Hrvatska Poštanska Banka d.d.

Quarterly Report • Apr 28, 2017

Consolidated annual financial statements for the period from Jan 01 to Dec 31 2016 Audited

Zagreb, April 28 2017

In accordance with the articles of the Capital Markets Act, HPB p.l.c. publishes audited consolidated annual financial statements for 2016 (period from Jan 01 2016 to Dec 31 2016).

This report includes:

• Management report of HPB Group,
• statement by persons accountable for compiling the report of HPB Group,
• audited set of consolidated financial statements (balance sheet, profit or loss statement, statement of changes in equity, cash flow statement),
• notes to financial statements,
• Resolution by the Supervisory Board on giving consent to consolidated annual financial statements of HPB Group
• Proposal of allocation of profit earned in 2016 for HPB p.l.c.

Financial statements and notes were made in accordance with the TFI-KI reporting methodology by Croatian Financial Services Supervisory Agency. Items in the profit or loss statement are complied in accordance with IFRS. Reports and notes for previous periods are harmonized for the purpose of comparability.

Management report of HPB Group

HPB Group is comprised by the parent company Hrvatska Poštanska Banka, HPB Stambena Štedionica, HPB Invest (investment fund management company) and HPB Nekretnine (real-estate company). All subsidiaries made after-tax profit in 2016 and HPB Stambena Štedionica made HRK3.3M, HPB Nekretnine HRK630K, while HPB Invest made HRK1.8M net profit. Besides subsidiaries which were founded and are 100% owned by HPB, consolidated report of financial position also includes H1 TELEKOM in which the Bank controls 58.2% of ownership. This ownership stake was acquired in a process of the pre-bankruptcy settlement by debt to equity swap and is classified as assets available for sale.

Led by the parent company, HPB Group made an after-tax profit of HRK190.5M in 2016. Which is 52.7% more than in 2015. Besides the Bank, 2016 was also profitabile for all subsidiaries. HPB Stambena Štedionica made a HRK3.3M net profit, HPB Invest HRK1.8M, while HPB Nekretnine HRK630K.

The Group's assets are almost entirely the Bank's assets, so change in the latter reflects the change in the former, although there are certain consolidation differences due to internal transactions. The Group's assets were HRK19.8B at the end of 2016 which is 9.6% more than in 2016 while the Bank dominantly affected the Group's assets structure by optimizing returns.

On behalf of HPB p.l.c., parent company of HPB Group:

Tomislav Vuić President of the Management Board

Statement by persons accountable for compiling the report of HPB Group

In accordance with the Capital Market Act, the Management Board of HPB p.l.c., the parent company of HPB Group, states that according to their best knowledge the set of audited consolidated annual financial statements for 2016 (period from Jan 01 to Dec 31 2016), compiled in accordance with the accounting regulation applicable to credit institutions in Croatia, presents complete and accurate view of assets and liabilities, losses and gains, financial position and results of HPB p.l.c., as well as companies included in consolidation as a whole.

Tomislav Katić Executive director Finance division

Tomislav Vuić President of the Management Board

HPB GROUP
Appendix 3 Reporting period:			Jan 01	to	Dec 31 2016
					Annual financial statements for credit institutions GFI-KI
Registration number (MB):		03777928
Registration number (MBS):		080010698
Personal identification number (OIB):		87939104217
	Company: HPB p.l.c.
Postal code and city		10000	ZAGREB
	Address: JURIŠIĆEVA 4
E-mail address: hpb@hpb.hr
Internet address: www.hpb.hr
City code and name:	133	ZAGREB
County code and name:	21	GRAD ZAGREB			# of employees:	1.106
Consolidated report:	YES				(as per reporting date) Industry code:	6419
Consolidated companies (in accordance with IFRS):				Headquarters:		Registration number:
HPB Stambena Štedionica d.d.			Savska 58, 10000 Zagreb			02068001
HPB Invest d.o.o.			Strojarska 20, 10000 Zagreb			01972278
HPB Nekretnine d.o.o.			Amruševa 8, 10000 Zagreb			01972260
H1 TELEKOM d.d.			Split, Dračevac 2d			01834649
Book-keeping service provided by:
	Contact: Tomašek David
	Phone: 014804900				Fax: 014804594
E-mail address: david.tomasek@hpb.hr
Surname and name: Vuić Tomislav		(person authorized for representation)
Documentation to be made public: 1. Audited annual financial statements 2. Management report

