Half-year Report

RNS Number : 2606Y

TBC Bank Group PLC

20 August 2018

TBC BANK GROUP PLC ("TBC Bank")

2Q AND 1H 2018 UNAUDITED CONSOLIDATED FINANCIAL RESULTS

Forward-Looking Statements

This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or the "Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the achievement of anticipated levels of profitability, growth, cost and recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Georgian economic, political and legal environment, financial risk management and the impact of general business and global economic conditions.

None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and subject to compliance with applicable law and regulation the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management's accounts and financial statements. The areas in which the management's accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

Second Quarter and First Half of 2018 Unaudited Financial Results Conference Call

TBC Bank Group PLC ("TBC PLC") will release its unaudited consolidated financial results for the second quarter and first half of 2018 on Monday, 20 August 2018 at 7.00 am BST (10.00 am GET).

On that day, Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze, CFO, will host a conference call to discuss the results.

Date & time: Monday, 20 August 2018 at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT)

Please dial-in approximately five minutes before the start of the call quoting the password TBC:

Password:	TBC
UK Toll Free:	0808 109 0700
Standard International Access:	+44 (0) 20 3003 2666
USA Toll Free:	1 866 966 5335
New York New York:	+1 212 999 6659
Russia Toll Free:	8 10 8002 4902044
Moscow:	+7 (8) 495 249 9843

Replay Numbers
Replay Passcode:	8861063
UK Toll Free:	0800 633 8453
Standard International Access:	+44 (0) 20 8196 1998
USA Toll Free:	1 866 583 1035
Russia Toll Free:	8 10 8002 4832044
Moscow:	+7 (8) 495 249 9840

Contacts

Zoltan Szalai

Director of International Media and Investor Relations

E-mail: ZSzalai@Tbcbank.com.ge

Tel: +44 (0) 7908 242128

Web: www.tbcbankgroup.com

Address: 68 Lombard St, London EC3V 9LJ, United Kingdom

Anna Romelashvili

Head of Investor Relations

E-mail: IR@tbcbank.com.ge

Tel: +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

Investor Relations Department

E-mail: IR@tbcbank.com.ge

Tel: +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

Table of Contents

2Q and 1H 2018 Results Announcement

TBC Bank - Background

Financial Highlights

Recent Developments

Outlook

Letter from the Chief Executive Officer

Economic Overview

Unaudited Consolidated Financial Results Overview for 2Q 2018

Unaudited Consolidated Financial Results Overview for 1H 2018

Additional Disclosures

Principal Risks and Uncertainties

Statement of Directors' Responsibilities

Unaudited Condensed Consolidated Interim Financial Information

TBC BANK Group PLC ("TBC Bank")

TBC Bank Announces Unaudited 2Q and 1H 2018 and Consolidated Financial Results:

Underlying¹ Net Profit for 2Q 2018 up by 38.8% YoY to GEL 119.9 million

Underlying¹ Net Profit for 1H 2018 up by 17.8% YoY to GEL 217.4 million

European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.7% of its business is concentrated, and where it has 37.1% market share by total assets. TBC Bank offers retail, corporate, and MSME banking nationwide.

These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date allowed under the International Financial Reporting Standards ("IFRS") as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.

In 4Q 2016, TBC Bank acquired Bank Republic which has been consolidated into the Group's results.

The results reported below prior to 30 September 2016 relate to the group previously headed by JSC TBC Bank Georgia.

Financial Highlights

2Q 2018 P&L Highlights

§ Underlying[1] net profit amounted to GEL 119.9 million (2Q 2017: GEL 86.3 million; 1Q 2018: GEL 97.5 million)

§ Reported net profit amounted to GEL 102.4 million (2Q 2017: GEL 79.9 million; 1Q 2018: GEL 97.5 million)

§ Underlying¹ return on equity (ROE) amounted to 24.9% (2Q 2017: 20.4%; 1Q 2018: 21.0%)

§ Reported return on equity (ROE) amounted to 21.3% (2Q 2017: 18.9%; 1Q 2018: 21.0%)

§ Underlying¹ return on assets (ROA) amounted to 3.7% (2Q 2017: 3.2%; 1Q 2018: 3.2%)

§ Reported return on assets (ROA) amounted to 3.2% (2Q 2017: 3.0%; 1Q 2018: 3.2%)

§ Total operating income amounted to GEL 258.4 million, up by 24.8% YoY and up by 8.3% QoQ

§ Cost to income was 35.6% (2Q 2017: 44.9%; 1Q 2018: 38.1%)

§ Cost of risk stood at 1.8% (2Q 2017: 1.3%; 1Q 2018: 1.3%)

§ FX adjusted cost of risk stood at 1.7% (2Q 2017 1.5%; 1Q 2018: 1.7%)

§ Net interest margin (NIM) stood at 7.1% (2Q 2017: 6.8%; 1Q 2018: 6.9%)

§ Risk adjusted net interest margin (NIM) stood at 5.5% (2Q 2017: 5.3%; 1Q 2018: 5.2%)

1H 2018 P&L Highlights

§ Underlying¹ Net profit amounted to GEL 217.4 million (1H 2017: GEL 184.5 million)

§ Reported Net profit amounted to GEL 200.0 million (1H 2017: GEL 176.4 million)

§ Underlying¹ Return on equity (ROE) without one-offs of 23.0% (1H 2017: 22.5%)

§ Reported Return on equity (ROE) amounted to of 21.2% (1H 2017: 21.5%)

§ Underlying¹ return on assets (ROA) was 3.4% (1H 2017: 3.5%)

§ Reported return on assets (ROA) was 3.1% (1H 2017: 3.3%)

§ Total operating income for the period was up by 21.1% YoY to GEL 497.1 million

§ Cost to income stood at 36.8% (1H 2017: 42.8%)

§ Cost of risk on loans stood at 1.6% (1H 2017: 1.1%)

§ FX adjusted cost of risk stood at 1.7% (1H 2017: 1.5%)

§ Net interest margin (NIM) stood at 7.0% (1H 2017: 6.7%)

§ Risk adjusted net interest margin (NIM) stood at 5.3% (1H 2017: 5.2%)

Balance Sheet Highlights as of 30 June 2018

§ Total assets amounted to GEL 13,584 million as of 30 June 2018, up by 20.4% YoY and up by 9.5% QoQ

§ Gross loans and advances to customers stood at GEL 8,896 million as of 30 June 2018, up by 20.4% YoY and up by 5.5% QoQ

§ Net loans to deposits + IFI funding stood at 89.5% and Net Stable Funding Ratio (NSFR) stood at 127.8%

§ NPLs stood at 3.1%, down by 0.3pp YoY and unchanged QoQ

§ NPLs coverage ratios stood at 116.1% or 216.1% with collateral on 30 June 2018 compared to 84.3% or 219.3% with collateral as of 30 June 2017[2] and 114.6% or 225.8% with collateral on 31 March 2018

§ Total customer deposits stood at GEL 7,933 million as of 30 June 2018, up by 19.0% YoY and up by 4.2% QoQ

§ As of 30 June 2018, the Bank's Tier 1 and Total Capital Adequacy Ratios (CAR) per the new NBG methodology stood at 13.4% and 17.0% respectively, while minimum requirements amounted to 10.2% and 15.6%

Market Shares[3]

§ Market share in total assets reached 37.1% as of 30 June 2018, up by 0.8pp YoY and up by 1.8pp QoQ

§ Market share in total loans was 38.3% as of 30 June 2018, up by 0.3pp YoY and up by 0.5pp QoQ

§ In terms of individual loans, TBC Bank had a market share of 39.8% as of 30 June 2018, down by 1.0pp YoY and up by 0.2pp QoQ. The market share for legal entity loans was 36.5%, up by 1.6pp YoY and up by 0.9pp QoQ

§ Market share of total deposits reached 39.5% as of 30 June 2018, down by 0.3pp YoY and up by 0.6pp QoQ

§ Market share of individual deposits attained to 41.2% up by 1.0pp YoY and up by 0.6pp QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 37.5%, down by 1.9pp YoY and up by 0.5pp QoQ

Recent Developments

Strategic partnership agreement in Azerbaijan

§ TBC Bank has signed a conditional, non-binding strategic partnership agreement with Nikoil Open Join-Stock Company Investment Commercial Bank ("Nikoil Bank") to develop its business in Azerbaijan by merging TBC Bank's Azerbaijani subsidiary, TBC Kredit, with Nikoil Bank;

§ The merger is subject to the approval of all relevant authorities, the successful completion of due diligence and the fulfilment of certain other conditions. After the merger, TBC Bank would own up to 10% of the merged entity with a call option to acquire additional shares of the merged entity to reach a 50% +1 share interest at our sole discretion over a three-year period;

§ Subject to the completion of the merger, TBC Bank would contribute to the development and execution of the merged entity's strategy. TBC Bank would be represented on the board of Nikoil Bank and, together with Nikoil management, would play a crucial role in the future development of the company;

§ Without additional investment at the initial stage, the transaction will allow TBC Bank to become a shareholder in Azeri banking business with an option to benefit from the potential recovery of the Azeri economy and banking sector in the coming years.

Changes to the Georgian Tax Code

§ In 2Q 2018, TBC Bank reversed the one-off deferred tax gain recognized in 2016 due to the recent amendment to the Georgian Tax Code in relation to corporate income tax. The amendment, which came into force on 12 June 2018, postponed tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for financial institutions. This reversal has resulted in a GEL 17.4 million expense on the profit and loss statement and a GEL 5.1 million reduction in equity in Q2 2018.

Launching Macroeconomic and Financial Sector Research

· TBC Bank has launched a research portal -TBC Research, which provides analysis of developments in the Georgian economy and its various sectors, as well as in the region. TBC Research publications are available on www.tbcresearch.ge.

Outlook

International Strategy

To build upon our leading position in the Georgian market, the successful implementation of our digital strategy and the very promising results of our newly-launched fully-digital bank, Space, we will also consider entering other markets to further increase our banking operations beyond Georgia.

Additional Information Disclosure

Additional historical information for certain P&L, balance sheet and capital items, and on asset quality is disclosed on our Investor Relations website on http://tbcbankgroup.com/ under the Financial Highlights section.

Letter from the Chief Executive Officer

I am pleased to present another set of strong financial results for the second quarter 2018, driven by the successful execution of our strategy and the continued strong performance of the Georgian economy.

In the second quarter of 2018, we achieved an underlying consolidated net profit[4] of GEL 119.9 million, up by 38.8% year-on-year. As a result, our underlying return on equity reached 24.9%, up by 4.5 percentage points year-on-year, while the underlying return on assets was 3.7%, up by 0.5 percentage points year-on-year.

Our strong performance in the second quarter 2018 was driven by strong growth in operating income. Net interest margin improved to 7.1%, up by 0.3 percentage points year-on-year and 0.2 percentage points quarter-on-quarter. The increase was driven by a rise in yields on local currency loans both on a year-on-year and quarter-on-quarter basis resulting from our increased focus on loan yield management. In addition, the cost of funding decreased by 0.1 percentage points year-on-year, driven by a decrease in the cost of foreign currency deposits, which more than offset the increase of the Libor rate.

Net fee and commission income continued its strong growth in the second quarter 2018 and increased by 36.3% year-on-year, mainly driven by card and settlement operations. Over the same period, operating expenses decreased by 0.9% year-on-year on reported basis and increased only by 8.0% year-on-year on underlying basis. Quarter-on-quarter operating expenses remained broadly stable, despite seasonally low cost base in the first quarter. This was supported by increased automatisation in front and back offices and successful implementation of our digitalisation strategy, as well as cost synergies related to the integration of Bank Republic. Given the new levels of our income and improved cost management, we are confident to upgrade our medium term cost to income guidance from below 40% to below 35%.

We recorded strong balance sheet growth across all business segments in the second quarter 2018. Our loan book expanded by 20.4% year-on-year, which resulted in an increase in market share to 38.3%, up by 0.3 percentage points year-on-year. Over the same period our asset quality remained sound with FX adjusted cost of risk amounting to 1.7%, while our non-performing loans improved by 0.3 percentage points year-on-year and stood at 3.1%. Customer accounts grew by 19.0% year-on-year, leading to a market share of 39.5%.

We continue to operate with a strong capital base. As of 30 June 2018, our total capital adequacy ratio (CAR) per Basel III guidelines stood at 17.0%, above the minimum requirement of 15.6%, while our tier I capital ratio was 13.4%, well above the minimum requirement of 10.2%. Our regulatory liquidity coverage ratio stood at 119%, compared to the minimum requirement of 100%, while net loans to deposits + IFI funding was 90% and the net stable funding ratio (NSFR) was 128%.

