Hierarchy of financial instruments carried at fair value by the method of fair value

Liabilities arising from the issue of own bonds were recognized in the book value due to the fact that transactions took place in November and the market conditions at year end did not change significantly.

Liabilities to banking entities

Due to the short term, deposits have been included in the book value and outstanding loans (principal and interests) are discounted using average effective rate of liabilities towards banks incurred in 2010.

44. Hierarchy of financial instruments carried at fair value by the method of fair value measurement

31 December 2010

Level 1 Level 2 Level 3 Total

Trading securities 56 317 - - 56 317

Debt securities 56 317 - - 56 317

Derivatives - 1 786 - 1 786

Investment securities – Available for Sale

2 100 608 670 469 35 059 2 806 136 Debt securities

2 078 153 670 469 - 2 748 622 Equity instruments

22 455 - 35 059 57 514

Total 2 156 925 672 255 35 059 2 864 239

Level 2

Financial liabilities held for trading:

Derivatives 75 686

Total 75 686

Investment securities - Available for sale Level 3

Opening balance as at 01-01-2010 33 250

Increases (including) 1 964

- positive valuation 1 964

Decreases (including) 155

- sale and redemption 155

Closing balance as at 31-12-2010 35 059

31 December 2009

Level 1 Level 2 Level 3 Total

Trading securities 52 665 110 - 52 775

Debt securities 52 665 110 - 52 775

Derivatives - 7 160 - 7 160

Investment securities – Available for Sale 440 318 604 713 33 250 1 078 281 Debt securities

378 898 604 713 - 983 611

Equity instruments

61 420 - 33 250 94 670

Pledged assets - 269 285 - 269 285

Total 492 983 881 268 33 250 1 407 501

Level 2

Financial liabilities held for trading:

Derivatives 14 499

Total 14 499

Financial asset available for sale Level 3

Opening balance as at 01-01-2009 126

Increases (including) 33 135

- takeover of shares 33 056

- positive valuation 79

Decreases (including) 11

- negative valuation 6

- other 5

Closing balance as at 31-12-2009 33 250 45. Segment reporting

According to the requirements set by IFRS 8 operating segments were determined based on the internal management reports regarding components of the entity that is evaluated regularly by the chief operating decision maker. IFRS 8 defines operating segment as a part of the entity’s operations that meets three conditions:

a) the component engages in business activities from which it may earn revenues and incur expenses,

b) the component’s operating results are regularly reviewed by the entity's chief operating decision maker, and

c) discrete financial information is available for the component.

Segment reporting procedures for the periods ended on 31 December 2010 and 31 December 2009 are split into the following types of business activities:

(i) corporate clients and public finance entities;

(ii) retail clients;

(iii) activities on the inter-bank market and the market of debt securities;

(iv) other non-allocated to the segments

The activity carried out in the corporate and public finance segment involves transactions performed by the Bank's branch network dedicated to the corporate and public finance customers.

Whereas the Bank's activity towards retail client relates to the transactions with customers being individuals, micro enterprises and housing communities.

Included in the inter-bank and investment area, are the inter-bank activities as well as activities with the use of debt securities, derivatives and capital investments.

The type ‘other’ (non-allocated to the segments) includes parts of profit and loss account, which were not allocated to any of the segments mentioned in (i)-(iv) types of activities, in particular interest and commission income and costs generated from assets and liabilities related to non-classified clients and general administrative expenses.

Products of divisions and areas of activities specified in items (i)-(iv) above have been described in the Directors’ Report of the Bank Ochrony Środowiska S.A. in 2010, Item I sub-item 3.

Products of the segment of inter-bank operations and investment securities comprise current and term inter-bank placements and deposits, loans from other banks and loans granted to other banks, equity and debt securities, as well as derivatives.

Assets and liabilities of the segments specified in sub-item (i)-( ii) above were isolated based on the Bank’s loan and deposit base.

I. The result from the operating activities of corporate clients and public finance entities as well as retail segment is the result from financial activities of those segments decreased by the general administration costs assigned to each segment based on the ‘Methodology for allocation of general administrative expenses to the Banks’ business areas’ (‘Metodyka alokacji ogólnych kosztów administracyjnych na obszary działalności Banku’).

Since 1 January 2010, the results of areas of activity has been calculated on the basis of the revised

‘Methodology for allocation of general administrative expenses to the Banks’ business areas’. The most important change implemented by the new Methodology is to settle all the general administrative expenses within the areas of the operations, whereas, in the same period of the previous year, a part of the general administrative costs were not allocated to segments.