1. Statement by persons accountable for compiling the report

2. Supervisory Board's consent on annual financial statements

3. Resolution on allocation of profit earned in 2016

1. TOTAL EQUITY

1. Minority interest (045-046)

2. Equity attributable to the shareholders of the parent company

AOP label Dec 31 2015 Dec 31 2016 2 3 4 001 2.179.809.734 2.263.303.114 002 412.197.218 421.479.852 003 1.767.612.516 1.841.823.262 004 958.338.782 774.135.009 005 501.234.808 415.536.615 006 715.276.908 696.314.398 007 1.995.759.118 2.630.574.528 008 566.062.663 442.835.059 009 0 0 010 0 3.780.197 011 104.187.886 81.579.680 012 10.164.694.441 11.406.936.798 013 7.930.000 7.930.000 014 103.134.707 0 015 156.773.180 155.541.052 016 582.980.978 879.444.143 017 18.036.183.205 19.757.910.593 018 558.124.023 620.995.448 019 393.994 0 020 557.730.029 620.995.448 021 12.594.728.119 14.781.982.934 022 2.936.586.232 3.981.010.898 023 1.060.935.229 1.486.719.761 024 8.597.206.658 9.314.252.275 025 446.650.250 88.426.108 026 0 0 027 446.650.250 88.426.108 028 0 3.640.667 029 0 0 030 0 0 031 0 0 032 0 0 033 0 0 034 2.657.714.032 2.317.559.985 035 16.257.216.424 17.812.605.142 036 1.214.298.000 1.214.298.000 037 124.777.141 190.502.935 038 (1.857.790) 86.030.542 039 0 6.160.835 040 359.660.725 363.623.023 041 82.088.705 84.690.116 042 0 0 043 1.778.966.781 1.945.305.451 044 18.036.183.205 19.757.910.593 5. STATUTARY AND OTHER CAPITAL RESERVES 6. FAIR VALUE RESERVE 7. RESERVES ARISING FROM HEDGING TRANSACTIONS C) TOTAL EQUITY (036 to 042) D) TOTAL LIABILITIES AND EQUITY (035+043) 4. REGULATORY RESERVES 5. ISSUED SECURITIES (030+031) 5.1. Short-term 5.2. Long-term 6. SUBORDINATED DEBT ISSUED 7. HYBRID INSTRUMENTS 8. OTHER LIABILITIES B) TOTAL LIABILITIES (018+021+025+028+029+032+033+034) EQUITY 1. SHARE CAPITAL 2. PROFIT FOR THE YEAR 3. RETAINED EARNINGS 4. DERIVATIVE AND OTHER FINANCIAL LIABILITIES HELD FOR TRADING LIABILITIES 1. BORROWINGS FROM FINANCIAL INSTITUTIONS (019+020) 1.1. Short-term 1.2. Long-term 2. DEPOSITS (022 to 024) 2.1. Transactional and current accounts 2.2. Savings deposits (demand) 2.3. Term deposits 3. OTHER BORROWINGS (026+027) 3.1. Short-term 3.2. Long-term A) TOTAL ASSETS (001+004 to 016) 4. FINANCIAL ASSETS HELD FOR TRADING 5. FINANCIAL ASSETS AVAILABLE FOR SALE 6. FINANCIAL ASSETS HELD TO MATURITY 7. FINANCIAL ASSETS VALUED AT FAIR VALUE THROUGH PROFIT OR LOSS, NOT ACTIVELY TRADED 8. DERIVATIVE FINANCIAL ASSETS 9. LOANS TO FINANCIAL INSTITUTIONS 10. LOANS TO OTHER CUSTOMERS 11. INVESTMENTS IN SUBSIDIARIES, ASSOCIATED COMPANIES AND JOINT VENTURES 12. REPOSSESSED ASSETS 13. TANGIBLE ASSETS (LESS DEPRECIATION) 14. OTHER ASSETS 3. SHORT-TERM TREASURY BILLS OF THE CROATIAN MINISTRY OF FINANCE BALANCE SHEET as per Dec 31 2016 in HRK Item 1 ASSETS 1. CASH AND DEPOSITS WITH THE CNB (002+003) 1.1.Cash 1.2.Deposits with the CNB 2. DEPOSITS WITH FINANCIAL INSTITUTIONS

