Bank Millennium S A : Report of the Bank Millennium S.A. Capital Group for 1Q 2024

Consolidated report of the Bank Millennium S.A. Capital Group for

1st quarter of 2024

This document is a translation from the original Polish version. In case of any discrepancies between the Polish and English versions, the Polish version shall prevail.

Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

Consolidated Financial Highlights

	Amount '000 PLN	Amount '000 EUR
	1.01.2024 -	1.01.2023 -	1.01.2024 -	1.01.2023 -
	31.03.2024	31.03.2023	31.03.2024	31.03.2023
Interest income and other of similar nature	2 169 427	2 071 433	502 054	440 684
Fee and commission income	262 422	260 648	60 730	55 451
Profit (loss) before income tax	129 293	533 601	29 921	113 520
Profit (loss) after taxes	128 426	252 146	29 721	53 642
Total comprehensive income of the period	187 245	578 096	43 333	122 986
Net cash flows from operating activities	6 656 138	3 376 398	1 540 380	718 306
Net cash flows from investing activities	(5 345 614)	(2 291 994)	(1 237 096)	(487 606)
Net cash flows from financing activities	(37 406)	(45 273)	(8 657)	(9 632)
Net cash flows, total	1 273 118	1 039 131	294 628	221 068
Earnings (losses) per ordinary share (in PLN/EUR)	0.11	0.21	0.02	0.04
Diluted earnings (losses) per ordinary share	0.11	0.21	0.02	0.04
	31.03.2024	31.12.2023	31.03.2024	31.12.2023
Total Assets	132 138 048	125 520 004	30 723 348	28 868 446
Liabilities to banks and other monetary institutions	557 849	563 512	129 705	129 603
Liabilities to customers	113 183 861	107 246 427	26 316 320	24 665 692
Equity	7 082 140	6 894 895	1 646 665	1 585 762
Share capital	1 213 117	1 213 117	282 061	279 006
Number of shares (pcs.)	1 213 116 777	1 213 116 777	1 213 116 777	1 213 116 777
Book value per share (in PLN/EUR)	5.84	5.68	1.36	1.31
Diluted book value per share (in PLN/EUR)	5.84	5.68	1.36	1.31
Total Capital Ratio (TCR)	18.01%	18.06%	18.01%	18.06%
Pledged or paid dividend per share (in PLN/EUR)	-	-	-	-
Exchange rates accepted to convert selected financial data into EUR
for items as at the balance sheet date	-	-	4.3009	4.3480
for items for the period covered by the report			4.3211	4.7005
(exchange rate calculated as the average of exchange	-	-
rates at the end of individual months of the period)

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

INFORMATION ABOUT ACTIVITY OF BANK MILLENNIUM AND CAPITAL GROUP OF BANK MILLENNIUM S.A. IN 1Q24

FINANCIAL RESULTS - KEY POINTS

Summary

Bank Millennium S.A. Capital Group's ('BM Group', 'Group') reported net profit of PLN128 million in 1Q24. Again, the three digit net result was achieved despite the still high costs related to FX- mortgage portfolio ('FX-mortgage costs'). These remained elevated (PLN824 million pre-tax, PLN640 million after tax) due to high legal costs while legal risk provision cost continued to trend down. 1Q24 net profit adjusted for these costs but with a hypothetical asset tax ('bank tax') of PLN100 million would be PLN668 million compared with adjusted 1Q23 net profit of PLN609 million.

1Q24 was another solid quarter from the operating perspective. Deposit collection was strong (up 6% q/q) despite visibly lower pricing, helping to reverse the negative trend in NII. Loan book w/o FX- mortgages grew 1% q/q with improved originations of PLN mortgages (+78% y/y) and greens-shoots in leasing (origination +14% y/y) and loans to micro-companies (+7%). Number of active retail clients remained in a steady up trend (3,045 thousand, up 4% y/y) while volume of investment products grew 10% q/q to nearly PLN9bn.

