt securities issued by other country central governments 568 568

Debt securities issued by EU credit institutions 1 211 1 221

Debt securities issued by EU local governments 744 791

Debt securities issued by EU non-finance institutions 1 707 1 735

Total available-for-sale financial assets 7 219 6 705

Held-to-maturity financial investments

Debt securities issued by the Latvian government 13 604 15 849

Debt securities issued by EU central governments 2 180 3 525

Debt securities issued by EU credit institutions 704 704

Debt securities issued by other country credit institutions 1 108 2 172

Debt securities issued by EU finance institutions 211 424

Debt securities issued by the Latvian non-finance institutions 1 255 360

Total held-to-maturity financial investments 19 062 23 034

b) available-for-sale financial assets by geographical profile

30.06.2013 31.12.2012

Carrying

amount

% of

equity

Revaluation

reserve

Carrying

amount

% of

equity

Revaluation

reserve

Debt securities issued by

central governments 3 557 x (37) 2 958 x 146

Latvia 1 015 16.36 (55) - - -

Poland - - - 735 11.62 2

Slovenia 1 410 22.73 3 737 11.66 3

Other countries 1 132 18.25 15 1 486 23.50 141


credit institutions 1 211 x 21 1 221 x 25

Sweden 845 13.62 11 841 13.30 12

Other countries 366 5.90 10 380 6.01 13


local governments 744 x 14 791 x 26

Poland 744 11.99 14 791 12.51 26


non-finance institutions 1 707 x 12 1 735 x 18

Austria 730 11.77 5 756 11.96 5

Germany 977 15.75 7 979 15.48 13

Total available-for-sale

financial assets 7 219 x 10 6 705 x 215



21

c) held-to-maturity financial assets by geographical profile

30.06.2013 31.12.2012

Carrying

amount

% of

equity

Fair

value

Carrying

amount

% of

equity

Fair

value


central governments 15 784 x 17 216 19 374 x 21 445

Latvia 13 604 219.28 15 000 15 849 250.66 17 798

Ireland - - - 1 438 22.74 1 469

Portugal 2 180 35.13 2 216 2 087 33.01 2 178


credit institutions 1 812 x 1 844 2 876 x 2 936

Russia 1 108 17.86 1 141 2 172 34.35 2 233

Germany 704 11.35 703 704 11.13 703


finance institutions 211 3.40 213 424 6.70 426

Debt securities issued by the

private non-finance

institutions

1 255 x 1 260 360 x 360

Latvia 1 255 20.23 1 260 360 5.69 360

Total net held-to-maturity

financial investments 19 062 x 20 533 23 034 x 25 167

Maturity of debt securities of Portugal is 23 September 2013.

The Bank uses the following hierarchy of three levels of input data for determining and

disclosing the fair value of financial assets and liabilities:

Level 1: Quoted prices in active markets;

Level 2: Other techniques for which all inputs which have a significant effect on the

recorded fair value are observable.

Level 3: Other techniques which use inputs which have a significant effect on the

recorded fair value that are not based on observable market data.

As at 30 June 2013, all the Bank’s financial assets and liabilities met the requirements of Level 1

and Level 2.

Assessing the economic and financial situation in Portugal and Latvia, the Bank has concluded

that number of objective circumstances exist, which might help the Bank to fully recover

investments from central government securities in countries mentioned above. Therefore, the

Bank has not changed the classification of these investments or created provisions, but the Bank

continues to follow and keep up to date the information relating to these investments.



22

NOTE 14 FUNDS UNDER TRUST MANAGEMENT

30.06.2013 31.12.2012

Assets 59 350 55 342

Loans to private non-financial companies 27 758 23 124

Loans to households 584 405

Investments in finance instruments 31 008 31 813

Liabilities 59 350 55 342

Credit institutions 30 970 31 784


Households 1 196 504

The Bank issues loans classified as funds under trust management based on specific requests of

asset owners. According to the trust management agreements concluded with customers, the

asset owners assume all the risks inherent in these loans and the Bank acts only as an

intermediary receiving the management fee.

As at 30 June 2013, the accumulated outstanding commission fee for the asset management was

LVL 39 thousand (31 December 2012: LVL 29 thousand).

NOTE 15 DUE TO CREDIT INSTITUTIONS

30.06.2013 31.12.2012

Term deposits

Latvian credit institutions 3 403 -

including interbank REPO transactions 2 003 -

Total 3 403 -

The Bank’s average interest rates applicable for the balances due to credit institutions in the first

half of 2013 are as follows: LVL 0.171%, EUR 0.144%, (in the first half of 2012: LVL 0.493%,

USD 1.218%).

NOTE 16 DEPOSITS FROM CUSTOMERS

(a) Demand and term deposits by customer profile:

30.06.2013 31.12.2012

Demand deposits 30 443 33 568


Households and non-profit organisations serving them 8 089 13 046

Financial institutions 74 886


Private non-financial companies 822 814

Households and non-profit organisations serving them 14 453 13 465

Total 45 718 47 847



23

(b) Demand and term deposits by geographical profile

30.06.2013 31.12.2012

Demand deposits 30 443 33 568


Residents of EU Member States 11 351 9 219

Residents of other countries 4 977 7 369



Residents of EU Member States 808 796

Residents of other countries 27 100

Total 45 718 47 847

The Bank’s average interest rate on customer deposits for the first half of 2013 is 1.412%

(LVL), 1.901% (USD) and 1.376% (EUR). In the first half of 2012: 1.806% (LVL), 2.043%

(USD), 2.770% (EUR))

NOTE 17 SUBORDINATED LIABILITIES

Lender

30.06.2013 31.12.2012

Carrying

value Date Interest

Carrying

value Date Interest

Household resident, not

related party to the bank - - - 527 06.12.2016 7

Household resident, not

related party to the bank 879 23.02.2017 7 879 23.02.2017 7

Total subordinated

liabilities 879 x x 1 406 x x

Contracts on subordinated loans are agreed for the term of 5 years. Interest on subordinated loan

is paid once per month, on the last working day of month.