The macroeconomic environment in Georgia continues to be favourable. GDP growth has accelerated this year, reaching 5.7% in the first six months. Higher than expected growth led the National Bank of Georgia to revise its growth forecast to 5.5% for 2018, up from its previous projection of 4.8%. This strong performance was supported by the steady growth of exports, up by 28.5% year-on-year, and increasing tourism revenues, up by 25.3% year-on-year in 1H 2018. Over the same period, remittances also demonstrated solid growth, up by 18.3% year-on-year. Inflation has aligned closely to the 3.0% target and stood at 2.2% in June 2018. Lower inflationary risks led the National Bank of Georgia to decrease the policy rate by 0.25 basis point to 7.0% in July 2018. The strong macroeconomic environment continued to provide solid grounds for banking sector performance. Given the strong momentum in 2017 and in the first half of 2018, as well as strong performance in export and tourism, we expect that the economic growth will still outperform the initial GDP forecast despite the recent development in Turkey and the region and its potential impact on Georgian Economy.

I would also like to provide a brief update on our international business. As recently announced, we have signed a conditional, non-binding strategic partnership agreement with Nikoil Bank to further develop our business in Azerbaijan by merging our Azerbaijan subsidiary, TBC Kredit with Nikoil Bank. The merger is subject to the approval of all relevant authorities, the successful completion of due diligence and the fulfilment of certain other conditions. After the merger, TBC Bank would own up to 10% of the merged entity with a call option to acquire additional shares of the merged entity to reach a 50% +1 share interest at our sole discretion over a three-year period. Subject to the completion of the merger, TBC Bank would contribute to the development and execution of the merged entity's strategy. TBC Bank would be represented on the board of Nikoil Bank and, together with Nikoil management, would play a crucial role in the future development of the company. Without additional investment at the initial stage, the transaction will allow us to become shareholders in Azeri banking business with an option to benefit from the potential recovery of the Azeri economy and banking sector in the coming years.

I am also delighted to report that the first few months of operations for Space, our fully digital bank, have exceeded our original expectations: it is gaining popularity very quickly and has attracted around 128,000 users as of 31 July 2018 since its launch in May 2018. According to our plans, Space will also play an important role in our strategy for the development of our business in Azerbaijan.

At the same time, our Georgian speaking chatbot, Ti-Bot, which is available through Facebook messenger, is becoming a widespread communication channel among our customers. As of 30 June 2018, the number of users totalled around 177,000 and the number of messages received reached 10.4 million since the launch in March 2017. Usage of the voice biometrics recognition system, which was launched in our call centre at the end of 2017, is also increasing. In June 2018, we conducted 64,000 successful authentications, which represented 34% of total calls received.

Importantly, the number of transactions conducted through digital channels continued to grow steadily, resulting in an offloading ratio[5] of 90.1% in the second quarter of 2018, up by 4.6 percentage points year-on-year, while the mobile penetration ratio[6] stood at 32.9%, up by 8.2 percentage points year-on-year.

Outlook

The second quarter 2018 proved to be very successful as we managed to record strong financial results and to continue our significant progress in our digitalization strategy. As stated above, we have decided to upgrade our medium term cost to income target to below 35%, while reconfirming our other medium-term targets: ROE of above 20%, dividend pay-out ratio of 25-35% and loan book growth of around 15%.

Economic Overview

Economic growth

Economic growth continues to strengthen, supported by strong external as well as domestic demand. GDP growth averaged 5.3% in 1Q 2018 and improved further to 5.7% during the first half of 2018, notably higher than the 5.0% growth in 2017. Economic growth in 1Q 2018 was broad-based in almost all sectors of the economy. Manufacturing (+5.6% YoY), trade and repairs (+5.1% YoY), hotels and restaurants (+10.9% YoY), construction (+8.7% YoY) and real estate (+13.4% YoY) represented the major drivers of growth in 1Q 2018, while almost all other sectors of the economy also posted positive growth rates. Given the faster than initially expected growth, the National Bank of Georgia revised the growth projection for 2018 to 5.5%, up from its previous projection of 4.8%.

Exports of goods increased by 30.0% YoY in 2Q 2018. Exports to the EU increased by 16.9% YoY, while exports to the CIS went up by 52.8% YoY. Exports increased also to other countries by 12.5% YoY over the same period. Growth of imports remained high (+22.7% YoY), reflecting the recovery in domestic investment and consumption demand. Capital and intermediate goods went up by +24.9% YoY and remained the major driver of growth in total imports. Imports of consumer goods also increased by +11.2% YoY, while imports of petroleum and transportation goods increased by +22.8% YoY and +45.3% YoY, respectively.

Tourism inflows growth remained strong at 22.9% YoY in 2Q 2018. The number of visitors from the EU countries grew at the highest rate at 37.6% YoY, while visitors from the CIS and other countries grew at 9.3% YoY and 18.3% YoY, respectively.

Amid improved economic performance in the major remitting countries, remittances grew by 14.9% YoY. The growth of inflows was fastest from the EU (+31.7% YoY), followed by other countries (+15.7% YoY), and the CIS (+1.2% YoY). The EU became the major source for remittances inflows with 34.4% share of total inflows in 1H 2018, while the share of CIS countries stood at 34.1%.

The current account deficit remained almost unchanged in 1Q 2018, despite the stronger growth. Increased imports of goods, driven mostly by higher imports of capital and intermediate goods as well as petroleum products, were broadly balanced by increased exports of goods and higher tourism inflows. The current account deficit to GDP ratio stood at 9.0% over the last four quarters as of 1Q 2018, 0.1pp above the same ratio in 2017.

In terms of domestic demand, consumption as well as investment demand drove GDP growth. Consumption increased by 5.4% YoY in 1Q 2018 in nominal terms. Increasing wages (+7.1% YoY) and remittances, as well as higher retail lending coupled with improved consumer confidence, drove consumption growth.

Investments growth accelerated to 28.7% YoY in 1Q 2018, reflecting improved business sentiments and the recovery of business lending. On top of that, higher investment growth was supported by public investments. Public capital spending grew by a solid 35.4% YoY in 1H 2018 and remained supportive of economic growth in the first half of 2018.

Growth of bank credit to the private sector stood at 18.5%[7] YoY, as of June 2018. Credit growth was mostly driven by the growth of loans in the national currency (+28.8% YoY), while foreign currency loans went up by 10.9% (excl. FX effect) over the same period. From the segments perspective, loans to individuals increased by 22.2% YoY and loans to legal entities by 15.5% YoY, both at constant exchange rates.

Recent developments in Turkey are expected to have negative impact on economic growth in Georgia. However, the magnitude should be moderate of around 0.5% of GDP, according to TBC Bank economic team estimates. Georgia's total exposure to Turkey as measured by exports, tourism, remittances and FDI inflows stood at around 6% of GDP and at around 10% of total inflows as of 2017. Existing structure of exports of goods enables us to argue that the impact on exports should be limited. As for the tourism inflows, while the purchasing power of visitors from Turkey is expected to decrease, the growth in number of visitors remains strong and is expected to be relatively less affected. Remittances should decline the most, but given the small size, it will have limited impact on the overall growth. In addition, no material negative impact is expected from FDIs thanks to significant share of British Petroleum project in FDI inflows. While imports level from Turkey is substantial, overall weaker TRY is expected to substitute imports from other countries, rather than putting competitive pressures on domestic producers. Furthermore, due to large share of capital and intermediate goods in imports from Turkey, TRY depreciation can also be seen as a positive supply side shock.

Until August, the exchange rate of GEL against major currencies remained broadly stable. As of the end of June 2018, the USD/GEL exchange rate depreciated by 1.8% YoY, while the EUR/GEL exchange rate depreciated by 4.0% YoY. The real effective exchange rate gained 0.3% YoY in the same period. As of August 13, GEL depreciated by 6% YoY against USD and by 3.3% against EUR. While GEL/TRY exchange rate appreciated substantially, GEL real effective exchange rate appeared to be around its trend.

Inflation and monetary policy

After the above target inflation in 2017, which was mostly driven by a one-off increase of excise taxes, inflation aligned closer to the target in the first half of 2018. As of June 2018, CPI inflation stood at 2.2%. The growth of prices of alcoholic beverages, tobacco, food and non-alcoholic beverages decelerated markedly, while clothing and footwear prices declined the most in June 2018.

Lower inflationary risks led the Monetary Policy Committee of the National Bank of Georgia to decrease the policy rate by 0.25 basis point to 7.0% in July 2018. According to the NBG, inflation is expected to remain close to its targeted level of 3.0% during the year. In committees' view, aggregate demand is approaching its potential level, which reduces downward pressure on prices. However, appreciation of the nominal effective exchange rate reduces inflationary pressures. At the same time, further reduction of the policy rate will be slower than projected by the NBG previously given the higher than expected recovery of aggregate demand.

Fiscal policy

The budget deficit over the last four quarters stood at 3.6% of GDP as of 1Q 2018, 0.2pp lower than the 2017 figure. Consolidated budget revenues posted 7.6% growth in the first half of 2018 while tax revenues went up by 5.8% YoY over the same period. In the first half of 2018, public infrastructure spending went up by 52.8% YoY, while current expenditures remained flat on an annual basis (+0.4% YoY in 1H 2018), resulting in a sizeable increase in the operating surplus of the consolidated budget (+52.8% YoY).

In July 2018 new changes in the tax code were approved, which broadens the definition of micro business and reduces the tax burden for these types of businesses. These changes are expected to further promote business activity in this segment.

Going forward

The Georgian economy continues its solid growth performance supported by the favorable external environment and stronger domestic demand. Continued reforms help to accelerate growth and outperform most of Georgia's peer countries in Eastern Europe and CIS. As per the IMF's projections, growth is expected to average 5% over the next five years, well above the average growth in the broader region.

Unaudited Consolidated Financial Results Overview for 2Q 2018

This statement provides a summary of the unaudited business and financial trends for 2Q 2018 for TBC Bank Group plc and its subsidiaries. Quarterly financial information and trends are unaudited.

TBC Bank Group PLC financial results are adjusted for certain one-off items, to enable better analysis of the Group's performance. The reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given in annex 20 on pages 47-48.

Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15 as explained in details in note 2 to consolidated financial statements on pages: 69-75. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.

Please note, that there might be slight differences in previous periods' figures due to rounding,

Income Statement Highlights
in thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Net Interest Income	188,204	175,403	149,741	25.7%	7.3%
Net Fee and Commission Income	39,162	34,920	28,741	36.3%	12.1%
Other Operating Non-Interest Income	31,052	28,376	28,610	8.5%	9.4%
Provisioning Charges	(35,091)	(39,463)	(25,715)	36.5%	-11.1%
Operating Income after Provisions for Impairment	223,327	199,236	181,377	23.1%	12.1%
Operating Expenses	(92,090)	(90,932)	(92,930)	-0.9%	1.3%
Profit Before Tax	131,237	108,304	88,447	48.4%	21.2%
Income Tax Expense	(28,799)	(10,779)	(8,590)	NMF	NMF
Reported Profit for the Period	102,438	97,525	79,857	28.3%	5.0%
Underlying Profit for the Period	119,864	97,526	86,349	38.8%	22.9%

NMF - no meaningful figures

Balance Sheet and Capital Highlights

	Jun-18		Mar-18		Change QoQ
In Millions	GEL	USD	GEL	USD
Total Assets	13,584	5,541	12,401	5,136	9.5%
Gross Loans	8,896	3,629	8,433	3,493	5.5%
Customer Deposits	7,933	3,236	7,611	3,152	4.2%
Total Equity	1,944	793	1,930	800	0.7%
Regulatory Tier I Capital (Basel III)*	1,499	611	1,517	628	-1.2%
Regulatory Total Capital (Basel III)*	1,908	778	1,943	805	-1.8%
Regulatory Risk Weighted Assets (Basel III)*	11,200	4,569	11,000	4,556	1.8%

*Per new NBG regulation which came into force in December 2017

Key Ratios	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Underlying ROE	24.9%	21.0%	20.4%	4.5%	3.9%
Reported ROE	21.3%	21.0%	18.9%	2.4%	0.3%
Underlying ROA	3.7%	3.2%	3.2%	0.5%	0.5%
Reported ROA	3.2%	3.2%	3.0%	0.2%	0.0%
Cost to Income	35.6%	38.1%	44.9%	-9.3%	-2.5%
Cost of Risk	1.8%	1.3%	1.3%	0.5%	0.5%
FX adjusted Cost of Risk	1.7%	1.7%	1.5%	0%	0.2%
NPL to Gross Loans	3.1%	3.1%	3.4%	-0.3%	0.0%
Regulatory Tier 1 CAR (Basel III)*	13.4%	13.8%	10.8%	2.6%	-0.4%
Regulatory Total CAR (Basel III)*	17.0%	17.7%	14.6%	2.4%	-0.5%
Leverage (Times)	7.0x	6.4x	6.7x	0.3x	0.6x

*2018 figures are given per new NBG regulation, which came into force in December 2017, while 2Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

Income Statement Discussion

Net interest Income

In thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Loans and Advances to Customers	270,378	256,053	223,665	20.9%	5.6%
Investment Securities Available for Sale	11,968	13,167	10,286	16.4%	-9.1%
Due from Other Banks	7,027	4,919	3,157	NMF	42.9%
Bonds Carried at Amortized Cost	9,842	8,037	7,809	26.0%	22.5%
Investment in Leases	8,937	7,673	4,981	79.4%	16.5%
Interest Income	308,152	289,849	249,898	23.3%	6.3%
Customer Accounts	64,804	62,923	54,560	18.8%	3.0%
Due to Credit Institutions	44,785	41,477	36,589	22.4%	8.0%
Subordinated Debt	9,959	9,640	8,502	17.1%	3.3%
Debt Securities in Issue	400	406	506	-20.9%	-1.7%
Interest Expense	119,948	114,446	100,157	19.8%	4.8%
Net Interest Income	188,204	175,403	149,741	25.7%	7.3%

Net Interest Margin	7.1%	6.9%	6.8%	0.3%	0.2%

NMF - no meaningful figures

2Q 2018 to 2Q 2017 Comparison

Net interest income increased by GEL 38.5 million, or 25.7%, to GEL 188.2 million, compared to 2Q 2017, driven by a GEL 58.3 million, or 23.3%, higher interest income and a GEL 19.8 million, or 19.8%, higher interest expense.