Number of new amicable settlements with FX-mortgage borrowers remained well above the 1,000 mark, with settlements to date totalling 22,500, an equivalent of 37% of the number of loan agreements active at moment of the full roll-out of amicable settlements effort. Inflow of FX- mortgage claims against the Bank continued to trend down, while its legal risk provisions include relevant assumption connected with future inflow of court cases.

Last but not least, capital ratios remained broadly stable (Group TCR: 18.0%/T1:14.9%) and comfortably above the regulatory minimums, thereby further increasing the odds of a formal nearing completion of the recovery and capital protection plans. Moreover, the drop of the share of gross share of FX-mortgages (before deduction of FX mortgage legal risk provisions) in total gross book below the 10% thresholds is the another important step towards a potential significant reduction or even elimination of the P2R buffer further out.

1 100									Net result: reported and adjusted (PLNmn)	819
																				809			756
900														640	692					668
													609
700										454	453
			320
500			202	271	306				249	252
																128
300																					106			103	115
100
-100			1Q21		2Q21		3Q21		4Q21		1Q22		2Q22			3Q22		4Q22		1Q23		2Q23	3Q23			4Q23		1Q24
-300				-200	-311			-122	-140
-500
					-509
-700
-900
-1 100														-1 001
Net result reported

Net result w/o FX-mortgage related costs, w/o credit holidays and bancassurance transaction but with hypothetical banking tax

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

Key developments in the period

The key developments in 1Q24 were as follows:

NII adjusted for cost of credit holidays increased 5% q/q on a combination of 6% higher IEAs, higher market interest rates (average 3M WIBOR at 5.86% vs. 5.77% in 4Q23) and lower cost of funding; the size and profitability of the securities portfolio continued to increase; the y/y growth of NII improved to 7% from 3% in the previous quarter;

quarterly NIM improved to 436bp from 424bp in the preceding quarter and it was a combination of lower deposit cost (240bp from 255bp respectively) and higher yield of the securities portfolio;

cost inflation accelerated further (opex without BFG costs up 23% y/y) with low base effect (annual settlement of card costs lowering admin costs in 1Q23) partly responsible for this elevated rate of growth; headcount remained broadly stable (number of active employees up 24 in the last twelve months), optimisation of the physical distribution network continued (own branches down by 18 units or 5% in the last twelve months) complementing the increasing share of digital services (digital customers: 2.77mn, up 7% y/y, number of active mobile customers: 2.55mn, up 9% y/y);

1. Reported adjusted for cost of credit holidays, provisions against credit risk, Covid-19, result on FV portfolio, impairment losses on non-financial assets, modifications, legal risk on FX-mortgages and results on bancassurance transaction in 1Q23 and 4Q23.

loan portfolio marginally increased in the quarter (net/gross loans: +0.4% y/y each) with trends in FX-mortgageportfolio (down 19% q/q on a reported basis and down >55% y/y) remaining the key decisive factor; the growth of loan book w/o FX-mortgages,up on all counts (+1% q/q, +1% y/y), was a good indicator for the remainder of the year as loan growth was particularly more visible in March; FX-mortgages(reported basis) continued to shrink fast on a combination of FX movements, repayments, provisioning (in line with IFRS9 most of legal risk provisions are booked against gross value of loans under court proceedings), write-downsand amicable settlements; as a result, the share of all FX-mortgagesin total gross loans decreased to 3.3% (BM originated only: 2.9%) from 7.3% (6.6%) in the same period last year;