ADDENDUM TO THE BALANCE SHEET (filled-in by the banks submitting consolidated financial statement)

6

045 1.778.966.781 1.945.305.451 046 1.778.966.781 1.945.305.451 047 0 0

PROFIT OR LOSS STATEMENT

for the period from	Jan 01 2016	to		Dec 31 2016		in HRK
Item				AOP	Jan 01 - Dec 31	Jan 01 - Dec 31
				label	2015	2016
1				2	3	4
1. Interest income				048	792.827.047	733.387.784
2. Interest expense				049	278.496.941	213.939.602
3. Net interest income (048-049)				050	514.330.106	519.448.182
4. Fee and commission income				051	495.327.235	505.577.129
5. Fee and commission expense				052	302.342.735	310.083.100
6. Net fee and commission income (051-052)				053	192.984.500	195.494.029
7. Gains less losses arising from investments in subsidiaries, associated companies and joint ventures				054	0	0
8. Gains less losses from trading activities				055	46.697.713	69.656.910
9. Gains less losses from built-in derivatives				056	0	0
10. Gains less losses arising from financial assets valued at fair value through P&L, not actively traded				057	0	0
11. Gains less losses arising from securities available for sale				058	670	48.595.443
12. Gains less losses arising from securities held to maturity				059	0	0
13. Gains less losses arising from hedging activities				060	0	0
14. Income from investments in subsidiaries, associated companies and joint ventures				061	0	0
15. Income from other equity instruments				062	1.073.257	826.626
16. Gains less losses from exchange rate differences				063	9.668.008	4.683.993
17. Other income				064	31.181.412	7.751.693
18. Other operating costs				065	62.388.680	58.305.566
19. General and administrative expenses, amortization and depreciation				066	411.188.110	396.188.817
20. Operating profit (050+053 to 064-065-066)				067	322.358.876	391.962.493
21. Impairment losses and provisions				068	193.680.189	227.018.648
22. PROFIT BEFORE TAXATION (067-068)				069	128.678.687	164.943.845
23. INCOME TAX EXPENSE / DEFERRED TAX				070	3.901.546	(25.559.090)
24. NET PROFIT FOR THE PERIOD (069-070)				071	124.777.141	190.502.935
25. Earnings per share				072	86	94
ADDENDUM TO THE P&L (filled-in by the banks submitting consolidated financial statement)
1. PROFIT FOR THE PERIOD				073	124.777.141	190.502.935
2. Attributable to the shareholders of the parent company				074	124.777.141	190.502.935
3. Minority interest (073-074)				075	0	0