Interest income grew by GEL 58.3 million, or 23.3%, YoY to GEL 308.2 million, mainly due to an increase in interest income from loans and advances to customers of GEL 46.7 million or 20.9%, which is primarily related to an increase in gross loan portfolio of GEL 1,510 million, or 20.4%, YoY. This effect was further magnified by a 0.1pp increase in loan yields, which was partially driven by increase in rates on GEL denominated loans by 1.3pp to 18.3%, that offset the decrease in yields on FC denominated loans by 1.1pp to 8.4%. The growth in interest income also resulted from a GEL 3.9 million, or 122.6%, higher interest income due from credit institutions and a GEL 4.0 million, or 79.4%, higher interest income from investment in leases(through our subsidiary), due to an increase in the size of the respective portfolios as well as an increase in their respective yields. Yields on amounts due from credit institutions have increased by 1.6pp and stood at 3.1%, while yields on investments in financial leases have increased by 0.6pp, amounting to 22.3%. Yields on interest earning assets expanded by 0.4pp to 11.7%, compared to 2Q 2017.

The GEL 19.8 million, or 19.8%, YoY growth in interest expense to GEL 119.9 million in 2Q 2018 was mainly due to GEL 10.2 million, or 18.8%, increase in interest expense on customer accounts and GEL 8.2 million, or 22.4%, increase in interest expense on amounts due to credit institutions. The increase in interest expense on customer accounts was attributable to a GEL 1,266.2 million, or 19.0%, growth in the respective portfolio. This effect was slightly offset by a 0.2pp drop in the cost of deposits to 3.3%, which resulted from a 0.4pp decrease in the cost of FC denominated deposits to 2.1%, while the cost of LC denominated deposits remained stable and stood at 5.8%. The increase in interest expense on amounts due to credit institutions was attributable to a GEL 784.1 million, or 33.9% increase in the respective portfolio and a 0.5pp increase in effective rates on the amounts due to credit institutions, up to 6.9%. The cost of funding decreased by 0.1pp and stood at 4.4%.

Consequently, NIM was 7.1% in 2Q 2018, compared to 6.8% in 2Q 2017, while the risk adjusted NIM stood at 5.5%, compared to 5.3% in 2Q 2017.

2Q 2018 to 1Q 2018 Comparison

On a QoQ basis, net interest income grew by 7.3% as a result of a 6.3% higher interest income and a 4.8% higher interest expense.

The GEL 18.3 million, or 6.3%, QoQ increase in interest income mainly resulted from the growth in interest income on loans by GEL 14.3 million, or 5.6%. This in turn was due both to an increase in loan portfolio of GEL 463 million, or 5.5%, and to a 0.2pp higher yield on loans. The increase in interest income was also magnified by an increase in interest income from due from other banks by GEL 2.1 million, or 42.9%, due to both growth in the respective portfolio and an increase in the respective yield by 0.9pp to 3.1%. The yield on interest earning assets, which stood at 11.5% in 1Q 2018, increased by 0.2pp.

The GEL 5.5 million, or 4.8%, QoQ increase in interest expense was primarily due to the GEL 3.3 million, or 8.0%, increase in interest expense on amounts due to credit institutions. The main driver of this increase was a rise in the balance of the respective portfolio by GEL 827.5 million, or 36.5%. The respective effective rate decreased by 0.1pp and stood at 6.9%. Another contributor to the increase in interest expense was the 3.0% higher interest expense on customer accounts. This, in turn, resulted from the GEL 321.8 million, or 4.2%, increase in the respective portfolio, while the cost of deposits remained flat and stood at 3.3%. The cost of funding remained stable and stood at 4.4%.

Consequently, on a QoQ basis, NIM increased by 0.2 pp in 2Q 2018, compared to 6.9% in 1Q 2018. Meanwhile risk adjusted NIM increased by 0.3pp compared to the previous quarter and stood at 5.5%.

Fee and Commission Income

In thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Card Operations	25,274	21,736	19,416	30.2%	16.3%
Settlement Transactions	17,454	16,239	14,063	24.1%	7.5%
Guarantees Issued	4,859	4,220	3,328	46.0%	15.1%
Issuance of Letters of Credit	1,289	1,071	2,050	-37.1%	20.4%
Cash Transactions	4,543	4,445	4,042	12.4%	2.2%
Foreign Currency Exchange Transactions	406	490	362	12.2%	-17.1%
Other	4,440	2,633	1,958	126.8%	68.6%
Fee and Commission Income	58,265	50,834	45,219	28.9%	14.6%
Card Operations	12,975	10,468	11,229	15.5%	23.9%
Settlement Transactions	2,143	2,142	1,866	14.8%	0.0%
Guarantees Issued	313	307	294	6.5%	2.0%
Letters of Credit	327	261	252	29.8%	25.3%
Cash Transactions	1,242	1,117	1,098	13.1%	11.2%
Foreign Currency Exchange Transactions	3	2	1	NMF	50.0%
Other	2,100	1,617	1,738	20.8%	29.9%
Fee and Commission Expense	19,103	15,914	16,478	15.9%	20.0%
Card Operations	12,299	11,268	8,187	50.2%	9.1%
Settlement Transactions	15,311	14,097	12,198	25.5%	8.6%
Guarantees	4,546	3,913	3,034	49.8%	16.2%
Letters of Credit	961	811	1,798	-46.6%	18.5%
Cash Transactions	3,301	3,328	2,944	12.1%	-0.8%
Foreign Currency Exchange Transactions	403	488	361	11.6%	-17.4%
Other	2,341	1,015	219	NMF	130.6%
Net Fee And Commission Income	39,162	34,920	28,741	36.3%	12.1%

2Q 2018 to 2Q 2017 Comparison

In 2Q 2018, net fee and commission income totalled GEL 39.2 million, up by GEL 10.4 million, or 36.3%, compared to 2Q 2017. This mainly resulted from the following sources: an increase in net fee and commission income from card operations of GEL 4.1 million, or 50.2%; an increase in net fee and commission income from settlement transactions of GEL 3.1 million, or 25.5%; and an increase in net fee and commission income from guarantees received of GEL 1.5 million, or 49.8%. In 2Q 2018 other net fee and commission income increased by GEL 2.1 million, mainly due to the arrangement fee of GEL 1.3 million related to one corporate client.

The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 25% and 11% respectively. The increase in net fee and commission income from settlement transactions was mainly related to our subsidiary, TBC Pay, driven by increased number of transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.

2Q 2018 to 1Q 2018 Comparison

On a QoQ basis, net fee and commission income increased by GEL 4.2 million, or 12.1%, compared to 1Q 2018. This was primarily driven by an increase in net fee and commission income from card transactions of GEL 1.0 million, or 9.1%, and an increase in net fee and commission income from settlement transactions of GEL 1.2 million, or 8.6% related to increased scale of business, as well as seasonally low fee and commission income in the first quarter. In 2Q 2018, other net fee and commission income increased by GEL 1.3 million, mainly due to the arrangement fee related to one corporate client, as mentioned above.

Other Operating Non-Interest Income and Gross Insurance Profit
In thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Net Income from Foreign Currency Operations	23,251	19,554	23,237	0.1%	18.9%
Share of Profit of Associates	340	308	484	-29.8%	10.4%
Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments	396	17	(35)	NMF	NMF
Revenues from Cash-In Terminal Services	226	1,027	334	-32.3%	-78.0%
Revenues from Operational Leasing	1,567	1,575	1,726	-9.2%	-0.5%
Gain from Sale of Investment Properties	855	1,041	982	-12.9%	-17.9%
Gain from Sale of Inventories of Repossessed Collateral	100	105	591	-83.1%	-4.8%
Administrative Fee Income from International Financial Institutions	-	-	(151)	NMF	NMF
Revenues from Non-Credit Related Fines	111	143	46	NMF	-22.4%
Gain on Disposal of Premises and Equipment	154	45	164	-6.1%	NMF
Other	799	2,515	(624)	NMF	-68.2%
Other Operating Income	3,812	6,451	3,068	24.3%	-40.9%
Gross Insurance Profit[8]	3,253	2,046	1,856	75.3%	59.0%
Other Operating Non-Interest Income and Gross Insurance Profit	31,052	28,376	28,610	8.5%	9.4%
NMF - no meaningful figures

2Q 2018 to 2Q 2017 Comparison

Total other operating non-interest income and gross insurance profit grew by GEL 2.4 million, or 8.5%, to GEL 31.1 million in 2Q 2018. This increase primarily resulted from the growth in other operation income by GEL 0.7 million, or 24.3%, and the increase in gross insurance profit of GEL 1.4 million, or 75.3%.

The increase in gross insurance profit was related to a sharp increase in the number of customers by around 122,000, which in turn led to a high increase in gross written premium by 133.9% YoY to GEL 14,677 on a stand-alone basis. As a result, according to internal estimates, P&C market share reached 17.9%. More information about TBC insurance can be found in annex 19 on page 46.

2Q 2018 to 1Q 2018 Comparison

On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 2.7 million, or by 9.4%. This increase mainly resulted from the growth in net income from foreign currency operations by GEL 3.7 million, or by 18.9%, related to higher turnover of FX operations, as well as growth in gross insurance by GEL 1.2 million or 59.0%. This was partially offset by the decrease in other operating income by GEL 2.6 million.

Provision for Impairment
In thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Provision for Loan Impairment	(37,982)	(27,998)	(23,444)	62.0%	35.7%
Provision for Impairment of Investments in Finance Lease	(252)	(241)	(97)	NMF	4.6%
Provision for/(Recovery of Provision) Performance Guarantees and Credit Related Commitments	1,375	(3,875)	1,454	-5.4%	NMF
Provision for Impairment of Other Financial Assets	1,950	(7,419)	(3,628)	NMF	NMF
Impairment of Investment Securities Available for Sale	(182)	70	-	NMF	NMF
Total Provision Charges for Impairment	(35,091)	(39,463)	(25,715)	36.5%	-11.1%
Operating Income after Provisions for Impairment	223,327	199,236	181,377	23.1%	12.1%

Cost of Risk	1.8%	1.3%	1.3%	0.5%	0.5%
NMF - no meaningful figures

2Q 2018 to 2Q 2017 Comparison

In 2Q 2018, total provision charges grew by GEL 9.4 million to GEL 35.1 million compared to 2Q 2017.

This increase was primarily attributable to an increase in loan loss provision charges of GEL 14.5 million, which was driven by the corporate segment. The increase in provision charges in the corporate segment was driven by (i) the recovery of provisions in 2Q 2017 due to one group of borrowers and overall improved performance of the loan book; and (ii) the creation of provision for one corporate borrower in 2Q 2018. Increased provision charges on loans were partially offset by a recovery of provisions in other financial assets of GEL 5.6 million, due to the partial recovery of one debtor, which was provisioned at around 80% in previous quarters.

In 2Q 2018, the cost of risk stood at 1.8% (1.7% without the FX effect), compared to 1.3% (1.5% without the FX effect) in 2Q 2017.