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

non-mortgage retail portfolio was flat q/q and up 7% y/y owing chiefly to stable origination of cash loans (PLN1.5bn or down 2% y/y); BM's market share in origination of cash loans in 1Q24 stood at 9.0%, below the 11.1% in 1Q23; origination (disbursements) of PLN mortgages remained stable q/q at PLN1.6bn (market share of 6.7%), growing 78% y/y;

loan book quality was broadly stable in 1Q24 with NPL ratio at 4.6%; consumer loans segment was the only portfolio with a slight NPL increase, counterbalanced by a drop of NPL ratio in the corporate portfolio; volume of Stage 3 loans increased only marginally, hence the NPL coverage improved further to 73% (72% at YE23); cost of risk was seasonally higher (63bps, the same as in 1Q23) with 67bps credit risk cost in the retail segment and 47bps in the corporate one;

customer deposits were up 6% in the quarter and up 12% y/y with retail deposits up 6% q/q and corporate ones up 5%; share of term deposits increased to 39% from 36% at YE23; the liquidity of the Bank remained very comfortable with L/D ratio easing further to 65%;

AuM of Millennium TFI and third-party funds combined again grew at a healthy rate (10% q/q) with y/y growth rate accelerating to 30%;

capital ratios were broadly stable (Group TCR: 18.0%/T1:14.9% vs. 18.1%/14.7% respectively at the YE23) with the surplus over the required minimum T1 level widening further to 5.1ppt and this over minimum TCR ratio stable (5.8%); the improvement was mainly an outcome of an inclusion of 2H23 net profit into regulatory capital and lower unrealised losses on the bond portfolio; MREL trea ratio remained broadly stable, well above the current and the expected new requirement; the Bank expects its MREL targets to be lowered during 2Q24 with new MRELtrea target expected at 18.03% vs. 18.89% currently (20.78% vs. 21.64% respectively including CBR).

Substantial extraordinary P&L items

In 1Q24, the BM Group recognised annual cost of BFG resolution fund fee in the amount of PLN61 million. In admin costs, the y/y comps were distorted by low base effect (settlement of card fees lowered admin costs in 1Q23). Lastly, tax line brought a lower than usual figure owing to number of items, including a creation of PLN52 million DTA related to future adjustments of interest income earned on mortgage loans indexed to CHF and foreign currency loans in this currency which are the subject of court disputes for their cancellation. This asset significantly reduced the tax burden for the reported period (details in note 11 further in the report).

FX-mortgage portfolio and related costs

Costs related to FX-mortgage portfolio (legal risk provisions, costs of amicable settlements and legal costs) remained elevated (PLN824 million pre-tax/PLN640 million after tax) and continued to be a material drag on the increasingly profitable core business of the Group.

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

FX-mortgage related costs (PLNmn pre-tax)*

								3 540
								116
								269
				2 517	2 459	326
				74	131
				357
				484
			750	2 086	2 828	968	14	824
			1 844
									72	34	165
			25
													61
	223		47								821		118
		677									507
	223
	2019	2020	2021	2022	2023	1Q23		1Q24
			Legal risk provisions			Amicable settlements			Legal costs			Other

1. without legal risk costs related to FX-mortgages originated by former EB.

Total provisions against legal risk related to FX-mortgage portfolio ('FX-mortgage provisions') amounted to PLN549 million (pre-tax) in 1Q24 with PLN507 million attributable to FX-mortgages originated by Bank Millennium. Post-taxFX-mortgage related provisions attributable to portfolio originated by Bank Millennium totalled PLN389 million vs. PLN820 million in 1Q23. It is worth noting that since their peak in 1Q23, quarterly levels of legal risk provisions have been in a clear downtrend. In the 1H23 the increase of mortgage provisions resulted from negative developments in the legal environment, namely the judgment of the European Court of Justice of June 15, 2023, with consequent methodological changes (e.g. elimination of a scenario of remuneration for capital provided by the Bank) and updated inputs into the Bank's provisioning methodology, in 2H23 these were chiefly driven by updated inputs, reflecting, inter alia, actual and expected inflow of court claims, while in 1Q24 apart from changes to inputs, provisions for potential late payments interest were also included.

At the end of March'24, provisions for the portfolio originated by Bank Millennium were at the level of PLN7,226 million (an equivalent of 91.5% of the grossed-upFX-mortgage book) and at PLN631 million for the portfolio originated by former Euro Bank. Allocated, i.e. decreasing gross balance sheet value of the respective loan books stood at PLN5,648 million (dropped q/q on a combination of stronger PLN and use of provisions) and PLN477 million respectively.

