mBank S.A.

Quarterly Report • Oct 29, 2020

mBank S.A. Group

IFRS Condensed Consolidated Financial Statements for the third quarter of 2020

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.

Contents

	Selected financial data 4
	Introduction 6
	Economy and the banking sector in Q3 2020 8
	Financial position of mBank Group in Q3 2020 12
	Performance of segments and the business lines 17
	Consolidated income statement27
	Consolidated statement of comprehensive income 28
	Consolidated statement of financial position 29
	Consolidated statement of changes in equity 30
	Consolidated statement of cash flows 32
	mBank S.A. stand-alone financial information 33
	Income statement 33
	Statement of comprehensive income 34
	Statement of financial position 35
	Statement of changes in equity 36
	Statement of cash flows 38
	Explanatory notes to the consolidated financial statements 39
1.	Information regarding the Group of mBank S.A 39
2.	Description of relevant accounting policies 41
3.	Major estimates and judgments made in connection with the application of accounting policy principles 49
4.	Business segments 56
5.	Net interest income 60
6.	Net fee and commission income 61
7.	Dividend income 61
8.	Net trading income 62
9.	Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss 62
10.	Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates 63
11.	Other operating income 63
12.	Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss 64
13.	Overhead costs 64
14.	Other operating expenses 65
15.	Earnings per share 65
16.	Financial assets held for trading and derivatives held for hedges 66
17.	Non-trading financial assets mandatorily at fair value through profit or loss 70
18.	Financial assets at fair value through other comprehensive income 70
19.	Financial assets at amortised cost 72
20.	Non-current assets and liabilities held for sale 76
21.	Intangible assets 77
22.	Tangible assets 77
23.	Financial liabilities held for trading and derivatives held for hedges 77
24.	Financial liabilities measured at amortised cost – amounts due to banks and customers 78
25.	Provisions 78
26.	Assets and liabilities for deferred income tax 80
27.	Fair value of assets and liabilities 80
	Selected explanatory information86
1.	Compliance with international financial reporting standards 86
2.	Consistency of accounting principles and calculation methods applied to the drafting of the quarterly report and the last annual financial statements 86
3.	Seasonal or cyclical nature of the business 86
4.	Nature and values of items affecting assets, liabilities, equity, net profit/(loss) or cash flows, which are extraordinary in terms of their nature, magnitude or exerted impact 86
5.	Nature and amounts of changes in estimate values of items, which were presented in previous interim periods of the current reporting year, or changes of accounting estimates indicated in prior reporting years, if they bear a substantial impact upon the current interim period 86
6.	Issues, redemption and repayment of non-equity and equity securities 86
		2

	IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)
7.	Dividends paid (or declared) altogether or broken down by ordinary shares and other shares 86
8.	Significant events after the end of the third quarter of 2020, which are not reflected in the financial statements 87
9.	Effect of changes in the structure of the entity in the third quarter of 2020, including business combinations, acquisitions or disposal of subsidiaries, long-term investments, restructuring, and discontinuation of business
	activities 87
10.	Changes in contingent liabilities and commitments 87
11.	Write-offs of the value of inventories down to net realisable value and reversals of such write-offs 87
12.	Revaluation write-offs on account of impairment of tangible fixed assets, intangible assets, or other assets as well as reversals of such write-offs 87
13.	Revaluation write-offs on account of impairment of financial assets 87
14.	Reversals of provisions against restructuring costs 87
15.	Acquisitions and disposals of tangible fixed asset items 87
16.	Material liabilities assumed on account of acquisition of tangible fixed assets 87
17.	Information about changing the process (method) of measurement the fair value of financial instruments 87
18.	Changes in the classification of financial assets due to changes of purpose or use of these assets 87
19.	Corrections of errors from previous reporting periods 87
20.	Information on changes in the economic situation and operating conditions that have a significant impact on the fair value of financial assets and financial liabilities of the entity, regardless of whether these assets and liabilities are included in the fair value or in the adjusted purchase price (amortized cost) 88
21.	Default or infringement of a loan agreement or failure to initiate composition proceedings 88
22.	Position of the management on the probability of performance of previously published profit/loss forecasts for the year in light of the results presented in the half-yearly report compared to the forecast 88
23.	Registered share capital 88
24.	Material share packages 89
25.	Change in Bank shares and rights to shares held by managers and supervisors 89
26.	Proceedings before a court, arbitration body or public administration authority 90
27.	Off-balance sheet liabilities 93
28.	Transactions with related entities 94
29.	Credit and loan guarantees, other guarantees granted of significant value 95
30.	Other information which the issuer deems necessary to assess its human resources, assets, financial position, financial performance and their changes as well as information relevant to an assessment of the issuer's capacity to meet its liabilities 95
31.	Factors affecting the results in the coming quarter 96
32.	Other information 96
33.	Events after the balance sheet date 97

mBank S.A. Group

Selected financial data

The selected financial data presented below are supplementary information to the condensed consolidated financial statements of mBank S.A. Group for the third quarter of 2020.

SELECTED FINANCIAL DATA FOR THE GROUP		in PLN '000		in EUR '000
		Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated	Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated
I.	Interest income	3 625 118	3 795 517	816 100	880 917
II.	Fee and commission income	1 633 429	1 469 092	367 724	340 967
III.	Net trading income	142 501	105 413	32 080	24 466
IV.	Operating profit	1 020 941	1 606 435	229 838	372 844
V.	Profit before income tax	617 329	1 269 157	138 975	294 564
VI.	Net profit attributable to Owners of mBank S.A.	278 513	894 098	62 700	207 515
	VII. Net profit attributable to non-controlling interests	(66)	(64)	(15)	(15)
	VIII. Net cash flows from operating activities	5 729 407	5 068 179	1 289 826	1 176 294
IX.	Net cash flows from investing activities	(279 834)	(338 425)	(62 997)	(78 546)
X.	Net cash flows from financing activities	(4 384 906)	(2 697 974)	(987 147)	(626 183)
XI.	Total net increase / decrease in cash and cash equivalents	1 064 667	2 031 780	239 682	471 564
	XII. Basic earnings per share (in PLN/EUR)	6.58	21.12	1.48	4.90
	XIII. Diluted earnings per share (in PLN/EUR)	6.57	21.11	1.48	4.90
	XIV. Declared or paid dividend per share (in PLN/EUR)	-	-	-	-

SELECTED FINANCIAL DATA FOR THE GROUP		in PLN '000		in EUR '000
		30.09.2020	31.12.2019	30.09.2020	31.12.2019
I.	Total assets	182 146 757	158 720 583	40 237 421	37 271 477
II.	Amounts due to other banks	1 774 184	1 166 871	391 929	274 010
III.	Amounts due to customers	141 118 549	116 661 138	31 174 019	27 394 890
IV.	Equity attributable to Owners of mBank S.A.	16 967 701	16 151 303	3 748 277	3 792 721
V.	Non-controlling interests	1 942	2 002	429	470
VI.	Share capital	169 461	169 401	37 435	39 779
VII.	Number of shares	42 365 259	42 350 367	42 365 259	42 350 367
	VIII. Book value per share (in PLN/EUR)	400.51	381.37	88.48	89.56
IX.	Total capital ratio	19.53	19.46	19.53	19.46

mBank S.A. Group IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

SELECTED FINANCIAL DATA FOR THE BANK		in PLN '000		in EUR '000
		Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated	Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated
I.	Interest income	3 187 040	3 334 310	717 479	773 873
II.	Fee and commission income	1 519 372	1 353 162	342 047	314 061
III.	Net trading income	147 593	107 376	33 227	24 921
IV.	Operating profit	933 622	1 733 743	210 181	402 391
V.	Profit before income tax	579 058	1 215 186	130 360	282 037
VI.	Net profit	263 629	874 540	59 349	202 975
	VII. Net cash flows from operating activities	2 260 081	2 740 218	508 798	635 988
	VIII. Net cash flows from investing activities	(217 237)	94 082	(48 905)	21 836
IX.	Net cash flows from financing activities	(970 664)	(896 761)	(218 520)	(208 133)
X.	Total net increase / decrease in cash and cash equivalents	1 072 180	1 937 539	241 373	449 691
XI.	Basic earnings per share (in PLN/EUR)	6.22	20.66	1.40	4.79
	XII. Diluted earnings per share (in PLN/EUR)	6.22	20.65	1.40	4.79
	XIII. Declared or paid dividend per share (in PLN/EUR)	-	-	-	-

SELECTED FINANCIAL DATA FOR THE BANK		in PLN '000		in EUR '000
		30.09.2020	31.12.2019	30.09.2020	31.12.2019
I.	Total assets	173 841 152	149 228 273	38 402 658	35 042 450
II.	Amounts due to other banks	1 809 763	1 180 782	399 789	277 277
III.	Amounts due to customers	144 066 081	121 936 987	31 825 148	28 633 788
IV.	Equity	16 680 990	16 115 007	3 684 941	3 784 198
V.	Share capital	169 461	169 401	37 435	39 779
VI.	Number of shares	42 365 259	42 350 367	42 365 259	42 350 367
VII.	Book value per share (in PLN/EUR)	393.74	380.52	86.98	89.36
	VIII. Total capital ratio	22.56	22.84	22.56	22.84

The following exchange rates were used in translating selected financial data into euro:

• ◼ for items of the statement of financial position exchange rate announced by the National Bank of Poland as at 30 September: EUR 1 = 4.5268, 31 December 2019: EUR 1 = 4.2585.
• ◼ for items of the income statement exchange rate calculated as the arithmetic mean of exchange rates announced by the National Bank of Poland as at the end of each month of the three quarters of 2020 and 2019: EUR 1 = PLN 4.4420 and EUR 1 = PLN 4.3086 respectively.

Introduction

The profit before tax generated by mBank Group in Q3 2020 stood at PLN 255.0 million which represents an increase by 16.7% quarter to quarter. Net profit attributable to the owners of mBank reached PLN 100.6 million. Both income and costs decreased quarter on quarter in Q3 2020.

The main factors determining the Group's financial results in Q3 2020 were as follows:

• Decrease of total income to PLN 1,410.7 million, i.e. -4,0% quarter on quarter, driven mainly by lower net interest income; at the same time, net fee and commission income and net trading income noted an increase.
• Decrease in overhead costs (including depreciation) to PLN 566.7 million vs. the previous quarter thanks to lower staff-related expenses and depreciation.
• Lower cost of risk (sum of impairment on financial assets not measured at fair value through profit or loss and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss) to PLN 268.8 million, i.e. 98 basis points compared to 128 basis points in the previous quarter.
• Result on provisions for legal risk related to foreign currency loans set up in Q3 2020 at PLN 186.9 million vs. PLN 189.0 million in Q2 2020.
• Decrease in tax on the Group's balance sheet items on a quarterly basis to PLN 133.4 million.
• Continued organic growth and business expansion as demonstrated by:
  • increase in the individual customer base to 5,676.8 thousand (+4.9 thousand clients compared to the end of June 2020);
  • increase in the number of corporate customers to 28,420 clients (+695 clients compared to the end of June 2020).

At the end of Q3 2020, net loans and advances stood at PLN 109,658.3 million which represents a quarteron-quarter increase by PLN 885.5 million, i.e. 0.8%. Net of reverse repo/buy sell back transactions and FX effect, the value of loans and advances increased by 1.0%. The volume of loans and advances granted to individual clients increased by PLN 1,838.2 million quarter on quarter, i.e. 2,9% and stood at PLN 65,114.8 million. Gross loans and advances to corporate clients declined to PLN 47,970.4 million, i.e. by PLN 763,7 million or -1.6% quarter on quarter (net of reverse repo/buy sell back transactions and FX effect, the value of loans and advances to corporate clients decreased by -1.4%).

In Q3 2020 amounts due to customers rose by PLN 1,496.0 million, i.e. 1.1%. Amounts due to individual customers were up by PLN 2,526.3 million, i.e. 2,8% quarter on quarter and stood at PLN 92,303.3 million while amounts due to corporate customers declined by PLN 838.4 million, i.e. -1.7% on a quarterly basis and amounted at PLN 48,239.3 million. Consequently, the loan to deposit ratio (loans and advances to customers/amount due to customers) of mBank Group was stable compared with the end of June 2020 and stood at 77.7%.

The changes in the Group's results translated into the following profitability ratios:

• Gross ROE of 6.1% (5.3% in Q2 2020);
• Net ROE of 2.4% (2.1% in Q2 2020).

The liquidity and capital position of the Group remains very strong. The Group's capital and liquidity ratios are high, exceeding the minimum thresholds set by the regulator. As at 30 September 2020, LCR (at the consolidated level) was 236% and mBank's NSFR was 137%, much above the required minima. mBank Group's capital ratios increased slightly in Q3 2020 compared to the end of June 2020. The total risk exposure amount increased by PLN 1.6 billion while own funds also increased (resulting from the inclusion of 50% of the profit of H1 2020). The Total Capital Ratio stood at 19.5% and the Core Tier 1 ratio at 16.7%.

In Q3 2020 mBank Group maintained the restrictions on social contacts. The majority of our employees were working from home. The Group's business continuity went on uninterrupted and customer service was offered both at branches and remotely. Since the beginning of the pandemic we use restrictive security measures in all our outlets, adequate to the currently valid rules for the red zones – no matter in which zone the outlet is located. We encourage our clients to the remote service – mobile and online. Most of the activities at mBank do not require the visit in the branch. Clients can also use the 24-hour contact centre. More information on the impact of COVID-19 pandemic on the Group's operations can be found in Note 3 "Major estimates and judgments made in connection with the application of accounting policy principles".

Awards and distinctions

mBank received two distinctions in the 15th edition of the contest "The Best Annual Report", organised by the Institute of Accountancy and Taxes (IRiP). We won the title "The Best of the Best" for the best annual report in the category of financial institutions for the eighth time in a row. Moreover, for the second time we also won a distinction for the best statement on application of corporate governance principles, which proves high usability of our disclosures for the shareholders and analysts.

Leszek Włodarski, IT vice-director at mBank, came second in the IT Manager of Tomorrow Awards 2020 contest. He presented the challenges faced and solutions implemented during the transformation of the central IT system in the context of the organisational culture fostered at mBank. The contest is a platform for IT specialists from various industries to present their achievements in boosting efficiency in their organisations. The jury evaluated how the contestants managed to keep a balance between three components: new technologies, efficient working methods and organisational culture.

mBank S.A. won the first prize in the HR Dream contest organised by Pracuj.pl. The jury appreciated the "Log into Development" project combining two initiatives: "Development Fridays" and "Let Development In" and named it the most interesting and effective HR initiative.

In the "Digital Revolutions!" contest, mBank was the one who granted awards to the participants. The contest is part of the "Digital Revolutions" campaign launched in June 2020 to support online expansion of micro-, small and medium-sized enterprises. From over 550 applications the jury of experts selected the best ideas with a potential to turn into a thriving e-commerce business. We granted two first degree awards (PLN 100,000 each) and ten second degree awards (PLN 10,000 each). The contest was organised in partnership with MasterCard, while the campaign is supported by eIzba. Congratulations to the winners.

For more information about awards and distinctions, go to the Press Office section of mBank's website www.media.mbank.pl.

Economy and the banking sector in Q3 2020

Economic rebound still depending on the epidemic situation

The lifting of epidemic restrictions, release of pent-up demand, and fixing of broken supply chains contributed to a quick GDP recovery in Q3 2020. Retail sales and industrial production were back on the growth trajectory compared with the previous year. The recovery was hampered by certain categories of services (hotels, transport, and entertainment). The recession has hit certain sectors rather than the economy as a whole. We estimate the Q3 GDP growth to be only slightly below zero.

The recent rapid increase in the number of new infections in September and October has brought back tighter restrictions. We do not expect another lockdown like the one imposed in the spring, but even the current restrictions are having severe consequences for both consumers and businesses, forcing them to cut (investment) spending. According to the International Monetary Fund, restrictions and social distancing have similar effects on consumer spending. Consumers curb spending even without official movement restrictions or being banned from leaving home. Their decisions are driven by fear caused by record-high numbers of new cases and overwhelmed hospitals. The economy may sink even deeper into contraction in the final quarter. The slump will probably continue into the next year, translating into a worse outlook for 2021, despite the potential boost from the Next Generation EU package.

The economic fallout of the second wave of coronavirus will be less severe. The economy has entered it better geared-up. First, the government has prepared new legislative solutions and laws allowing for faster decision making and greater flexibility in fighting the pandemic. Second, businesses and consumers are better dealing with everyday difficulties caused by the restrictions (which, in addition, are less severe than in the spring), whereas the likelihood of another disruption of supply chains and an abrupt decrease in foreign demand is considerably lower. Third, the pandemic has given rise to anti-cyclical fiscal measures. The acceptance for higher debt levels has increased, while central banks are able to keep yields low thanks to quantitative easing programmes. Fourth, the economies are entering the second wave of infections pretty unscathed and were able to keep unemployment under control.

According to available information on the activities of the Polish Development Fund (PFR), the liquidity support provided to companies in various forms was worth ca. PLN 142 billion. The PFR alone paid out PLN 60 billion (as at 23 September; meanwhile, the support programme for small and medium-sized enterprises has come to an end). It is worth emphasizing that the initial value of the PFR's anti-crisis shield was PLN 100 billion, which means that the PFR still has the necessary resources to further help the economy (with the current strong demand, it will easily place new bonds). As the recession continues to be focused on certain sectors of the economy and another strict lockdown is unlikely, the available funding should be sufficient. In addition, we assume that this time the Polish Development Fund will take a more selective approach to granting subsidies. The liquidity position of companies is currently far better than in the spring as demonstrated by a significant increase in deposits (for more information, see the monetary aggregates section).

Inflation exceeds the target; core inflation hits record high. The falls will miss the forecast.

Inflation rocketed in Q1 fuelled by high food prices, dynamic economic activity, a strong labour market, and an increase in regulated prices. It slowed down in Q2 and Q3 on low oil prices. However, core inflation remains high (4.3%). This was caused, among others, by disrupted collection of prices and the methodology developed at the EU level to impute missing data. There are at least three variants of the imputation methodology for countries to select from. The extra charges relating to the epidemic being passed on to consumers have become an important element of the new reality. The relatively good standing of households has encouraged companies to include these extra costs in prices, which were paid by consumers in the wake of economic reopening and restoration of consumer demand.

The demand build-up is likely to slow down significantly in the coming months. The typical economic effects connected with the demand gap will make themselves felt (these include current demand falling below a level that can be met when an economy is at full production capacity). The reaction from core inflation has so far been modest (the extra epidemic charges were the only factor to have lost its impact; no new charges were introduced, but the existing ones were not lifted either). Due to the industry-specific nature of the current recession, analysing inflation from the point of view of the demand gap may not be completely right. It is also possible that core inflation (above all, in services) is very sticky and difficult to reverse. The highly unusual mix of economic shocks defies conventional explanations. We still think that inflation will slow down, but the effect will be mainly statistical: we will be dealing with a base effect caused by the abnormally high level of inflation in 2020. We no longer expect the price growth to fall considerably below the target of 2.5%. However, in our opinion, the current level of inflation has no impact on the monetary policy.

The response from the National Bank of Poland to recent economic developments was relatively quick. The central bank cut interest rates by a total of 140 bps in March, April, and May. It also launched extraordinary measures involving the purchase of Treasury (and Treasury-backed) bonds and promised a discount credit programme similar to the TLTRO programme introduced by the ECB (which so far has met with virtually no interest). Meanwhile, the burden of supporting the economy has shifted towards fiscal policy. The bar is set high for the Monetary Policy Council (RPP) if it wishes to slash interest rates below zero. This would require a return of strong declines in economic activity. Certain measures making up the arsenal of the central bank, such as quantitative easing, can be perceived as more effective in the environment of zero interest rates and greater coordination with fiscal policy. We expect the RPP to keep close track of the economic revival. A premature withdrawal of the stimulus would strengthen the zloty and considerably worsen the outlook for a rise in exports, especially when the new global order has just started to emerge. We assume that the tolerance for a weaker zloty has grown considerably. The exchange rate and structural operations (intended to keep a rein on bond yields) will constitute the first line of defence against the negative effects of rising infection numbers and new epidemic restrictions.

Financial markets – driven by global risks and high liquidity

The value of the Polish złoty fell rapidly amid the outbreak of the pandemic, but then rose again helped by the global economic improvement, monetary and fiscal stimulus, and decreasing number of COVID-19 infections. However, the second wave of the pandemic poses new threats to the Polish currency. The złoty will be highly volatile and will remain under pressure to depreciate until the epidemic is contained and the market players develop a new, stable outlook on the growth potential of the Polish economy. In addition, the pressure will build up as a result of the RPP's preference to keep the złoty weak and amid the environment of low interest rates. We do not expect the złoty to depreciate permanently, given the still favourable growth outlook for 2021-2024 and the current account surplus (see the chart below), which reached a record high in August. The surplus is likely to grow even further, helped by another slowdown in consumer and investment demand.

Slower lending and record-high household deposits

The earlier trends still continued in Q1. In Q2, some of them were reinforced, while others basically reversed. Q3 was largely a continuation of the previous quarter. All signs are that we are facing a return of a temporary acceleration in household deposits and further reduction in lending. Companies are likely to spend a (small) part of funds deposited so far as a result of a drop in demand (risks posed by the second wave of the COVID-10 pandemic).

Which trends were reinforced?