CASH FLOW STATEMENT - INDIRECT METHOD

for the period from	Jan 01 2016	to	Dec 31 2016		in HRK
	Item			AOP label	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
	1			2	3	4
OPERATING ACTIVITIES
1. Cash flow from operating activities before changes in assets (002 to 007)				001	335.893.943	406.847.343
1.1. Profit for taxation				002	128.678.687	164.943.845
1.2. Impairment losses and provisions				003	193.680.189	227.018.648
1.3. Amortization and depreciation				004	46.053.115	45.487.838
1.4. Net unrealised gains less losses from financial assets valued at fair value through profit or				005
loss					(7.915.529)	(25.665.095)
1.5. Gains / losses from sale of tangible assets				006	(14.934.511)	(253.900)
1.6. Other gains / losses				007	(9.668.008)	(4.683.993)
2. Net increase / decrease of operating assets (009 to 016)				008	(733.490.560)	(2.012.007.151)
2.1. Deposits with the CNB				009	0	0
2.2. Tresury bills of the Croatian Ministry of Finance				010	(501.234.808)	85.698.193
2.3. Deposits with and loans to financial institutions				011	30.074.634	13.252.769
2.4. Loans to other customers				012	8.659.306	(1.389.638.672)
2.5. Financial assets held for trading				013
					(326.557.954)	44.627.605
2.6. Financial assets available for sale				014	(12.469.475)	(634.815.410)
2.7. Financial assets valued at fair value through profit or loss, not actively traded				015	0	0
2.8. Other operating assets				016	68.037.737	(131.131.636)
3. Net increase / decrease of operating liabilities (018 to 021)				017	174.022.628	1.825.357.435
3.1. Transactional accounts				018	38.059.625	1.044.424.666
3.2. Savings and term deposits				019	(128.742.977)	1.142.830.149
3.3. Derivative financial liabilities and other liabilities actively traded				020	(507.910)	3.640.667
3.4. Ostale liabilities				021	265.213.890	(365.538.047)
4. Net cash flow from operating activities before taxation				022
(001+008+017)					(223.573.989)	220.197.627
5. Income tax paid				023	(318.136)	(857.558)
6. Net cash inflow / outflow from operating activities (022+023)				024	(223.892.125)	219.340.069
INVESTING ACTIVITIES
7. Net cash flow from investing activities (026 to 030)				025	5.476.081	82.057.602
7.1. Purchase of tangible and intangible assets				026	(18.991.264)	(42.125.587)
7.2. Investment in / disposal of subsidiaries, associated companies and joint ventures				027	0	0
7.3. Investment in / disposal of financial assets held to maturity				028	23.394.088	123.227.604
7.4. Dividends received				029	1.073.257	955.585
7.5. Other inflows / outflows from investing activities				030	0	0
FINANCIAL ACTIVITIES
8. Net cash flow from financial activities (032 to 037)				031	48.056.085	(326.508.925)
8.1. Net increase / decrease of borrowings				032	(501.943.515)	(295.746.710)
8.2. Net increase / decrease of issued debt securities				033	0	0
8.3. Net increase / decrease of subordinated debt and hybrid instruments				034	0	0
8.4. Share capital raised				035	549.999.600	0
8.5. Dividends paid				036	0	(30.762.215)
8.6. Other inflows / outflows from financial activities				037	0	0
9. Net increase / decrease of cash and cash equivalents (024+025+031)				038	(170.359.959)	(25.111.254)
10. Effect of foreign exchange differences on cash and cash equivalents				039	2.999.146	813.257
11. Net increase/(decrease) in cash and cash equivalents (038+039)				040	(167.360.813)	(24.297.997)
12. Cash and cash equivalents at the beginning of the year				041	3.416.260.075	3.248.899.262
13. Cash and cash equivalents as per reporting date (040+041)				042	3.248.899.262	3.224.601.265

S T A T E M E N T	O F	C H A N G E S	I N	E Q U I T Y

for the riod fro pe m		Jan 01	20 16	to	Dec 31	20 16		in H	RK
	AO		Att	ribu tab le t o th har eho e s	lde f th nt c rs o e p are om	pan y
Item	P aka ozn	Sha api tal re c	Ow har n s es	Reg ula tor tatu tor y, s y and oth er res erv es	Ret ain ed nin ear gs	Pro fit f he iod or t per	Fair val ue r ese rve	Min orit y in ter est	Tot al e qui ty
1	2	3	4	5	6	7	8	9	10
Bal er J 01 2 016 anc e a s p an	001	1.2 14. 775 .00 0	( 0) 477 .00	359 .66 0.7 25	( ) 1.8 57. 790	124 .77 7.1 41	82. 088 .70 5	0	1.7 78. 966 .78 1
Effe of c han in a unti olic ies and tion s of cts ges cco ng p co rrec err ors	002								0
Res d b ala r Ja n 0 1 20 16 ( 001 +00 2) tate nce as pe	003	1.2 14. 775 .00 0	( 477 .00 0)	359 .66 0.7 25	( 1.8 57. 790 )	124 .77 7.1 41	82. 088 .70 5	0	1.7 78. 966 .78 1
l of fina for Disp ncia l as sets aila ble sale osa av	004						( 9) 44. 835 .70		( 9) 44. 835 .70
Cha in t he f air v alue of fina ncia l as aila ble for sale sets nge av	005						45. 505 .45 7		45. 505 .45 7
Tax item nise d d irec tly i n/tr ferr ed f uity on s re cog ans rom eq	006			35. 037			1.9 31. 663		1.9 66. 700
Oth ains d (lo s) r gnis ed d irec tly i uity er g an sse eco n eq	007			( 72. 739 )					( 72. 739 )
Net ins /(lo s) r gni sed dir ly in uity ect ga sse eco eq (00 7) 4+0 05+ 006 +00	008	0	0	( ) 37. 702	0	0	2.6 01. 411	0	2.5 63. 709
Prof it fo r th riod e pe	009					190 .50 2.9 35			190 .50 2.9 35
Tot al r gni zed inc nd e fo r th erio d eco om e a exp ens e p (00 8+0 09)	010	0	0	( 37. 702 )	0	190 .50 2.9 35	2.6 01. 411	0	193 .06 6.6 44
e/de Incr in s har pita l eas cre ase e ca	011								0
Pur cha se/s ale of o sh w n are s	012								0
Oth han er c ges	013				4.0 34. 241				4.0 34. 241
Tra nsf er t o re ser ves	014			10. 160 .83 5	83. 854 .09 1	( 94. 014 .92 6)			0
Divi den ds p aid	015					( 5) 30. 762 .21			( 5) 30. 762 .21
Pro fit a lloc atio n (0 14+ 015 )	016	0	0	10. 160 .83 5	83. 854 .09 1	( 124 7.1 41) .77	0	0	( 30. 762 .21 5)
Bal Dec 31 201 6 anc e a s p er (00 ) 3+0 10+ 011 +01 2+0 13+ 016	017	1.2 14. 775 .00 0	( 0) 477 .00	369 .78 3.8 58	86. 030 .54 2	190 .50 2.9 35	84. 690 .11 6	0	1.9 45. 305 .45 1