2Q 2018 to 1Q 2018 Comparison

On a QoQ basis, total provision charges decreased by GEL 4.4 million, or 11.1%, amounting to GEL 35.1 million.

The decrease was mainly driven by the recovery of provisions in guarantees and credit related commitments of GEL 5.2 million, attributable to one corporate client's guarantee and other financial assets of GEL 9.4 million (as mentioned above). The decrease was partially offset by increased provision charges on loans amounting to GEL 10 million. The increase was mainly related to the corporate segment, and was primarily driven by one corporate borrower in 2Q 2018, as well as low provision charges in 1Q 2018 as a result of GEL appreciation.

In 2Q 2018, the cost of risk stood at 1.8% (1.7% without the FX effect), compared to 1.3% (1.7% without the FX effect) in 1Q 2018.

Operating Expenses

In thousands of GEL	2Q'18	1Q'18	2Q'17	Change YoY	Change QoQ
Staff Costs	50,732	52,115	54,838	-7.5%	-2.7%
Provisions for Liabilities and Charges	-	-	(2,400)	-100.0%	NMF
Depreciation and Amortization	10,992	10,471	8,919	23.2%	5.0%
Professional services	1,498	2,961	2,410	-37.8%	-49.4%
Advertising and marketing services	7,117	4,527	3,737	90.4%	57.2%
Rent	5,843	5,864	5,753	1.6%	-0.4%
Utility services	1,453	1,735	1,302	11.6%	-16.3%
Intangible asset enhancement	2,572	2,494	2,567	0.2%	3.1%
Taxes other than on income	1,946	1,657	1,301	49.6%	17.4%
Communications and supply	1,160	1,033	1,015	14.3%	12.3%
Stationary and other office expenses	1,324	1,183	1,140	16.1%	11.9%
Insurance	483	485	1,446	-66.6%	-0.4%
Security services	506	496	483	4.8%	2.0%
Premises and equipment maintenance	1,128	1,035	1,054	7.0%	9.0%
Business trip expenses	669	320	543	23.2%	NMF
Transportation and vehicles maintenance	413	379	381	8.4%	9.0%
Charity	281	280	145	93.8%	0.4%
Personnel training and recruitment	233	176	323	-27.9%	32.4%
Write-down of current assets to fair value less costs to sell	(567)	(3)	(126)	NMF	NMF
Loss on disposal of Inventory	80	20	231	-65.4%	NMF
Loss on disposal of investment properties	30	30	385	-92.2%	0.0%
Loss on disposal of premises and equipment	58	278	48	20.8%	-79.1%
Impairment of intangible assets	-	-	1,850	-100.0%	NMF
Gains/(losses) on initial recognition of assets at rates above/below market	-	-	-	NMF	NMF
Acquisition costs	-	-	518	-100.0%	NMF
Gross Change in IBNR	-	-	170	-100.0%	NMF
Other	4,139	3,396	4,897	-15.5%	21.9%
Administrative and Other Operating Expenses	30,366	28,346	31,573	-3.8%	7.1%
Operating Expenses	92,090	90,932	92,930	-0.9%	1.3%
Profit before Tax	131,237	108,304	88,447	48.4%	21.2%
Income Tax Expense	(28,799)	(10,779)	(8,590)	235.3%	167.2%
Profit for the Period	102,438	97,525	79,857	28.3%	5.0%

Cost to Income	35.6%	38.1%	44.9%	-9.3%	-2.5%
ROE	21.3%	21.0%	18.9%	2.4%	0.3%
ROA	3.2%	3.2%	3.0%	0.2%	0.0%

2Q 2018 to 2Q 2017 Comparison

In 2Q 2018, total operating expenses decreased to GEL 92.1 million, down by GEL 0.8 million, or by 0.9% YoY, primarily due to a decrease in staff costs of GEL 4.1 million, or 7.5% YoY. Higher staff costs in 2Q 2017 were related to the one-off cost related to Bank Republic integration in the amount of GEL 3.1 million. Another contributor was the decrease in administrative expenses by GEL 1.2 million, or 3.8%, due to the fact that, in 2Q 2017 TBC Bank incurred GEL 4.6 million in administrative and other operating expenses related to the Bank Republic integration. The decrease in staff costs and administrative expenses was offset by an increase in depreciation and amortisation costs of GEL 2.1 million, or 23.2%, related to the overall growth of the scale of the business, as well as the reversal of provisions for liabilities and charges related to the recovery of tax provisions in 2Q 2017 in the amount of GEL 2.4 million.

As a result, the reported cost to income ratio markedly decreased to 35.6% in 2Q 2018, compared to the reported 44.9% in 2Q 2017. The underlying cost to income ratio decreased by 5.6pp compared to the underlying 41.2% in 2Q 2017.

2Q 2018 to 1Q 2018 Comparison

On a QoQ basis, total operating expenses increased by a GEL 1.2 million, or 1.3%. The increase was primarily attributable to a GEL 2.0 million, or 7.1% increase in administrative expenses, mainly related to advertising and marketing services that that are not equally spent and/or accrued during the year among other things due to seasonality. This was partially offset by decrease in the costs of professional services. The increase in administrative expenses was partially offset by a decrease in staff cost by GEL 1.4 million, or by 2.7%.

As a result, the cost to income ratio decreased by 2.5pp from 38.1%, compared to 1Q 2018.

Income Tax

In 2Q 2018, TBC Bank reversed the one-off deferred tax gain recognized in 2016 due to the recent amendment to the Georgian Tax Code in relation to corporate income tax. The amendment, which came into force on 12 June 2018, postponed tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for financial institutions. This reversal resulted in a GEL 17.4 million expense on the profit and loss statement and a GEL 5.1 million contraction in equity in 2Q 2018.

Net Income

Reported net income for the second quarter increased by GEL 4.9 million, or 5.0%, QoQ and up by GEL 22.6 million, or 28.3%, YoY and amounted to GEL 102.4 million. Underlying net income increased by GEL 22.3 million, or 22.9%, QoQ and by GEL 33.5 million, or 38.8%, YoY and amounted to GEL 119.9 million.

As a result, underlying ROE stood at 24.9%, up by 4.5pp YoY and 3.9pp QoQ, while underlying ROA stood at 3.7%, up by 0.5pp both YoY and QoQ. Reported ROE stood at 21.3%, up by 2.4pp YoY and 0.3pp QoQ, while reported ROA stood at 3.2%, up by 0.2pp YoY but remaining flat QoQ.

Balance Sheet Discussion
In millions of GEL	30-Jun	31-Mar	Change QoQ
Cash, Due from Banks and Mandatory Cash Balances with NBG	2,682	2,247	19.4%
Loans and Advances to Customers (Net)	8,575	8,137	5.4%
Financial Securities	1,296	1,011	28.2%
Fixed and Intangible Assets & Investment Property	540	531	1.7%
Other Assets	491	475	3.4%
Total Assets	13,584	12,401	9.5%
Due to Credit Institutions	3,098	2,270	36.5%
Customer Accounts	7,933	7,611	4.2%
Debt Securities in Issue	20	19	5.3%
Subordinated Debt	398	402	-1.0%
Other Liabilities	191	169	13.0%
Total Liabilities	11,640	10,471	11.2%
Total Equity	1,944	1,930	0.7%

Assets

On a QoQ basis, total assets increased by GEL 1,182 million, or 9.5%, partially due to a GEL 438 million, or 5.4%, increase in net loans to customers. The QoQ increase in total assets also resulted from a GEL 435 million or 19.4% rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 285 million or 28.2% increase in financial securities.

As of 30 June 2018, the gross loan portfolio reached GEL 8,896 million, up by 5.5% QoQ. At the same time, gross loans denominated in foreign currency accounted for 58.5% of total loans, compared to 58.2% as of 31 March 2018.

Asset Quality

Foreign Currency Income Linked Borrowers

	30-Jun-18		31-Mar-18
Segments	FC share	FC linked income borrowers share	FC share	FC linked income borrowers share
Retail	50.6%	26.9%	49.4%	25.4%
Consumer	18.2%	25.6%	18.0%	24.5%
Mortgage	80.4%	27.2%	80.0%	25.6%
Corporate	76.7%	53.5%*	76.1%	53.1%*
MSME	51.8%	14.3%	53.2%	14.9%
Total Loan Portfolio	58.5%	34.4%	58.2%	33.9%

(Based on internal estimates)

* Pure exports account for 7.0% of total Corporate FX denominated loans

PAR 30 by Segments and Currencies

Par 30	Jun-18			Mar-18
	GEL	FC	Total	GEL	FC	Total
Corporate	0.0%	0.4%	0.3%	0.0%	1.1%	0.9%
Retail	3.7%	1.8%	2.7%	2.9%	1.7%	2.3%
MSME	1.6%	3.7%	2.7%	1.9%	3.5%	2.7%
Total	2.5%	1.7%	2.0%	2.2%	1.9%	2.0%
loans overdue by more than 30 days to gross loans

Total

Total PAR 30 remained stable QoQ and stood at 2.0%. The increase in retail book of 0.4 pp was offset by a decline in corporate book of 0.6pp. Decrease in corporate segment was mainly driven by high recoveries of overdue amounts.

Retail Segment

The retail segment’s PAR 30 amounted to 2.7%, up by 0.4pp QoQ. The increase was mainly attributable to credit cards and higher yield products.

Corporate

The corporate segment’s PAR 30 amounted to 0.3%, down by 0.6pp QoQ. Decrease in corporate segment was mainly driven by high recoveries of overdue amounts.

MSME

The MSME segment’s PAR 30 remained stable QoQ and stood at 2.7% as of 30 June 2018.

NPLs

NPLs	Jun-18			Mar-18
	GEL	FC	Total	GEL	FC	Total
Corporate	1.5%	3.2%	2.8%	0.9%	3.0%	2.5%
Retail	2.8%	2.9%	2.9%	2.4%	3.0%	2.7%
MSME	2.2%	5.7%	4.0%	2.6%	6.2%	4.5%
Total	2.4%	3.6%	3.1%	2.2%	3.7%	3.1%

Total

Total NPLs stood at 3.1% and remained the same on a QoQ basis.

Retail Segment

The retail segment’s NPLs stood at 2.9%, up by 0.2pp compared to 2Q 2018 due to credit cards and higher yield products as anticipated and provisioned appropriately at disbursement.

Corporate

The corporate segment’s NPLs stood at 2.8%, up by 0.3pp on a QoQ basis mainly related to one corporate borrower.

MSME

The MSME segment’s NPLs declined by 0.5pp on a QoQ basis, to 4.0% driven by the improved performance of both SME and micro portfolios.

NPLs Coverage

NPLs Coverage	Jun-18		Mar-18
	Exc. Collateral	Incl. Collateral	Exc. Collateral	Incl. Collateral
Corporate	99.2%	232.1%	103.8%	275.5%
Retail	153.9%	226.8%	157.6%	235.6%
MSME	76.9%	187.6%	70.2%	179.2%
Total	116.1%	216.1%	114.6%	225.8%

Liabilities

As of 30 June 2018, TBC Bank's total liabilities amounted to GEL 11,640 million, up by GEL 1,169 million, or 11.2%, QoQ. The increase was primarily due to a GEL 827.5 million, or 36.5%, increase in amounts due to credit institutions and an increase in customer accounts of GEL 321.8 million, or 4.2%. Total liabilities also grew due to an increase in deferred income tax liability of GEL 22.3 million, which was mainly related to the reversal of deferred tax gains, as mentioned above.

Liquidity

As of 30 June 2018 the Bank's liquidity ratio, as defined by the NBG, stood at 33.3%, compared to 30.8% as of 31 March 2018. As of 30 June 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 119.2%, above the 100.0% limit, while the LCR in GEL and FC stood at 105.0% and 129.0% respectively, above the respective limits of 75% and 100%.

Total Equity

As of 30 June 2018, TBC's total equity amounted to GEL 1,943.7 million, up by GEL 13.3 million from GEL 1,930.4 million as of 31 March 2018. The QoQ change in equity was due to increase in net income GEL 102.6 million, which was partially offset by a dividend distribution in May 2018 in the amount of GEL 88.9 million.

Regulatory Capital

According to the new methodology that was introduced at the end of 2017, as of 30 June 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.4% and 17.0%, respectively, compared to the minimum required levels of 10.2% and 15.6%. In comparison, as of 31 March 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.8% and 17.7%, respectively, compared to the minimum required levels of 10.2% and 15.0%.