Mostly, the downward trend in loans to households and corporate loans. A slowdown in economic activity will favour a further decrease in these categories. Although there have been feeble signs of reduced demand for mortgage loans, the example of other low-interest countries (the Netherlands, Norway, Denmark) shows that the reduction may be only temporary and that demand for real properties will be back to normal relatively fast. In this context the threat that the coronavirus-related restrictions will be brought back and the expected (temporary) drop in GDP are becoming a major risk factor.

Investment loans for companies are still on the rise, yet their annual growth has been dwindling. Over the last few months companies tended to continue investment projects rather than launch new ones (adding to this were orders enabling companies to remain operational during the pandemic, but these include mainly operating expenses). Solid liquidity support from the Polish Development Fund (PFR) and widespread cost-cutting started in Q2 suggest that the trend will soon be shifting. Judging from the early stage of the public investment programme (with investment projects not expected to accumulate until 2021) and local government investments, investment is unlikely to be back on an upward trajectory earlier than in 2021. In accordance with the available research papers new corporate income tax solutions (the so-called Estonian CIT) have little effect on investment, despite contributing positively to firms' survival during a crisis. Lingering uncertainty about how the pandemic will evolve may generate increased demand for liquidity among companies and make investors extra cautious. On the other hand, the necessary restructuring and preparations for functioning in the new reality should positively affect investments. It seems that in the short term cuts will prevail, while in the long term development will be the way to go. The scenario for the forthcoming months has worsened as the COVID situation continues to be serious.

What has changed?

The current recession is exceptional, mainly as far as deposits are concerned. Deposits skyrocketed in both the corporate segment (helped mainly by the government's aid programmes) and the household segment (supported by aid programmes, enabling households to retain most of their income from gainful employment, and reduced consumer spending during the pandemic).

The economic improvement and return to relative normality seen in Q3 curbed the rise in deposits. Nevertheless, we expect that in an increasingly turbulent environment companies (and households, as demonstrated by surveys of purchasing preferences) will choose to accumulate liquidity, and consequently, deposits will rise. We expect the depletion of term deposits of households to continue (households are likely to shift funds from bank deposits to capital markets). The base-case scenario assumes further rise in household deposits, which can be relatively quick throughout the rest of the year (additional reduction in consumer spending due to COVID-related restrictions and anxiety). In the corporate sector some part of funds from the PFR will likely be spent at times of lower growth in income (reduced demand). Let us not forget, however, that the current recession is largely industryspecific and thus affects only certain companies. The drop in corporate deposits is likely to be small-scale. In April/May 2021 companies will start making repayments to the PFR. With the repayments spread over 24 months and most of the aid being non-returnable, the burden on companies will be relatively light. The natural rise in corporate deposits triggered by economic improvement will be far greater than the reduction resulting from repayments to the PFR. The repayments will curb growth in deposits but are unlikely to reverse the upward trend.

Financial position of mBank Group in Q3 2020

Profit and Loss Account of mBank Group

The profit before tax generated by mBank Group in Q3 2020 stood at PLN 255.0 million, up by 16.7% quarter on quarter. Net profit attributable to the owners of mBank increased by 15.7% compared to Q2 2020 to PLN 100.6 million.

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Interest income	1,210.6	1,079.5	-131.1	-10.8%
Interest expense	-204.0	-119.2	84.8	-41.6%
Net interest income	1,006.6	960.3	-46.3	-4.6%
Fee and commission income	535.5	553.5	18.0	3.4%
Fee and commission expense	-172.6	-180.3	-7.8	4.5%
Net fee and commission income	362.9	373.2	10.3	2.8%
Core income	1,369.5	1,333.5	-36.1	-2.6%
Dividend income	4.2	0.3	-3.9	-92.6%
Net trading income	39.5	58.2	18.6	47.1%
Other income	30.1	21.4	-8.7	-28.9%
Other operating income	74.9	49.1	-25.8	-34.4%
Other operating expenses	-48.8	-51.8	-3.0	6.2%
Total income	1,469.5	1,410.7	-58.8	-4.0%
Net impairment losses and fair value change on loans and advances	-352.2	-268.8	83.4	-23.7%
Result on provisions for legal risk related to foreign currency loans	-189.0	-186.9	2.1	-1.1%
Overhead costs and depreciation	-571.5	-566.7	4.8	-0.8%
Taxes on the Group balance sheet items	-138.4	-133.4	5.1	-3.6%
Profit before income tax	218.4	255.0	36.5	16.7%
Income tax expense	-131.5	-154.3	-22.9	17.4%
Net profit attributable to:	86.9	100.6	13.7	15.7%
- Owners of mBank S.A.	87.0	100.6	13.6	15.7%
- non-controlling interests	-0.1	0.0	0.0	-94.2%
ROA net	0.2%	0.2%
ROE gross	5.3%	6.1%
ROE net	2.1%	2.4%
Cost / Income ratio	38.9%	40.2%
Net interest margin	2.34%	2.15%
Common Equity Tier 1 ratio	16.4%	16.7%
Total capital ratio	19.3%	19.5%

Core income – calculated as the sum of net interest income and net fee and commission income.

Other income – calculated as the sum of gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates and gains or losses from non-trading financial assets (including equity instruments and debt securities) mandatorily measured at fair value through profit or loss (except for loans and advances).

Total income - calculated as the sum of net interest income, net fee and commission income, dividend income, net trading income, other income, other operating income and other operating expenses.

Total overhead costs (including deprecation) - calculated as the sum of total overhead costs and depreciation.

Net impairment losses and fair value change on loans and advances – the sum of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss.

Net ROA - calculated by dividing net profit attributable to Owners of the Bank by the average total assets. The average total assets are calculated on the basis of the balances as at the end of each month. Net profit attributable to Owners of the Bank is annualized based on the number of days in the analysed period (an annualization factor is calculated by dividing a number of days in the year by a number of days in the analysed period).

Gross ROE - calculated by dividing profit before income tax by the average equity attributable to Owners of the Bank net of the year's results. The average equity is calculated on the basis of the balances as at the end of each month. Profit before income tax is annualized based on the number of days in the analysed period (an annualization factor is calculated by dividing a number of days in the year by a number of days in the analysed period).

Net ROE - calculated by dividing net profit attributable to Owners of the Bank by the average equity attributable to Owners of the Bank, net of the year's results. The average equity is calculated on the basis of the balances as at the end of each month. Net profit attributable to Owners of the Bank is annualized based on the number of days in the analysed period (an annualization factor is calculated by dividing a number of days in the year by a number of days in the analysed period).

Cost/Income ratio - calculated by dividing overhead costs and depreciation by total income (excluding tax on Group's balance sheet items).

Net interest margin - calculated by dividing net interest income by average interest earning assets. Interest earning assets are a sum of cash and balances with the Central Bank, loans and advances to banks, debt securities (in all valuation methods) and loans and advances to customers (net; in all valuation methods). The average interest earning assets are calculated on the basis of the balances as at the end of each month. Net interest income is annualized based on the number of days in the analysed period (an annuali zation factor is calculated by dividing a number of days in the year by a number of days in the analysed period).

Income of mBank Group

Total income generated by mBank Group decreased quarter on quarter and amounted to PLN 1,410.7 million. Core income, including net interest income and net fee and commission income, declined quarter on quarter (by -2.6%) due to lower net interest income and reached PLN 1,333.5 million.

Net interest income remained mBank Group's largest income source in Q3 2020 and noted a decrease on a quarterly basis (PLN -46.3 million, i.e. -4.6%). Lower net interest income resulted from the series of rate cuts in March, April and May 2020 by 140 bps in total. Interest income declined by PLN 131.1 million, i.e. -10.8% compared to the previous quarter, and amounted to PLN 1,079.5 million. Interest income from loans and advances decreased by PLN 118.7 million or -12.6% compared to the previous quarter. Other line items of interest income also noted a small decrease. At the same time, interest expenses decreased by 84.8 million or -41.6% on a quarterly basis, mainly thanks to lower cost of deposits by PLN 67.3 million, i.e. -60.1%.

mBank Group's net interest margin decreased quarter on quarter and stood at 2.15% in Q3 2020 compared to 2.34% in the previous quarter.

Net fee and commission income, the second largest income contributor, increased compared with the previous quarter (+PLN 10.3 million, i.e. +2.8%) to PLN 373.2 million.

Fee and commission income increased by PLN 18.0 million or 3.4% quarter on quarter. The highest increase was noted in commissions from bank accounts (by PLN 10.8 million or 22.1% compared to the previous quarter). In Q2 2020 this line item was decreased due to closing of inactive bank accounts of retail clients. Commissions for foreign currencies exchange increased by PLN 6.7 million, i.e. 8.9%. At the same time, payment cards-related fees declined by PLN 10.5 million or -9.3%, which results from higher settlements with payment card operators in the previous quarter.

Fee and commission expenses amounted to PLN 180.3 million in Q3 2020 which represents an increase by PLN 7.8 million, i.e. 4.5% compared to the previous quarter, mainly due to higher payment-cardsrelated fees.

Net trading income increased by PLN 18.6 million or 47.1% and amounted to PLN 58.2 million. The increase was mainly reported in FX result thanks to high volatility of FX rates noted in Q3 2020.

Other income (calculated as the sum of gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates and gains or losses from non-trading financial assets - including equity instruments and debt securities - mandatorily measured at fair value through profit or loss) declined by PLN 8.7 million on a quarterly basis.

Other operating income net of other operating expenses stood at PLN -2.7 million, down compared to Q2 2020, when some provisions for future commitments were released.

Costs of mBank Group

In Q3 2020 mBank Group continued the strict cost discipline aimed at improving the efficiency measured by cost/income ratio. In Q3 2020, total overhead costs of mBank Group (including depreciation) stood at PLN 566.7 million, slightly down quarter on quarter (-PLN 4.8 million or -0.8%).

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Staff-related expenses	-259.2	-229.0	30.2	-11.6%
Material costs, including:	-153.9	-183.9	-30.0	19.5%
- administration and real estate services costs	-60.7	-63.1	-2.4	4.0%
- IT costs	-47.7	-47.7	-0.1	0.2%
- marketing costs	-23.7	-30.8	-7.1	30.0%
- consulting costs	-19.3	-37.9	-18.6	96.2%
- other material costs	-2.5	-4.4	-1.8	72.8%
Taxes and fees	-6.6	-6.9	-0.3	4.9%
Contributions and transfer to the Bank Guarantee Fund	-32.8	-33.7	-0.9	2.8%
Contributions to the Social Benefits Fund	-2.7	-4.9	-2.2	83.1%
Depreciation	-116.4	-108.3	8.1	-7.0%
Total overhead costs and depreciation	-571.5	-566.7	4.8	-0.8%
Cost / Income ratio	38.9%	40.2%	-	-
Employment (FTE)	6,827	6,754	-73	-1,1%

In Q3 2020, staff-related expenses decreased by PLN 30.2 million or -11.6% compared to the previous quarter, which was driven by lower variable staff costs. The headcount in mBank Group declined by 73 FTEs due to decrease of the number of FTEs at the Bank and subsidiaries (mainly in mFinanse).

In Q3 2020, material costs increased by PLN 30.0 million or 19.5% quarter on quarter. Consulting costs and marketing costs increased in the period under review. Depreciation declined by PLN 8.1 million or -7.0% compared to the previous quarter to PLN 108.3 million.

Cost efficiency measured by the Cost/Income ratio deteriorated slightly and stood at 40.2% in Q3 2020 compared to 38.9% in Q2 2020. The normalised Cost/Income ratio in January-September 2020 (including ¾ of the contribution to the resolution fund) reached 42.5%.

Net impairment losses and fair value change on loans and advances

In Q3 2020, net impairment losses and fair value change on loans and advances of mBank Group (calculated as the sum of two items: impairment or reversal of impairment on financial assets not measured at fair value through profit or loss and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss) stood at PLN 268.8 million. It was lower by PLN 83.4 million or 23.7% compared to the previous quarter. Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss is related to the part of the portfolio of loans and advances measured at amortised cost, while gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss are related to the credit risk of the portfolio of loans and advances measured with the use of that method.

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Retail Banking	-174.9	-159.5	15.5	-8.9%
Corporates and Financial Markets	-177.5	-109.6	67.9	-38.2%
Other	0.3	0.3	0.0	0.3%
Total net impairment losses and fair value change on loans and advances	-352.2	-268.8	83.4	-23.7%

Impairment on and change in the fair value of loans and advances in the Retail Banking segment declined by PLN 15.5 million and stood at PLN 159.5 million. The decrease resulted from maintaining the high quality of the retail loan portfolio.

Impairment on and change in the fair value of loans and advances in the Corporate and Financial Markets area amounted to PLN 109.6 million, which represents a decrease by PLN 67.9 million quarter on quarter. The decrease was driven by lower provisions for individual exposures of corporate clients.

Consolidated statement of financial position

The balance sheet total of mBank Group stood at PLN 182,146.8 million at the end of Q3 2020 and was only slightly smaller compared with the previous quarter, by -0.4%.

Assets of mBank Group

PLN M	30.09.2019	30.06.2020	30.09.2020	QoQ change	YoY change
Cash and balances with Central Bank	8,454.5	11,141.3	6,683.9	-40.0%	-20.9%
Loans and advances to banks	4,792.3	6,921.4	8,991.4	29.9%	87.6%
Financial assets held for trading and derivatives held for hedges	1,970.4	3,372.3	2,167.5	-35.7%	10.0%
Net loans and advances to customers	104,725.6	108,772.8	109,658.3	0.8%	4.7%
Investment securities	34,756.1	48,418.9	50,280.3	3.8%	44.7%
Intangible assets	876.6	1,063.9	1,094.4	2.9%	24.9%
Tangible assets	1,268.7	1,162.5	1,117.7	-3.9%	-11.9%
Other assets	1,929.9	2,089.8	2,153.3	3.0%	11.6%
Total assets	158,774.0	182,942.8	182,146.8	-0.4%	14.7%

Loans and advances to customers – the sum of loans and advances to customers recognised in: financial assets measured at amortised cost, non-trading financial assets mandatorily measured at fair value through profit or loss and financial assets held for trading.

Investment securities - the sum of debt securities included in financial assets measured at fair value through other comprehensive income, debt securities included in assets measured at amortised cost and non-trading equity and debt securities mandatorily measured at fair value through profit or loss.

Loans and advances to customers were the largest asset category of mBank Group at the end of Q3 2020. Their share in total assets increased slightly to 60.2% from 59.5% at the end of June 2020. At the end of Q3 2020, net loans and advances to customers (a total of loans and advances measured at amortised cost, loans and advances mandatorily measured at fair value through profit or loss, and loans and advances classified as assets held for trading) amounted to PLN 109,658.3 million, which represents a quarter-onquarter increase by PLN 885.5 million or 0.8%. Net of reverse repo/buy-sell-back transactions and FX effect, the gross value of loans and advances to customers went up by 1.0% quarter on quarter.

Gross loans to corporate customers declined on a quarterly basis by 763.7 million, i.e. -1.6%, and reached PLN 47,970.4 million (net of reverse repo/buy-sell-back transactions and the FX effect, loans and advances to corporate customers fell by -1.4% quarter on quarter). The sales of loans to corporate customers improved by 4.1% to PLN 8,278.6 million compared with Q2 2020 (including new sales, limit increases, and renewals). An improvement of new sales results from a rebound of customers' activity after an interim, reduced demand for new funding amid the economic turmoil caused by the COVID-19 pandemic in Q2 2020. Nevertheless, abundant liquidity on the market, linked to the distribution of aid funds, among others from the Financial Shield of the Polish Development Fund (PFR), relatively reduced clients' demand for the funding from the banks.

The volume of loans to individuals went up by PLN 1,838.2 million or 2.9% against the end of June 2020 to PLN 65,114.8 million. Gross mortgages and housing loans rose by 3.2% quarter on quarter. In Q3 2020, mBank Group sold PLN 2,124.4 million of mortgages and PLN 1,820.7 million of non-mortgage loans. Net of the FX effect, loans to individuals increased by 2.8% quarter on quarter.

At the end of Q3 2020, gross loans and advances to the public sector decreased by PLN 44.1 million, or -12.4% quarter on quarter and stood at PLN 310.3 million.

Investment securities were the second largest asset category at the end of Q3 2020. It stood at PLN 50,280.3 million and accounted for 27.6% of total assets, up by PLN 1,861.3 million or 3.8% quarter on quarter.

PLN M	30.09.2019	30.06.2020	30.09.2020	QoQ change	YoY change
Amounts due to other banks	2,458.3	2,004.2	1,774.2	-11.5%	-27.8%
Amounts due to customers	115,965.6	139,622.5	141,118.5	1.1%	21.7%
Debt securities in issue	16,716.9	16,408.2	13,849.3	-15.6%	-17.2%
Subordinated liabilities	2,526.2	2,564.1	2,561.9	-0.1%	1.4%
Other liabilities	5,016.4	5,431.0	5,873.2	8.1%	17.1%
Total Liabilities	142,683.3	166,030.1	165,177.1	-0.5%	15.8%
Total Equity	16,090.7	16,912.7	16,969.6	0.3%	5.5%
Total Liabilities and Equity	158,774.0	182,942.8	182,146.8	-0.4%	14.7%

mBank Group's total liabilities and equity

In Q3 2020, amounts due to customers, which are mBank Group's principal source of funding, rose by PLN 1,469.0 million or 1.1% quarter on quarter. The pace of new deposits inflow declined compared with what was observed in the H1 2020. The share of amounts due to customers in total liabilities and equity reached 77.5%, which represents a rise compared with the end of June 2020.

Amounts due to corporate customers decreased by PLN 838.4 million or -1.7% compared with Q2 2020 to reach PLN 48,239.3 million at the end of September 2020. The slight decline in this category results mainly from deceleration of state aid funds distributed to counteract the negative economic effects of COVID-19 pandemic. The peak of accumulation of those funds on the corporates' bank accounts took place until July 31, 2020, according to the schedule of distribution of funds for SMEs from the Financial Shield of the Polish Development Fund. In Q3 2020 a shift in corporate clients' accounts could be observed. There was an inflow into current accounts (+PLN 3,588.2 million or +10.8% quarter on quarter), while the volume of term deposits declined (-PLN 4,225.2 million or -39.1%). Moreover, the overall change of amounts due to corporate customers was also attributable to the decrease of repo transactions by -50.1% quarter on quarter.

In the period under review, amounts due to individuals rose by PLN 2,526.3 million or 2.8% and amounted to PLN 92,303.3 million. Alike the corporate deposits, there was an increase on current account (by 6.1%), while term deposits went down (by -16.6%).

Amounts due to the public sector stood at PLN 575.9 million, representing a quarter-on-quarter decrease by PLN 191.9 million (-25.0%).

The share of equity in total liabilities and equity of mBank Group increased slightly quarter on quarter to 9.3% (against 9.2% at the end of June 2020).

The next largest liabilities and equity category as of end of September 2020 (accounting for 7.6%) constituted debt securities in issue. This position declined on a quarterly basis by PLN 2,558.9 million or -15.6% to the level of PLN 13,849.3 million. Decrease of this category results from maturity of notes under the EMTN programme amounting to EUR 464.8 million as well as redemption of PLN 500 million, EUR 30 million covered bonds and PLN 200 million bonds by mBank Hipoteczny in September 2020.

Amounts due to other banks stood at PLN 1,774.2 million at the end of Q3 2020, accounting for 1.0% of total liabilities and equity of mBank Group. Compared with Q2 2020, this category went down by PLN 230.0 million or -11.5%, mainly thanks to the repayment of loan received from other bank worth USD 50 million in September 2020.

Quality of the loan portfolio of mBank Group

As at September 30, 2020, the amount of non-performing receivables was smaller than in the previous quarter, mainly in the corporate segment. Thanks to the simultaneous rise of receivables, the NPL ratio declined compared to the end June 2020 and amounted to 4.8%.

The coverage ratio for total receivables increased quarter on quarter from 71.7% to 75.0% whereas coverage ratio for non-performing receivables stood at 60.7% compared to 58.8% at the end of June 2020.

PLN M	30.06.2020	30.09.2020	QoQ change
Provisions for non-performing loans	3,237.4	3,311.9	2.3%
Provisions for performing loans	705.1	780.9	10.7%
Total provisions	3,942.5	4,092.8	3.8%
Non-performing receivables	5,501.5	5,459.3	-0.8%
Performing receivables	107,216.8	108,288.3	1.0%
NPL ratio	4.9%	4.8%
Coverage ratio of non-performing receivables	58.8%	60.7%

Provisions for non-performing loans – provisions for loans and advances at amortised cost with impairment (stage 3 and POCI) and fair value change of loans and advances mandatorily at fair value through profit or loss in default

Provisions for performing loans – provisions for loans and advances at amortised cost without impairment (stage 1 and 2) and fair value change of non-default loans and advances mandatorily at fair value through profit or loss

Non-performing receivables - loans and advances at amortised cost with impairment (stage 3 and POCI) and loans and advances mandatorily at fair value through profit or loss in default

Performing receivables - loans and advances at amortised cost without impairment (stage 1 and 2) and non-default loans and advances mandatorily at fair value through profit or loss

NPL ratio – loans and advances at amortised cost with impairment (stage 3 and POCI) and loans and advances mandatorily at fair value through profit or loss in default in the whole portfolio.

Performance of segments and the business lines

The Corporate and Investment Banking segment made the largest contribution to the profit before tax of mBank Group in Q3 2020. The result generated by the Retail Banking segment was affected by the drop of net interest income after the interest rates cuts. Importantly, in Q3 2020 result on provisions for legal risk related to foreign currency loans was set up at PLN 186.9 million vs. PLN 189.0 million in Q2 2020.

