Management Board Report on the Performance of mBank S.A. Group in H1 2021 mBank S.A. Group Management Board Report on the Performance of mBank S.A. Group in H1 2021 TABLE OF CONTENTS 1. About mBank Group ............................................................................................................ 3 1.1. Executive summary ............................................................................................................ 3 1.2. mBank’s Authorities ............................................................................................................ 4 1.3. Composition of mBank Group and key areas of activity ........................................................... 6 1.4. Subsidiaries of mBank Group ............................................................................................... 7 1.5. Ratings of mBank and mBank Hipoteczny .............................................................................. 8 1.6. mBank shareholders and performance of mBank shares on the WSE ....................................... 12 2. Business activity and key achievements .............................................................................. 14 2.1. Key events in mBank Group in H1 2021 .............................................................................. 14 2.2. Awards and distinctions ..................................................................................................... 17 2.3. Retail Banking Area .......................................................................................................... 19 2.4. Corporate and Investment Banking Area ............................................................................. 27 2.5. Subsidiaries of mBank Group ............................................................................................. 35 3. Financial results and macroeconomic environment ................................................................ 38 3.1. Economy and banking sector in H1 2021 ............................................................................. 38 3.2. Financial results of mBank Group in H1 2021 ....................................................................... 46 4. Risk management ............................................................................................................. 58 4.1. Risk management foundations ........................................................................................... 58 4.2. Main risks of mBank Group’s business ................................................................................. 59 4.3. Capital adequacy .............................................................................................................. 69 5. Statements of the Management Board................................................................................. 71 2 mBank S.A. Group Management Board Report on the Performance of mBank S.A. Group in H1 2021 1. About mBank Group 1.1. Executive summary In H1 2021 the Polish and global economy was still strongly impacted by the COVID-10 pandemic. Still at the beginning of 2021, to curb the spread of the coronavirus, economic activity and social contacts were limited to a significant extent. Following a sharp third wave of the contagion in March and April, the pandemic subsided and most restrictions were lifted by the end of H1 2021. GDP growth was robust in H1 2021, which was mainly driven by the economy’s adapting to pandemic conditions and the contribution of additional (delayed) demand which surged after the economies unlocked. Activity in all key sectors picked up markedly at the end of H1. Importantly, private investments grew considerably already in Q1. The labour market also improved: employment grew while the unemployment rate dropped. At the same time, in the banking sector a slow acceleration of lending was noted. Year-on-year dynamics of loans for enterprises and non-mortgage loans remained negative, though. Simultaneously, deposit dynamics decelerated after the record-high growth in H1 2020. In H1 2021 total income of mBank Group was record-high, driven by growing volumes, improving structure of assets and rising number and activity of clients. Net income was higher compared to H1 2020 and reached PLN 425.8 million. The key highlights of H1 2021 include: ◼ Increase of total income by 2.7% compared to H1 2020 thanks to dynamic growth of net fee and commission income; ◼ Significant decrease of net impairment losses and fair value change on loans and advances by 48.4% resulting from the creation of additional provisions for risks related to COVID-19 pandemic in H1 2020; ◼ Higher costs of legal risk related to FX loans driven mainly by higher than expected inflow of cases in the first half of 2021 and changes in level of