Effective from April 2013, the Bank terminated one of the subordinated liabilities agreements,

repaying 527 thousand lats.

According to the contract terms, lenders has the right to recover the loan ahead of schedule only

in case of the Bank's liquidation and the creditor's claim is upheld after all other creditors, but

before the Bank's shareholders' claims.



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NOTE 18 PAID-IN SHARE CAPITAL

As at 30 June 2013, the Bank’s registered and paid-in share capital was LVL 6,2 million (31

December 2012: LVL 6.2 million).

Share capital consists only of ordinary shares with voting rights. The value of one share is 1 Lat,

and at 30 June 2013 all shares were fully paid and the Bank did not own any of shares.

As at 31 December 2012 and 30 June 2013, the Bank’s sole shareholder was SIA Mono, reg.no

40003004625, legal address Riga, Katlakalna street 1, which is Bank`s ultimate parent company.

NOTE 19 EARNINGS PER SHARE

Earnings per share are calculated by dividing net profit by the weighted average number of

shares issued during the reporting period. As at 30 June 2013, basic earnings per share were

equal to diluted earnings per share.


30.06.2013 30.06.2012

Net profit (LVL’000) 813 581

Weighted average number of ordinary shares (‘000) 6 200 6 200

Earnings per share (LVL) 0.13 0.09

NOTE 20 CASH AND CASH EQUIVALENTS

30.06.2013 31.12.2012

Cash and demand deposits with the Bank of Latvia 4 221 3 076

Balances due from other credit institutions with original maturities

of less than three months 6 548 9 811

Balances due to other credit institutions with original maturities of

less than three months (3 403) -

Total 7 366 12 887

NOTE 21 MEMORANDUM ITEMS

30.06.2013 31.12.2012

Contingent liabilities 431 2 563

Guarantees 431 2 563

Financial commitments 2 524 2 396

Unutilised credit lines 2 263 2 175

Credit card commitments 261 221

Total memorandum items, gross 2 955 4 959



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In the ordinary course of business, the Bank issues loans and guarantees. The main purpose of

these financial instruments is to ensure that adequate funds are available to customers.

Guarantees that comprise irrevocable commitments are assigned the same risk as loans because

those commit the Bank to paying in the event of a customer’s default. Liabilities arising from

credit lines represent the undrawn balances of credit lines. As regards credit risk, the Bank is

potentially exposed to a loss arising also from loan commitments.

NOTE 22 RELATED PARTY TRANSACTIONS

Related parties are defined as shareholders that have the ability to control or exercise significant

influence over the Bank’s management policy, Council and Board members, their close family

members, and entities in which these persons have a controlling interest.

In the ordinary course of business, the Bank enters into transactions with related parties. All

loans are issued to and financial transactions are made with related parties on an arm’s length

basis. As at 30 June 2013, there were no any loans issued to related parties that would have been

past due or impaired.

The Bank’s financial statements include the following balances of assets, liabilities and

memorandum items associated with the Bank’s transactions with related parties:

30.06.2013 31.12.2012

Carrying

amount

Memoran

dum

items

Total Carrying

amount

Memoran

dum

items

Total

Assets 529 175 704 253 2 900 3 153

Loans and receivables,

net 529 175 704 253 2 900 3 153

Parent company - - - - 2 412 2 412

Council and Board 1 18 19 - 19 19

Related companies and

persons 528 157 685 253 469 722

Liabilities 8 094 - 8 094 4 637 - 4 637

Deposits 8 074 - 8 074 4 637 - 4 637

Parent company 43 - 43 333 - 333

Council and Board 3 360 - 3 360 3 416 - 3 416


persons

4 671

-

4 671

888

-

888

Derivatives 20 - 20 - - -


persons 20 - 20 - - -



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The table below presents income and expense on the balances due from/ to related parties:


30.06.2013 30.06.2012

Interest income 44 15

Interest expense (24) (58)

Net interest income / (expense) 20 (43)

Commission and fee income

109 50

NOTE 23 CAPITAL MANAGEMENT The capital adequacy calculation of the Bank can be disclosed as follows:

30.06.2013 31.12.2012

Tier I

- paid-in share capital 6 200 6 200

- prior period accumulated loss - (974)

- audited profit - 580

Less

- intangible assets (344) (367)

Total Tier I 5 856 5 439

Subordinated liabilities 879 1 406

Subordinated liabilities amortisation (176) (106)

Total Tier II 703 1 300

Decrease of Tier I and Tier II capital resulting from specific

regulatory provisions (355) (416)

Total eligible capital 6 204 6 323

Risk capital requirements

Total capital charge for credit risk and counterparty risk, incl. the

following statutory asset classes:

Central governments or central banks - 12

Regional or local governments 30 32

International organizations 3 7

Credit institutions 447 598

Commercial institutions 811 692

Other assets 544 99

Other risk capital requirements:

Foreign exchange risk capital requirement 22 21

Operational risk capital requirement 305 199

Total capital requirement 2 162 1 660

The capital adequacy ratio

(Equity capital / Total capital) x 8% 22.96% 30.47%



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NOTE 24 EVENTS AFTER REPORTING DATE

As of the last day of the reporting period until the date of signing these financial statements there

have been no events requiring adjustment of or disclosure in the financial statements or notes.

* * *

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