PLN M	Q2 2020	Q3 2020	QoQ change	% share in profit before tax
Retail Banking	126.5	93.4	-26.2%	36.6%
Corporate and Investment Banking	60.1	150.0	149.6%	58.8%
Financial Markets	36.8	21.6	-41.4%	8.5%
Other	-5.0	-10.0	99.5%	-3.9%
Profit before tax of mBank Group	218.4	255.0	16.7%	100.0%

Retail Banking

mBank's Retail Banking segment serves 5,676.8 thousand individual clients and microenterprises in Poland, the Czech Republic and Slovakia online, directly through

the call centre, via mobile banking and other state-of-the-art technological solutions, as well as in a network of 392 branches. The Bank offers a broad range of products and services including current and savings accounts, accounts for microenterprises, credit products, deposit products, payment cards, investment products, insurance products, brokerage services, and leasing for microenterprises.

Key highlights

• Total income of PLN 873.2 million, a decline by -4.9% on quarterly basis.
• Increase in the share of mBank in non-mortgage loans market from 6.5% to 6.6% quarter on quarter.
• Rise of mBank's share in retail deposits market from 7.5% to 7.7% quarterly.
• Quarterly rebound of sales of mortgage loans at PLN 2,124.4 million (i.e. +26.1% quarter on quarter, but a drop by -7.3% year on year), while non-mortgage loans sales stood at PLN 1,820.7 million (an increase by 53.0% quarter on quarter and decline by -24.2% year on year).
• Maintained high share of loggings into client accounts via mobile banking application: 74.1% at the end of September 2020.
• The Brokerage Bureau's share in the WSE turnover in shares increased from 5.7% to 6.8% quarter on quarter, whereas its share in the futures market rose from 15.4% to 20.2%.
• Servicing of the aid package offered to the clients introduced in the aftermath of an outbreak of COVID-19 pandemic. The services, available from home, comprised mainly deferral of principal instalment by individuals and microenterprises.
• mBank actively participated in distribution of the funds from the Financial Shield of the Polish Development Fund (PFR). With mBank's support over 40,000 retail clients received aid totalling nearly PLN 3.3 bn.
• Implementation of a fully electronic process to open a bank account remotely for entrepreneurs. Electronic ID and free mobile app eDO from the Polish Security Printing Works (Polska Wytwórnia Papierów Wartościowych), available for Android and iOS, are sufficient to launch an account. An online process answers the needs of the cyber clients who prefer to complete the formal processes remotely, but safely.
• mBank launched social campaign "Cyfrowe rewolucje" ("Digital Revolution"), aimed at supporting micro- and SME customers in developing their online business. In Q3 2020 we awarded companies participating in contest for cyber revolution, where prizes totalled PLN 300,000. We provided already 6 webinars with experts for cyber business. Entrepreneurs can visit a dedicated website including useful tips and information from the e-commerce practitioners.
• Introduction of open banking during the process of cash loan application. A simplified procedure is based on a possibility to confirm the salary with the use of AIS service under the revised Payment Services Directive (PSD2). AIS (Account Information Services) offers an access to the bank account and allows to collect information on transactions, including salary inflows, directly from the customer's bank account, without delivering physical documents to the branch. The data necessary to make a credit decision is collected after the client's approval.

Key financial data:

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Net interest income	672.8	648.7	-24.2	-3.6%
Net fee and commission income	194.6	195.4	0.9	0.4%
Net trading income	8.9	9.5	0.6	7.1%
Net other operating income	19.0	-2.2	-21.2	-111.6%
Other income	22.7	21.8	-1.0	-4.3%
Total income	918.0	873.2	-44.9	-4.9%
Net impairment losses and fair value change on loans and advances	-174.9	-159.5	15.5	-8.9%
Gains and losses on provisions against legal risk of FX loans	-189.0	-186.9	2.1	-1.1%
Overhead costs and depreciation	-360.7	-367.0	-6.3	1.8%
Taxes on bank balance sheet items	-66.9	-66.5	0.5	-0.7%
Profit before tax of Retail Banking	126.5	93.4	-33.1	-26.2%

Key business data (mBank and mBank Hipoteczny only):

thou.	30.09.2019	30.06.2020	30.09.2020	QoQ change	YoY change
Number of retail clients, including:	5,538.9	5,671.8	5,676.8	0.1%	2.5%
Poland	4,593.5	4,692.9	4,681.5	-0.2%	1.9%
Foreign branches	945.4	978.9	995.2	1.7%	5.3%
The Czech Republic	657.1	683.2	697.0	2.0%	6.1%
Slovakia	288.3	295.7	298.3	0.9%	3.5%
PLN M
Loans to retail clients, including:	58,655.9	63,070.6	64,682.4	2.6%	10.3%
Poland	53,686.1	57,496.5	58,525.7	1.8%	9.0%
mortgage loans	36,918.9	40,350.9	41,037.7	1.7%	11.2%
non-mortgage loans	16,767.2	17,145.6	17,488.0	2.0%	4.3%
Foreign branches	4,969.8	5,574.1	6,156.7	10.5%	23.9%
The Czech Republic	3,847.0	4,084.8	4,415.4	8.1%	14.8%
Slovakia	1,122.8	1,489.3	1,741.3	16.9%	55.1%
Deposits of retail clients, including:	71,956.7	89,816.2	92,491.0	3.0%	28.5%
Poland	61,388.8	77,931.9	80,021.4	2.7%	30.4%
Foreign branches	10,567.9	11,884.3	12,469.5	4.9%	18.0%
The Czech Republic	7,291.3	8,095.0	8,525.9	5.3%	16.9%
Slovakia	3,276.6	3,789.2	3,943.6	4.1%	20.4%
Investment funds of mBank's individual clients1	13,107.5	16,436.6	18,356.0	11.7%	40.0%
thou.
Credit cards, including:	394.9	392.7	390.7	-0.5%	-1.1%
Poland	353.5	352.8	351.3	-0.4%	-0.6%
Foreign branches	41.4	39.9	39.3	-1.4%	-5.1%
Debit cards, including:	3,775.5	3,942.2	4,067.4	3.2%	7.7%
Poland	3,171.1	3,305.2	3,409.5	3.2%	7.5%
Foreign branches	604.5	637.0	657.8	3.3%	8.8%

¹ Value of investment funds of mBank's individual clients represents value of open-end investment funds only.

Corporates and Financial Markets

The Corporates and Financial Markets segment serves 28,420 corporate clients including large enterprises (K1 - annual sales exceeding PLN 1 billion and non-banking financial institutions), mid-sized enterprises (K2 - annual sales of PLN 50 million – 1 billion) and small enterprises (K3 - annual sales below PLN 50 million), through a network of dedicated 46 branches. mBank Group's offer of products and services for corporate clients focuses on traditional banking products and services (including corporate accounts, domestic and international money transfers, payment cards, cash services, and liquidity management products), corporate finance products, hedging instruments, equity capital market (ECM) services, debt capital market (DCM) instruments, mergers and acquisitions (M&A), leasing and factoring. The segment comprises two areas: Corporate and Investment Banking, and Financial Markets. In line with the resolution of the Supervisory Board of mBank adopted on June 25, 2020, regarding the dismissal of Mr. Frank Bock from the post of Vice-President of the Management Board, Head of Financial Markets of mBank S.A. as of December 31, 2020, there is going to be the reorganization of the financial markets area within other business areas of the bank. It will take place until the end of the year.

Key highlights

• Total income of PLN 544.2 million: PLN 476.3 million from Corporate and Investment Banking and PLN 67.9 million from Financial Markets.
• Increase of corporate deposits on the Bank level (excluding repo transactions) by 11.7% year on year and quarterly decline of -2.1%. mBank's market share in deposits from enterprises reached 11.1%.
• Fifth position of mFaktoring on the factoring market in Poland with market share of 8.2%.
• mFaktoring launched a recourse factoring service with the Bank Gospodarstwa Krajowego (BGK) guarantee up to 80% of the financing limit. The service protects them from payment backlogs and is available under the BGK's support package for the Polish enterprises in the time of pandemic.
• Handling aid instruments for its clients aimed at counteracting negative economic consequences of the spread of COVID-19. These instruments comprise such solutions as postponing payment of principal part of credit instalments at mBank and decreasing up to six leasing instalments in mLeasing, available from home.
• Supporting customers in benefiting from the aid instruments offered by the BGK and EU funds, such as de minimis guarantees, liquidity guarantees, using Fund of Agriculture Guarantees and Guarantee Fund for supporting innovative enterprises under the Operating Programme Intelligent Development (FG POIR, Biznesmax Guarantee).
• Participation in distribution of the funds from the Financial Shield of the Polish Development Fund. mBank channelled the aid exceeding PLN 2.8 bn to over 3,500 corporate clients.
• mBank together with local accountants help to open a company. Thanks to cooperation of mBank and a chain of accounting firms under the OSCBR chain, new entrepreneurs can quickly register a company, open a bank account and connect it with an accounting service integrated with the transactional system – all in one visit and with a support of an experienced accountant.
• Launch of a new car financing platform by mLeasing. On mAuto portal, clients can remotely choose a car – new or used, adjust an offer and decide on the funding. SME clients may select leasing or long-term rental, while individuals can purchase with cash. mAuto is another step in cyber transformation of the company and enables clients to get a car at any time and place.

Key financial data:

Corporate and Investment Banking:

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Net interest income	269.4	257.2	-12.2	-4.5%
Net fee and commission income	177.4	187.0	9.6	5.4%
Net trading income	10.1	27.3	17.2	170.4%
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	0.0	-0.2	-0.2	+/-
Net other operating income	10.2	4.9	-5.3	-51.7%
Total income	467.1	476.3	9.2	2.0%
Net impairment losses and fair value change on loans and advances	-178.3	-109.6	68.6	-38.5%
Overhead costs and depreciation	-184.3	-173.2	11.2	-6.1%
Taxes on bank balance sheet items	-44.4	-43.5	0.9	-2.0%
Profit before tax of Corporate and Investment Banking	60.1	150.0	89.9	149.6%

Financial Markets:

PLN M	Q2 2020	Q3 2020	Change in PLN M	Change in %
Net interest income	63.0	49.2	-13.9	-22.0%
Net fee and commission income	-4.0	-2.1	2.0	-48.4%
Net trading income	20.0	22.0	2.0	10.2%
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	9.6	-1.5	-11.1	+/-
Net other operating income	-0.3	0.3	0.6	-184.7%
Total income	88.3	67.9	-20.4	-23.1%
Net impairment losses and fair value change on loans and advances	0.7	0.0	-0.7	-102.6%
Overhead costs and depreciation	-26.5	-24.4	2.1	-7.8%
Taxes on bank balance sheet items	-25.8	-21.9	3.8	-14.9%
Profit before tax of Financial Markets	36.8	21.6	-15.2	-41.4%

Key business data (Bank only):

	30.09.2019	30.06.2020	30.09.2020	QoQ change	YoY change
Number of corporate clients, including:	25,890	27,725	28,420	2.5%	9.8%
K1	2,331	2,384	2,381	-0.1%	2.1%
K2	8,077	8,553	8,712	1.9%	7.9%
K3	15,482	16,788	17,327	3.2%	11.9%
PLN M
Loans to corporate clients, including:	29,151.5	29,279.2	28,327.2	-3.3%	-2.8%
K1	7,846.0	7,376.6	6,823.3	-7.5%	-13.0%
K2	18,104.4	18,678.6	18,273.9	-2.2%	0.9%
K3	2,899.7	2,651.1	2,713.6	2.4%	-6.4%
Reverse repo/buy sell back transactions	193.6	403.4	335.3	-16.9%	73.2%
Other	107.8	169.4	181.1	6.9%	67.9%
Deposits of corporate clients, including:	39,887.6	45,647.5	44,347.1	-2.8%	11.2%
K1	18,361.2	16,285.6	14,814.9	-9.0%	-19.3%
K2	14,049.4	19,018.1	19,007.2	-0.1%	35.3%
K3	6,631.5	9,180.1	9,740.9	6.1%	46.9%
Repo transactions	500.9	715.5	356.9	-50.1%	-28.8%
Other	344.7	448.1	427.3	-4.6%	24.0%

Summary of results of mBank Group's subsidiaries

In Q3 2020, the profit before tax generated by mBank Group subsidiaries amounted to PLN 22.9 million, which represents an increase of 18.4% against the previous quarter. The main factors influencing results of selected subsidiaries are described in the latter part of the chapter. The table below presents the profit before tax posted by individual subsidiaries in Q3 2020 compared with Q2 2020.

PLN M	Q2 2020	Q3 2020	Change in %
mFinanse	11,908	7,124	-40.2%
mBank Hipoteczny	1,750	1,386	-20.8%
mLeasing1	7,622	7,781	2.1%
mFaktoring	2,469	6,832	176.7%
Other2	-4,397	-201	-95.4%
Total	19,352	22,922	18.4%

1 Including: LeaseLink and Asekum.

² Other subsidiaries include mFinance France, BDH Development, Garbary, Tele-Tech Investment, Future Tech and mElements.

In Q3 2020 the Group continued simplification of the organizational structure of the Group. After repurchase of selected notes issued by mBank S.A. and mFinance France S.A. under the tender offer commenced on 29 May 2020, on 1 October 2020 the substitution process from mFinance France to mBank as a bond issuer was completed. On 13 October 2020 the Management Board of mBank S.A. adopted the resolution on the liquidation of the subsidiary mFinance France SA. The liquidation of mFinance France will take place after fulfilling all necessary procedures according to relevant provisions of law.

Open platform for financial products distribution on the agency market

The product range includes credit products, accounts and insurance for both individuals and companies

In Q3 2020, mFinanse was systematically improving its sales and financial results, which were hit by the consequences of the COVID-19 pandemic. In the period under review the subsidiary continued its restructuring projects aimed at maintaining business continuity and saving jobs. A full return to sales volumes will depend on the time needed for the consumer mood to turn positive again. Apart from demand, the scale of sales is also dependent on mBank's credit policy, which was slightly loosened for individual product groups compared with the rules applied in Q2 2020.

In Q3 2020, mFinanse posted an increase in mortgage loans sales by 22.5% quarter on quarter (PLN 791.7 million in Q3 2020 against PLN 646.2 million in Q2 2020). In the period under review, cash loan sales went up markedly to PLN 122.9 million from PLN 53.8 million in Q2 2020 (+128.4%). The profit from selling car loans dedicated to car dealers increased compared with Q2 2020. In Q3 2020, it stood at PLN 68.8 million, compared with PLN 47.4 million in the previous quarter. Similarly, the car leasing segment also reported a hike from PLN 15,5 million in Q2 to PLN 23.7 million in Q3.

In Q3 2020, the subsidiary's pre-tax profit amounted to PLN 7.1 million compared with PLN 11.9 million in Q2 2020.

As regards business continuity, in response to the outbreak of the pandemic mFinanse took measures to protect the health and security of our employees, business partners, and clients. Head office employees were still allowed to work remotely in Q3 2020. Branches, partner outlets as well as kiosks operated in line with the security rules developed on the basis of the guidelines of the Ministry of Health. In the period under review, mFinanse branches worked under a strict sanitary regime.

The mortgage bank with the longest track record of issuing covered bonds in the Polish capital market

Providing stable, long-term and secure funding for the Group using a pooling model in cooperation with mBank

mBank Hipoteczny (mBH) is the oldest mortgage bank operating on the Polish capital market. Since 2000, mBH has been regularly issuing Polish covered bonds in line with the Polish issuance programme. As at 30 September 2020, the total value of the outstanding mortgage bonds issued by mBank Hipoteczny amounted to approx. PLN 7.5 billion. This accounts for 28.6% of the entire market valued at over PLN 26.1 billion (at the EUR/PLN exchange rate of the National Bank of Poland published on 30 September 2020). The financing and liquidity profile of mBank Group in Q3 2020 did not provide for the need to issue covered bonds by mBank Hipoteczny.

As at the end of Q3 2020, there were four series of unsecured bonds worth a total of PLN 260 million issued by mBH. mBH issues zero-coupon and coupon bonds denominated in PLN with maturities ranging from seven days to one year in the case of zero-coupon bonds and from one year to five years for coupon bonds.

On September 30, 2020, Moody's Investors Service Ltd affirmed the long-term and short-term issuer ratings assigned to mBank Hipoteczny of Baa2 with a stable outlook and Prime-2, respectively. At the same, Moody's Investors Service affirmed counterparty risk assessment of A3(cr)/Prime-2(cr) and counterparty risk rating at A3/Prime-2.

In 2020 mBank Hipoteczny has expanded its loan portfolio using the pooling model in Retail Banking in close cooperation with mBank, i.e. with sales effected by mBank's salesforce. Since January 2020, six pooling transactions totalling PLN 1.1 billion have been completed in the retail portfolio. In Q3 2020, two pooling transactions totalling PLN 719.1 million have been executed. Despite a drop in exposure in the corporate portfolio, this translated into higher gross portfolio value at the end of Q3 2020 (up by 4.1% compared to the end of June 2020).

The subsidiary's pre-tax profit in Q3 2020 amounted to PLN 1.4 million, down by 20.8% compared with the previous quarter. Its operating costs in Q3 2020 shrank by 29.3% quarter on quarter. On the other hand, mBank Hipoteczny recorded an increase in impairment losses, primarily as a result of an update of portfolio provision calculation parameters and due to its higher individual provision. In both cases, this was related to the impact of the COVID-19 pandemic on the value of expected credit losses and to the maturing credit portfolio.

In Q3 2020 we continued to follow the new work rules at mBank Hipoteczny given a threat of spreading of COVID-19. Under the new rules, employees work remotely and, in areas where it is impossible, they take shifts in the office in line with all the security measures. The rules are to ensure security while maintaining continuity of performed processes.

Apart from the re-organisation of work, mBank Hipoteczny also developed support measures for corporate and retail clients. As regards the latter, we enabled suspension of principal or principal and interest instalment repayment by up to six months. We enabled clients to apply for the suspension of loan instalment repayment by filing an online instruction. In the case of corporate clients, applications for support were considered on an individual basis. In Q3 2020, mBank Hipoteczny recorded a lower number of applications filed both in the retail portfolio and in the corporate portfolio. Additionally, since 24 June 2020, mBH has been processing applications for credit holiday in line with Articles 31fa-31fc of the Act on Interest Subsidies for Bank Loans Granted to Provide Financial Liquidity to Entrepreneurs Affected by the Effects of COVID-19 and Amendments to Certain Other Acts (so-called Shield 4.0).

Financing offer in the form of leasing or rent, and car fleet management

Leasing as a payment method in e-commerce offered by LeaseLink

The total value of contracts signed in Q3 2020 amounted to PLN 1,539.8 million against PLN 896.2 million in Q2 2020, which marks a 71.8% increase quarter on quarter. The value of new movable assets purchased by the subsidiary in Q3 2020 amounted to PLN 1,392.3 million, thus increasing by 55.4% compared with Q2 2020 (PLN 896.2 million). In Q3 2020, the subsidiary financed real estate properties worth PLN 147.5 million, whereas in Q2 2020 it did not finance any real property.

The consolidated pre-tax profit reported by the subsidiary in Q3 2020 stood at PLN 7.8 million, up by 2.1% compared with the previous quarter. The increase was reached despite higher credit risk costs, which amounted to PLN 45.4 million in Q3 2020, compared with PLN 33.2 million in the previous quarter. Provisions were higher due to a potential rise in credit risk caused by the COVID-19 pandemic.

In connection with the pandemic, we changed the way we work at the subsidiary. We implemented remote work and rotating shift work where employees need to be physically present. We offered our clients the possibility of reducing three to six leasing instalments.

mFaktoring offers financing of ongoing business operations, receivables management, transfer of insolvency risk, management of debtors' settlement accounts and enforcement of receivables, provides domestic and export factoring with recourse and credit protection as well as import credit guarantees

The fifth largest player on the Polish factoring market among the members of the Polish Factors Association

In Q3 2020, the subsidiary's turnover, i.e. amount of invoices purchased by the subsidiary stood at PLN 6.0 billion. Compared with Q2 2020, when the company reported a substantial decrease in the turnover due to the COVID-19 pandemic, the figure went up by 17.8% in Q3 2020. In September 2020, the subsidiary reported a record-high turnover in the amount of PLN 2.2 million. Since the subsidiary was highly active, it managed to maintain the fifth position on the factoring market in Poland with a market share of 8.2% (according to the Polish Factors Association).

In spite of an increase in turnover, interest and commission income dropped by 5.4% quarter on quarter. The decrease is related to, among others, a lower demand for financing due to the state aid provided to clients to counteract negative effects of the COVID-19 pandemic.

The pre-tax profit of mFaktoring included in Q3 2020, stood at PLN 6.8 million compared with PLN 2.5 million in the previous quarter. The higher figure despite decreased interest and commission income is attributable to, among others, lower provisions for uncollectible receivables.

In three quarters of 2020, mFaktoring acquired 103 new clients with limits totalling PLN 189.5 million. Although new business development was stifled by the restrictions related to the COVID-19 pandemic, Q3 2020 saw an increase in the acquisition of new clients. On 14 September 2020 mFaktoring joined the BGK Programme, which provides for securing factoring transactions with recourse by means of a liquidity guarantee offered to clients whose liquidity has deteriorated.

During the COVID-19 pandemic, the company performs all processes remotely. In response to the needs reported by some clients, mFaktoring offers support measures, in particular, it extends payment periods and the recourse period. The subsidiary has also undertaken a number of activities aimed at strengthening the monitoring of the receivables portfolio. In the period under review, there were no signals of worse payment discipline of the largest recipients in the portfolio.