NOTES TO FINANCIAL STATEMENTS

A) PROFIT OR LOSS STATEMENT

1) INTEREST INCOME		in HRK
AOP 048	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Loans	653.562.861	600.916.177
Deposits	2.773.259	2.104.322
Debt securities	136.490.927	130.367.285
TOTAL	792.827.047	733.387.784

2) INTEREST EXPENSE		in HRK
AOP 049	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Borrowings	36.602.806	18.962.631
Deposits	241.894.135	194.976.971
TOTAL	278.496.941	213.939.602

3) FEE AND COMMISSION INCOME	in HRK
AOP 051	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Cash payment operations - channels	290.870.928	285.883.397
Retail and card operations	133.189.658	146.326.916
Corporate operations	50.279.820	57.004.832
Other fee and commission income	20.986.829	16.361.984
TOTAL	495.327.235	505.577.129

4) FEE AND COMMISSION EXPENSE		in HRK
AOP 052	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Payment operations	270.460.872	284.852.560
Other fee and commission expense	31.881.863	25.230.540
TOTAL	302.342.735	310.083.100

5) GAINS LESS LOSSES FROM TRADING ACTIVITIES		in HRK
AOP 055	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Securities and equity instruments	8.251.673	27.643.005
FX transactions	40.654.631	43.408.098
HRK cash transactions	421.619	367.955
Derivatives	(2.630.210)	(1.762.148)
TOTAL	46.697.713	69.656.910

6) OPERATING EXPENSES		in HRK
AOP 065 & AOP 066	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
General and administrative expenses	365.134.995	350.700.979
Amortization and depreciation	46.053.115	45.487.838
Savings deposit insurance costs	35.194.252	34.691.397
Other costs	27.194.428	23.614.169
TOTAL	473.576.790	454.494.383

7) IMPAIRMENT LOSSES AND PROVISION EXPENSES		in HRK
AOP 068	Jan 01 - Dec 31 2015	Jan 01 - Dec 31 2016
Individually identified impairment losses
(risk group B i C)	191.896.138	172.323.158
Portfolio based provisions for identified losses (risk group A)	(5.935.916)	13.632.773
Other provisions	7.719.967	41.062.717
TOTAL	193.680.189	227.018.648

B) BALANCE SHEET

8) CASH AND DEPOSITS WITH THE CNB in HRK

AOP 001	Dec 31 2015	Dec 31 2016
CASH	412.197.218	421.479.852
DEPOSITS WITH THE CNB	1.767.612.516	1.841.823.262
Mandatory reserve	1.279.570.476	1.300.796.321
Account for transaction settlement	488.042.040	541.026.941
MANDATORY TREASURY BILLS	-	-
Portfolio based impairment allowance for identified losses	-	-
TOTAL	2.179.809.734	2.263.303.114

9) DEPOSITS WITH FINANCIAL INSTITUTIONS in HRK
AOP 004	Dec 31 2015	Dec 31 2016
Deposits with foreign banking institutions	810.491.087	753.064.739
Deposits with domestic banking institutions	147.847.695	21.070.270
Portfolio based impairment allowance for identified losses
TOTAL	958.338.782	774.135.009