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

(*) actual outstanding B/S provisions not equal to the sum of P&L charges. ** including provisions for settlements

Note: legal risk provisions/gross FX mortgage book (post IFRS9 adjustments where necessary); excl. f.EB portfolio in case of BM; peer group composition has been changed hence there may be differences in comparison to previously presented data.

On March 31, 2024, the Bank had 21,725 loan agreements and additionally 1,917 loan agreements from former Euro Bank under individual ongoing litigations (excluding claims submitted by the Bank against clients i.e. debt collection cases) concerning indexation clauses of FX mortgage loans submitted to the court. A relatively small proportion of these (~12.0%) was filed by borrowers who had repaid their FX-mortgages entirely or converted them into PLN mortgages at the date of submitting the court case.

The Bank is highly focused on reduction of its FX-mortgage portfolio and the related risk and therefore continues to actively offer its customers amicable solutions (i.a. conversions to Polish zloty, pre-payments, early repayments or collectively 'amicable settlements') regarding FX- mortgages on negotiated terms. The number of amicable settlements reached 1,104 in 1Q24, slightly more than in the preceding quarter. Over 22,500 amicable settlements took place since early 2020 when more intensive effort started. This represents over 37% of the number of active FX- mortgage agreements at the start of the effort. As a result of these negotiations, final court verdicts and other natural drivers, in 1Q24 the number of active FX-mortgage loans decreased by over 1,660 to 30,763, following the 5,586 drop in 2003 overall.

In 1Q24, costs related to amicable settlements totalled PLN118 million (pre-tax, booked in FX-result and in result on modifications), The relatively higher cost of the settlements in the period reflected, among others, an increasing number and share of in-court settlements. In 1Q24, 271 such settlements were achieved, compared to 186 in 4Q23 and 533 in 2023 overall.

Legal costs, booked in admin costs and other operating costs, were exceptionally high this quarter and totalled PLN165 million.

Note: some items were adjusted from the previously reported values

As a result of these trends, the BM's FX-mortgage portfolio contracted 5% in 1Q24 (in CHF terms, gross, w/o impact of allocated legal risk provisions) while the y/y contraction rate stood at 16%. The share of total FX-mortgage book (gross loans less allocated legal risk provisions) in total Group's gross loans dropped to 3.3% at the end of March, while the share of FX-mortgage loans originated by BM dropped to 2.9%.

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

(*) Originated by Bank Millennium

Note: the share of gross FX-mortgages not deducting allocated legal risk provisions was 9.95% at the end of March'24.

Excluding all FX-mortgage related costs (PLN824 million pre-tax/PLN640 million after tax) and adding hypothetical bank tax (PLN100 million), the BM Group would post 1Q24 net profit of PLN668 million (PLN714 million with linear distribution of BFG charges) vs. adjusted 1Q23 net profit of PLN609 million (PLN672 million).

FINANCIAL RESULTS IN DETAIL

Group P&L

Group's operating income		1Q24		1Q23	Change	4Q23		Change
(PLNmn)			y/y		q/q
Net interest income	1 354		1 262	7%		1 284	5%
Net commission income	200	201	-1%	190	5%
	Core income			1 554			1 463	6%		1 474		5%
Other non-interest income	-137	594	-		92	-
	Total operating income*			1 417			2 057	-31%		1 567		-10%
Total operating income without	1 640		1 524	8%		1 606	2%
extraordinary items**

1. Without fair value adjustment of credit portfolio (PLN3.7mn in 1Q24 and PLN-2.7mn in 1Q23), which is included in the cost of risk line

1. Without financial impact of insurance transaction (PLN597.2mn in 1Q23 and PLN55.2mn in 4Q23), negative impact of credit holidays (PLN9,2mn in 4Q23) and FX mortgage loan related costs/incomes (in FX position and other operating income/cost including indemnity from Societe Generale)

Net interest income (NII) in 1Q24 reached PLN1,354mn and grew 7% y/y (and 5% q/q) despite much lower market interest rates after the 75 bps central bank rates cut at the beginning of September'23 and negative impact of the EUR500mn MREL bonds issue (in the same month) on interest cost. The main driver of the growth of this item were debt securities (an increase by PLN19.5bn during 12 months).