Consolidated income statement

	Note	3rd Quarter (current year) period from 01.07.2020 to 30.09.2020	3 Quarters (current year) period from 01.01.2020 to 30.09.2020	3rd Quarter (previous year) period from 01.07.2019 to 30.09.2019 - restated	3 Quarters (previous year) period from 01.01.2019 to 30.09.2019 - restated
Interest income, including:	5	1 079 525	3 625 118	1 331 082	3 795 517
Interest income accounted for using the effective interest method		957 005	3 270 035	1 202 125	3 365 776
Income similar to interest on financial assets at fair value through profit or loss		122 520	355 083	128 957	429 741
Interest expenses	5	(119 230)	(592 748)	(266 844)	(803 246)
Net interest income		960 295	3 032 370	1 064 238	2 992 271
Fee and commission income	6	553 516	1 633 429	516 020	1 469 092
Fee and commission expenses	6	(180 315)	(534 615)	(184 788)	(543 223)
Net fee and commission income		373 201	1 098 814	331 232	925 869
Dividend income	7	310	4 789	298	3 949
Net trading income, including:	8	58 151	142 501	38 995	105 413
Foreign exchange result		31 837	40 286	33 601	70 053
Gains or losses on financial assets and liabilities held for trading		25 454	103 080	2 905	27 616
Gains or losses from hedge accounting		860	(865)	2 489	7 744
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	9	9 388	(34 318)	62 455	50 837
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates, including:		(737)	1 521	8 123	22 841
Gains less losses from debt securities measured at fair value through other comprehensive income		(1 471)	(246)	8 769	27 328
Gains less losses from investments in subsidiaries and associates		1 185	(2 967)	(449)	(4 921)
Gains less losses from derecognition		(451)	4 734	(197)	434
Other operating income	11	49 128	165 193	103 216	175 990
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss		(256 038)	(969 952)	(219 217)	(546 380)
Result on provisions for legal risk related to foreign currency loans		(186 851)	(388 734)	(66 559)	(94 333)
Overhead costs	13	(458 452)	(1 552 412)	(450 694)	(1 525 418)
Depreciation		(108 265)	(322 137)	(91 833)	(270 011)
Other operating expenses	14	(51 806)	(156 694)	(141 880)	(234 593)
Operating profit		388 324	1 020 941	638 374	1 606 435
Taxes on the Group balance sheet items		(133 365)	(403 612)	(118 392)	(337 278)
Profit before income tax		254 959	617 329	519 982	1 269 157
Income tax expense		(154 349)	(338 882)	(161 489)	(375 123)
Net profit		100 610	278 447	358 493	894 034
Net profit attributable to:
- Owners of mBank S.A.		100 613	278 513	358 512	894 098
- Non-controlling interests		(3)	(66)	(19)	(64)
Net profit attributable to Owners of mBank S.A.		100 613	278 513	358 512	894 098
Weighted average number of ordinary shares	15	42 355 992	42 352 256	42 337 854	42 337 276
Earnings per share (in PLN)	15	2.38	6.58	8.47	21.12
Weighted average number of ordinary shares for diluted earnings	15	42 377 975	42 374 239	42 357 106	42 356 528
Diluted earnings per share (in PLN)		2.37	6.57	8.46	21.11

Consolidated statement of comprehensive income

	3rd Quarter (current year) period from 01.07.2020 to 30.09.2020	3 Quarters (current year) period from 01.01.2020 to 30.09.2020	3rd Quarter (previous year) period from 01.07.2019 to 30.09.2019 - restated	3 Quarters (previous year) period from 01.01.2019 to 30.09.2019 - restated
Net profit	100 610	278 447	358 493	894 034
Other comprehensive income net of tax, including:	(44 614)	532 695	52 849	17 499
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (net)	(162)	(465)	335	388
Cash flows hedges (net)	(12 875)	354 360	38 991	76 654
Debt instruments at fair value through other comprehensive income (net)	(31 577)	178 800	13 523	(59 541)
Items that will not be reclassified to the income statement
Actuarial gains and losses relating to post-employment benefits (net)	-	-	-	(2)
Total comprehensive income (net)	55 996	811 142	411 342	911 533
Total comprehensive income (net), attributable to:
- Owners of mBank S.A.	55 999	811 208	411 361	911 597
- Non-controlling interests	(3)	(66)	(19)	(64)

Consolidated statement of financial position

ASSETS	Note	30.09.2020	31.12.2019
Cash and balances with the Central Bank		6 683 941	7 897 010
Financial assets held for trading and hedging derivatives	16	2 353 905	2 866 034
Non-trading financial assets mandatorily at fair value through profit or loss, including:	17	1 919 046	2 267 922
Equity instruments	17	252 397	162 616
Debt securities	17	71 615	133 774
Loans and advances to customers	17	1 595 034	1 971 532
Financial assets at fair value through other comprehensive income	18	35 484 841	22 773 921
Financial assets at amortised cost, including:	19	131 339 607	118 779 885
Debt securities	19	14 471 422	11 234 873
Loans and advances to banks	19	8 991 355	4 341 758
Loans and advances to customers	19	107 876 830	103 203 254
Fair value changes of the hedged items in portfolio hedge of interest rate risk		1 381	-
Non-current assets and disposal groups classified as held for sale	20	15 261	10 651
Intangible assets	21	1 094 258	955 440
Tangible assets	22	1 117 654	1 262 397
Current income tax assets		16 030	12 662
Deferred income tax assets	26	820 296	937 712
Other assets		1 300 537	956 949
TOTAL ASSETS		182 146 757	158 720 583
LIABILITIES AND EQUITY
LIABILITIES
Financial liabilities held for trading and hedging derivatives	23	1 087 757	948 764
Financial liabilities measured at amortised cost, including:		159 303 937	137 763 369
Amounts due to banks	24	1 774 184	1 166 871
Amounts due to customers	24	141 118 549	116 661 138
Debt securities issued		13 849 349	17 435 143
Subordinated liabilities		2 561 855	2 500 217
Fair value changes of the hedged items in portfolio hedge of interest rate risk		55 258	136
Liabilities held for sale	20	417	1 315
Provisions	25	1 142 243	739 296
Current income tax liabilities		228 882	161 534
Deferred income tax liabilities	26	87	82
Other liabilities		3 358 533	2 952 782
TOTAL LIABILITIES		165 177 114	142 567 278
EQUITY
Equity attributable to Owners of mBank S.A.		16 967 701	16 151 303
Share capital:		3 586 249	3 579 818
Registered share capital		169 461	169 401
Share premium		3 416 788	3 410 417
Retained earnings:		12 672 047	12 394 775
Profit from the previous years		12 393 534	11 384 425
Profit for the current year		278 513	1 010 350
Other components of equity		709 405	176 710
Non-controlling interests		1 942	2 002
TOTAL EQUITY		16 969 643	16 153 305
TOTAL LIABILITIES AND EQUITY		182 146 757	158 720 583
Total capital ratio (in %)		19.53	19.46
Common Equity Tier 1 capital ratio (in %)		16.74	16.51
Book value		16 967 701	16 151 303
Number of shares		42 365 259	42 350 367
Book value per share (in PLN)		400.51	381.37

Consolidated statement of changes in equity

Changes in equity from 1 January to 30 September 2020

	Share capital		Retained earnings					Other components of equity
	Registered	share capital Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from the previous years	Profit for the current year attributable to Owners of mBank S.A.	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flows hedges	Actuarial gains and losses relating to post employment benefits	Equity attributable to Owners of mBank S.A., total	Non controlling interests	Total equity
Equity as at 1 January 2020	169 401	3 410 417	9 826 282	98 316	1 153 753	1 316 424	-	(5 435)	74 321	119 142	(11 318)	16 151 303	2 002	16 153 305
Total comprehensive income	-	-	-	-	-	-	278 513	(465)	178 800	354 360	-	811 208	(66)	811 142
Issuance of ordinary shares	60	-	-	-	-	-	-	-	-	-	-	60	-	60
Other increase or decrease in equity	-	-	-	-	-	(43)	-	-	-	-	-	(43)	6	(37)
Stock option program for employees	-	6 371	-	(1 198)	-	-	-	-	-	-	-	5 173	-	5 173
- value of services provided by the employees	-	-	-	5 173	-	-	-	-	-	-	-	5 173	-	5 173
- settlement of exercised options	-	6 371	-	(6 371)	-	-	-	-	-	-	-	-	-	-
Equity as at 30 September 2020	169 461	3 416 788	9 826 282	97 118	1 153 753	1 316 381	278 513	(5 900)	253 121	473 502	(11 318)	16 967 701	1 942	16 969 643

Changes in equity from 1 January to 31 December 2019

		Share capital Retained earnings						Other components of equity
	Registered	share capital Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from the previous years	Profit for the current year attributable to Owners of mBank S.A.	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flows hedges	Actuarial gains and losses relating to post employment benefits	Equity attributable to Owners of mBank S.A., total	Non controlling interests	Total equity
Equity as at 1 January 2019	169 348	3 405 338	9 826 282	93 448	1 153 753	306 100	-	(5 467)	145 978	83 643	(9 316)	15 169 107	2 100	15 171 207
Total comprehensive income	-	-	-	-	-	-	1 010 350	32	(71 657)	35 499	(2 002)	972 222	(98)	972 124
Issuance of ordinary shares	53	-	-	-	-	-	-	-	-	-	-	53	-	53
Other increase or decrease in equity	-	-	-	-	-	(26)	-	-	-	-	-	(26)	-	(26)
Stock option program for employees	-	5 079	-	4 868	-	-	-	-	-	-	-	9 947	-	9 947
- value of services provided by the employees	-	-	-	9 947	-	-	-	-	-	-	-	9 947	-	9 947
- settlement of exercised options	-	5 079	-	(5 079)	-	-	-	-	-	-	-	-	-	-
Equity as at 31 December 2019	169 401	3 410 417	9 826 282	98 316	1 153 753	306 074	1 010 350	(5 435)	74 321	119 142	(11 318)	16 151 303	2 002	16 153 305

	Share capital		Retained earnings					Other components of equity
	Registered	share capital Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from the previous years	Profit for the current year attributable to Owners of mBank S.A.	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flows hedges	Actuarial gains and losses relating to post employment benefits	Equity attributable to Owners of mBank S.A., total	Non controlling interests	Total equity
Equity as at 1 January 2019	169 348	3 405 338	9 826 282	93 448	1 153 753	306 100	-	(5 467)	145 978	83 643	(9 316)	15 169 107	2 100	15 171 207
Total comprehensive income	-	-	-	-	-	-	894 098	388	(59 541)	76 654	(2)	911 597	(64)	911 533
Issuance of ordinary shares	46	-	-	-	-	-	-	-	-	-	-	46	-	46
Other increase or decrease in equity	-	-	-	-	-	34	-	-	-	-	-	34	(16)	18
Stock option program for employees	-	4 336	-	3 226	-	-	-	-	-	-	-	7 562	-	7 562
- value of services provided by the employees	-	-	-	7 562	-	-	-	-	-	-	-	7 562	-	7 562
- settlement of exercised options	-	4 336	-	(4 336)	-	-	-	-	-	-	-	-	-	-
Equity as at 30 September 2019	169 394	3 409 674	9 826 282	96 674	1 153 753	306 134	894 098	(5 079)	86 437	160 297	(9 318)	16 088 346	2 020	16 090 366

Changes in equity from 1 January to 30 September 2019 - restated

Consolidated statement of cash flows

	Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated
Profit before income tax	617 329	1 269 157
Adjustments:	5 112 078	3 799 022
Income taxes paid	(257 521)	(601 547)
Depreciation, including depreciation of fixed assets provided under operating lease	349 075	306 474
Foreign exchange (gains) losses related to financing activities	509 345	249 352
(Gains) losses on investing activities	(2 240)	(31 373)
Dividends received	(4 789)	(3 949)
Interest income (income statement)	(3 625 118)	(3 795 517)
Interest expense (income statement)	592 748	803 246
Interest received	4 070 804	3 892 098
Interest paid	(674 307)	(806 624)
Changes in loans and advances to banks	(1 455 152)	826 332
Changes in financial assets and liabilities held for trading and hedging derivatives	267 005	(46 514)
Changes in loans and advances to customers	(4 426 014)	(9 832 415)
Changes in financial assets at fair value through other comprehensive income	(12 832 592)	(125 857)
Changes in securities at amortised cost	(3 235 680)	(1 296 997)
Changes of non-trading equity securities mandatorily at fair value through profit or loss	(27 622)	(127 956)
Changes in other assets	(352 892)	134 306
Changes in amounts due to banks	811 993	(89 595)
Changes in amounts due to customers	24 503 187	14 030 656
Changes in issued debt securities	122 548	12 209
Changes in provisions	402 947	138 401
Changes in other liabilities	376 353	164 292
A. Cash flows from operating activities	5 729 407	5 068 179
Disposal of intangible assets and tangible fixed assets	72 667	51 858
Dividends received	4 789	3 949
Acquisition of shares in subsidiaries	-	(46 192)
Purchase of intangible assets and tangible fixed assets	(357 290)	(348 040)
B. Cash flows from investing activities	(279 834)	(338 425)
Proceeds from other loans and advances	-	544 735
Proceeds from issue of debt securities	95 000	1 041 036
Issue of ordinary shares	60	46
Repayments of loans and advances from banks	(196 140)	(560 027)
Repayments of other loans and advances	-	(1 058 369)
Redemption of debt securities	(4 125 805)	(2 510 650)
Payments of lease liabilities	(89 856)	(87 985)
Interest paid from loans and advances received from banks and from subordinated liabilities	(68 165)	(66 760)
C. Cash flows from financing activities	(4 384 906)	(2 697 974)
Net increase / decrease in cash and cash equivalents (A+B+C)	1 064 667	2 031 780
Effects of exchange rate changes on cash and cash equivalents	30 298	40 594
Cash and cash equivalents at the beginning of the reporting period	9 609 929	10 630 969
Cash and cash equivalents at the end of the reporting period	10 704 894	12 703 343

Income statement

	Note	3rd Quarter (current year) period from 01.07.2020 to 30.09.2020	3 Quarters (current year) period from 01.01.2020 to 30.09.2020	3rd Quarter (previous year) period from 01.07.2019 to 30.09.2019 - restated	3 Quarters (previous year) period from 01.01.2019 to 30.09.2019 - restated
Interest income, including:		934 930	3 187 040	1 168 926	3 334 310
Interest income accounted for using the effective interest method		818 475	2 844 984	1 050 456	2 938 116
Income similar to interest on financial assets at fair value through profit or loss		116 455	342 056	118 470	396 194
Interest expenses		(99 863)	(499 933)	(227 096)	(684 047)
Net interest income		835 067	2 687 107	941 830	2 650 263
Fee and commission income		517 432	1 519 372	477 132	1 353 162
Fee and commission expenses		(160 536)	(463 445)	(159 556)	(471 900)
Net fee and commission income		356 896	1 055 927	317 576	881 262
Dividend income		310	31 134	18 751	320 024
Net trading income, including:		58 096	147 593	41 338	107 376
Foreign exchange result		29 992	39 110	30 432	66 554
Gains or losses on financial assets and liabilities held for trading		24 927	102 248	8 990	37 395
Gains or losses from hedge accounting		3 177	6 235	1 916	3 427
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss		10 084	(32 775)	66 388	54 206
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates, including:		(18 825)	(13 489)	9 648	11 748
Gains less losses from debt securities measured at fair value through other comprehensive income		(1 471)	843	8 769	27 328
Gains less losses from investments in subsidiaries and associates		32	(358)	883	(112)
Gains less losses from derecognition		(17 386)	(13 974)	(4)	(15 468)
Other operating income		7 865	30 909	11 446	34 876
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss		(206 275)	(828 691)	(191 431)	(485 130)
Result on provisions for legal risk related to foreign currency loans		(186 851)	(388 734)	(66 559)	(94 333)
Overhead costs		(410 994)	(1 393 759)	(402 964)	(1 369 428)
Depreciation		(94 476)	(282 803)	(80 875)	(239 520)
Other operating expenses		(23 489)	(78 797)	(70 351)	(137 601)
Operating profit		327 408	933 622	594 797	1 733 743
Taxes on the Group balance sheet items		(125 551)	(380 265)	(110 090)	(312 842)
Share in profits (losses) of entities under the equity method		33 965	25 701	25 257	(205 715)
Profit before income tax		235 822	579 058	509 964	1 215 186
Income tax expense		(146 585)	(315 429)	(148 939)	(340 646)
Net profit		89 237	263 629	361 025	874 540
		89 237	263 629	361 025	874 540
Net profit Weighted average number of ordinary shares		42 355 992	42 352 256	42 337 854	42 337 276
Earnings per share (in PLN)	15 15	2.11	6.22	8.53	20.66
Weighted average number of ordinary shares for diluted earnings	15	42 377 975	42 374 239	42 357 106	42 356 528
Diluted earnings per share (in PLN)	15	2.11	6.22	8.52	20.65

Statement of comprehensive income

	3rd Quarter (current year) period from 01.07.2020 to 30.09.2020	3 Quarters (current year) period from 01.01.2020 to 30.09.2020	3rd Quarter (previous year) period from 01.07.2019 to 30.09.2019 - restated	3 Quarters (previous year) period from 01.01.2019 to 30.09.2019 - restated
Net profit	89 237	263 629	361 025	874 540
Other comprehensive income net of tax, including:	(134 446)	297 121	29 446	57 562
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (net)	(154)	(532)	313	367
Cash flows hedges (net)	(18 859)	337 896	38 991	76 654
Share of other comprehensive income of entities under the equity method (net)	4 384	5 666	(673)	(4 716)
Debt instruments at fair value through other comprehensive income (net)	(119 817)	(45 909)	(9 185)	(14 743)
Items that will not be reclassified to the income statement
Actuarial gains and losses relating to post-employment benefits (net)	-	-	-	-
Total comprehensive income (net)	(45 209)	560 750	390 471	932 102

Statement of financial position

ASSETS	30.09.2020	31.12.2019
Cash and balances with the Central Bank	6 640 003	7 861 776
Financial assets held for trading and derivatives held for hedges	2 358 111	2 921 749
Non-trading financial assets mandatorily at fair value through profit or loss, including:	1 709 469	2 035 189
Equity instruments	178 757	87 597
Debt securities	71 615	133 774
Loans and advances to customers	1 459 097	1 813 818
Financial assets at fair value through other comprehensive income	46 350 700	30 298 647
Financial assets at amortised cost, including:	111 835 542	101 310 293
Debt securities	14 471 422	11 234 873
Loans and advances to credit institutions	13 200 191	7 337 703
Loans and advances to customers	84 163 929	82 737 717
Fair value changes of the hedged items in portfolio hedge of interest rate risk	1 381	-
Investments in subsidiaries	2 209 013	2 164 112
Non-current assets and disposal groups classified as held for sale	7 229	91 605
Intangible assets	935 711	823 109
Tangible assets	838 145	945 606
Current income tax assets	14 834	11 878
Deferred income tax assets	198 886	273 257
Other assets	742 128	491 052
TOTAL ASSETS	173 841 152	149 228 273
LIABILITIES AND EQUITY
LIABILITIES
Financial liabilities held for trading and derivatives held for hedges	1 133 388	987 933
Financial liabilities measured at amortised cost, including:	151 872 288	128 979 983
Amounts due to banks	1 809 763	1 180 782
Amounts due to customers	144 066 081	121 936 987
Debt securities issued	3 434 589	3 361 997
Subordinated liabilities	2 561 855	2 500 217
Fair value changes of the hedged items in portfolio hedge of interest rate risk	55 258	136
Provisions	1 142 685	737 167
Current income tax liabilities	223 715	150 859
Deferred income tax liabilities	87	82
Other liabilities	2 732 741	2 257 106
TOTAL LIABILITIES	157 160 162	133 113 266
EQUITY
Share capital:	3 586 249	3 579 818
Registered share capital	169 461	169 401
Share premium	3 416 788	3 410 417
Retained earnings:	12 626 981	12 364 550
- Profit from the previous years	12 363 352	11 383 570
- Profit for the current year	263 629	980 980
Other components of equity	467 760	170 639
TOTAL EQUITY	16 680 990	16 115 007
TOTAL LIABILITIES AND EQUITY	173 841 152	149 228 273
Total capital ratio	22.56	22.84
Common Equity Tier 1 capital ratio	19.26	19.42
Book value	16 680 990	16 115 007
Number of shares	42 365 259	42 350 367
Book value per share (in PLN)	393.74	380.52

Statement of changes in equity

Changes from 1 January to 30 September 2020

		Share capital			Retained earnings			Other components of equity
	Registered share capital	Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from previous years	Profit from the current year	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flow hedges	Share in profits (losses) of entities under the equity method	Actuarial gains and losses relating to post employment benefits	Total equity
Equity as at 1 January 2020	169 401	3 410 417	9 216 652	27 320	1 115 143	2 005 435	-	(5 151)	58 363	122 150	6 370	(11 093)	16 115 007
Total comprehensive income	-	-	-	-	-	-	263 629	(532)	(45 909)	337 896	5 666	-	560 750
Issuance of ordinary shares	60	-	-	-	-	-	-	-	-	-	-	-	60
Stock option program for employees	-	6 371	-	(1 198)	-	-	-	-	-	-	-	-	5 173
- value of services provided by the employees	-	-	-	5 173	-	-	-	-	-	-	-	-	5 173
- settlement of exercised options	-	6 371	-	(6 371)	-	-	-	-	-	-	-	-	-
Equity as at 30 September 2020	169 461	3 416 788	9 216 652	26 122	1 115 143	2 005 435	263 629	(5 683)	12 454	460 046	12 036	(11 093)	16 680 990