10) EQUITY INSTRUMENTS AND SECURITIES in HRK

AOP 005 - 009	Dec 31 2015	Dec 31 2016
Short term Treasury bills of the Croatian Ministry of Finance	501.234.808	415.536.615
Financial assets held for trading	715.276.908	696.314.398
Financial assets available for sale	1.995.759.118	2.630.574.528
Financial assets held to maturity	574.826.429	450.105.787
Portfolio based impairment allowance for identified losses	(8.255.991)	(6.771.524)
Deferred front-end fee	(507.775)	(499.204)
TOTAL	3.778.333.497	4.185.260.600

in HRK 11) LOANS TO CUSTOMERS
AOP 011 & 012	Dec 31 2015	Dec 31 2016
Gross loans
Loans to financial institutions	104.190.902	81.583.376
Loans to companies	4.135.862.987	3.831.863.830
Retail loans	4.779.585.855	4.966.265.650
there-in: housing loans	1.106.022.806	1.608.068.882
Other loans	3.493.545.228	4.040.077.723
TOTAL GROSS LOANS	12.513.184.972	12.919.790.579
DEFERRED FRONT-END FEE	(47.672.780)	(46.082.502)
Impairment allowance	(2.104.931.823)	(1.280.732.419)
Portfolio based impairment allowance for identified losses	(91.698.042)	(104.459.180)
TOTAL IMPAIRMENT LOSSES	(2.196.629.865)	(1.385.191.599)
TOTAL	10.268.882.327	11.488.516.478

B) BALANCE SHEET (continued)

12) DEPOSITS		in HRK
AOP 021	Dec 31 2015	Dec 31 2016
Financial institutions	879.218.202	1.153.448.334
Corporations	1.948.137.946	3.009.235.694
Retail	8.719.314.802	9.166.235.142
Other	1.048.057.169	1.453.063.764
TOTAL	12.594.728.119	14.781.982.934

in HRK 13) BORROWINGS
AOP 018 & 025	Dec 31 2015	Dec 31 2016
Borrowings from HBOR	561.173.123	624.696.401
Borrowings from domestic banking institutions	0	0
Borrowings from domestic non-banking institutions	393.994	0
Borrowings from foreign banking institutions	446.650.250	88.426.109
Deferred front-end fee	(3.443.094)	(3.700.954)
TOTAL	1.004.774.273	709.421.556

14) OTHER LIABILITIES in HRK
AOP 034	Dec 31 2015	Dec 31 2016
Restricted deposits	2.187.135.040	1.715.292.949
Interest and fees payable	73.630.369	58.731.565
Provisions for off-balance sheet exposure	20.143.351	22.291.290
Other	376.805.272	521.244.181
TOTAL	2.657.714.032	2.317.559.985

C) INVESTMENTS IN SUBISIDIARIES

The Group's subsidiaries are as follows:

			Ownership
	Industry	Country	as per Dec 31 2016 (%)
HPB Invest d.o.o.	Investment Fund Management	Croatia	100,00
	Real Estate Agency and
HPB Nekretnine d.o.o.	Construction	Croatia	100,00
HPB-Stambena štedionica d.d.	Savings Bank	Croatia	100,00
H1 Telekom d.d.	Telecommunications	Croatia	58,17

Subsidiaries are consolidated in the Group's financial statements. HPB Invest d.o.o., HPB Nekretnine d.o.o., HPB-Stambena štedionica d.d. are fully consolidated.

Investment in H1 Telekom d.d.

On March 25 2008, the Bank made an agreement with H1 Telekom d.d. to convert credit receivables from long-term loan into the company's equity. HPB acquired an ownership stake of 41,25% through this agreement. The stake was increased to 58,17% after converting receivables from bond, long-term loan and interest receivables into equity after the completion of the pre-bankruptcy settlement on July 29 2015.

H1 Telekom d.d. signed the merger agreement with OT-Optima Telekom d.d. Pursuant to the agreement, H1 Telekom d.d. as the transferor company, will be merged with OT-Optima Telekom d.d. as a transferee, by transferring the entire property and all rights and obligations of H1, without liquidation of the transferor company. The effect of merger should occur after obtaining all necessary permits and approvals.

Financial position of H1 Telekom is included in the consolidated balance sheet of HPB Group by using short-cut consolidation procedure as described in IFRS 5 Non-Current Assets Held for Sale and Discountinued Operations.