In 30 June 2018, The Bank's Basel III Tier 1 Capital amounted to GEL 1,498.9 million, down by GEL 18.4 million, or 1.2%, compared to March 2018. The Bank's Basel III Total Capital amounted to GEL 1,908.4 million, down by GEL 35.0 million, or 1.8%, QoQ. The decrease in Tier 1 and Total Capital was due to a dividend distribution in May. Risk Weighted Assets amounted to GEL 11,200.4 million as of 30 June 2018, compared to GEL 10,999.6 million as of 31 March 2018.

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2018):

· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of more than GEL 5 million. Some other business customers may also be assigned to the corporate segment or transferred to MSME on a discretionary basis;

· MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank-Space;

· Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;

· Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;

Business customers are all legal entities or individuals who have been granted a loan for business purpose.

Summary of key changes:

· The limits for corporate customers have been increased from GEL 8.0 million to GEL 12.0 million for annual revenue and from USD 1.5 million to GEL 5.0 million for granted facilities. Additionally as allowed by policy, some customers were moved to corporate segment on discretionary basis considering practical aspects of client account servicing and administration. As a result, the increase amounted to GEL 66 million and GEL 78 million for corporate loan portfolio and corporate deposit portfolio, respectively.

· Certain sub-categories for the individual business customers that are granted non mortgage loans have been moved from retail to MSME segment. Subsequently, GEL 236 million was transferred from retail to MSME loan portfolio.

Income Statement by Segments

2Q'18	Retail	MSME	Corporate	Corp.Centre	Total
Interest Income	149,707	61,535	60,620	36,290	308,152
Interest Expense	(29,515)	(2,324)	(32,965)	(55,144)	(119,948)
Net Transfer Pricing	(19,709)	(20,014)	11,877	27,846	-
Net Interest Income	100,483	39,197	39,532	8,992	188,204
Fee and Commission Income	40,881	5,470	11,561	353	58,265
Fee and Commission Expense	(15,377)	(1,669)	(1,984)	(73)	(19,103)
Net fee and Commission Income	25,504	3,801	9,577	280	39,162
Gross Insurance Profit	-	-	-	3,253	3,253
Net income from foreign currency operations	6,218	5,168	11,046	(731)	21,701
Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)	-	-	-	1,550	1,550
Net Losses from Derivative Financial Instruments	-	-	-	396	396
Other Operating Income	1,530	156	2,285	(159)	3,812
Share of profit of associates	-	-	-	340	340
Other Operating Non-Interest Income and Insurance Profit	7,748	5,324	13,331	4,649	31,052
Provision for Loan Impairment	(26,988)	(5,090)	(5,904)	-	(37,982)
(Provision)/Recovery of Provision for Liabilities, Charges and Credit Related Commitments	(243)	(324)	2,191	(249)	1,375
Recovery of Provision/(Provision) for Impairment of Investments in Finance Lease	-	-	-	(252)	(252)
(Provision)/Recovery of Provision for Impairment of other Financial Assets	(3,843)	-	6,329	(536)	1,950
Recovery of Impairment/(Impairment) of Investment Securities Available for Sale	-	-	(21)	(161)	(182)
Profit before G&A Expenses and Income Taxes	102,661	42,908	65,035	12,723	223,327
Staff Costs	(30,106)	(10,459)	(6,326)	(3,841)	(50,732)
Depreciation and Amortization	(8,853)	(1,208)	(531)	(400)	(10,992)
Administrative and Other Operating Expenses	(19,093)	(4,831)	(1,580)	(4,862)	(30,366)
Operating Expenses	(58,052)	(16,498)	(8,437)	(9,103)	(92,090)
Profit before Tax	44,609	26,410	56,598	3,620	131,237
Income Tax Expense	(6,061)	(4,094)	(8,437)	(10,207)	(28,799)
Profit for the Year	38,548	22,316	48,161	(6,587)	102,438

Portfolios by Segments
In thousands of GEL	30-Jun	31-Mar
Loans and Advances to Customers

Consumer	1,975,426	1,926,828
Mortgage	2,185,630	2,007,914
Pawn	35,393	34,583
Retail	4,196,449	3,969,325
Corporate	2,581,612	2,489,516
MSME	2,117,886	1,974,075
Total Loans and Advances to Customers (Gross)	8,895,947	8,432,916
Less: Provision for Loan Impairment	(321,367)	(296,096)
Total Loans and Advances to Customers (Net)	8,574,580	8,136,820

Customer Accounts

Retail	4,467,638	4,197,277
Corporate	2,559,449	2,474,560
MSME	905,498	938,967
Total Customer Accounts	7,932,585	7,610,804

Retail Banking

As of 30 June 2018, retail loans stood at GEL 4,196.4 million, up by GEL 227.1 million, or 5.7%, QoQ. As of 30 June 2018, TBC Bank's retail loans accounted for 39.8% market share of total individual loans. As of 30 June 2018, foreign currency loans represented 50.6% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 4,467.6 million, up by GEL 270.4 million, or 6.4%, QoQ. Retail deposits accounted for 41.2% market share of total individual deposits. As of 30 June 2018 term deposits accounted for 53.9% of the total retail deposit portfolio, while foreign currency deposits represented 82.5% of the total retail deposit portfolio.

In 2Q 2018, retail loan yields and deposit rates stood at 14.7% and 2.7%, respectively. The segment's cost of risk on loans was 2.6% .The retail segment contributed 37.6%, or GEL 38.5 million, to the total net income in 2Q 2018.

Corporate Banking

As of 30 June 2018, corporate loans amounted to GEL 2,581.6 million, up by GEL 92.1 million, or 3.7%, QoQ. Foreign currency loans accounted for 76.7% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.5%.

As of the same date, corporate deposits totalled GEL 2,559.4 million, up by GEL 84.9 million, or 3.4%, QoQ. Foreign currency corporate deposits represented 46.6% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 37.5%.

In 2Q 2018, corporate loan yields and deposit rates stood at 9.4% and 5.2%, respectively. In the same period, the cost of risk on loans was 0.9%. In terms of profitability, the corporate segment's net profit reached GEL 48.2 million, or 47.0%, of the total net income.

MSME Banking

As of 30 June 2018, MSME loans amounted to GEL 2,117.9, up by GEL 143.8 million, or 7.3%, QoQ. Foreign currency loans accounted for 51.8% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 905.5 million, down by GEL 33.5 million, or 3.6%, QoQ. Foreign currency MSME deposits represented 49.5% of the total MSME deposit portfolio.

In 2Q 2018, MSME loan yields and deposit rates stood at 12.0% and 1.0%, respectively, while the cost of risk on loans was 1.0%. In terms of profitability, net profit for the MSME segment amounted to GEL 22.3 million, or 21.8%, of the total net income.

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance Sheet
In thousands of GEL	Jun-18		Mar-18
Cash and cash equivalents	1,605,163		1,245,562
Due from other banks	42,469		23,311
Mandatory cash balances with National Bank of Georgia	1,034,177		978,116
Loans and advances to customers	8,574,580		8,136,820
Investment securities available for sale	817,876		580,784
Bonds carried at amortized cost	477,694		429,875
Investments in associates	1,925		1,585
Investments in finance leases	172,027		145,546
Investment properties	78,094		76,690
Current income tax prepayment	7,369		8,454
Deferred income tax asset	2,331		2,527
Other financial assets	107,741		127,851
Other assets	171,046		160,662
Premises and equipment	374,414	369,610
Intangible assets	87,947		84,997
Goodwill	28,657	28,657
TOTAL ASSETS	13,583,510		12,401,047
LIABILITIES
Due to Credit Institutions	3,097,602		2,270,119
Customer accounts	7,932,585		7,610,804
Other financial liabilities	88,320		90,499
Current income tax liability	26		44
Debt Securities in issue	19,641		19,371
Deferred income tax liability	22,980		663
Provisions for liabilities and charges	11,732		12,467
Other liabilities	69,364		64,618
Subordinated debt	397,576		402,058
TOTAL LIABILITIES	11,639,826		10,470,643
EQUITY
Share capital	1,650		1,626
Share premium	796,808		753,298
Retained earnings	1,261,578		1,266,196
Group reorganisation reserve	(162,166)		(162,167)
Share based payment reserve	(21,085)		(24,431)
Revaluation reserve for premises	64,962		70,045
Revaluation reserve for available-for-sale securities	2,541		4,069
Cumulative currency translation reserve	(7,345)		(7,427)
Net assets attributable to owners	1,936,943		1,901,209
Non-controlling interest	6,741		29,195
TOTAL EQUITY	1,943,684		1,930,404
TOTAL LIABILITIES AND EQUITY	13,583,510		12,401,047

Consolidated Statement of Profit or Loss and Other Comprehensive Income
In thousands of GEL	2Q'18	1Q'18	2Q'17
Interest income	308,152	289,849	249,898
Interest expense	(119,948)	(114,446)	(100,157)
Net interest income	188,204	175,403	149,741
Fee and commission income	58,265	50,834	45,219
Fee and commission expense	(19,103)	(15,914)	(16,478)
Net Fee and Commission Income	39,162	34,920	28,741
Net insurance premiums earned	6,168	4,435	3,884
Net insurance claims incurred and agents' commissions	(2,915)	(2,389)	(2,028)
Insurance Profit	3,253	2,046	1,856
Net income from foreign currency operations	21,701	17,081	22,246
Net gain/(losses) from foreign exchange translation	1,550	2,473	991
Net gains/(losses) from derivative financial instruments	396	17	(35)
Other operating income	3,812	6,451	3,068
Share of profit of associates	340	308	484
Other operating non-interest income	27,799	26,330	26,754
Provision for loan impairment	(37,982)	(27,998)	(23,444)
Provision for impairment of investments in finance lease	(252)	(241)	(97)
Provision for/ (recovery of provision) performance guarantees and credit related commitments	1,375	(3,875)	1,454
Provision for impairment of other financial assets	1,950	(7,419)	(3,628)
Impairment of investment securities available for sale	(182)	70	-
Operating income after provisions for impairment	223,327	199,236	181,377
Staff costs	(50,732)	(52,115)	(54,838)
Depreciation and amortisation	(10,992)	(10,471)	(8,919)
(Provision for)/ recovery of liabilities and charges	-	-	2,400
Administrative and other operating expenses	(30,366)	(28,346)	(31,573)
Operating expenses	(92,090)	(90,932)	(92,930)
Profit before tax	131,237	108,304	88,447
Income tax expense	(28,799)	(10,779)	(8,590)
Profit for the period	102,438	97,525	79,857
Other Comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Revaluation of available for-sale-investments	(1,547)	2,374	4,022
Exchange differences on translation to presentation currency	81	(67)	(62)
Items that will not be reclassified to profit or loss:
Income tax recorded directly in other comprehensive income	(5,151)	-	(422)
Other comprehensive income for the Period	(6,617)	2,307	3,538
Total comprehensive income for the Period	95,821	99,832	83,395
Profit attributable to:
- Shareholders of TBCG	102,589	95,758	78,544
- Non-controlling interest	(151)	1,767	1,313
Profit for the period	102,438	97,525	79,857
Total comprehensive income is attributable to:
- Shareholders of TBCG	96,060	98,029	82,051
- Non-controlling interest	(239)	1,803	1,344
Total comprehensive income for the Period	95,821	99,832	83,395

Key Ratios

Average Balances

The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the Management for monitoring and control purposes.

Key Ratios

Ratios (based on monthly averages, where applicable)	2Q'18	1Q'18	2Q'17
Underlying ROE¹	24.9%	21.0%	20.4%
Reported ROE²	21.3%	21.0%	18.9%
Underlying ROA³	3.7%	3.2%	3.2%
Reported ROA⁴	3.2%	3.2%	3.0%
Pre-provision ROE⁵	28.6%	29.6%	25.1%
Cost to Income⁶	35.6%	38.1%	44.9%
Cost of Risk⁷	1.8%	1.3%	1.3%
NIM⁸	7.1%	6.9%	6.8%
Risk Adjusted NIM⁹	5.5%	5.2%	5.3%
Loan Yields¹⁰	12.5%	12.3%	12.4%
Risk Adjusted Loan Yields¹¹	10.8%	10.6%	10.9%
Deposit rates¹²	3.3%	3.3%	3.5%
Yields on interest Earning Assets¹³	11.7%	11.5%	11.3%
Cost of Funding¹⁴	4.4%	4.4%	4.5%
Spread¹⁵	7.3%	7.1%	6.8%
PAR 90 to Gross Loans¹⁶	1.1%	1.2%	1.6%
NPLs to Gross Loans¹⁷	3.1%	3.1%	3.4%
NPLs coverage¹⁸	116.1%	114.6%	84.3%*
NPLs coverage with collateral¹⁹	216.1%	225.8%	219.3%*
Provision Level to Gross Loans²⁰	3.6%	3.5%	2.9%*
Related Party Loans to Gross Loans²¹	0.1%	0.1%	0.1%
Top 10 Borrowers to Total Portfolio²²	9.2%	9.4%	9.1%
Top 20 Borrowers to Total Portfolio²³	13.2%	13.4%	13.0%
Net Loans to Deposits plus IFI Funding²⁴	89.5%	93.2%	90.6%
Net Stable Funding Ratio²⁵	127.8%	123.5%	128.7%
Liquidity Coverage Ratio²⁶	119.2%	104.6%	106.1%
Leverage²⁷	7.0x	6.4x	6.7x
Regulatory Tier 1 CAR (Basel III)²⁸	13.4%	13.8%	10.8%**
Regulatory Total 1 CAR (Basel III)²⁹	17.0%	17.7%	14.6%**

* Figures per IAS39

** 2Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period, adjusted for the respective one-off items; Annualised where applicable.