Changes from 1 January to 31 December 2019

	Share capital			Retained earnings				Other components of equity
	Registered share capital	Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from previous years	Profit from the current year	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flow hedges	Share in profits (losses) of entities under the equity method	Actuarial gains and losses relating to post employment benefits	Total equity
Equity as at 1 January 2019	169 348	3 405 338	9 216 652	22 452	1 115 143	1 024 455	-	(5 160)	104 292	83 643	3 120	(9 113)	15 130 170
Total comprehensive income	-	-	-	-	-	-	980 980	9	(45 929)	38 507	3 250	(1 980)	974 837
Issuance of ordinary shares	53	-	-	-	-	-	-	-	-	-	-	-	53
Stock option program for employees	-	5 079	-	4 868	-	-	-	-	-	-	-	-	9 947
- value of services provided by the employees	-	-	-	9 947	-	-	-	-	-	-	-	-	9 947
- settlement of exercised options	-	5 079	-	(5 079)	-	-	-	-	-	-	-	-	-
Equity as at 31 December 2019	169 401	3 410 417	9 216 652	27 320	1 115 143	1 024 455	980 980	(5 151)	58 363	122 150	6 370	(11 093)	16 115 007

Changes from 1 January to 30 September 2019 - restated

	Retained earnings					Other components of equity
	Registered	share capital Share premium	Other supplementary capital	Other reserve capital	General banking risk reserve	Profit from previous years	Profit from the current year	Exchange differences on translation of foreign operations	Valuation of financial assets at fair value through other comprehensive income	Cash flow hedges	Share in profits (losses) of entities under the equity method	Actuarial gains and losses relating to post employment benefits	Total equity
Equity as at 1 January 2019	169 348	3 405 338	9 216 652	22 452	1 115 143	1 024 455	-	(5 160)	104 292	83 643	3 120	(9 113)	15 130 170
Total comprehensive income	-	-	-	-	-	-	874 540	367	(14 743)	76 654	(4 716)	-	932 102
Issuance of ordinary shares	46	-	-	-	-	-	-	-	-	-	-	-	46
Stock option program for employees	-	4 336	-	3 226	-	-	-	-	-	-	-	-	7 562
- value of services provided by the employees	-	-	-	7 562	-	-	-	-	-	-	-	-	7 562
- settlement of exercised options		4 336		(4 336)	-	-	-	-	-	-	-	-	-
Equity as at 30 September 2019	169 394	3 409 674	9 216 652	25 678	1 115 143	1 024 455	874 540	(4 793)	89 549	160 297	(1 596)	(9 113)	16 069 880

Statement of cash flows

	Period from 01.01.2020 to 30.09.2020	Period from 01.01.2019 to 30.09.2019 - restated
Profit before income tax	579 058	1 215 186
Adjustments:	1 681 023	1 525 032
Income taxes paid	(233 365)	(471 363)
Depreciation, including depreciation of fixed assets provided under operating lease	290 575	239 520
Foreign exchange (gains) losses related to financing activities	271 379	196 117
(Gains) losses on investing activities	(27 790)	174 649
Dividends received	(31 134)	(320 024)
Interest income (income statement)	(3 187 040)	(3 334 310)
Interest expense (income statement)	499 933	684 047
Interest received	3 626 507	3 483 815
Interest paid	(608 966)	(733 678)
Changes in loans and advances to banks	(2 613 191)	(316 372)
Changes in financial assets and liabilities held for trading and hedging derivatives	301 862	(110 039)
Changes in loans and advances to customers	(4 056 344)	(8 977 621)
Changes in financial assets at fair value through other comprehensive income	(13 572 083)	132 063
Changes in securities at amortised cost	(3 236 549)	(1 269 668)
Changes of non-trading equity securities mandatorily at fair value through profit or loss	(29 001)	(128 433)
Changes in other assets	(192 609)	82 410
Changes in amounts due to banks	833 979	28 205
Changes in amounts due to customers	22 631 353	11 699 986
Changes in issued debt securities	160 854	40 120
Changes in provisions	405 518	139 794
Changes in other liabilities	447 135	285 814
A. Cash flows from operating activities	2 260 081	2 740 218
Disposal of shares in subsidiaries, net of disposed cash	650	-
Disposal of intangible assets and tangible fixed assets	1 885	5 551
Dividends received	31 134	320 024
Purchase of intangible assets and tangible fixed assets	(250 906)	(231 493)
B. Cash flows from investing activities	(217 237)	94 082
Proceeds from other loans and advances	-	544 735
Proceeds from issue of debt securities	35 000	476 036
Issue of ordinary shares	60	46
Repayments of loans and advances from banks	(196 140)	(560 027)
Repayments of other loans and advances	-	(1 058 369)
Redemption of debt securities	(178 042)	-
Acquisition of shares in subsidiaries - increase of involvement	-	(150 000)
Payments of other financial liabilities	(479 271)	-
Payments of lease liabilities	(84 106)	(82 422)
Interest paid from loans and advances received from banks and from subordinated liabilities	(68 165)	(66 760)
C. Cash flows from financing activities	(970 664)	(896 761)
Net increase / decrease in cash and cash equivalents (A+B+C)	1 072 180	1 937 539
Effects of exchange rate changes on cash and cash equivalents	30 298	40 594
Cash and cash equivalents at the beginning of the reporting period	9 534 771	10 597 670
Cash and cash equivalents at the end of the reporting period	10 637 249	12 575 803

Explanatory notes to the consolidated financial statements

1. Information regarding the Group of mBank S.A.

The Group of mBank S.A. ("Group", "mBank Group") consists of entities under the control of mBank S.A. ("Bank", "mBank") of the following nature:

• strategic: shares and equity interests in companies supporting particular business segments of mBank S.A. (corporates and financial markets segment, retail banking segment and other) with an investment horizon not shorter than 3 years. The formation or acquisition of these companies was intended to expand the range of services offered to the clients of the Bank;
• other: shares and equity interests in companies acquired in exchange for receivables, in transactions resulting from composition and work out agreements with debtors, with the intention to recover a part or all claims to loan receivables and insolvent companies under liquidation or receivership.

The parent entity of the Group is mBank S.A., which is a joint stock company registered in Poland and a part of Commerzbank AG Group.

The head office of the Bank is located at 18 Senatorska St., Warsaw.

The shares of the Bank are listed on the Warsaw Stock Exchange.

As at 30 September 2020, mBank S.A. Group covered by the Consolidated Financial Statements comprised the following companies:

mBank S.A., the parent entity

mBank S.A. was established under the name of Bank Rozwoju Eksportu SA by Resolution of the Council of Ministers N 99 of 20 June 1986. The Bank was registered pursuant to the legally valid decision of the District Court for the Capital City of Warsaw, 16th Economic Registration Division, on 23 December 1986 in the Business Register under the number RHB 14036. The 9th Extraordinary Meeting of Shareholders held on 4 March 1999 adopted the resolution changing the Bank's name to BRE Bank SA. The new name of the Bank was entered in the Business Register on 23 March 1999. On 11 July 2001, the District Court in Warsaw issued the decision on the entry of the Bank in the National Court Register (KRS) under number KRS 0000025237.

On 22 November 2013, the District Court for the Capital City of Warsaw, 12th Commercial Division of the National Court Register, registered the amendments to the Bank's by-laws arising from Resolutions N26 and Resolutions N27 of the 26th Annual General Meeting of mBank S.A., which was held on 11 April 2013. With the registration of changes in company by-laws, the name of the Bank has changed from BRE Bank Spółka Akcyjna on mBank Spółka Akcyjna (abbreviated mBank S.A.).

According to the Polish Classification of Business Activities, the business of the Bank was classified as "Other monetary intermediation" under number 6419Z. According to the Stock Exchange Quotation, the Bank is classified as "Banks" sector as part of the "Finance" macro-sector.

According to the by-laws of the Bank, the scope of its business consists of providing banking services and consulting and advisory services in financial matters, as well as of conducting business activities within the scope described in its by-laws. The Bank operates within the scope of corporate, institutional and retail banking (including private banking) throughout the whole country and operates trade and investment activities as well as brokerage activities.

The Bank provides services to Polish and international corporations and individuals, both in the local currency (Polish Zloty, PLN) and in foreign currencies.

The Bank may open and maintain accounts in Polish and foreign banks, and can possess foreign exchange assets and trade in them.

The Bank conducts retail banking business in Czech Republic and Slovakia through its foreign mBank branches in these countries.

As at 30 September 2020 the headcount of mBank S.A. amounted to 6 097 FTEs (Full Time Equivalents) and of the Group to 6 754 FTEs (30 September 2019: Bank 6 020 FTEs, Group 6 704 FTEs).

As at 30 September 2020 the employment in mBank S.A. was 7 118 persons and in the Group 9 470 persons (30 September 2019: Bank 7 057 persons, Group 9 253 persons).

The business activities of the Group are conducted in the following business segments presented in detail in Note 4.

Corporates and Financial Markets Segment, including:

Corporate and Investment Banking

• mBank Hipoteczny S.A., subsidiary (the corporate segment of the company's activity)
• mFaktoring S.A., subsidiary
• mLeasing Sp. z o.o., subsidiary (the corporate segment of the company's activity)
• Asekum Sp. z o.o., subsidiary (the corporate segment of the company's activity)
• Garbary Sp. z o.o., subsidiary
• Tele-Tech Investment Sp. z o.o., subsidiary

Financial Markets

• mFinance France S.A., subsidiary
• mBank Hipoteczny S.A., subsidiary (with regard to activities concerning funding)
• mLeasing Sp. z o.o., subsidiary (with regard to activities concerning funding)

Retail Banking Segment

• mFinanse S.A., subsidiary
• mBank Hipoteczny S.A., subsidiary (the retail segment of the company's activity)
• mLeasing Sp. z o.o., subsidiary (the retail segment of the company's activity)
• Asekum Sp. z o.o., subsidiary (the retail segment of the company's activity)
• LeaseLink Sp. z o.o., subsidiary
• mElements S.A., subsidiary

Other

• BDH Development Sp. z o.o., subsidiary
• Future Tech Fundusz Inwestycyjny Zamknięty, subsidiary

Other information concerning companies of the Group

Beginning from January 2020, the Group started to consolidate the company mElements S.A., operating in the construction of dedicated solutions for e-commerce trade and new technologies. The company develops and develops IT solutions including API solutions, online and mobile payments as well as services dedicated to online sellers, including the Paynow payment integrator. In October 2019, mElements S.A. received from the Polish Financial Supervision Authority permission to operate as a National Payment Institution. In 2019, the Company also became a member of the Chamber of Electronic Economy, associating the largest entities operating for the development of e-commerce in Poland. The Bank holds 100% shares in the company.

Information concerning the business conducted by the Group's entities is presented under Note 4 "Business Segments" of these condensed consolidated financial statements.

The condensed consolidated financial statements of the Bank cover the following companies:

	30.09.2020		31.12.2019		30.09.2019
Company	Share in voting rights (directly and indirectly)	Consolidation method	Share in voting rights (directly and indirectly)	Consolidation method	Share in voting rights (directly and indirectly)	Consolidation method
mBank Hipoteczny S.A.	100%	full	100%	full	100%	full
mLeasing Sp. z o.o.	100%	full	100%	full	100%	full
mFinanse S.A.	100%	full	100%	full	100%	full
mFaktoring S.A.	100%	full	100%	full	100%	full
mFinance France S.A.	99.998%	full	99.998%	full	99.998%	full
Future Tech Fundusz Inwestycyjny Zamknięty	98.04%	full	98.04%	full	98.04%	full
Tele-Tech Investment Sp. z o.o.	100%	full	100%	full	100%	full
BDH Development Sp. z o.o.	100%	full	100%	full	100%	full
Garbary Sp. z o.o.	100%	full	100%	full	100%	full
Asekum Sp. z o.o.	100%	full	100%	full	100%	full
LeaseLink Sp. z o.o.	100%	full	100%	full	100%	full
mElements S.A.	100%	full	-	-	-	-
mCentrum Operacji Sp. z o.o. w likwidacji	-	-	-	-	100%	full

As at 31 December 2019, the Group classified BDH Development Sp. z o. o. to non-current assets held for sale. In November 2019, mCentrum Operacji Sp. z o. o. has been liquidated. The company's results achieved up to the date of liquidation were included in the Consolidated Financial Statements of the Group for 2019. The above issues have been described respectively in Note 24 and in Note 43 to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020.

The Management Board of mBank S.A. approved these condensed consolidated financial statements for issue on 28 October 2020.

2. Description of relevant accounting policies

Accounting basis

The Condensed Consolidated Financial Statements of mBank S.A. Group have been prepared for the 9-month period ended 30 September 2020. Comparative data include the period from 1 January 2019 to 30 September 2019 for the condensed consolidated income statement, condensed consolidated statement of comprehensive income, the condensed consolidated statement of cash flows and condensed consolidated statement of changes in equity, additionally for the period from 1 January to 31 December 2019 for the condensed consolidated statement of changes in equity, and in the case of the condensed consolidated statement of financial position, data as at 31 December 2019.

The Consolidated Financial Statements of mBank S.A. Group have been prepared in compliance with the International Financial Reporting Standards (IFRS) as adopted for use in the European Union on a historical cost basis, except for derivative financial instruments, other financial assets and liabilities held for trading, financial assets which fail the SPPI test and financial assets and liabilities designated at fair value through profit or loss (FVTPL), debt and equity instruments at fair value through other comprehensive income (FVOCI) and liabilities related to cash-settled share-based payment transactions all of which have been measured at fair value. Non-current assets held for sale or group of these assets classified as held for sale are stated at the lower of the carrying value and fair value less costs to sell.

The data for the year 2019 presented in these mBank S.A. Group condensed consolidated financial statements was audited by the auditor.

The preparation of the financial statements in compliance with IFRS requires the application of specific accounting estimates. It also requires the Management Board to use its own judgment when applying the accounting policies adopted by the Group. The issues in relation to which a significant professional judgement is required, more complex issues, or such issues where estimates or judgments are material to the consolidated financial statements are disclosed in Note 3.

Financial statements are prepared in compliance with materiality principle. Material omissions or misstatements of positions of financial statements are material if they could, individually or collectively, influence the economic decisions that users make on the basis of Group's financial statements. Materiality depends on the size and nature of the omission or misstatement of the position of financial statements or a combination of both. The Group presents separately each material class of similar positions. The Group presents separately positions of dissimilar nature or function unless they are immaterial.

These condensed consolidated financial statements were prepared under the assumption that all the entities of the Group, except for mFinance France S.A. which has been put into liquidation after the balane sheet date, continues as a going concern in the foreseeable future, i.e. in the period of at least 12 months following the reporting date. As of the date of approving these statements, the Bank Management Board has not identified any events that could indicate that the continuation of the operations by the Group is endangered.

Detailed accounting principles applied to the preparation of these condensed consolidated financial statements are presented in Note 2 to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020. These principles were applied consistently over all presented periods, except for the change in accounting policies introduced since the beginning of 2020, consisting in the change in the manner of recognizing the FX margin on spot transactions. The change has been described below, in the item "Comparative data".

New standards, interpretations and amendments to published standards

These financial statements include the requirements of all the International Accounting Standards and the International Financial Reporting Standards endorsed by the European Union, and the related with them interpretations which have been endorsed and binding for annual periods starting on 1 January 2020.

Standards and interpretations endorsed by the European Union

Published Standards and Interpretations which have been issued but are not yet binding or have not been adopted early

◼ Amendments to IFRS 16 COVID-19-Related Rent Concessions, published by International Accounting Standards Board on 28 May 2020, approved by the European Union on 10 October 2020, binding for annuals periods starting on or after 1 June 2020.

Amendments to IFRS 16 provides practical expedient that permits lessees not to assess whether rent concessions that occur as a direct consequence of the COVID-19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

Standards and interpretations not yet endorsed by the European Union

These financial statements do not include standards and interpretations listed below which await endorsement of the European Union.

◼ Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2, published by International Accounting Standards Board on 27 August 2020, binding for annuals periods starting on or after 1 January 2021.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting.

Regarding modification of financial assets, financial liabilities and lease liabilities a practical expedient for modifications required by the reform (modifications required as a direct consequence of the IBOR reform and made on an economically equivalent basis) has been introduced. These modifications are accounted for by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements. A similar practical expedient is proposed for lessee accounting applying IFRS 16.

Regarding hedge accounting amendments, hedge accounting is not discontinued solely because of the IBOR reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Amended hedging relationships should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.

Specific disclosures are also required in order to allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity's progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.

IFRS 4 was also amended to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications directly required by IBOR reform.

The Group is currently analysing the impact of applying the amendments to the standards on the financial statements in the period of their initial application.

◼ IFRS 17, Insurance contracts, published by the International Accounting Standards Board ("IASB") on 18 May 2017, binding for annual periods starting on or after 1 January 2023.

IFRS 17 defines a new approach to the recognition, valuation, presentation and disclosure of insurance contracts. The main purpose of IFRS 17 is to guarantee the transparency and comparability of insurers' financial statements. In order to meet this requirement the entity will disclose a lot of quantitative and qualitative information enabling the users of financial statements to assess the effect that insurance contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of the entity. IFRS 17 introduces a number of significant changes in relation to the existing requirements of IFRS 4. They concern, among others: aggregation levels at which the calculations are made, methods for the valuation of insurance liabilities, recognition a profit or loss over the period the entity provides insurance coverage, reassurance recognition, separation of the investment component and presentation of particular items of the balance sheet and profit and loss account of reporting units including the separate presentation of insurance revenues, insurance service expenses and insurance finance income or expenses.

The Group is of the opinion that the application of the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IFRS 17, published by International Accounting Standards Board on 25 June 2020, binding for annuals periods starting on or after 1 June 2023.

Amendments to IFRS 17 include a two-year deferral of the effective date and the fixed expiry date of the temporary exemption from applying IFRS 9 granted to insurers meeting certain criteria. Preparers of financial statements are no longer required to apply IFRS 17 to certain credit cards and similar arrangements, and loans that provide insurance coverage. The profit recognition pattern for insurance contracts under IFRS 17 has been amended to reflect insurance coverage and any investment services provided. Insurance contracts are now required to be presented on the balance sheet at the portfolio level. The amendment addresses also accounting mismatches that arise when an entity reinsures onerous contracts and recognizes losses on the underlying contracts on initial recognition.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IAS 1, Classification of liabilities as current or non-current, published by IASB on 23 January 2020. On 15 July 2020 the IASB published an amendment that provides entities with operating relief by postponing the effective date of the amendments to the Standard by one year for annual reporting periods beginning on or after 1 January 2023.

Amendments to IAS 1 affect the requirements for the presentation of liabilities in the financial statements. In particular, they explain one of the criteria for classifying liabilities as non-current.

The Group is of the opinion that the application of the amended standard will have no significant impact on the financial statements in the period of their initial application.

◼ Annual Improvements to IFRS Standards 2018-2020, published by International Accounting Standards Board on 14 May 2020, binding for annuals periods starting on or after 1 January 2022.

Annual Improvements include changes to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, Illustrative Examples accompanying IFRS 16 Leases and IAS 41 Agriculture.

The amendment to IFRS 1 permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent's date of transition to IFRSs.

The amendment to IFRS 9 clarifies which fees the entity includes when it applies the '10 per cent test' in assessing whether to derecognize a financial liability. An entity includes only the fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or lender on the other's behalf.

The amendment to IFRS 16 removes the illustration of payments from the lessor relating to leasehold improvements in order to resolve any potential confusion regarding the treatment of lease incentives.

The amendment to IAS 41 removes the requirement to exclude cash flows for taxation when measuring fair value of a biological asset using a parent value technique. This will ensure consistency with the requirements in IFRS 13 Fair Value Measurement.

The Group is of the opinion that the application of the changes to standards will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use, published by International Accounting Standards Board on 14 May 2020, binding for annuals periods starting on or after 1 January 2022.

Amendments to IAS 16 prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related cost in profit or loss.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IAS 37 Onerous contracts – Cost of Fulfilling the Contract, published by International Accounting Standards Board on 14 May 2020, binding for annuals periods starting on or after 1 January 2022.

Amendments to IAS 37 specifies which costs to include in estimating the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IFRS 3 Reference to the Conceptual Framework, published by International Accounting Standards Board on 14 May 2020, binding for annuals periods starting on or after 1 January 2022.

Amendments to IFRS 3 replaced references to the Framework with references to the 2018 Conceptual Framework. They also added a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of conceptual framework) to identify the liabilities it has assumed in business combination. Moreover, the standard added an explicit statement that an acquirer does not recognize contingent asset acquired in a business combination.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IFRS 4 Extension of the Temporary Exemption from Applying IFRS 9, published by International Accounting Standards Board on 25 June 2020, binding for annuals periods starting on or after 1 June 2023.

Amendments to IFRS 4 provides a temporary exemption that permits the insurer to apply IAS 39 rather than IFRS 9 Financial Instruments. The extension maintains the alignment between the expiry date of the temporary exemption and the effective date of IFRS 17, which replaces IFRS 4.

The Group is of the opinion that the application of the changes to the standard will have no significant impact on the financial statements in the period of their initial application.

