CITADELE BANKAS AB SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION PRESENTED TOGETHER WITH INDEPENDENT AUDITOR’S REPORT This document has been prepared in Lithuanian and English languages. In all matters of interpretation of information, views or opinions, the Lithuanian language version of this document takes precedence over the English language version. CONTENTS INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDER OF CITADELE BANKAS AB .....................3 CONSOLIDATED ANNUAL REPORT ......................................................................................................................5 SEPARATE AND CONSOLIDATED STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)...........12 SEPARATE AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME......................................14 SEPARATE AND CONSOLIDATED STATEMENT OF CHANGES IN EQUITY................................................15 SEPARATE AND CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED) .....................16 SEPARATE AND CONSOLIDATED STATEMENT OF CASH FLOWS...............................................................17 NOTE 1 GENERAL INFORMATION...............................................................................................................18 NOTE 2 SIGNIFICANT ACCOUNTING POLICIES ............................................................................................19 NOTE 3 BALANCES WITH THE CENTRAL BANK ..........................................................................................33 NOTE 4 BALANCES WITH BANKS AND CREDIT INSTITUTIONS.....................................................................33 NOTE 5 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS .....................................................33 NOTE 6 DERIVATIVE FINANCIAL INSTRUMENTS ........................................................................................33 NOTE 7 AVAILABLE-FOR-SALE FINANCIAL ASSETS ...................................................................................34 NOTE 8 HELD-TO-MATURITY INVESTMENTS .............................................................................................34 NOTE 9 FINANCE LEASE RECEIVABLES......................................................................................................35 NOTE 10 LOANS AND ADVANCES ................................................................................................................36 NOTE 11 PROPERTY, PLANT, AND EQUIPMENT.............................................................................................37 NOTE 12 INVESTMENT PROPERTY ...............................................................................................................39 NOTE 13 INTANGIBLE ASSETS .....................................................................................................................40 NOTE 14 DEFERRED INCOME TAX ASSETS ...................................................................................................41 NOTE 15 OTHER ASSETS..............................................................................................................................43 NOTE 16 DUE TO BANKS AND OTHER CREDIT INSTITUTIONS........................................................................43 NOTE 17 DUE TO CUSTOMERS .....................................................................................................................44 NOTE 18 FINANCE LEASE LIABILITIES .........................................................................................................44 NOTE 19 OTHER LOANS ..............................................................................................................................45 NOTE 20 OTHER LIABILITIES .......................................................................................................................45 NOTE 21 CAPITAL AND RESERVES...............................................................................................................45 NOTE 22 COMMITMENTS AND GUARANTEES ...............................................................................................46 NOTE 23 INTEREST INCOME AND INTEREST EXPENSE ..................................................................................46 NOTE 24 SERVICE FEE AND COMMISSION INCOME AND EXPENSE ................................................................47 NOTE 25 NET GAIN (LOSS) ON OPERATIONS WITH SECURITIES.....................................................................47 NOTE 26 NET GAIN (LOSS) ON OTHER OPERATIONS .....................................................................................47 NOTE 27 OTHER INCOME.............................................................................................................................48 NOTE 28 IMPAIRMENT EXPENSES ................................................................................................................48 NOTE 29 OPERATING EXPENSES ..................................................................................................................50 NOTE 30 CAPITAL ADEQUACY ....................................................................................................................51 NOTE 31 RELATED PARTY TRANSACTIONS..................................................................................................52 NOTE 32 OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES .........................................................53 NOTE 33 COMPLIANCE WITH THE REGULATORY REQUIREMENTS OF THE BANK OF LITHUANIA ..................53 NOTE 34 CASH AND CASH EQUIVALENTS ....................................................................................................53 NOTE 35 RISK MANAGEMENT......................................................................................................................54 NOTE 36 FAIR VALUES OF FINANCIAL INSTRUMENTS ..................................................................................81 2 CONSOLIDATED ANNUAL REPORT 1. Reporting period covered by the consolidated annual report The consolidated annual report has been prepared for the financial year 2010. The financial year of the Bank coincides with the calendar year. 2. Contact details Company name AB „Citadele“ bankas Legalform publiclimitedliabilitycompany Dateofregistration 16July1998 Companycode 112021619 Address of registered office K. Kalinausko g.13, LT-03107 Vilnius LicenceNo. No.17 Phone (8 5) 266 46 00 Fax (8 5) 266 46 01 E-mail [email protected] Website www.citadele.lt In this report the bank is referred to as Citadele Bankas AB or the Bank. 3. Information on branches, customer service units and currency exchange points The Bank has its branches established in the cities of Vilnius, Kaunas, Klaipėda, Panevėžys, Šiauliai, Alytus. The Bank’s customer service units: Vilnius branch: Gedimino, Stoties, Vingio, Žaliojo tilto; Kaunas branch: Akropolio. Currency exchange points of Vilnius branch: Stoties, Mados, Prospekto. 4. Groupcompanies Companyname UAB„Citadelefaktoringasirlizingas“ Legalform privatelimitedliabilitycompany Dateofregistration 3June2003 Companycode 126233315 Address of registered office K. Kalinausko g. 13, LT-03107 Vilnius Phone (8 5) 266 46 34 Fax (8 5) 266 46 88 E-mail [email protected] Website www.citadelelizingas.lt 5. Type of activities Citadele Bankas AB operating in Lithuania is a part of the newly established Citadele Bank Group in Latvia. The Latvian bank Citadele Banka AS is the sole shareholder of the bank Citadele AB in Lithuania. The shareholders of Citadele Banka AS are the Republic of Latvia holding an ownership interest of 75 per cent and the European Bank for Reconstruction and Development holding an ownership interest of 25 per cent. The Bank and its subsidiary Citadele Faktoringas ir Lizingas UAB provide the following licensed financial services and non-licensed financial services established in the Lithuanian Law on Banks and the Lithuanian Law on Financial Institutions: accept deposits and other refundable means from non- professional market participants, lend funds, perform cash transfers, provide financial lease, issue payment cards and conducts transactions with them, issue warranties and financial guarantees, conclude transactions on their account or clients’ account in respect of financial market instruments, perform currency exchange transactions, rent safe-deposit boxes, offer consulting services on credit granting and repayment issues and perform other services. 6. ManagementoftheBank The bodies of the Bank are the General Shareholder Meeting, the Supervisory Council, the Board and the Head of Administration. The managing bodies of the Bank are the Board of the Bank and the Head of Administration. 5 7. Capital of the Bank The shareholders‘ equity of the Bank consists of the authorised share capital, prior-year retained loss, revaluation reserve of property, plant and equipment, revaluation reserve of financial assets, current-year retained loss. As at 31 December 2010 and 2009, the Bank‘s authorised share capital amounted to LTL 286,207 thousand. 8. Prudential ratios Established by the Compliance at Compliance at 31 No. Ratio Bank of Lithuania 31 December 2010 December 2009 8% 18.53% 15.23% 1. Capitaladequacy 2. Liquidity Not lower than 30% 32.82% 40.74% Overall open position Overall open position Overall open position may not exceed 25 % – 1.08 % and open – 0.74 % and open and open position in position in one position