loss on loan exposure in case of losing the case by mBank; ◼ Lower total cost by 4.8% and lower adjusted cost-to-income ratio at 39.6% in H1 2021 compared to 42.2% in H1 2020; ◼ Increase of net profit of core business (defined as mBank Group excluding FX Mortgage Loans segment) by 96.3% compared to H1 2020, net ROE at 10.7%. ◼ Increase in the following volumes: ◼ Increase in net loans and advances by 7.1% compared to the end of 2020 and 7.4% compared to the end of June 2020; ◼ Increase in amounts due to clients by 13.7% compared to the end of 2020 and 12.1% compared to the end of June 2020; ◼ Rising activity and improving consumer sentiment were reflected in significantly higher sales of retail loans. The sales of mortgage loans in H1 2021 reached PLN 6.3 billion, up 60.5% on an annual basis. The sales of non-mortgage loans increased by 33.2% to PLN 4.7 billion. ◼ As a result of developments in loans and deposits, loan to reposit ratio was record-low at 74.2% compared to 78.8% at the end of 2020. ◼ High quality of the capital base with capital ratios surpassing the regulatory requirements: CET 1 ratio at 15.2%, Total Capital Ratio at 17.6%. 3 mBank S.A. Group Management Board Report on the Performance of mBank S.A. Group in H1 2021 1.2. mBank’s Authorities Supervisory Board of mBank In H1 2021, there was a change in the composition of the Supervisory Board. Sabine Schmittroth resigned from membership in the Bank's Supervisory Board as well as from membership in the Executive and Nomination Committee and the Remuneration Committee with effect from March 25, 2021. On 24 March 2021, Arno Walter was elected as the member of the Supervisory Board of mBank as of 25 March 2021, until the end of the current term of the Supervisory Board. He has been the Head of Wealth Management & Small Business Clients at Commerzbank AG since January 1, 2020 and he is also responsible for the integration of Comdirect Bank into Commerzbank. As of June 30, 2021, the Supervisory Board of mBank S.A. was composed as follows: 1. Agnieszka Słomka-Gołębiowska - Chairwoman of the Supervisory Board 2. Jörg Hessenmüller - Deputy Chairman of the Supervisory Board 3. Tomasz Bieske - Member of the Supervisory Board 4. Marcus Chromik - Member of the Supervisory Board 5. Mirosław Godlewski - Member of the Supervisory Board 6. Aleksandra Gren - Member of the Supervisory Board 7. Bettina Orlopp - Member of the Supervisory Board 8. Arno Walter - Member of the Supervisory Board. There are four independent members in the Supervisory Board: 1. Agnieszka Słomka-Gołębiowska 2. Aleksandra Gren 3. Mirosław Godlewski 4. Tomasz Bieske Five committees operate within the Supervisory Board: the Executive and Nomination Committee, the Risk Committee, the Audit Committee, the Remuneration Committee and the IT Committee. The latter one was established in Q1 2021. Its main tasks include: performing ongoing supervision over the Bank's activities in the field of IT and IT security in the periods between meetings of the Supervisory Board, analyzing the Bank's periodic reports presented to the Supervisory Board in the field of IT and IT security, presenting to the Supervisory Board conclusions from the review of the Bank's periodic reports in the field of IT and IT security, recommending the Supervisory Board to approve or reject the Bank's IT and cybersecurity strategies, monitoring the implementation of the IT Strategic Road Map and the introduction of IT strategic initiatives and monitoring the effectiveness of the IT operational risk management system, IT security and internal IT governance. The composition of individual committees is presented below (in the first place - the chairperson of the committee). Executive and Risk Committee Audit Committee Remuneration IT Committee Nomination Committee Committee Prof. Agnieszka Dr Marcus Chromik Tomasz Bieske Dr Bettina Orlopp Aleksandra Gren Słomka-Gołębiowska Mirosław Godlewski Aleksandra Gren Tomasz Bieske Mirosław Godlewski Jörg Hessenmüller Dr Bettina Orlopp Jörg Hessenmüller Mirosław Godlewski Jörg Hessenmüller Dr Bettina Orlopp Prof. Agnieszka Jörg Hessenmüller Słomka-Gołębiowska 4 mBank S.A. Group Management Board Report on the Performance of mBank S.A. Group in H1 2021 Management Board of mBank There were no changes in the composition of the Management Board in H1 2021. On March 3, 2021, the Polish Financial Supervision Authority granted its consent to appointing Marek Lusztyn as the Member of the Management Board of the Bank supervising the management of material risk in the Bank's operations. Marek Lusztyn was appointed to the Management Board of the bank on October 22, 2020. As of June 30, 2021, the composition of the Management Board was as follows: 1. Cezary Stypułkowski - President of the Management Board, Chief