Administrative costs are allocated taking into account, among others, following keys: rate of regular posts, amount of loans, amount of placements and the number of customers holding a current account. For the presentational purposes, the general administrative costs have been divided into:

direct and indirect costs of the branch network, direct and indirect costs of the Headquarters, amortization and other costs (taxes, BFG, PFSA, mutual services). Due to technical reasons, data for the comparative period were not restated for comparability.

In addition, the interest income and, consequently, the net result of the activities towards retail clients, has been charged in significant amount as a result of changes in the methodology of the determination of the cost of internal transfer of cash. In the first half of 2009, there was the Internal Money Rates methodology in force, based on the short-term rates in the interbank market.

The introduction of a mechanism of internal rates, in the second half of 2009, has made the settlement between finance divisions real, but at the same time it has also caused the lack of comparability of results for 2009 and 2010 at the level of internal reporting due to the significant change in methodology. Amendment to the settlement of Internal Money Price into Transfer Rates has charged results of the retail division in an approximate amount of PLN 5.2 million. Additionally, in 2010, as a result of the development of the methodologies of the divisions’ evaluation, there has been an amendment to the methodology of the allocation of the result of cost settlements arising from the margins protecting liquidity. The change caused another charge in the retail division at the amount of PLN 4.2 million, in comparison to the methodology of 2009.

The segment financial results represent the sum of the following components:

1. Result from deposit activities, calculated as the difference between income from investment funds calculated based on the intrinsic value of money and costs of obtaining deposits.

Net interest income on deposit activities of each segment is calculated on the basis of average (daily) deposit balances of each segment and the intrinsic value of the money (separately for each currency in the first half of 2009) or transfer prices (since July 2009);

The intrinsic value of money was the interest rate on current accounts maintained by the Bank’s branches with the Headquarters. The Bank determines the intrinsic value of money every month, based on the average reference 1M rates for individual currencies, taking into account an adjusting margin. The average reference rates were calculated based on the data from the REUTERS information system.

The transfer price is a percentage rate of money gained and stocked by business sections of the Bank, needed to the calculation of the internal financial income of Bank’s sections for analytical purposes and for the effective income and risk management of the Bank, especially as regards

the interest risk in the banking book. To each transaction, individual transfer price in assigned and each individual transfer price is a sum of the market rate compliant with the revaluation period and the currency as well as the corrective margin. Transfer prices are estimated according to the ‘Methods of transfer prices estimation in Bank Ochrony Środowiska S.A.’.

2. Result from lending activities – calculated as the total of interest income on loans granted from own funds, interest income and interest fees on loans granted from third party funds, and of the difference of impairment against loans and advances and off-balance sheet liabilities net of costs of financing the lending activities calculated using the intrinsic value of money (I half of 2009) or transfer prices (since July 2009).

The costs of financing the lending activities for the given segment is determined based on the average (from daily balances) balance of the loan volume from own funds of the given segment less impairment losses against loans and advances and the average intrinsic value of money, set separately for each currency (I half of 2009) or transfer prices (since July 2009).

3. Result on obligatory reserve, calculated as the difference between interest income from the current account with NBP allocated to the segments with the allocation key being their share in the (average coverage from daily balances) deposits collected by each segment in prior month, and the costs of financing the current account with NBP.

Financing cost of the current account with NBP (obligatory reserve) for the given segment is established by the average share (average of daily balances) of the balance of cash on the current account with NBP and the average intrinsic value of the money (I half of 2009) or transfer prices (since July 2009). The amount of cash allocated to each segment is determined using the average (from daily balance) of deposits of the given segment from previous month.

4. Net result on debt securities, calculated as the total of commission income for the servicing of the municipal / corporate bonds

5. Net commission income – calculated as the difference between the total of commission income on loans and commission income related to the deposit accounts and income on bank cards not allocated to deposit or credit accounts and commission cost

6. Net foreign exchange gains – calculated as gains on FX transactions and gains on other realized exchange rate transactions allocated to the segments, based on the average scale of loan volume in foreign currencies.

7. Result from other income and costs excluding administration costs – calculated as the difference between other operating income and other operating expenses of the given segment.

II. Segment result from the activities on the inter-bank and investment activities comprise the total of the results on the inter-bank market and in the area of equity investments of the Bank.