Net interest margin (over average interest earning assets) (NIM) averaged 4.36% in 1Q24, i.e. 22 bps lower than 4.58% level in 1Q23. The above mentioned factors (interest rate cuts and MREL bonds) as well as growing share of bonds in assets had an adverse impact on NIM whereas decreasing cost of deposits by 49 bps during the same period (to 2.40%) and some improvement in bonds yields had both a positive impact.

Net commission income in 1Q24 amounted to PLN200mn and decreased slightly by less than 1% y/y (increased by 5% q/q) mainly due to contraction of fees from bancassurance activity by 24% y/y (as a result of the bancassurance transaction). On the other hand commissions from payment cards, brokerage and custody, funds management and distribution of mutual funds and other investment products increased considerably.

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

Reported core income, defined as a combination of net interest and net commission income, reached PLN1,554mn in 1Q24 and grew 6% y/y (and 5% q/q), being the key factor of Group's recurrent income dynamics.

Other non-interestincome, which comprises FX result, results on financial assets and liabilities (without fair value adjustment on credit portfolio) and net other operating income and costs, showed a negative value of PLN137mn in 1Q24. Costs of amicable settlements negotiated with FX mortgage borrowers and legal costs related to FX mortgage loans (PLN230mn presented in FX result and other operating costs) continued to negatively impact this line. In 2023 this line was under strong positive impact of the insurance transaction (sale of shares in Millennium Financial Services Sp. z o.o. to external insurance partner in March'23 and related impacts), with total pre-tax impact of PLN652mn (of which PLN597mn in 1Q23 and PLN55mn in 4Q23) which makes the analysis of the annual and quarterly changes of this item difficult.

Total operating income of the Group reached PLN1,417mn in 1Q24 and showed a strong decrease of 31% y/y. Without the extraordinary income and costs mentioned above, the income would be PLN1,640mn, up 8% y/y (a growth of 2% q/q).

Total costs amounted to PLN598mn in 1Q24, translating into an increase by 15% y/y. Total costs excluding BGF fees grew 23% y/y (or 2% q/q) reflecting still high inflationary pressures.

Operating costs	1Q24		1Q23	Change	4Q23		Change
(PLNmn)		y/y		q/q
Personnel costs	(289)		(246)	18%	(268)	8%
Other administrative costs	(309)		(276)	12%	(261)	18%
	of which Banking Guarantee Fund	(61)	(83)	-27%	0		-
	(BGF) fees
Total operating costs	(598)		(522)	15%	(529)	13%
Total costs without BFG	(537)		(438)	23%	(529)	2%
Cost/income - reported	42.2%	25.4%	16.9 p.p.	33.6%		8.7 p.p.
	Cost/income - adjusted *		31.8%			28.7%		3.0 p.p.		31.2%			0.6 p.p.

(*) with equal distribution of BFG resolution fee through the year and without one-off income or cost

Personnel costs amounted to PLN289mn in 1Q24 and increased 18% y/y (+8% q/q), mainly as a result of wage inflation feeding through higher base salaries and also higher provisions for bonuses. The Group continued to adjust the number of its branches and personnel to its needs, reflecting ongoing digitalisation of banking business and the growing importance of online channels while simultaneously keeping strong geographical presence through brick-and-mortar outlets. At the end of March 2024, the total number of outlets stood at 611 and their number was reduced by 11 units vs. the end of March 2023. The number of Group's employees amounted to 6,731 FTEs at the end of March 2024 and was 1% lower y/y and on similar level as a quarter ago. Without employees absent due to long leaves ('active FTEs'), the headcount was even lower at 6,330 staff.