2. Return on average total equity (ROE) equals net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.

3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period; Annualised where applicable.

4. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.

5. Pre-Provision Return on average total equity (ROE) equals net income attributable to owners excluding all provision charges divided by monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.

6. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).

7. Cost of risk equals provision for loan impairment divided by monthly average gross loans and advances to customers; Annualised where applicable.

8. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; Annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG which currently has negative interest, and includes other earning items from due from banks.

9. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.

10. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.

11. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.

12. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; Annualised where applicable.

13. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; Annualised where applicable.

14. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; Annualised where applicable.

15. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).

16. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.

17. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.

18. NPLs coverage ratio equals total loan loss provision calculated per IFRS 9 divided by the NPL loans.

19. NPLs coverage with collateral ratio equals loan loss provision calculated per IFRS 9 plus total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.

20. Provision level to gross loans equals loan loss provision divided by the gross loan portfolio for the same period.

21. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

22. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.

23. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.

24. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

25. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.

26. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by the NBG.

27. Leverage equals total assets to total equity.

28. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

29. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

Exchange Rates

To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4144 as of 31 March 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4072 as of 30 June 2017. As of 30 June 2018 the USD/GEL exchange rate equalled 2.4516. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 2Q 2018 of 2.4460, 1Q 2018 of 2.4854, 2Q 2017 of 2.4187.

Unaudited Consolidated Financial Results Overview for 1H 2018

This statement provides a summary of the unaudited business and financial trends for 1H 2018 for TBC Bank Group plc and its subsidiaries. Quarterly financial information and trends are unaudited.

Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15 standards as explained in details in note 2 to consolidated financial statements on pages: 69-75. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.

Please note, that there might be slight differences in previous periods' figures due to rounding,

Income Statement Highlights
in thousands of GEL	1H'18	1H'17	Change YoY
Net Interest Income	363,607	292,074	24.5%
Net Fee and Commission Income	74,082	55,217	34.2%
Other Operating Non-Interest Income	59,428	63,283	-6.1%
Provisioning Charges	(74,554)	(43,374)	71.9%
Operating Income after Provisions for Impairment	422,563	367,200	15.1%
Operating Expenses	(183,022)	(175,850)	4.1%
Profit Before Tax	239,541	191,350	25.2%
Income Tax Expense	(39,578)	(14,935)	165.0%
Reported Profit for the Period	199,963	176,415	13.3%
Underlying Profit for the Period	217,389	184,481	17.8%

Balance Sheet and Capital Highlights
	Jun-18		Jun-17		Change YoY
In Millions	GEL	USD	GEL	USD
Total Assets	13,584	5,541	11,281	4,686	20.4%
Gross Loans	8,896	3,629	7,386	3,068	20.4%
Customer Deposits	7,933	3,236	6,666	2,769	19.0%
Total Equity	1,944	793	1,691	702	15.0%
Regulatory Tier I Capital (Basel III)*	1,499	611	1,283	533	16.8%
Regulatory Total Capital (Basel III)*	1,908	778	1,733	720	10.1%
Regulatory Risk Weighted Assets (Basel III)*	11,200	4,569	11,866	4,929	-5.6%

*June 2018 figures are given per new NBG regulation, which came into force in December 2017, while June 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

Key Ratios	1H'18	1H'17	Change YoY
Underlying ROE	23.0%	22.5%	0.5%
Reported ROE	21.2%	21.5%	-0.3%
Underlying ROA	3.4%	3.5%	-0.1%
Reported ROA	3.1%	3.3%	-0.2%
Cost to Income	36.8%	42.8%	-6.0%
Cost of Risk	1.6%	1.1%	0.5%
FX adjusted Cost of Risk	1.7%	1.5%	0.2%
NPL to Gross Loans	3.1%	3.4%	-0.3%
Regulatory Tier 1 CAR (Basel III)*	13.4%	10.8%	2.6%
Regulatory Total CAR (Basel III)*	17.0%	14.6%	2.4%
Leverage (Times)	7.0x	6.7x	0.3x

*June 2018 figures are given per new NBG regulation, which came into force in December 2017, while June 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

Income Statement Discussion

Net Interest Income
In thousands of GEL	1H'18	1H'17	Change in %
Loans and Advances to Customers	526,431	438,753	20.0%
Investment Securities Available for Sale	25,135	19,088	31.7%
Due from Other Banks	11,946	4,909	143.4%
Bonds Carried at Amortized Cost	17,879	15,250	17.2%
Investment in Leases	16,610	9,667	71.8%
Interest Income	598,001	487,667	22.6%
Customer Accounts	127,727	108,412	17.8%
Due to Credit Institutions	86,262	68,952	25.1%
Subordinated Debt	19,599	17,187	14.0%
Debt Securities in Issue	806	1,042	-22.6%
Interest Expense	234,394	195,593	19.8%
Net Interest Income	363,607	292,074	24.5%

Net Interest Margin	7.0%	6.7%	0.3%

1H 2018 to 1H 2017 Comparison

In 1H 2018, net interest income grew by GEL 71.5 million, or 24.5%, YoY to GEL 363.6 million, resulting from a GEL 110.3 million, or 22.6%, higher interest income and a GEL 38.8 million or 19.8% higher interest expense.

Interest income grew by GEL 110.3 million, or 22.6%, YoY to GEL 598.0 million, mainly driven by an increase in interest income from loans and advances to customers of GEL 87.7 million, or 20.0%, which is primarily related to an increase in the gross loan portfolio by GEL 1,510 million, or 20.4%, YoY. This effect was further magnified by a 0.3pp increase in loan yields, which stood at 12.4%, driven by an increase in rates on GEL denominated loans of 1.1pp that offset the decrease in yields on FC denominated loans by 0.9pp. Another contributor to the increase in interest income was amounts due from credit institutions, which were up by GEL 7.0 million related to the increased balance of GEL 84.9 million, or 10.0%, as well as a rise in respective yield of 1.2pp to 2.7% as of 1H 2018. The growth in interest income also resulted from higher interest income from investment in leases by GEL 6.9 million, or 71.8%, resulting from a significant increase in the size of such receivables by GEL 75.7 million, or 78.6%, and magnified by an increase in the respective yield of 1.0pp, up to 21.9%. Yields on interest earning assets expanded by 0.5pp to 11.6%, compared to 1H 2017.

The YoY growth in interest expense by GEL 38.8 million or 19.8% to a GEL 234.4 million in 1H 2018 was mainly due to 17.8% increase in interest expense on customer accounts by GEL 19.3 million and increase in interest expense on amounts due to credit institutions by GEL 17.3 million or 25.1%. The increase in interest expense on customer accounts was attributable to a GEL 1,267 million, or 19.0%, growth in the respective portfolio, partially offset by a 0.1pp decrease in the cost of deposit down to 3.3%, which was explained by a 0.4pp decrease in cost of deposits of FC denominated deposits. Another contributor to the increase in interest expense was amounts due to credit institutions, up by GEL 784.1 million, or 33.9%, and a 0.6pp higher effective rate on the respective portfolio, which stood at stood at 6.8%. The cost of funding remained stable on a YoY basis at 4.4%.

Consequently, NIM was 7.0% in 1H 2018, compared to 6.7% in 1H 2017.

Fee and Commission Income
In thousands of GEL	1H'18	1H'17	Change in %
Card Operations	47,010	40,245	16.8%
Settlement Transactions	33,693	28,159	19.7%
Guarantees Issued	9,079	6,073	49.5%
Issuance of Letters of Credit	2,360	3,459	-31.8%
Cash Transactions	8,988	7,470	20.3%
Foreign Currency Exchange Transactions	896	582	54.0%
Other	7,073	3,731	89.6%
Fee and Commission Income	109,099	89,719	21.6%
Card Operations	23,443	24,005	-2.3%
Settlement Transactions	4,285	3,385	26.6%
Guarantees Issued	620	561	10.5%
Letters of Credit	588	465	26.5%
Cash Transactions	2,359	2,105	12.1%
Foreign Currency Exchange Transactions	5	89	-94.4%
Other	3,717	3,892	-4.5%
Fee and Commission Expense	35,017	34,502	1.5%
Card Operations	23,567	16,240	45.1%
Settlement Transactions	29,408	24,774	18.7%
Guarantees	8,459	5,512	53.5%
Letters of Credit	1,772	2,994	-40.8%
Cash Transactions	6,629	5,365	23.6%
Foreign Currency Exchange Transactions	891	493	80.7%
Other	3,356	(161)	NMF
Net Fee And Commission Income	74,082	55,217	34.2%

NMF - no meaningful figures

1H 2018 to 1H 2017 Comparison

In 1H 2018, net fee and commission income totalled GEL 74.1 million, up by GEL 18.9 million, or 34.2%, compared to 1H 2017. This mainly resulted from the following sources: an increase in net fee and commission income from card operations of GEL 7.3 million, or 45.1%; an increase in net fee and commission income from settlement transactions of GEL 4.6 million, or 18.7%; and an increase in net fee and commission income from guarantees received of GEL 2.9 million or 53.5%. In 1H 2018 other net fee and commission income increased by GEL 3.5 million partially due to the arrangement fee of GEL1.3 million related to one corporate client.

Other Operating Non-Interest Income and Gross Insurance Profit
In thousands of GEL	1H'18	1H'17	Change in %
Net income from Foreign Currency Operations	42,805	45,429	-5.8%
Share of Profit of Associates	648	577	12.3%
Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments	413	(38)	NMF
Revenues from Cash-In Terminal Services	1,253	597	109.9%
Revenues from Operational Leasing	3,142	3,510	-10.5%
Gain from Sale of Investment Properties	1,896	1,174	61.5%
Gain from Sale of Inventories of Repossessed Collateral	205	945	-78.3%
Revenues from Non-Credit Related Fines	254	96	164.6%
Gain on Disposal of Premises and Equipment	199	191	4.2%
Other	3,314	7,721	-57.1%
Other Operating Income	10,263	14,234	-27.9%
Gross Insurance Profit[9]	5,299	3,081	72.0%
Other Operating Non-Interest Income and Gross Insurance Profit	59,428	63,283	-6.1%
NMF - no meaningful figures

1H 2018 to 1H 2017 Comparison

Total other operating non-interest income and gross insurance profit fell by GEL 3.9 million, or 6.1%, to GEL 59.4 million in 1H 2018. This decrease primarily resulted from the decrease in other operation income by GEL 4.0 million, or 27.9% and decrease in net income from foreign currency operations by GEL 2.6 million or 5.8%. The decrease in net income from foreign currency operations is mainly due decline of foreign exchange margins, which is caused by less volatility on the local foreign exchange market partially offset by increase in the volume of foreign exchange transactions in 1H 2018, as well as due to one-off transactions executed in 1H 2017 related to one large corporate loan issuances and NBG larization program initiatives. This was partially offset by an increase in gross insurance profit by GEL 2.2 million.

The increase in gross insurance profit was related to the sharp increase in the number of customers by around 122,000, which in turn led to a high increase in gross written premium by 157% YoY on a stand-alone basis. As a result, according to internal estimates, P&C market share reached 17.9%. More information about TBC insurance can be found in annex 19 on page 46.

Provision for Impairment
In thousands of GEL	1H'18	1H'17	Change in %
Provision for Loan Impairment	(65,980)	(40,367)	63.5%
Provision for Impairment of Investments in Finance Lease	(493)	(129)	NMF
Provision for/(Recovery of Provision) Performance Guarantees and Credit Related Commitments	(2,500)	1,547	NMF
Provision for Impairment of Other Financial Assets	(5,469)	(4,425)	23.6%
Impairment of Investment Securities Available for Sale	(112)	-	NMF
Total Provision Charges for Impairment	(74,554)	(43,374)	71.9%
Operating Income after Provisions for Impairment	422,563	367,200	15.1%

Cost of Risk	1.6%	1.1%	0.5%
NMF - no meaningful figures

1H 2018 to 1H 2017 Comparison

In 1H 2018, total provision charges increased by GEL 31.2 million to GEL 74.6 million, compared to 1H 2017. Out of the total GEL 31.2 million, GEL 25.6 million was attributable to loans. Increased provision charges for loans were driven by corporate segment due to a high recovery of provisions in 1H 2017.