D) CHANGES IN ACCOUNTING POLICIES

There were no changes in accounting policies of the Group during 2016 which might have impact on financial position or results of the Group.

Bank, as a parent company of the Group, has intention to start with capitalization of internal personnel expenses with regard to project development, should all the necessary requirements as sety by IAS 38 be met. Bank has commenced with preparations for this change during 2016. Useful life of such developed intangible asset will be in line with estimated period of use, and estimated period of inflow of economic benefits linked with this fixed asset.

D) BANK'S OWNERSHIP STRUCTURE

Ownership structure of HPB p.l.c., the parent company of Group, as per December 31 2016 was as follows:

Shareholder	Ownership stake
Republic of Croatia (Ministry of State Assets)	42,43%
HP Hrvatska pošta Plc	11,93%
State Agency for Deposit Insurance and Bank Resolution	8,98%
Croatian Pension Insurance Insitute (Ministry of State Assets)	8,76%
Prosperus Invest d.o.o., for Prosperus FGS	4,94%
PBZ CROATIA OSIGURANJE OMF (B category)	4,12%
ERSTE d.o.o. for ERSTE PLAVI OMF (B category)	3,90%
Allianz ZB d.o.o., for AZ OMF (B category)	2,88%
CROATIA osiguranje Plc	2,47%
RAIFFEISEN D.D., for Raiffeisen OMF (B category)	2,42%
Fund for Financing the Decommissioning of the Krško Nuclear Power Plant and the Disposal of NEK Radioactive Waste and Spent Nuclear Fuel	2,36%
Minorities	4,77%
Own shares	0,04%

E) HPB-R-A STOCK

Share HPB-R-A is listed on the Official Market of ZSE. The last price per share at the end of the reporting period was HRK 750,00 (Dec 31 2016) representing an increase of 17,3% when compared to the last traded price in 2015 (HRK 640,00 on Dec 31 2015).

HPB p.l.c. Zagreb, Jurišićeva 4

SUPERVISORY BOARD

Zagreb, April 12 2017

In accordance with the provision of article 21 of the Articles of Association of HPB p.l.c. (in further text: Bank), and in line with Articles 300.c and 300.d of the Companies Act, Supervisory Board of the Bank has at it's 5th meeting - held on April 12 2017, made the following:

RESOLUTION

on giving consent to consolidated Annual financial statements of HPB Group, for the 2016 business year, comprising also the Management Board's annual report on condition of the Bank and its subisidiaries

I. Consent is given to consolidated Annual financial statements of HPB Group for the business year ended December 31 2016, comprising also the Management Board's annual report on condition of the Bank and its subisidiaries, submitted by the Bank's Management Board.

Acceptance is given for Auditor's report by Deloitte d.o.o., Zagreb, Radnička 80. Auditor has conducted the audit of consolidated Annual financial statements of HPB Group for the year ended December 31 2016.

• II. By giving consent to statements outlined in paragraph I. of this Resolution, consolidated Annual financial statements of HPB p.l.c. for the year ended December 31 2016 are considered to be confirmed by the Management Board and the Supervisory Board.
• III. This resolution comes into force on the day of its adoption.

President of the Supervisory Board Marijana Miličević

HPB p.l.c. Zagreb, Jurišićeva 4

SUPERVISORY BOARD

Zagreb, April 12 2017

In accordance with the provision of article 21 of the Articles of Association of HPB p.l.c. (in further text: Bank), and in line with Article 300.b and Article 275, paragraph 1, point 2 of the Companies Act, Supervisory Board of the Bank has at it's 5th meeting - held on April 12 2017, made the following:

RESOLUTION on giving consent to Management Board's proposal on allocation of profit earned in 2016

I.

Bank's Supervisory Board gives its consent and accepts Management Board's proposal on allocation of profit earned in 2016, which is a constituent part of this resolution.

II.

By providing its consent outlined in paragraph I. of this Resolution, Management Board's proposal on allocation of profit earned in 2016 is considered to be confiremed.

III.

Supervisory Board proposes to General Assembly to vote in favour of profit allocation as outlined in Management Board's proposal.

IV.

This resolution comes into force on the day of its adoption and is submitted to General Assembly for adoption.

President of the Supervisory Board Marijana Miličević