◼ Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture (issued on 11 September 2014) - the endorsement process of these Amendments has been postponed by EU - the effective date was deferred indefinitely by IASB.

Comparative data

▪ The recognition of FX margin on spot transactions

From January 2020, the Group changed the rules for presenting the FX margin on spot transactions. So far, the FX margin was presented in the Net trading income as part of the Foreign exchange result. After the change, the FX margin is part of the Net fee and commission income and is recognized in the item "Commissions from currency transactions". The change was caused by adjusting the presentation of the FX margin in the income statement to the prevailing market practice. The comparative data for the period from 1 January to 30 September 2019 have been appropriately restated, which resulted in an increase in Fee and commission income and a decrease in the Net trading income by PLN 222 749 thousand.

▪ Presentation of result on provisions for legal risk related to foreign currency loans

Since the end of 2019 a new line item in the income statement has been separated in which the Group presents the result on provisions for legal risk related to foreign currency loans. Previously the expenses of creating provisions for court cases relating to foreign currency loans were presented in the other operating expenses, and income relating to release of those provisions was presented within other operating income. This change was introduced in order to enable a clearer presentation of issues relevant to the Group's financial results. The comparative data for the period from 1 January to 30 September 2019 have been adjusted accordingly, which resulted in the decrease of other operating expenses by PLN 94 333 thousand. The result on provisions for legal risk related to foreign currency loans for the three quarters of 2019 was negative and amounted to PLN 94 333 thousand.

▪ The recognition of some transactions of purchase and sale of securities

In the fourth quarter 2019, the Bank adjusted the recognition of transactions in Treasury securities which in the previous years were incorrectly classified as outright buy or sale of securities and should have been classified as buy/sell back ("BSB") or sell/buy back ("SBB") transactions instead. Detailed information on the impact of the adjustments made on the income statement, statement of comprehensive income, statement of financial position and cash flow statement of the Group for 2019 and 2018 was presented in Note 2.30 to the Consolidated Financial Statements of mBank S.A. for 2019, published on 28 February 2020.

Due to the above, in these condensed consolidated financial statements the Group adjusted the comparative data as at and for the period ended 30 September 2019, decreasing retained earnings by PLN 44 873 thousand, as well as increasing the net profit for the three quarters of 2019 by decreasing the tax on selected financial institutions (banking tax) by PLN 44 531 thousand. Moreover, the Group decreased the amount of the provision for the banking tax by PLN 47 039 thousand and increased liabilities to tax authorities in the amount of PLN 47 381 thousand.

The impact of the adjustments on the comparative data presented in these condensed consolidated financial statements for the period from 1 January to 30 September 2019 and as at 30 September 2019 is presented in the following statements.

Restatements in the consolidated income statement

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Interest income, including:	3 795 517	-	3 795 517
Interest income accounted for using the effective interest method	3 365 776	-	3 365 776
Income similar to interest on financial assets at fair value through profit or loss	429 741	-	429 741
Interest expenses	(803 246)	-	(803 246)
Net interest income	2 992 271	-	2 992 271
Fee and commission income	1 246 343	222 749	1 469 092
Fee and commission expenses	(543 223)	-	(543 223)
Net fee and commission income	703 120	222 749	925 869
Dividend income	3 949	-	3 949
Net trading income, including:	328 162	(222 749)	105 413
Foreign exchange result	292 802	(222 749)	70 053
Gains or losses on financial assets and liabilities held for trading	27 616	-	27 616
Gains or losses from hedge accounting	7 744	-	7 744
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	50 837	-	50 837
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates, including:	22 841	-	22 841
Gains less losses from debt securities measured at fair value through other comprehensive income	27 328	-	27 328
Gains less losses from investments in subsidiaries and associates	(4 921)	-	(4 921)
Gains less losses from derecognition	434	-	434
Other operating income	175 990	-	175 990
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	(546 380)	-	(546 380)
Result on provisions for legal risk related to foreign currency loans	-	(94 333)	(94 333)
Overhead costs	(1 525 418)	-	(1 525 418)
Depreciation	(270 011)	-	(270 011)
Other operating expenses	(328 926)	94 333	(234 593)
Operating profit	1 606 435	-	1 606 435
Tax on the Group's balance sheet items	(381 809)	44 531	(337 278)
Profit before income tax	1 224 626	44 531	1 269 157
Income tax expense	(375 123)	-	(375 123)
Net profit	849 503	44 531	894 034
Net profit attributable to:
- Owners of mBank S.A.	849 567	44 531	894 098
- Non-controlling interests	(64)	-	(64)
Earnings per share (in PLN)	20.07	1.05	21.12
Diluted earnings per share (in PLN)	20.06	1.05	21.11

Restatements in the consolidated statement of comprehensive income

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Net profit	849 503	44 531	894 034
Other comprehensive income net of tax	17 499	-	17 499
Total comprehensive income (net)	867 002	44 531	911 533
Total comprehensive income (net), attributable to:
- Owners of mBank S.A.	867 066	44 531	911 597
- Non-controlling interests	(64)	-	(64)

Restatement in the consolidated statement of financial position

ASSETS	30.09.2019 before restatement	Restatement	30.09.2019 after restatement
TOTAL ASSETS	158 774 045	-	158 774 045
LIABILITIES	30.09.2019 before restatement	Restatement	30.09.2019 after restatement
Provisions	443 723	(47 039)	396 684
Other liabilities	3 479 913	47 381	3 527 294
Other items of liabilities	138 759 701	-	138 759 701
TOTAL LIABILITIES	142 683 337	342	142 683 679
EQUITY
Equity attributable to Owners of mBank S.A.	16 088 688	(342)	16 088 346
Share capital	3 579 068	-	3 579 068
Retained earnings:	12 277 283	(342)	12 276 941
- Profit from the previous year	11 427 716	(44 873)	11 382 843
- Profit for the current year	849 567	44 531	894 098
Other components of equity	232 337	-	232 337
Non-controlling interests	2 020	-	2 020
TOTAL EQUITY	16 090 708	(342)	16 090 366
TOTAL LIABILITIES AND EQUITY	158 774 045	-	158 774 045

Restatement in the consolidated statement of cash flow

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Profit before income tax	1 224 626	44 531	1 269 157
Adjustments, including:	3 843 553	(44 531)	3 799 022
Changes in provisions	185 440	(47 039)	138 401
Changes in other liabilities	161 784	2 508	164 292
Other adjustments	3 496 329	-	3 496 329
A. Cash flows from operating activities	5 068 179	-	5 068 179
B. Cash flows from investing activities	(338 425)	-	(338 425)
C. Cash flows from financing activities	(2 697 974)	-	(2 697 974)
Net increase / decrease in cash and cash equivalents (A+B+C)	2 031 780	-	2 031 780
Effects of exchange rate changes on cash and cash equivalents	40 594	-	40 594
Cash and cash equivalents at the beginning of the reporting period	10 630 969	-	10 630 969
Cash and cash equivalents at the end of the reporting period	12 703 343	-	12 703 343

Stand-alone data of the Bank

Restatements in the income statement

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Interest income, including:	3 334 310	-	3 334 310
Interest income accounted for using the effective interest method	2 938 116	-	2 938 116
Income similar to interest on financial assets at fair value through profit or loss	396 194	-	396 194
Interest expenses	(684 047)	-	(684 047)
Net interest income	2 650 263	-	2 650 263
Fee and commission income	1 130 413	222 749	1 353 162
Fee and commission expenses	(471 900)	-	(471 900)
Net fee and commission income	658 513	222 749	881 262
Dividend income	320 024	-	320 024
Net trading income, including:	330 125	(222 749)	107 376
Foreign exchange result	289 303	(222 749)	66 554
Gains or losses on financial assets and liabilities held for trading	37 395	-	37 395
Gains or losses from hedge accounting	3 427	-	3 427
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	54 206	-	54 206
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates, including:	11 748	-	11 748
Gains less losses from debt securities measured at fair value through other comprehensive income	27 328	-	27 328
Gains less losses from investments in subsidiaries and associates	(112)	-	(112)
Gains less losses from derecognition	(15 468)	-	(15 468)
Other operating income	34 876	-	34 876
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	(485 130)	-	(485 130)
Result on provisions for legal risk related to foreign currency loans	-	(94 333)	(94 333)
Overhead costs	(1 369 428)	-	(1 369 428)
Depreciation	(239 520)	-	(239 520)
Other operating expenses	(231 934)	94 333	(137 601)
Operating profit	1 733 743	-	1 733 743
Tax on the Group's balance sheet items	(357 373)	44 531	(312 842)
Share in profits (losses) of entities under the equity method	(205 715)	-	(205 715)
Profit before income tax	1 170 655	44 531	1 215 186
Income tax expense	(340 646)	-	(340 646)
Net profit	830 009	44 531	874 540
Earnings per share (in PLN)	19.60	1.06	20.66
Diluted earnings per share (in PLN)	19.60	1.05	20.65

Restatements in the statement of comprehensive income

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Net profit	830 009	44 531	874 540
Other comprehensive income net of tax	57 562	-	57 562
Total comprehensive income (net)	887 571	44 531	932 102

Restatement in the statement of financial position

ASSETS	30.09.2019 before restatement	Restatement	30.09.2019 after restatement
TOTAL ASSETS	150 570 225	-	150 570 225
LIABILITIES	30.09.2019 before restatement	Restatement	30.09.2019 after restatement
Provisions	442 715	(47 039)	395 676
Other liabilities	2 884 657	47 381	2 932 038
Other items of liabilities	131 172 631	-	131 172 631
TOTAL LIABILITIES	134 500 003	342	134 500 345
EQUITY
Share capital	3 579 068	-	3 579 068
Retained earnings:	12 256 810	(342)	12 256 468
- Profit from the previous year	11 426 801	(44 873)	11 381 928
- Profit for the current year	830 009	44 531	874 540
Other components of equity	234 344	-	234 344
TOTAL EQUITY	16 070 222	(342)	16 069 880
TOTAL LIABILITIES AND EQUITY	150 570 225	-	150 570 225

Restatement in the statement of cash flow

	Period from 01.01.2019 to 30.09.2019 before restatement	Restatement	Period from 01.01.2019 to 30.09.2019 after restatement
Profit before income tax	1 170 655	44 531	1 215 186
Adjustments, including:	1 569 563	(44 531)	1 525 032
Changes in provisions	186 833	(47 039)	139 794
Changes in other liabilities	283 306	2 508	285 814
Other adjustments	1 099 424	-	1 099 424
A. Cash flows from operating activities	2 740 218	-	2 740 218
B. Cash flows from investing activities	94 082	-	94 082
C. Cash flows from financing activities	(896 761)	-	(896 761)
Net increase / decrease in cash and cash equivalents (A+B+C)	1 937 539	-	1 937 539
Effects of exchange rate changes on cash and cash equivalents	40 594	-	40 594
Cash and cash equivalents at the beginning of the reporting period	10 597 670	-	10 597 670
Cash and cash equivalents at the end of the reporting period	12 575 803	-	12 575 803

The above-mentioned changes in the comparative data have been included in these financial statements in all the notes to which these changes referred.

3. Major estimates and judgments made in connection with the application of accounting policy principles

The Group applies estimates and adopts assumptions which impact the values of assets and liabilities presented in the subsequent period. Estimates and assumptions, which are continuously subject to assessment, rely on historical experience and other factors, including expectations concerning future events, which seem justified under the given circumstances.

Impairment of loans and advances

The Group reviews its loan portfolio in terms of possible impairments at least once per quarter. In order to determine whether any impairment loss should be recognised in the income statement, the Group assesses whether any evidence exists that would indicate some measurable reduction of estimated future cash flow attached to the loan portfolio. The methodology and the assumptions (on the basis of which the estimated cash flow amounts and their anticipated timing are determined) are regularly verified. If the current value of estimated cash flows (discounted recoveries from payments of capital, discounted recoveries from interests, discounted recoveries from off-balance sheet liabilities and discounted recoveries from collaterals for on-balance and off-balance sheet loans and advances, weighed by the probability of realization of

mBank S.A. Group IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

specific scenarios) for portfolio of loans and advances which are impaired, change by +/-10%, the estimated loans and advances impairment would either decrease by PLN 65.9 million or increase by PLN 74.7 million as at 30 September 2020, respectively (as at 31 December 2019: PLN 49.7 million and PLN 59.4 million, respectively). This estimation was performed for portfolio of loans and advances and for off-balance sheet liabilities individually assessed for impairment on the basis of future cash flows due to repayments and recovery from collateral – stage 3. The rules of determining write-downs and provisions for impairment of credit exposures have been described under Note 3.3.6 to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020.

COVID-19 pandemic impact on the mBank Group activities

Support measures implemented in the Group as a result of the COVID-19 pandemic

In connection with the crisis caused by the COVID-19 pandemic, the Group offered its clients a number of assistance tools aimed at supporting them in a difficult situation resulting from the outbreak of the epidemic. The purpose of these tools was to help maintain the financial liquidity of customers by reducing the financial burden in the short term.

The supporting measures, offered by the Group until the end of September, were in line with the banks' position regarding the unification of the rules for offering supporting measures in the banking sector. This position was a non-legislative moratorium within the meaning of the European Banking Authority (EBA) guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis notified by the Polish Financial Supervision Authority to the European Banking Authority.

The moratorium covered supporting instruments granted from 13 March to 30 September 2020.

The moratorium offered by the Group in Retail Banking area enabled changes in the schedule of payments by suspending the payments of principal amounts or full instalments for the limited period up to 6 months, with the possibility of extending the loan period by the duration of the moratorium. Examination of applications that meet the conditions set by the moratorium took place in a simplified process, i.e. without the verification of the client's repayment ability. The application process was supported by the mechanism of automated verification of boundary conditions (i. a. no delay in payment of more than one instalment, no grace period in the last 12 months, at least 6-month repayment history). If the verification result was positive, the customer's request was automatically accepted. Customer requests that failed the automatic verification were subject to review by a credit analyst.

While deferring the repayment of the principal part of the loan instalment the sum of the principal amount remaining after the grace period was divided according to the algorithm (equal or decreasing instalments - according to the credit agreement) for the residual maturity period. The extension of the loan period translated into lower instalments after the grace period, than in case of the deferral without the extension. When suspending principal and interest payments, the mechanism for the capital was the same as for the capital repayment deferral, while the suspended interest parts of instalments were spread out proportionally over the outstanding period after the suspension period.

The supporting tools accessible within the moratorium apply to retail clients whose delay in capital or interest payments did not exceed 30 days at the date of submission of the support application and applied only to loans granted before 13 March 2020, which were not classified as default.

The Group offers to retail clients also support under so-called Crisis Shield 4.0, effective from 23 June 2020. The customers who lost their job or another major source of income after 13 March this year, have the right to suspend the loan repayment for up to 3 months without charging interest during the period of suspension of the agreement. This assistance tool is considered as a legislative moratorium within the meaning of the EBA guidelines. The scale of applications submitted for this form of assistance is currently not significant.

The moratorium offered by the Group in Corporate Banking enabled changes in the schedule of payments by suspending the payments of principal amounts for the limited period up to 6 months. In addition, small and medium-sized enterprises who are the Group's clients, had the possibility to suspend the repayment of full instalments for up to 3 months.

The amount of suspended principal part of instalments increased the last loan instalment. Concerning the suspension of both principal and interest part of instalments, the amount of suspended principal increased the last loan instalment, while the amount of suspended interest was added to subsequent interest instalments payable after the deferral period. In the case of commercial real estate financing transactions exceeding PLN 10 million, the repayment terms were negotiated individually.

The Group made available for the Corporate Banking clients also new financing aimed at stabilizing their liquidity situation, according to which collateral in the form of BGK (Bank Gospodarstwa Krajowego) guarantees is used. These guarantees do not constitute government subsidies as defined in IAS 20. A transaction secured with a BGK guarantee must meet the conditions defined in a specific portfolio guarantee line agreement signed between the Group and BGK. The BGK guarantee secures up to 80% of the exposure, but not more than the specified maximum level defined in the agreement. The Group may use the BGK guarantee in the first place in case of non-payment of a borrower. If the Group have used BGK guarantee, potential recoveries from the borrower are shared between mBank Group and BGK on a pari passu basis.

In accordance with the Group's internal regulations the moratorium applied to all corporate clients who as of 15th March 2020 were not classified as default. The moratorium applied only to loans granted before 8th March 2020. In addition, when granting assistance, the Group required maintaining collateral at least at the same level and limiting distribution to the owner.

The tables below present information on the scope of the moratoria applied in the Group and new financing covered by public guarantee programs (BGK) applied as a result of the outbreak of the COVID-19 pandemic.

	30.09.2020
	Number of obligors	Of which: granted
Moratoria	79 193	76 123
Government guarantees (BGK)	28	28

	30.09.2020
	Gross carrying amount of moratoria	Of which: subject to expired moratoria	Of which: subject to active moratoria	Accumulated impairment, accumulated negative changes in fair value due to credit risk of active moratoria	Net carrying amount of active moratoria
Moratoria	16 317 775	11 973 044	4 344 731	(70 941)	4 273 790
- Individual customers	7 024 934	5 963 862	1 061 072	(24 129)	1 036 943
- Corporate customers	9 292 841	6 009 182	3 283 659	(46 812)	3 236 847
Government guarantees (BGK)	284 484	-	284 484	(2 044)	282 440
- Individual customers	-	-	-	-	-
- Corporate customers	284 484	-	284 484	(2 044)	282 440

	Performing
	Gross carrying amount	Of which: exposures with forbearance measures	Of which: grace period of capital and interest	Of which: instruments with significant increase in credit risk since initial recognition but not credit-impaired (Stage 2)	Accumulated impairment
Moratoria	4 314 476	39 634	477 375	1 992 492	(66 430)
- Individual customers	1 052 463	4 845	289 013	597 221	(22 646)
- Corporate customers	3 262 013	34 789	188 362	1 395 271	(43 784)
Government guarantees (BGK)	284 484	-	-	24 902	(2 044)
- Individual customers	-	-	-	-	-
- Corporate customers	284 484	-	-	24 902	(2 044)

	Non-performing
	Gross carrying amount	Of which: exposures with forbearance measures	Of which: unlikely to pay that are not past-due or past-due <= 90 days	Accumulated impairment	Inflows to non-performing exposures
Moratoria	30 255	7 310	10 459	(4 511)	2 672
- Individual customers	8 609	1 765	4 914	(1 483)	2 467
- Corporate customers	21 646	5 545	5 545	(3 028)	205
Government guarantees (BGK)	-	-	-	-	-
- Individual customers	-	-	-	-	-
- Corporate customers	-	-	-	-	-

The vast majority of clients who had active moratoria as of 30 September 2020 received support only benefited from the suspension of the principal part of the instalment - around 89% of the total exposure covered by the moratoria. Consequently the customers are still obeyed to make repayments but in a lower amount. The delay in the interest payments is subject to the standard days-past-due calculation. Overdue interest payment exceeding 30 days results in the reclassification of exposure to stage 2 and exceeding 90 days - to stage 3.

Impact of the COVID-19 pandemic on the client's financial situation assessment process

In assessing the financial situation of corporate clients, the Group uses only individual assessment as the most appropriate and precise (the Group does not use a collective or sectorial approach).

The process of client and transaction risk monitoring takes into account the impact of the COVID-19 pandemic on the client's situation and the strength of the impact (i.e. temporary turbulence, long-term problem for the business model, etc.) as well as the plan to mitigate this impact implemented by the client. The Group conducts sector analysis of clients that have applied for moratorium. Among those clients, the largest balance sheet exposure as at 30 September 2020 is held by clients operating in the following sectors: real estate activities, transport and storage, accommodation and food service activities.

The client is placed on the Watch List (LW - list of clients under observation) based on standard criteria defined in the Group's internal regulations. With regard to clients who have submitted an application for assistance to the Group, the list of criteria classifying to LW has been extended by an additional, discretionary premise in respect of COVID-19. On the basis of this premise, a risk analyst may put the client on the LW if, according to his opinion, problems arising from a pandemic may have a long-term nature and after its termination the customer may not return to the financial situation allowing the settlement of his obligations. Other criteria of the placement on LW, defined in the Groups' credit regulations, also apply to customers who have received support from the Group in connection with Covid-19. Placing a customer on LW results in customer classification to stage 2.

In the scope of retail customers risk assessment, the borrowers with granted assistance tools in the form of moratorium are still subject to scoring approach in accordance with the standard risk assessment process.

Description of the forbearance classification approach applied in the Group in relation to COVID-19

According to the statement of the European Banking Authority on the prudential framework regarding Default, Forbearance and IFRS 9 in light of COVID-19 measures published on 25th March 2020, saying that the use of COVID-19 aid tools in the form of repayment moratorium, meeting the EBA guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis published on 2nd April 2020 does not automatically classify exposures to default and forbearance, as well as according to the UKNF (Polish Financial Supervision Authority) statement published as a part of the Supervisory Impulse Package for Security and Development that UKNF will apply a flexible approach to the application of EBA guidelines for unsupported and restructured exposures, the Group does not classify the granting of the moratoria due to the COVID-19 crisis as forbearance, with the exception of corporate clients, for whom there is applied an approach based on individual assessment whether classification of such client's exposure as forborne is required, in accordance with the Group's internal regulations.