Operating Expenses
In thousands of GEL	1H'18	1H'17	Change in %
Staff Costs	102,847	102,376	0.5%
Provisions for Liabilities and Charges	-	(2,495)	-100.0%
Depreciation and Amortization	21,463	17,523	22.5%
Professional services	4,459	5,825	-23.5%
Advertising and marketing services	11,644	6,797	71.3%
Rent	11,707	11,589	1.0%
Utility services	3,188	3,020	5.6%
Intangible asset enhancement	5,066	4,781	6.0%
Taxes other than on income	3,603	2,812	28.1%
Communications and supply	2,193	1,802	21.7%
Stationary and other office expenses	2,507	2,240	11.9%
Insurance	968	1,976	-51.0%
Security services	1,002	999	0.3%
Premises and equipment maintenance	2,163	2,697	-19.8%
Business trip expenses	989	907	9.0%
Transportation and vehicles maintenance	792	798	-0.8%
Charity	561	417	34.5%
Personnel training and recruitment	409	727	-43.7%
Write-down of current assets to fair value less costs to sell	(570)	(183)	NMF
Loss on disposal of Inventory	100	1,186	-91.6%
Loss on disposal of investment properties	60	385	-84.4%
Loss on disposal of premises and equipment	336	171	96.5%
Impairment of intangible assets	-	1,850	-100.0%
Gross Change in IBNR	-	391	-100.0%
Other	7,535	7,259	3.8%
Administrative and Other Operating Expenses	58,712	58,446	0.5%
Operating Expenses	183,022	175,850	4.1%
Profit before Tax	239,541	191,350	25.2%
Income Tax Expense	(39,578)	(14,935)	165.0%
Profit for the Period	199,963	176,415	13.3%

Cost to Income	36.8%	42.8%	-6.0%
ROE	21.2%	21.5%	-0.3%
ROA	3.1%	3.3%	-0.2%
NMF - no meaningful figures

1H 2018 to 1H 2017 Comparison

In 1H 2018, total operating expenses increased by GEL 7.2 million, or 4.1%, YoY, primarily due to an increase in depreciation and amortisation of GEL 3.9 million, or 22.5%, which was mainly driven by the increased average balance of intangible assets in 1H 2018 by GEL 21.8 million, or 34.4%, and by the reversal of provisions for liabilities and charges related to the recovery of tax provisions in 1H 2017 in the amount of GEL 2.4 million.

Staff costs have increased by GEL 0.5 million or 0.5%. Higher staff costs in 1H 2017 were related to the one-off cost related to Bank Republic integration in the amount of GEL 3.1 million. Without this one-off cost, the growth would have been 3.6%, related to the increased scale of business.

Administrative expenses have increased slightly by GEL 0.3 million or by 0.5%. In 1H 2017 TBC incurred GEL 6.4 million in administrative and other operating expenses related to the integration of Bank Republic. Without this one-off cost, the growth would have been 12.8%, mainly driven by increased advertising costs in the amount of GEL 4.8 million or 71.3%.

As a result, the reported cost to income ratio was 36.8% in 1H 2018, 6.0pp lower than the 42.8% in 1H 2017. Underlying cost to income was 3.7% lower than the underlying 40.5% in 1H 2017.

Income Tax[10]

In 1H 2018, TBC Bank reversed the one-off deferred tax gain recognized in 2016 due to the recent amendment to the Georgian Tax Code in relation to corporate income tax. The amendment, which came into force on 12 June 2018, postponed tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for financial institutions. This reversal has resulted in a GEL 17.4 million expense on the profit and loss statement and a GEL 5.1 million reduction in equity in 2Q 2018.

Net Income

Reported net income for 1H increased by GEL 23.5 million, or 13.3%, YoY and stood at GEL 200.0 million, while underlying net income increased by GEL 32.9 million or 17.8% YoY and amounted to GEL 217.4 million.

As a result, underlying ROE stood at 23.0%, up by 0.5pp YoY, while underlying ROA stood at 3.4%, down by 0.1pp YoY. Reported ROE stood at 21.2%, down by 0.3pp YoY, and reported ROA stood at 3.1%, down by 0.2pp YoY.

Balance Sheet Discussion
In millions of GEL	Jun-18	Jun-17	Change YoY
Cash, Due from Banks and Mandatory Cash Balances with NBG	2,682	2,192	22.4%
Loans and Advances to Customers (Net)	8,575	7,174	19.5%
Financial Securities	1,296	1,007	28.7%
Fixed and Intangible Assets & Investment Property	540	479	12.7%
Other Assets	491	429	14.5%
Total Assets	13,584	11,281	20.4%
Due to Credit Institutions	3,098	2,314	33.9%
Customer Accounts	7,933	6,666	19.0%
Debt Securities in Issue	20	24	-16.7%
Subordinated Debt	398	390	2.1%
Other Liabilities	191	196	-2.6%
Total Liabilities	11,640	9,590	21.4%
Total Equity	1,944	1,691	15.0%

Assets

As of 30 June 2018, the Group's total assets amounted to GEL 13,584 million, up by GEL 2,303 million, or 20.4%, YoY. The increase was mainly due to a rise in net loans to customers of GEL 1,401 million, or by 19.5%, YoY. The YoY increase in total assets also resulted from a GEL 490 million, or 22.4%, rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 289 million, or 28.7%, increase in financial securities, compared to 30 June 2017.

As of 30 June 2018, the gross loan portfolio reached GEL 8,896 million, up by 20.4% YoY. At the same time, gross loans denominated in foreign currency accounted for 58.5% of total loans, compared to 60.8% as of 30 June 2017.

Asset Quality

PAR 30 by Segments and Currencies

Par 30	Jun-18			Jun-17
	GEL	FC	Total	GEL	FC	Total
Corporate	0.0%	0.4%	0.3%	0.4%	1.6%	1.3%
Retail	3.7%	1.8%	2.7%	3.1%	2.2%	2.7%
MSME	1.6%	3.7%	2.7%	2.3%	3.9%	3.4%
Total	2.5%	1.7%	2.0%	2.5%	2.4%	2.4%
loans overdue by more than 30 days to gross loans

Total

The total PAR 30 has declined by 0.4pp YoY. The YoY decrease is related to the improvements across the corporate and MSME segments by 1.0% and 0.7% respectively.

Retail Segment

The retail segment's PAR 30 amounted to 2.7% and remained flat on a YoY basis.

Corporate

The corporate segment's PAR 30 decreased by 1.0pp YoY. The decrease is mainly driven by high recoveries of overdue amounts.

MSME

The MSME segment's PAR 30 decreased by 0.7pp YoY. YoY decrease was driven by the improved performance of both micro and SME portfolios.

NPLs

NPLs	Jun-18			Jun-17
	GEL	FC	Total	GEL	FC	Total
Corporate	1.5%	3.2%	2.8%	0.3%	5.0%	3.8%
Retail	2.8%	2.9%	2.9%	2.4%	3.0%	2.7%
MSME	2.2%	5.7%	4.0%	2.0%	5.9%	4.6%
Total	2.4%	3.6%	3.1%	1.9%	4.4%	3.4%

Total

Total NPLs stood at 3.1%, down by 0.3pp on YoY basis, mainly driven by the improved performance of the corporate and MSME loan books.

Retail Segment

The retail segment's NPLs stood at 2.9%, up by 0.2pp YoY. The increase was mainly driven by credit cards and high yield products as anticipated and provisioned appropriately at disbursement.

Corporate

The corporate NPLs stood at 2.8%, down by 1.0pp on YoY basis, due to overall improved performance of the corporate loan book.

MSME

The MSME NPLs declined by 0.6pp on a YoY basis, and stood at 4.0%, driven by a decrease in NPLs in both the micro and SME portfolios.

NPLs Coverage

NPLs Coverage	Jun-18		Jun-17
	Exc. Collateral	Incl. Collateral	Exc. Collateral	Incl. Collateral
Corporate	99.2%	232.1%	59.7%	273.0%
Retail	153.9%	226.8%	126.8%	211.5%
MSME	76.9%	187.6%	53.6%	174.9%
Total	116.1%	216.1%	84.3%	219.3%

NPLs Coverage

Total provision coverage increased from 84.3% to 116.1%. The key driver of the increase was the transition to the IFRS 9 methodology, which led to an increase in loan loss provision across all segments. Apart from the IFRS 9 effect, in the case of the MSME segment, the increase in provision coverage was driven by the re-segmentation effect made in 1Q 2018.

Liabilities

As of 30 June 2018, TBC Bank's total liabilities amounted to GEL 11,640 million, up by GEL 2,049.5 million, or 21.4% YoY. The increase was primarily due to a GEL 784.1 million, or 33.9%, increase in amounts due to credit institutions and an increase in customer accounts of GEL 1,266.2 million, or 19.0%. Total liabilities also grew due to an increase in deferred income tax liability of GEL 20.8 million, which was mainly related to the reversal of the deferred tax gain, as mentioned above.

Liquidity

As of 30 June 2018, the Bank's liquidity ratio, as defined by the NBG, stood at 33.3%, compared to 34.2% as of 30 June 2017. As of 30 June 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 119.2%, above the 100.0% limit, while the LCR in GEL and FC stood at 105.0% and 129.0% respectively, above the respective limits of 75% and 100%.

Total Equity

As of 30 June 2018, TBC's total equity amounted to GEL 1,943.7 million, up by GEL 253.2 million or by 15.0% from GEL 1,690.5 million as of 30 June 2017. This YoY change in equity was mainly due to net profit contribution of GEL 383.6 million during the last 12 months, which was mostly offset by dividend distribution of GEL 88.9 million in May 2018 and by IFRS 9 transition effect in the amount of GEL 64 million as of 1 January 2018.

Regulatory Capital

According to the newly introduced methodology, as of 30 June 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.4% and 17.0%, respectively, compared to the minimum required levels of 10.2% and 15.6%.

In 30 June 2018, The Bank's Basel III Tier 1 Capital amounted to GEL 1,498.9 million. The Bank's Basel III Total Capital amounted to GEL 1,908.4 million. Risk Weighted Assets amounted to GEL 11,200.4 million as of 30 June 2018.

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2018):

· Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;

· Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;

Business customers are all legal entities or individuals who have been granted a loan for business purpose.

Summary of key changes:

Income Statement by Segments

1H'18	Retail	MSME	Corporate	Corp.Centre	Total
Interest Income	299,007	112,534	117,838	68,622	598,001
Interest Expense	(58,951)	(4,917)	(63,859)	(106,667)	(234,394)
Net Transfer Pricing	(42,704)	(37,998)	16,168	64,534	-
Net Interest Income	197,352	69,619	70,147	26,489	363,607
Fee and Commission Income	78,330	10,621	18,399	1,749	109,099
Fee and Commission Expense	(28,407)	(3,209)	(3,260)	(141)	(35,017)
Net fee and Commission Income	49,923	7,412	15,139	1,608	74,082
Gross Insurance Profit	-	-	-	5,299	5,299
Net income from foreign currency operations	11,879	10,030	19,816	(2,943)	38,782
Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)	-	-	-	4,023	4,023
Net Losses from Derivative Financial Instruments	-	-	-	413	413
Other Operating Income	4,679	365	4,576	643	10,263
Share of profit of associates	-	-	-	648	648
Other Operating Non-Interest Income	16,558	10,395	24,392	8,083	59,428
Provision for Loan Impairment	(54,872)	(9,772)	(1,336)	-	(65,980)
(Provision)/Recovery of Provision for Liabilities, Charges and Credit Related Commitments	(95)	(40)	(1,879)	(486)	(2,500)
Recovery of Provision/(Provision) for Impairment of Investments in Finance Lease	-	-	-	(493)	(493)
(Provision)/Recovery of Provision for Impairment of other Financial Assets	(3,843)	(2)	(697)	(927)	(5,469)
Recovery of Impairment/(Impairment) of Investment Securities Available for Sale	-	-	(31)	(81)	(112)
Profit before G&A Expenses and Income Taxes	205,023	77,612	105,735	34,193	422,563
Staff Costs	(62,795)	(19,530)	(13,370)	(7,152)	(102,847)
Depreciation and Amortization	(17,373)	(2,342)	(1,038)	(710)	(21,463)
Administrative and Other Operating Expenses	(39,431)	(8,271)	(3,596)	(7,414)	(58,712)
Operating Expenses	(119,599)	(30,143)	(18,004)	(15,276)	(183,022)
Profit before Tax	85,424	47,469	87,731	18,917	239,541
Income Tax Expense	(11,460)	(7,308)	(13,304)	(7,506)	(39,578)
Profit for the Year	73,964	40,161	74,427	11,411	199,963

Portfolios by Segments
In thousands of GEL	30-Jun-2018	30-Jun-2017
Loans and Advances to Customers

Consumer	1,975,426	1,919,788
Mortgage	2,185,630	1,744,421
Pawn	35,393	35,648
Retail	4,196,449	3,699,857
Corporate	2,581,612	2,057,644
MSME	2,117,886	1,628,934
Total Loans and Advances to Customers (Gross)	8,895,947	7,386,435
Less: Provision for Loan Impairment	(321,367)	(212,130)
Total Loans and Advances to Customers (Net)	8,574,580	7,174,305

Customer Accounts

Retail	4,467,638	3,707,854
Corporate	2,559,449	2,057,651
MSME	905,498	900,908
Total Customer Accounts	7,932,585	6,666,413

Retail Banking

As of 30 June 2018, retail loans stood at GEL 4,196.4 million, up by GEL 496.6 million, or 13.4%, YoY. As of 30 June 2018, TBC Bank's retail loans accounted for 39.8% market share of total individual loans. As of 30 June 2018, foreign currency loans represented 50.6% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 4,467.6 million, up by GEL 759.8 million, or 20.5%, YoY. Retail deposits accounted for 41.2% market share of total individual deposits. As of 30 June 2018, term deposits accounted for 53.9% of the total retail deposit portfolio, while foreign currency deposits represented 82.5% of the total retail deposit portfolio.