Result from operating activities on the inter-bank market and from equity investments is calculated as the result from financial activities of the given area of activity, net of general administrative expenses, assigned to that area based on the Methodology for allocation of general administrative expenses to the Banks’ business areas.

Segment results on the inter-bank markets comprise the total of the following elements:

 net interest income from the inter-bank market’s instruments– calculated as the difference between the interest income on assets allocated to inter-bank segment and the costs of financing these assets calculated with the use of the intrinsic value of money (I half of 2009) or transfer prices (since July 2009);

 net interest income on inter-bank liabilities – calculated as the difference between income funds raised in the form of inter-bank deposits and loans received from other banks,

and income from investing those funds calculated using the intrinsic value of money (I half of 2009) or transfer prices (since July 2009);

 income from investments from own funds of the Bank calculated based on the intrinsic value of the money (I half of 2009) or transfer prices (since July 2009);

 net foreign exchange gains (except for income assigned to other segments);

 result on trading activities;

 result on investment securities – in the part relating to the debt securities and the valuation of financial instruments.

The result on financial activities with equity investments is composed of the following items:

- dividend income,

- income from investment securities in the part related to shares, - difference in the impairment allowance for shares.

For the presentational purposes, the result from the interbank and investment activities has been divided into three sub-areas:

i) trading,

ii) long-term financing and liquidity iii) capital investments.

The result on the financial operations of trading activities includes: the result of trading securities, the result of the investment in debt securities portfolio and net foreign exchange.

The result on the financial operations with reference to the financing and liquidity includes the net interest income and the result of write-offs (net) of impaired loans and advances constituting a portfolio of debt securities as well as the deposit and credit activities in the interbank market.

In determining the result on financial activities with equity investments it is assumed that these activities are financed only by own funds of the Bank (this assumptions was made based on the regulations concerning calculation of the capital adequacy of the Bank).

Due to the specific nature of the Bank’s business, no trends of seasonal or cyclical nature were noted. The Bank provides financial services, for which the demand is stable, and the effect of the seasonality is immaterial.

The results of the segments’ activities are calculated in this way; however, for the cohesion with the format used in the management information, the form of the profit and loss schedule has been adopted in the below included tables.

The table below presents standalone financial results of BOŚ S.A. for the period of 12 months ended 31 December 2010 and 31 December 2009, by reporting segments.

including:

No.

Statement presenting elements of income statement

for the period of 12 months ending 31 December 2010

PUBLIC FINANCE ENTITIES AND CORPORATE CLIENTS RETAIL CLIENTS *\ INTER-BANK MARKET AND INVESTMENT ACTIVITIES Trading Long term financing and liquidity Capital investments OTHER (NON-ALLOCATED IN THE SEGMENTS) BANK

I. Net interest income: 137 903 79 257 36 558 - 36 558 - -824 252 894

1. Interest income 635 672 316 541 494 690 - 494 690 - 429 1 447 332

-transactions with external clients 358 460 176 048 134 378 - 134 378 - - 668 886

-transactions with other segments 277 212 140 493 360 312 - 360 312 - 429 778 446

2. Interest costs -497 769 -237 284 -458 132 - -458 132 - -1 253 -1 194 438

-transactions with external clients -234 137 -140 631 -39 998 - -39 998 - -1 226 -415 992

-transactions with other segments -263 632 -96 653 -418 134 - -418 134 - -27 -778 446

II. Net fee and commission income: 29 972 32 906 - - - - 949 63 827

1. Fee and commission income 30 296 41 974 - - - - 2 660 74 930

2. Fee and commission expense -324 -9 068 - - - - -1 711 -11 103

III. Dividend income - - 9 159 - - 9 159 - 9 159

IV. Net trading income - 12 755 5 427 5 427 - - - 18 182

V. Net income on investment securities - - 3 787 5 020 - -1 233 - 3 787

VI. Result on foreign exchange 9 764 36 916 348 348 - - -90 46 938

VII. Net income on other operating income and expenses -1 261 -56 - - - - -181 -1 498

VIII. Net impairment gains/ losses -20 544 -34 781 19 709 - 19 709 - -1 227 -36 843

IX. Result on financing activities 155 834 126 997 74 988 10 795 56 267 7 926 -1 373 356 446

1. Direct costs of branch network -19 860 -55 640 - - - - -31 -75 531 Result on financing activities

+ 1. 135 974 71 357 74 988 10 795 56 267 7 926 -1 404 280 915

2. Direct costs of Headquaters -13 009 -22 223 -3 459 -553 -2 906 - - -38 691