Due to the deterioration of the economic situation in the country resulting from the COVID-19 epidemic, the Group has taken additional actions aimed at including this information in the expected credit losses. Due to the uncertainty caused by dynamic situation changes, the Group's activities were spread over time and in particular covered:

• 1. Review of sectors and individual clients of the corporate portfolio, in particular clients under observation, in order to verify the potential increase in the probability of failure to implement the restructuring plans, which was already carried out in March as the first activity of the Group as part of taking into account the impact of the epidemic on clients' financial situation.
• 1. Modification of the weight of macroeconomic scenarios, consisting in assigning a 100% weight to the pessimistic scenario, in the expected credit loss model, applied in the first quarter of 2020.
• 1. Updating models of the relationship between the long-term PD parameter and macroeconomic variables, based on historical data and the currently observed economic situation, in the second quarter of 2020.
• 1. Updating macroeconomic forecasts, taking into account the impact of COVID-19 and state aid actions, affecting long-term PD, EAD and LGD parameters, as well as the level of exposure allocation to stage 2, in particular by increasing the expected level of allocation for some portfolios due to the expected increase in the loss ratio, in the second quarter of 2020.
• 1. Restoration of macroeconomic scenario weights of 60% for the baseline scenario, 20% for the optimistic and 20% for the pessimistic respectively, in the expected credit loss model, while taking into account the current macroeconomic forecasts implemented directly in the risk parameters, in the second quarter of 2020

Due to the uncertainty related to the difficulties in observation of the timeliness of repayment of loans covered by moratoria, the Group also decided to reclassify, as at 30 September 2020, some of the retail clients covered by this form of support, selected on the basis of behavioral characteristics, to stage 2 despite no evidence of a significant increase of credit risk, which resulted in the recognition of additional cost of credit risk in the amount of PLN 42.4 million.

The change had an impact on exposure alocation to the stages. The share of stage 2 in the total exposure of the loan portfolio increased but its coverage with provisions decreased, which is a natural consequence of allocating to stage 2 exposures with a lower probability of default (lower PD).

The above-mentioned activities resulted in recognition of total additional cost of credit risk in the amount of PLN 242.5 million in the portfolio measured at amortized cost. In addition, these activities had an impact on the valuation of the loan portfolio at fair value through profit or loss, for which the Group recognized an additional cost of PLN 9.4 million.

Due to the fact that changes in risk parameters following the outbreak of the COVID-19 pandemic were implemented over a period of several months in a very dynamically changing macroeconomic environment, the Group decided to present the total value of their impact on 30 September 2020, as presented in the table below.

	30 September 2020
	Individual customers	Corporate customers	Total
Financial asset measured at amortized cost	122 431	120 049	242 480
Stage 1	3 060	3 013	6 073
Stage 2	104 173	35 974	140 147
Stage 3	15 198	81 062	96 260
Financial assets measured at fair value through profit or loss	9 414	-	9 414

As at 30 September 2020, the Group did not apply management corrections (overlays).

Since the last interim financial statement publication, i.e. from 30 June 2020, the Group has not modified the forecasts of future macroeconomic conditions, thus the Group does not identify any significant changes in the expectations of the future economic conditions that could significantly affect the estimates of expected credit losses.

The Group will continue to analyze the impact of COVID-19 and state aid programs on the result of the cost of credit risk in the upcoming quarters.

Provisions for legal risks

Provisions for legal proceedings are recognized for the value in dispute and other costs on each reporting date based on an estimate of the probability of loss. However, the Group's final liability may differ from the provisions that have been recognized, as a high degree of judgement is involved in assessing the probability of uncertain liabilities in such legal proceedings and quantifying them. These estimates may turn out to be inaccurate at a later stage of the proceedings.

The Group closely observes the developments in courts verdicts in legal proceedings regarding mortgage and housing loans in CHF, including impact of the Court of Justice of the European Union (CJEU) judgment described in point 26 Selected explanatory information "Proceedings before a court, arbitration body or public administration authority". As at 30 September 2020, the Group recognized a provision for individual court cases concerning indexation clauses in mortgage and housing loans in CHF in the amount of PLN 796 351 thousand (31 December 2019: PLN 417 653 thousand). This provision has been calculated in accordance with the calculation methodology implemented in 2019 based on the 'expected value' method allowed by the IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" in which the obligation is estimated by weighting all possible outcomes by their associated probabilities. The methodology applied by the Bank depends on numerous assumptions, all associated with the significant degree of expert judgement made by the Bank, among which the most important are: an expected population of borrowers who will file a lawsuit against the Bank, the probability of losing the case having final and binding judgement, the distribution of expected verdicts judged by the courts and the loss to be incurred by the Bank in case of a losing the case in court. The increase in the provision in the three quarters of 2020 comprises mostly of the effects of increase of probability of loss assumed in the calculation, the number of the projected cases, update of the assessment resulting in an increase of level of loss in case of losing the case by the Bank and change in the CHF / PLN exchange rate. The increase in the provision in the third quarter of 2020 alone resulted mainly from the changes in probability of loss assumed in the calculation as well as changes in assumptions regarding the number of the projected cases.

The population of borrowers who will file a lawsuit against the Bank has been projected for a period of 5 years (counting from 31 December 2019) based on the Bank's history of legal cases in the past and assumes a significant increase in inflow of new cases. The Bank assumes that vast majority of the projected cases will be filed within first 3 years. If the assumed number of inflowing cases changed by +/- 20% and all other relevant assumptions remained constant the amount of the provision would change by +/- PLN 52.1 million. The assumed population of borrowers has not changed in the first half of 2020. In the third quarter of 2020 the Bank increased the number of the cases by 13.7% when compared to 31 December 2019.

The probability of loss has been calculated using data from the Bank's history of final and binding positive and negative verdicts. Despite the prevailing number of negative final verdicts announced in the indexation clauses proceedings in 2020, approximately half of all final verdicts till 30 September 2020 was favourable to the Group. As the number of final verdicts is not statistically representative (too few binding verdicts have been issued by courts in cases related to mBank) the assumption of probability of loss takes also into account expert judgements by the Bank about the future trends in the court verdicts as well as anticipated verdicts of the Supreme Court and CJEU in CHF mortgage loans related proceedings. If the assumed probability of loss changed by +/- 10% and all other relevant assumptions remained constant the amount of the provision would change by +/- PLN 79.6 million. As a result of assessment of the assumptions by the Bank the probability of loss assumed in the calculation as of 30 September 2020 increased by 33.3% compared to 31 December 2019, out of which 16.7% in first half of 2020.

The methodology also takes into account the expected level of loss in case of losing the case by the Bank. The projected loss rate was calculated using the probabilities of different verdicts that may be issued. As currently there is still no homogenous line of verdicts taken by the courts in such cases the Bank took into account three possible losing scenarios of outcomes in legal proceedings: (i) the contract is partially invalid; the contract is not invalid, but the indexation mechanism is eliminated, which transforms a loan indexed to CHF into a PLN loan subject to the interest rate of the loan indexed to CHF, (ii) the contract is invalid in whole; the change in the contract resulting from deletion of the exchange rate norm (assuming that the norm defines the main subject matter of the contract) would be too far-reaching and (iii) the contract on a mortgage indexed to the CHF is not invalid and the loan remains a mortgage indexed to CHF; the gap should be filled by interpreting the contract based on a norm referring to the fixing rate of the NBP. Each of these scenarios is associated with a different level of predicted losses for the Bank. The Bank calculated the average level of loss weighted with the probabilities of occurrence of the given scenario in case of negative final and binding judgement. The probabilities of those scenarios applied by the Bank has been based on the assessment of the Bank consulted with the external legal advisor. If the assumed weighted average loss changed by +/- 5% and all other relevant assumptions remained constant the amount of the provision would change by +/- PLN 39.8 million. The weighted average loss assumed in the calculation as of 30 September 2020 increased by 16.2% compared to 31 December 2019. No changes in this assumption were implemented in the third quarter of 2020.

The method used to calculate the provision is based on parameters that are highly judgmental and with a high range of possible values. It is possible that the provision will have to be adjusted significantly in the future, particularly that important parameters used in calculations are interdependent.

Prepayments of retail loans

CJEU ruled on 11 September 2019 that in case concerning consumer loans paid off prematurely the consumer has the right to a reduction in the total cost of the loan in the event of early repayment of the credit. The interpretation constituted an answer to a prejudicial question asked in a court case in which few banks have participated including mBank.

The above ruling impacts consumer loans granted on 18 December 2011 or later, in the amount not exceeding 255 550 PLN or its equivalent in other currency and mortgage loans granted on 22 July 2017 or later with no limit of the loan amount, which have been paid off fully or partially.

As of 30 September 2020 the provision recorded within other provisions (Note 25) related to potential reimbursements of commissions in relation to early repayments of loans before the date of the verdict amounted to PLN 17.0 million (PLN 16.5 million as of 31 December 2019).

The total negative impact of early repayments of retail loans on the Group's three quarters 2020 gross profit amounted to PLN 40.6 million, of which PLN 36.5 million reduced net interest income and PLN 4.1 million increased other operating expenses.

The above estimates are burdened with significant uncertainty regarding the number of customers who will request the Bank to refund commissions regarding earlier repayments made by the CJEU verdict as well as the expected rate of loan prepayments in the future.

Fair value of derivatives and other financial instruments

The fair value of financial instruments not listed on active markets is determined by applying valuation techniques. All the models are approved prior to being applied and they are also calibrated in order to assure that the obtained results indeed reflect the actual data and comparable market prices. As far as possible, observable market data originating from an active market are used in the models. Methods for determining the fair value of financial instruments are described in Note 2.7 to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020.

Deferred tax assets

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profit will be available, against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.

Income tax in interim financial statements

Income tax in interim financial statements is accrued in accordance with IAS 34. Interim period tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period.

The calculation of the average annual effective income tax rate requires the use of a pre-tax income forecast for the entire fiscal year and permanent differences between the carrying amounts of assets and liabilities and their tax base. The projected annual effective tax rate used to calculate the income tax expense during the three quarters of 2020 was 54.9%.

Revenue and expenses from sale of insurance products bundled with loans

Revenue from sale of insurance products bundled with loans are split into interest income and fee and commission income based on the relative fair value analysis of each of these products.

The remuneration included in fee and commission income is recognised partly as upfront income and partly including deferring over time based on the analysis of the stage of completion of the service.

The Group leads in case of insurance policies bundled with loans to upfront recognition less than 10% of bancassurance income associated with cash and car loans and 0% to approximately 25% of bancassurance income associated with mortgage loans. Recognition of the remaining part of the income is spread over the economic life of the associated loans. Expenses directly linked to the sale of insurance products are recognised using the same pattern.

Liabilities due to post-employment employee benefits

The costs of post-employment employee benefits are determined using an actuarial valuation method. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and other factors. Due to the long–term nature of these programmes, such estimates are subject to significant uncertainty.

Leasing classification

The Group as lessor makes judgement classifying lease agreements as finance lease or operating lease based on the economic substance of the transaction basing on professional judgment whether substantially all the risk and rewards incidental to ownership of an asset were transferred or not.

The Group as a lessee makes certain estimates and calculations that have an impact on the valuation of lease liabilities and right-of-use assets. They include, among others: determination of the duration of contracts, determining the interest rate used to discount future cash flows and determination of the depreciation rate of right-of-use assets.

4. Business segments

Following the adoption of "management approach" of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Bank's Management Board (the chief operating decision-maker), which is responsible for allocating resources to the reportable segments and assesses their performance.

The classification by business segments is based on client groups and product groups defined by homogenous transaction characteristics. The classification is consistent with sales management and the philosophy of delivering complex products to the Bank's clients, including both standard banking products and more sophisticated investment products. The method of presentation of financial results coupled with the business management model ensures a constant focus on creating added value in relations with clients of the Bank and Group companies and should be seen as a primary division, which serves the purpose both managing and perceiving business within the Group.

The Group conducts its business through different business segments, which offer specific products and services targeted at specific client groups and market segments. The Group currently conducts its operations through the following business segments:

• ◼ The Retail Banking segment, which divides its customers into mBank customers and Private Banking customers and which offers a full range of the Bank's banking products and services as well as specialized products offered by a number of subsidiaries belonging to the Retail Banking segment. The key products in this segment include current and savings accounts (including accounts in foreign currencies), term deposits, lending products (retail mortgage loans and non-mortgage loans such as cash loans, car loans, overdrafts, credit cards and other loan products), debit cards, insurance products, investment products, brokerage and leasing services offered to both individual customers and to micro-businesses. The results of the Retail Banking segment include the results of foreign branches of mBank in the Czech Republic and Slovakia. The Retail Banking segment also includes the results of mFinanse S.A., LeaseLink Sp. z o.o. and mElements S.A. (since January 2020), as well as the results of retail segments of mLeasing Sp. z o.o., Asekum Sp. z o.o. and mBank Hipoteczny S.A.
• ◼ The Corporates and Financial Markets segment, which is divided into two sub-segments:
• ◼ Corporate and Investment Banking sub-segment (business line), which targets small, medium and large-sized companies and public sector entities. The key products offered to these customers include transactional banking products and services including current account products, multi-functional internet banking, tailor-made cash management and trade finance services, term deposits, foreign exchange transactions, a comprehensive offer of short-term financing and investment loans, crossborder credit, project finance, structured and mezzanine finance services, investment banking products including foreign exchange options, forward contracts, interest rate derivatives and commodity swaps and options, structured deposit products with embedded options (interest on structured deposit products are directly linked to the performance of certain underlying financial instruments such as foreign exchange options, interest rate options and stock options), debt origination for corporate clients, treasury bills and bonds, non-government debt, medium-term bonds, buy/sell back and sell/buy back transactions and repo transactions, as well as leasing, factoring and brokerage services. The Corporate and Investment Banking sub-segment includes the results of the following subsidiaries: mFaktoring S.A., Garbary Sp. z o.o., Tele-Tech Investment Sp. z o.o. as well as the results of corporate segments of mLeasing Sp. z o. o., Asekum Sp. z o.o. and mBank Hipoteczny S.A.
• ◼ Financial Markets sub-segment (business line) consists primarily of treasury, financial markets, and financial institutions operations, manages the liquidity, interest rate and foreign exchange risks of the Bank, its trading and investment portfolios, and conducts market making in PLN denominated cash and derivative instruments. The Bank also maintains an extensive correspondent banking network and also develops relationships with other banks providing products such as current accounts, overdrafts, stand alone and syndicated loans and loans insured by KUKE to support the Polish export market. This sub-segment also includes the results of mFinance France S.A. as well as the results of mLeasing Sp. z o.o and mBank Hipoteczny S.A. with regard to activities concerning funding.
• ◼ Operations which are not included in the Retail Banking segment and the Corporates and Financial Markets segment are reported under "Other". This segment includes the results of BDH Development Sp. z o.o., Future Tech Fundusz Inwestycyjny Zamknięty and mCentrum Operacji Sp. z o.o. w likwidacji until the date of liquidation of the company.

The principles of segment classification of the Group's activities are described below.

Transactions between the business segments are conducted on regular commercial terms.

Allocation of funds to the Group companies and assigning them to particular business segments results in funding cost transfers. Interest charged for these funds is based on the Group's weighted average cost of capital and presented in operating income.

Internal fund transfers between the Bank's units are calculated at transfer rates based on market rates. Transfer rates are determined on the same basis for all operating units of the Bank and their differentiation results only from currency and maturity structure of assets and liabilities. Internal settlements concerning internal valuation of funds transfers are reflected in the results of each segment.

Assets and liabilities of a business segment comprise operating assets and liabilities, which account for most of the statement of financial position, whereas they do not include such items as taxes or loans.

The separation of the assets and liabilities of a segment, as well as of its income and costs, is done on the basis of internal information prepared at the Bank for the purpose of management accounting. Assets and liabilities for which the units of the given segment are responsible as well as income and costs related to such assets and liabilities are attributed to individual business segments. The financial result of a business segment takes into account all the income and cost items attributable to it.

The business operations of particular companies of the Group are fully attributed to the appropriate business segments (including consolidation adjustments).

The primary basis used by the Group in the segment reporting is business line division. In addition, the Group's activity is presented by geographical areas reporting broken down into Poland and foreign countries because of the place of origin of income and expenses. Foreign countries segment includes activity of mBank's foreign branches in Czech Republic and Slovakia as well as activity of foreign subsidiary mFinance France S.A. The activity of the company mFinance France S.A., after the elimination of income and expenses and assets and liabilities related to the issue of bonds under the EMTN programme, is presented in the "Foreign countries" segment. The cost of the EMTN programme as well as the related assets and liabilities are presented in the segment "Poland".

In connection with the change in the key of allocation of income on capital since the beginning of 2020, the comparative data for the three quarters of 2019 regarding the interest result by business segment activities of mBank S.A. Group have been changed accordingly. The other changes result from adjustments to comparative data described in Note 2 in the item "Comparative data".

Business segment reporting on the activities of mBank S.A. Group for the period from 1 January to 30 September 2020 – data regarding consolidated income statement.

	Corporates & Financial Markets
	Corporate and Investment Banking	Financial Markets	Retail Banking	Other	Total figure for the Group
Net interest income	809 909	164 269	2 049 084	9 108	3 032 370
- sales to external clients	814 166	551 103	1 665 668	1 433	3 032 370
- sales to other segments	(4 257)	(386 834)	383 416	7 675	-
Net fee and commission income	564 957	(10 680)	560 855	(16 318)	1 098 814
Dividend income	-	-	-	4 789	4 789
Trading income	53 143	64 662	26 410	(1 714)	142 501
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	(1 607)	-	(34 283)	1 572	(34 318)
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	(6 323)	12 707	(807)	(4 056)	1 521
Other operating income	98 918	381	61 762	4 132	165 193
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	(476 099)	925	(497 197)	2 419	(969 952)
Result on provisions for legal risk related to foreign currency loans	-	-	(388 734)	-	(388 734)
Overhead costs	(536 969)	(75 581)	(934 390)	(5 472)	(1 552 412)
Amortisation	(93 371)	(13 076)	(214 484)	(1 206)	(322 137)
Other operating expenses	(78 255)	(46)	(61 414)	(16 979)	(156 694)
Operating profit	334 303	143 561	566 802	(23 725)	1 020 941
Taxes on Group balance sheet items	(133 073)	(64 912)	(201 502)	(4 125)	(403 612)
Gross profit of the segment	201 230	78 649	365 300	(27 850)	617 329
Income tax					(338 882)
Net profit attributable to Owners of mBank S.A.					278 513
Net profit attributable to non-controlling interests					(66)

Business segment reporting on the activities of mBank S.A. Group - data regarding consolidated statement of financial position

30.09.2020	Corporates & Financial Markets
	Corporate and Investment Banking	Financial Markets	Retail Banking	Other	Total figure for the Group
Assets of the segment	43 736 150	66 766 800	69 525 974	2 117 833	182 146 757
Liabilities of the segment	45 344 250	23 949 251	94 235 794	1 647 819	165 177 114

31.12.2019	Corporates & Financial Markets
	Corporate and Investment Banking	Financial Markets	Retail Banking	Other	Total figure for the Group
Assets of the segment	44 805 002	46 845 014	64 989 636	2 080 931	158 720 583
Liabilities of the segment	35 685 057	25 498 967	79 052 093	2 331 161	142 567 278

Business segment reporting on the activities of mBank S.A. Group for the period from 1 January to 30 September 2019 – data regarding consolidated income statement

		Corporates & Financial Markets
	Corporate and Investment Banking	Financial Markets	Retail Banking	Other	Total figure for the Group
Net interest income	786 200	159 846	2 035 497	10 728	2 992 271
- sales to external clients	793 809	545 385	1 651 612	1 465	2 992 271
- sales to other segments	(7 609)	(385 539)	383 885	9 263	-
Net fee and commission income	527 720	(10 852)	421 386	(12 385)	925 869
Dividend income	-	-	-	3 949	3 949
Trading income	53 312	27 673	27 837	(3 409)	105 413
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	(797)	-	21 701	29 933	50 837
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	1 301	26 590	(129)	(4 921)	22 841
Other operating income	65 364	51	55 354	55 221	175 990
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	(199 454)	992	(347 132)	(786)	(546 380)
Result on provisions for legal risk related to foreign currency loans	-	-	(94 333)	-	(94 333)
Overhead costs	(552 312)	(68 442)	(898 870)	(5 794)	(1 525 418)
Amortisation	(77 369)	(8 878)	(185 799)	2 035	(270 011)
Other operating expenses	(50 053)	(1 062)	(74 371)	(109 107)	(234 593)
Operating profit	553 912	125 918	961 141	(34 536)	1 606 435
Taxes on Group balance sheet items	(129 693)	(24 829)	(176 505)	(6 251)	(337 278)
Gross profit of the segment	424 219	101 089	784 636	(40 787)	1 269 157
Income tax					(375 123)
Net profit attributable to Owners of mBank S.A.					894 098
Net profit attributable to non-controlling interests					(64)

Information about geographical areas on the activities of mBank S.A. Group for the period from 1 January to 30 September 2020 and for the period from 1 January to 30 September 2019

	from 1 January to 30 September 2020		from 1 January to 30 September 2019
	Poland	Foreign Countries	Total	Poland	Foreign Countries	Total
Net interest income	2 831 324	201 046	3 032 370	2 810 820	181 451	2 992 271
Net fee and commission income	1 087 735	11 079	1 098 814	912 980	12 889	925 869
Dividend income	4 789	-	4 789	3 949	-	3 949
Trading income	141 425	1 076	142 501	100 656	4 757	105 413
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	(34 318)	-	(34 318)	50 837	-	50 837
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	1 497	24	1 521	22 841	-	22 841
Other operating income	162 514	2 679	165 193	170 962	5 028	175 990
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	(976 877)	6 925	(969 952)	(537 668)	(8 712)	(546 380)
Result on provisions for legal risk related to foreign currency loans	(388 734)	-	(388 734)	(94 333)	-	(94 333)
Overhead costs	(1 448 875)	(103 537)	(1 552 412)	(1 430 545)	(94 873)	(1 525 418)
Amortisation	(311 537)	(10 600)	(322 137)	(260 249)	(9 762)	(270 011)
Other operating expenses	(154 965)	(1 729)	(156 694)	(231 475)	(3 118)	(234 593)
Operating profit	913 978	106 963	1 020 941	1 518 775	87 660	1 606 435
Taxes on Group balance sheet items	(379 130)	(24 482)	(403 612)	(317 719)	(19 559)	(337 278)
Gross profit of the segment	534 848	82 481	617 329	1 201 056	68 101	1 269 157
Income tax			(338 882)			(375 123)
Net profit attributable to Owners of mBank S.A.			278 513			894 098
Net profit attributable to non-controlling interests			(66)			(64)

Information about geographical areas on the activities of mBank S.A. Group as at 30 September 2020 and as at 31 December 2019

	30.09.2020			31.12.2019
	Poland	Foreign Countries	Total	Poland	Foreign Countries	Total
Assets of the segment, including:	170 066 954	12 079 803	182 146 757	149 957 094	8 763 489	158 720 583
- tangible assets	2 194 287	32 886	2 227 173	2 188 996	39 492	2 228 488
- deferred income tax assets	817 933	2 363	820 296	935 335	2 377	937 712
Liabilities of the segment	152 609 707	12 567 407	165 177 114	131 757 088	10 810 190	142 567 278

5. Net interest income

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Interest income
Interest income accounted for using the effective interest method	3 270 035	3 365 776
Interest income of financial assets at amortised cost, including:	2 971 275	3 004 292
- Loans and advances	2 761 744	2 793 965
- Debt securities	197 136	169 002
- Cash and short-term placements	19 927	42 175
- Other	(7 532)	(850)
Interest income on financial assets at fair value through other comprehensive income	298 760	361 484
- Debt securities	298 760	361 484
Income similar to interest on financial assets at fair value through profit or loss, including:	355 083	429 741
Financial assets held for trading	28 445	42 896
- Loans and advances	4 207	3 035
- Debt securities	24 238	39 861
Non-trading financial assets mandatorily at fair value through profit or loss, including:	77 730	148 598
- Loans and advances	77 730	148 598
Interest income on derivatives classified into banking book	99 170	142 042
Interest income on derivatives concluded under the fair value hedge	60 796	55 576
Interest income on derivatives concluded under the cash flow hedge	88 942	40 629
Total interest income	3 625 118	3 795 517

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Interest expenses
Financial liabilities measured at amortised cost, including:	(578 289)	(795 560)
- Deposits	(326 187)	(494 441)
- Loans received	(7 375)	(10 497)
- Issue of debt securities	(184 474)	(224 280)
- Subordinated liabilities	(53 921)	(56 985)
- Lease liabilities	(1 859)	(2 014)
- Other financial liabilities	(4 473)	(7 343)
Other	(14 459)	(7 686)
Total interest expense	(592 748)	(803 246)

The item "Other" in the part concerning interest income accounted for using the effective interest method includes the result on insignificant modification of financial assets.