In 1H 2018, retail loan yields and deposit rates stood at 14.6% and 2.7%, respectively. The segment's cost of risk on loans was 2.7% .The retail segment contributed 37.0%, or GEL 74.0 million, to the total net income in 1H 2018.

Corporate Banking

As of 30 June 2018, corporate loans amounted to GEL 2,581.6 million, up by GEL 524.0 million, or 25.5%, YoY. Foreign currency loans accounted for 76.7% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.5%.

As of the same date, corporate deposits totalled GEL 2,559.4 million, up by GEL 501.8 million, or 24.4%, YoY. Foreign currency corporate deposits represented 46.6% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 37.5%.

In 1H 2018, corporate loan yields and deposit rates stood at 9.3% and 5.2%, respectively. In the same period, the cost of risk on loans was 0.1%. In terms of profitability, the corporate segment's net profit reached GEL 74.4 million, or 37.2% of the total net income.

MSME Banking

As of 30 June 2018, MSME loans amounted to GEL 2,117.9, up by GEL 489.0 million, or 30.0%, YoY. Foreign currency loans accounted for 51.8% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 905.5 million, up by GEL 4.6 million, or 0.5%, YoY. Foreign currency MSME deposits represented 49.5% of the total MSME deposit portfolio.

In 1H 2018, MSME loan yields and deposit rates stood at 11.7% and 1.0%, respectively, while the cost of risk on loans was 1.0%. In terms of profitability, net profit for the MSME segment amounted to GEL 40.2 million, or 20.1%, of the total net income.

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance Sheet
In thousands of GEL	Jun-18	Jun-17
Cash and cash equivalents	1,605,163	1,219,108
Due from other banks	42,469	41,096
Mandatory cash balances with National Bank of Georgia	1,034,177	931,654
Loans and advances to customers	8,574,580	7,174,305
Investment securities available for sale	817,876	618,044
Bonds carried at amortized cost	477,694	389,036
Investments in associates	1,925	1,021
Investments in finance leases	172,027	96,329
Investment properties	78,094	93,502
Current income tax prepayment	7,369	7,719
Deferred income tax asset	2,331	3,407
Other financial assets	107,741	94,238
Other assets	171,046	197,533
Premises and equipment	374,414	320,139
Intangible assets	87,947	65,034
Goodwill	28,657	28,657
TOTAL ASSETS	13,583,510	11,280,822
LIABILITIES
Due to Credit Institutions	3,097,602	2,313,550
Customer accounts	7,932,585	6,666,413
Other financial liabilities	88,320	122,019
Current income tax liability	26	272
Debt Securities in issue	19,641	24,106
Deferred income tax liability	22,980	2,138
Provisions for liabilities and charges	11,732	10,733
Other liabilities	69,364	61,013
Subordinated debt	397,576	390,070
TOTAL LIABILITIES	11,639,826	9,590,314
EQUITY
Share capital	1,650	1,601
Share premium	796,808	706,580
Retained earnings	1,261,578	1,051,973
Group reorganisation reserve	(162,166)	(162,166)
Share based payment reserve	(21,085)	4,753
Revaluation reserve for premises	64,962	70,045
Revaluation reserve for available-for-sale securities	2,541	(1,106)
Cumulative currency translation reserve	(7,345)	(7,694)
Net assets attributable to owners	1,936,943	1,663,986
Non-controlling interest	6,741	26,522
TOTAL EQUITY	1,943,684	1,690,508
TOTAL LIABILITIES AND EQUITY	13,583,510	11,280,822

Consolidated Statement of Profit or Loss and Other Comprehensive Income
In thousands of GEL	1H'18	1H'17
Interest income	598,001	487,667
Interest expense	(234,394)	(195,593)
Net interest income	363,607	292,074
Fee and commission income	109,099	89,719
Fee and commission expense	(35,017)	(34,502)
Net Fee and Commission Income	74,082	55,217
Net insurance premiums earned	10,602	6,382
Net insurance claims incurred and agents’ commissions	(5,303)	(3,301)
Insurance Profit	5,299	3,081
Net income from foreign currency operations	38,782	43,392
Net gain/(losses) from foreign exchange translation	4,023	2,037
Net gains/(losses) from derivative financial instruments	413	(38)
Other operating income	10,263	14,234
Share of profit of associates	648	577
Other operating non-interest income	54,129	60,202
Provision for loan impairment	(65,980)	(40,367)
Provision for impairment of investments in finance lease	(493)	(129)
Provision for/ (recovery of provision) performance guarantees and credit related commitments	(2,500)	1,547
Provision for impairment of other financial assets	(5,469)	(4,425)
Impairment of investment securities available for sale	(112)	-
Operating income after provisions for impairment	422,563	367,200
Staff costs	(102,847)	(102,376)
Depreciation and amortisation	(21,463)	(17,523)
(Provision for)/ recovery of liabilities and charges	-	2,495
Administrative and other operating expenses	(58,712)	(58,446)
Operating expenses	(183,022)	(175,850)
Profit before tax	239,541	191,350
Income tax expense	(39,578)	(14,935)
Profit for the period	199,963	176,415
Other Comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Revaluation of available for-sale-investments	827	2,613
Exchange differences on translation to presentation currency	14	(158)
Items that will not be reclassified to profit or loss:
Income tax recorded directly in other comprehensive income	(5,151)	(422)
Other comprehensive income for the Period	(4,310)	2,033
Total comprehensive income for the Period	195,653	178,448
Profit attributable to:
- Shareholders of TBCG	198,347	173,519
- Non-controlling interest	1,616	2,896
Profit for the period	199,963	176,415
Total comprehensive income is attributable to:
- Shareholders of TBCG	194,089	175,523
- Non-controlling interest	1,564	2,925
Total comprehensive income for the Period	195,653	178,448

Consolidated Statements of Cash Flows
In thousands of GEL	30-June-18	30-June-17
Cash flows from/(used in) operating activities
Interest received	573,644	468,391
Interest paid	(234,845)	(195,640)
Fees and commissions received	118,805	89,329
Fees and commissions paid	(35,025)	(34,802)
Insurance premium received	10,973	7,153
Insurance claims paid	(5,898)	(3,497)
Income received from trading in foreign currencies	38,782	43,392
Other operating income received	(2,672)	8,334
Staff costs paid	(111,715)	(102,975)
Administrative and other operating expenses paid	(59,836)	(53,075)
Income tax paid	(10,151)	(21,785)
*Cash flows from operating activities before changes in operating assets and liabilities*	*282,062*	*204,825*
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia	(51,957)	3,043
Loans and advances to customers	(671,825)	(499,822)
Investment in finance lease	(34,101)	(8,531)
Other financial assets	40,231	1,007
Other assets	(879)	1,103
Net change in operating liabilities
Due to other banks	126,870	(223,686)
Customer accounts	430,568	610,920
Other financial liabilities	(10,995)	(8,600)
Other liabilities and provision for liabilities and charges	(215)	(211)
*Net cash from operating activities*	*109,759*	*80,048*
Cash flows from/(used in) investing activities
Acquisition of investment securities available for sale	(395,898)	(401,304)
Proceeds from redemption at maturity of investment securities available for sale	239,593	218,981
Acquisition of bonds carried at amortised cost	(166,188)	(141,849)
Proceeds from redemption of bonds carried at amortised cost	142,432	131,693
Acquisition of premises, equipment and intangible assets	(34,241)	(32,262)
Disposal of premises, equipment and intangible assets	1,015	1,506
Proceeds from disposal of investment property	6,898	2,570
Acquisition of subsidiaries, net of cash acquired	-	(350)
*Net cash used in investing activities*	*(206,389)*	*(221,015)*
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds	1,468,097	1,019,147
Redemption of other borrowed funds	(1,044,435)	(640,409)
Proceeds from subordinated debt	-	52,990
Redemption of subordinated debt	(7,688)	-
Proceeds from debt securities in issue	28	2,823
Dividends paid	(85,484)	(1,193)
Issue of ordinary shares	-	31
*Net cash flows from financing activities*	*330,518*	*433,389*
*Effect of exchange rate changes on cash and cash equivalents*	*(60,202)*	*(18,494)*
*Net increase in cash and cash equivalents*	*173,686*	*273,928*
*Cash and cash equivalents at the beginning of the year*	*1,431,477*	*945,180*
*Cash and cash equivalents at the end of the year*	*1,605,163*	*1,219,108*

Key Ratios

Average Balances

Key Ratios

Ratios (based on monthly averages, where applicable)	1H'18	1H'17
Underlying ROE¹	23.0%	22.5%
Reported ROE²	21.2%	21.5%
Underlying ROA³	3.4%	3.5%
Reported ROA⁴	3.1%	3.3%
Pre-provision ROE⁵	29.1%	26.9%
Cost to Income⁶	36.8%	42.8%
Cost of Risk⁷	1.6%	1.1%
NIM⁸	7.0%	6.7%
Risk Adjusted NIM⁹	5.3%	5.2%
Loan Yields¹⁰	12.4%	12.1%
Risk Adjusted Loan Yields¹¹	10.7%	10.6%
Deposit rates¹²	3.3%	3.4%
Yields on interest Earning Assets¹³	11.6%	11.1%
Cost of Funding¹⁴	4.4%	4.4%
Spread¹⁵	7.1%	6.7%
PAR 90 to Gross Loans¹⁶	1.1%	1.6%
NPLs to Gross Loans¹⁷	3.1%	3.4%
NPLs coverage¹⁸	116.1%	84.3%*
NPLs coverage with collateral¹⁹	216.1%	219.3%*
Provision Level to Gross Loans²⁰	3.6%	2.9%*
Related Party Loans to Gross Loans²¹	0.1%	0.1%
Top 10 Borrowers to Total Portfolio²²	9.2%	9.1%
Top 20 Borrowers to Total Portfolio²³	13.2%	13.0%
Net Loans to Deposits plus IFI Funding²⁴	89.5%	90.6%
Net Stable Funding Ratio²⁵	127.8%	128.7%
Liquidity Coverage Ratio²⁶	119.2%	106.1%
Leverage²⁷	7.0x	6.7x
Regulatory Tier 1 CAR (Basel III)²⁸	13.4%	10.8%**
Regulatory Total 1 CAR (Basel III)²⁹	17.0%	14.6%**

* Figures per IAS39

**1H 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period adjusted for the respective one-off items; Annualised where applicable.

2. Return on average total equity (ROE) equals net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.

3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period; Annualised where applicable.

4. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period; Annualised where applicable.

7. Cost of risk equals provision for loan impairment divided by monthly average gross loans and advances to customers; Annualised where applicable.

8. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; Annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with the NBG that currently have negative interest, and includes other earning items from due from banks.

9. Risk Adjusted Net interest margin is NIM minus cost of risk without one -offs and currency effect.

10. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers. Annualised where applicable.