Employment	31.03.2024		31.03.2023		Change y/y	31.12.2023 Change q/q
(FTEs)
Bank Millennium S.A.	6 440	6 539	-2%	6 460	0%
Subsidiaries	291	276	5%	287	1%
	Total Bank Millennium Group		6 731		6 815		-1%	6 747	0%
Total BM Group (active* FTEs)	6 330	6 306	0%	6 320	0%

(*) active FTEs denote employees not on long-term leaves.

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Consolidated report of the Bank Millennium S.A.

Capital Group for 1st quarter of 2024

Other administrative costs (including depreciation) reached PLN309mn in 1Q24 and increased by 12% y/y due to lower base effect supported by some cost savings in 1Q23. Among the key groups of costs the higher increase could be witnessed in such items as legal and advisory costs, rental and office maintenance, IT and telecommunication costs and marketing spendings. Legal costs resulting from negotiations and litigations with FX mortgage borrowers were a significant burden to this cost group (PLN32mn in the reporting period).

Cost-to-incomeratio for 1Q24 amounted to 42.2% and was higher by 16.9 percentage points vs. the 1Q23 level (33.6%), mainly due to the impact of high one-of income in 1Q23. Cost-to-income ratio without extraordinary items mentioned above (mainly the bancassurance transaction, cost of credit holidays and legal costs and FX losses related to litigations/settlements with FX mortgage borrowers), reached low level of 31.8% in 1Q24 and was 3 percentage points higher than in 1Q23.

Net profit		1Q24	1Q23		Change	4Q23		Change
(PLNmn)
		y/y		q/q
Operating income	1 417	2 057	-31%	1 567	-10%
Operating costs	(598)	(522)	15%	(529)	13%
Impairment provisions and other cost	(120)	(119)	0%		(68)	75%
of risk*
Other modifications**	(21)	(19)	10%	(11)	84%
FX legal risk related provision	(549)	(864)	-36%	(702)	-22%
Banking tax	0	0	-		0	-
	Pre-tax profit			129	534		-76%		256		-50%
Income tax	(1)	(281)	-100%	(141)	-99%
	Net profit - reported			128	252		-49%		115		12%
Net profit - adjusted***	714	672	6%		741	-4%

1. Impairment provisions for financial and non-financial assets including also fair value adjustment on loans (PLN3.7mn in 1Q24 and PLN-2.7mn in 1Q23) and loans modification effect (PLN-10.6mn in 1Q24 and PLN-9.1mn in 1Q23)

1. The value of modification booked in given period resulting from amicable settlements with FX mortgage borrowers and referring to a specific group of such agreements.

1. Without extraordinary items, i.e. financial impact of insurance transaction (PLN597.2mn in 1Q23 and PLN55.2mn in 4Q23), negative impact of credit holidays (PLN9,2mn in 4Q23) and FX mortgage loan related costs/incomes (in legal risk provisions, FX position, operating cost and other operating income/cost including indemnity from Societe Generale, tax effects in 1Q24), and with linear distribution of BFG resolution fund feeand hypothetical banking tax

Total cost of risk, which comprised net impairment provisions, fair value adjustment related to specified loan portfolios and a part of result on modifications (excluding the part related to settlements with FX mortgage borrowers), bore by the Group amounted to PLN120mn in 1Q24 and was stable versus the comparable period of the previous year.

Risk charges for retail segment (including FX mortgage) were the main component of risk cost and amounted to PLN100mn in 1Q24. Risk charge for corporate and other segments was moderate and amounted to PLN20mn. In relative terms, the cost of risk (i.e. net charges to average gross loans) for 2023 reached 63 basis points (annualised) and was on the same level as in 1Q23. There were no sales of NPLs in 1Q24.

In 1Q24, the Group booked in modifications line a part of costs related to settlements with FX mortgage borrowers in the amount of PLN21mn, 10% higher than in the corresponding period of the previous year.

9