6. Net fee and commission income

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Fee and commission income
Payment cards-related fees	327 928	314 632
Credit-related fees and commissions	340 348	306 448
Commissions from currency transactions	244 348	222 749
Commissions from bank accounts	157 024	155 034
Commissions from money transfers	107 585	107 620
Commissions for agency service regarding sale of insurance products of external financial entities	84 703	74 324
Fees from brokerage activity and debt securities issue	147 861	65 245
Commissions due to guarantees granted and trade finance commissions	70 734	69 309
Commissions for agency service regarding sale of other products of external financial entities	54 845	57 970
Commissions on trust and fiduciary activities	23 886	19 943
Fees from portfolio management services and other management-related fees	9 641	9 952
Fees from cash services	32 383	36 703
Other	32 143	29 163
Fee and commission income	1 633 429	1 469 092

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Fee and commission expense
Payment cards-related fees	(164 519)	(181 980)
Commissions paid to external entities for sale of the Group's products	(131 000)	(140 856)
Commissions of insurance products	(9 156)	(7 342)
Commissions paid for sale of external financial entities	(15 486)	(15 876)
Discharged brokerage fees	(28 511)	(22 122)
Costs for cash services	(30 501)	(30 140)
Fees to NBP and KIR	(10 655)	(10 035)
Other discharged fees	(144 787)	(134 872)
Total fee and commission expense	(534 615)	(543 223)

7. Dividend income

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Financial assets at fair value through profit and loss	4 789	3 949
Total dividend income	4 789	3 949

8. Net trading income

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Foreign exchange result	40 286	70 053
Net exchange differences on translation	(146 723)	(2 092)
Net transaction gains/(losses)	187 009	72 145
Gains or losses on financial assets and liabilities held for trading	103 080	27 616
Derivatives, including:	52 136	1 877
- Interest-bearing instruments	43 688	(3 142)
- Market risk instruments	8 448	5 019
Debt securities	54 732	26 339
Loans and advances	(3 788)	(600)
Gains or losses from hedge accounting	(865)	7 744
Net profit on hedged items	(104 102)	(211 525)
Net profit on fair value hedging instruments	101 619	219 054
Ineffective portion of cash flow hedge	1 618	215
Net trading income	142 501	105 413

The foreign exchange result includes profit/(loss) on forward contracts, options, futures and recalculated assets and liabilities denominated in foreign currencies. The result on derivative transactions of interestbearing instruments includes the result of swap contracts for interest rates, options and other derivatives. The result of the market risk instruments operations include profit/(loss) on: bond futures, index futures, security options, stock exchange index options, and options on futures contracts as well as the result from securities forward transactions and commodity swaps. The result on equity instruments operations includes the valuation and result on trading in equity securities held for trading.

The Group applies fair value hedge accounting and cash flow hedge accounting. Detailed information on hedge accounting are included in Note 16 "Financial assets held for trading and hedging derivatives".

9. Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Equity instruments	21 148	57 559
Debt securities	4 797	65 819
Loans and advances	(60 263)	(72 541)
Total gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	(34 318)	50 837

In September 2020, Visa converted half of the value of the Series C Preference Shares (disclosed in the financial statements as debt securities). As a result of the conversion, the Bank received Series A Preferred Stock, which will be automatically converted into Class A Common Stock upon sale in the proportion of 1 Series A Preferred Stock per 100 Class A Common Stock shares. The Bank still held series C preferred shares, but their value on the conversion date was reduced by 50%.

Due to the conversion, the Group recognized a profit in the amount of PLN 19 577 thousand in the Equity instruments item, resulting from the valuation of series A preferred shares. The item Debt securities in both periods includes the valuation of series C preferred shares.

In 2019, under Equity instruments, the Group recognized a profit of PLN 45 058 thousand, resulting from the revaluation of Polski Standard Płatności Sp. z o.o., made in connection with the commencement of strategic cooperation with Mastercard.

10. Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Gains less losses related to sale of debt securities measured at fair value through other comprehensive income	(246)	27 328
Gains less losses related to sale and revaluation of investments in subsidiaries and associates	(2 967)	(4 921)
Gains less losses from derecognition, including:	4 734	434
- Financial assets at amortised cost	(3 625)	434
- Financial liabilities at amortised cost	8 359	-
Gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates	1 521	22 841

11. Other operating income

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Income from sale or liquidation of fixed assets, intangible assets, assets held for sale and inventories	77 455	110 214
Income from services provided	7 780	8 582
Net income from operating lease and right-of-use assets in sublease	2 358	1 933
Income due to release of provisions for future commitments	23 077	12 051
Income from recovering receivables designated previously as prescribed, remitted or uncollectible	3 030	1 992
Income from compensations, penalties and fines received	698	459
Net revenues from the sale of an organised part of the company mFinanse S.A.	18 000	20 000
Other	32 795	20 759
Total other operating income	165 193	175 990

Income from services provided is earned on non-banking activities.

Net revenues from the sale of an organised part of the company mFinanse S.A. concern to the transaction described in detail in Note 12 of the Consolidated Financial Statements of mBank S.A. Group for 2019 published on 28 February 2020.

Net income from operating lease consists of income from operating lease and right-of-use in sublease and related depreciation cost of fixed asset provided by the Group under operating lease and right-of-use in sublease, incurred to obtain revenue.

Net income from operating lease and right-of-use assets in sublease generated for the three quarters of 2020 and for the three quarters of 2019 is presented below.

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Net income from operating lease and right-of-use assets in sublease, including:
- Income from operating lease	24 428	32 705
- Income from right-of-use assets in sublease	4 868	5 691
- Depreciation cost of fixed assets provided under operating lease and right-of-use assets in sublease	(26 938)	(36 463)
Total net income from operating lease and right-of-use assets in sublease	2 358	1 933

12. Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Financial assets at amortised cost, including:	(929 294)	(528 018)
- Debt securities	(1)	9
Stage 1	(1)	9
- Loans and advances	(929 293)	(528 027)
Stage 1	22 020	(101 769)
Stage 2	(167 243)	(70 954)
Stage 3	(789 681)	(359 149)
POCI	5 611	3 845
Financial assets at fair value through other comprehensive income	871	(296)
- Debt securities	871	(296)
Stage 1	664	472
Stage 2	207	(768)
Commitments and guarantees given	(41 529)	(18 066)
Stage 1	(6 253)	178
Stage 2	(9 747)	(4 370)
Stage 3	(25 708)	(11 426)
POCI	179	(2 448)
Net impairment losses on financial assets not measured at fair value through profit or loss	(969 952)	(546 380)

13. Overhead costs

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Staff-related expenses	(752 013)	(769 813)
Material costs, including:	(507 932)	(485 892)
- costs of administration and real estate services	(187 149)	(198 243)
- IT costs	(138 550)	(126 617)
- marketing costs	(91 618)	(102 235)
- consulting costs	(79 197)	(50 280)
- other material costs	(11 418)	(8 517)
Taxes and fees	(19 651)	(22 524)
Contributions and transfers to the Bank Guarantee Fund	(263 654)	(240 862)
Contributions to the Social Benefits Fund	(9 162)	(6 327)
Total overhead costs	(1 552 412)	(1 525 418)

Staff-related expenses for the three quarters of 2020 and for the three quarters of 2019 is presented below.

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Wages and salaries	(610 363)	(622 159)
Social security expenses	(106 650)	(107 768)
Remuneration concerning share-based payments, including:	(5 230)	(8 042)
- share-based payments settled in mBank S.A. shares	(5 173)	(7 562)
- cash-settled share-based payments	(57)	(480)
Other staff expenses	(29 770)	(31 844)
Staff-related expenses, total	(752 013)	(769 813)

14. Other operating expenses

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Costs arising from sale or liquidation of fixed assets, intangible assets, assets held for resale and inventories	(75 198)	(93 554)
Provisions for future commitments	(17 319)	(49 034)
Costs arising from provisions created for other receivables (excluding loans and advances)	(746)	(233)
Donations made	(3 106)	(2 606)
Costs of sale of services	-	(275)
Compensation, penalties and fines paid	(1 088)	(2 214)
Costs arising from receivables and liabilities recognised as prescribed, remitted and uncollectible	(3)	(9)
Debt collection expenses	(29 799)	(20 275)
Other operating costs	(29 435)	(66 393)
Total other operating expenses	(156 694)	(234 593)

The item "Costs arising from sale or liquidation of fixed assets, intangible assets, assets held for resale and inventories" includes mainly the costs of mLeasing Sp. z o. o. from the sale of leasing items.

Costs of services provided concern non-banking services.

15. Earnings per share

Earnings per share for 9 months– mBank S.A. Group consolidated data

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Basic:
Net profit attributable to Owners of mBank S.A.	278 513	894 098
Weighted average number of ordinary shares	42 352 256	42 337 276
Net basic profit per share (in PLN per share)	6.58	21.12
Diluted:
Net profit attributable to Owners of mBank S.A., applied for calculation of diluted earnings per share	278 513	894 098
Weighted average number of ordinary shares	42 352 256	42 337 276
Adjustments for:
- share options	21 983	19 252
Weighted average number of ordinary shares for calculation of diluted earnings per share	42 374 239	42 356 528
Diluted earnings per share (in PLN per share)	6.57	21.11

Earnings per share for 9 months – mBank S.A. stand-alone data

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Basic:
Net profit	263 629	874 540
Weighted average number of ordinary shares	42 352 256	42 337 276
Net basic profit per share (in PLN per share)	6.22	20.66
Diluted:
Net profit attributable applied for calculation of diluted earnings per share	263 629	874 540
Weighted average number of ordinary shares	42 352 256	42 337 276
Adjustments for:
- share options	21 983	19 252
Weighted average number of ordinary shares for calculation of diluted earnings per share	42 374 239	42 356 528
Diluted earnings per share (in PLN per share)	6.22	20.65

16. Financial assets held for trading and derivatives held for hedges

	30.09.2020	31.12.2019
Derivatives, including:	1 488 869	959 776
- Held for trading derivative financial instruments classified into banking book	166 935	138 882
- Held for trading derivative financial instruments classified into trading book	1 415 678	877 926
- Derivative financial instruments held for fair value hedging	354 079	230 937
- Derivative financial instruments held for cash flow hedging	794 535	273 282
- Offsetting effect	(1 242 358)	(561 251)
Debt securities	678 604	1 733 569
- General governments, including:	405 495	1 330 541
pledged securities	32 018	162 038
- Credit institutions	85 612	170 953
- Other financial corporations	73 098	122 429
- Non-financial corporations	114 399	109 646
Loans and advances	186 432	172 689
- Corporate customers	186 432	172 689
Total financial assets held for trading	2 353 905	2 866 034

The above note includes government bonds and treasury bills subject to pledge in sell/buy back transactions.

Derivative financial instruments

The Group has the following types of derivative instruments:

Forward currency transactions represent commitments to purchase foreign and local currencies, including outstanding spot transactions. Futures for currencies and interest rates are contractual commitments to receive or pay a specific net value, depending on currency rate of exchange or interest rate variations, or to buy or sell a foreign currency or a financial instrument on a specified future date for a fixed price established on the organised financial market. Because futures contracts are collateralised with fair-valued cash or securities and the changes of the face value of such contracts are accounted for daily in reference to stock exchange quotations, the credit risk is marginal.

FRA contracts are similar to futures except that each FRA is negotiated individually and each requires payment on a specific future date of the difference between the interest rate set in the agreement and the current market rate on the basis of theoretical amount of capital.

Currency and interest rate swap contracts are commitments to exchange one cash flow for another cash flow. Such a transaction results in swap of currencies or interest rates (e.g., fixed to variable interest rate) or combination of all these factors (e.g., cross-currency CIRS). With the exception of specific currency swap contracts, such transactions do not result in swaps of capital. The credit risk of the Group consists of the potential cost of replacing swap contracts if the parties fail to discharge their liabilities. This risk is monitored daily by reference to the current fair value, proportion of the face value of the contracts and market liquidity. The Group evaluates the parties to such contracts using the same methods as for its credit business, to control the level of its credit exposure.

Currency and interest rate options are agreements, pursuant to which the selling party grants the buying party the right, but not an obligation, to purchase (call option) or sell (put option) a specific quantity of a foreign currency or a financial instrument at a predefined price on or by a specific date or within an agreed period. In return for accepting currency or interest rate risk, the buyer offers the seller a premium. An option can be either a public instrument traded at a stock exchange or a private instrument negotiated between the Group and a customer (private transaction). The Group is exposed to credit risk related to purchased options only up to the balance sheet value of such options, i.e. the fair value of the options.

Market risk transactions include futures contracts as well as commodity options, stock options and index options.

Face values of certain types of financial instruments provide a basis for comparing them to instruments disclosed in the statement of financial position but they may not be indicative of the value of the future cash flows or of the present fair value of such instruments. For this reason, the face values do not indicate the level of the Group's exposure to credit risk or price change risk. Derivative instruments can have positive value (assets) or negative value (liabilities), depending on market interest or currency exchange rate fluctuations. The aggregate fair value of derivative financial instruments may be subject to strong variations.

Hedge accounting

The Group applies fair value hedge accounting and cash flow hedge accounting. Detailed information on hedge accounting are presented in these Note below.

In accordance with the IFRS9 provisions, only on the day of initial application the Bank had the opportunity to choose as its accounting policy element to continue to apply the IAS 39 hedge accounting requirements instead of the IFRS 9 requirements.

IFRS 9 requires the Bank to ensure that its hedging relationships are compliant with the risk management strategy applied by the Bank and its objectives. IFRS 9 introduces new requirements with regard to the assessment of hedge effectiveness, rebalancing of the hedge relationship as well as it prohibits voluntary discontinuation of hedge accounting (i.e. in the absence of the conditions to stop the application of hedge accounting, as defined in the standard).

The Group decided to continue from 1 January 2018, to apply the hedge accounting requirements in accordance with IAS 39.

The Group determines the hedge ratio based on the nominal value of the hedged item and hedging instrument and it is 1:1 except for mortgage bonds issued by mBank Hipoteczny (mBH) at mBank Group hedging relationship, for which the hedged ratio was determined based on BPV (Basis Point Value).

The sources of hedge ineffectiveness for hedging relationships for which the ineffectiveness arises include mismatch of cash flow dates and repricing periods, base mismatch (e.g. another WIBOR), nominal mismatch in case when the hedge ratio is different than 1:1, CVA/DVA mismatch which is in hedging instrument and is not in hedged instrument and mismatch due to initial valuation of hedging instruments if a previously acquired derivative was included in hedging relationship.

Fair value hedge accounting

The Group applies fair value hedge accounting, under which the only kind of hedged risk is the risk of changes in interest rates.

At the end of each month, the Group evaluates effectiveness of the applied hedging by carrying out analysis of changes in fair value of the hedged and hedging instruments in respect of the hedged risk in order to confirm that hedging relationships are effective in accordance with the accounting policy described in Note 2.13. to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020.

Description of the hedging relation

The Group hedges against the risk of change in fair value:

• ◼ fixed interest rate eurobonds issued by mFinance France S.A. (mFF), subsidiary of mBank. The hedged risk results from changes in interest rates;
• ◼ mortgage bonds issued by mBank Hipoteczny (mBH), a subsidiary of mBank. The hedged risk results from changes in interest rates;
• ◼ loans received by mBank from European Investment Bank. The hedged risk results from changes in interest rates;
• ◼ fixed interest bonds issued by mBank. The hedged risk results from changes in interest rates,
• ◼ part of the fixed interest rate mortgage portfolio granted by mBank's foreign branch in the Czech Republic. The hedged risk results from changes in interest rates,
• ◼ part of the portfolio of deposits modelled by the Bank in PLN with economic characteristics of fixedrate deposits. The hedged risk results from changes in interest rates.

Hedged items

The hedged items are:

• ◼ one tranche of fixed interest rate eurobonds issued by mFF with a total nominal value of EUR 427 583 thousand,
• ◼ one tranche of fixed interest rate eurobonds issued by mFF with a total nominal value of CHF 200 000 thousand,
• ◼ fixed interest rate mortgage bonds issued by mBH with a nominal value of EUR 546 900 thousand,
• ◼ fixed interest rate loans received by mBank from European Investment Bank with a nominal value of respectively EUR 100 000 thousand, CHF 113 110 thousand, CHF 175 560 thousand and CHF 138 388 thousand,
• ◼ fixed rate bonds issued by mBank S.A. with a nominal value of CHF 305 000 thousand,
• ◼ fixed rate bonds issued by mBank S.A. with a nominal value of EUR 460 030 thousand,
• ◼ part of the fixed interest rate mortgage portfolio, denominated in CZK, granted by mBank's foreign branch in the Czech Republic,
• ◼ part of the portfolio of deposits modelled by the Bank in PLN with economic characteristics of fixedrate deposits.

Hedging instruments

IRS is the hedging instrument swapping the fixed interest rate for a variable interest rate.

Presentation of the result from hedged and hedging transactions

Fair value adjustment of the hedged assets and liabilities as well as valuation of the hedging instruments are recognised in the income statement as trading income, with the exception of interest income and costs of the interest element of the valuation of hedging instruments, which are presented in the item Interest income / expense on derivatives concluded under the fair value hedge.

The total results of fair value hedge accounting recognised in the income statement

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Interest income on derivatives concluded under the fair value hedge accounting (Note 5)	60 796	55 576
Net profit on hedged items (Note 8)	(104 102)	(211 525)
Net profit on fair value hedging instruments (Note 8)	101 619	219 054
The total results of fair value hedge accounting recognised in the income statement	58 313	63 105

Cash flow hedge accounting

▪ cash flow hedge accounting of the part of loans at a variable interest rate indexed to the market rate portfolio, granted by the Bank

The Group applies cash flow hedge accounting of the part of loans at a variable interest rate indexed to the market rate portfolio, granted by the Bank. An Interest Rate Swap is the hedging instrument changing the variable interest rate to a fixed interest rate. The interest rate risk is the hedged risk within applied by the Group cash flow hedge accounting. The ineffective portion of the gains or losses on the hedging instrument is presented in Note 8 in the position "Other net trading income and result on hedge accounting". Portion of the gains or losses on the hedging instrument that is an effective hedge, is presented in the statement of comprehensive income as "Cash flow hedges (net)".

The period from October 2020 to August 2029 is the period in which the cash flows are expected, and when they are expected to have an impact on the result.

▪ cash flow hedges in relation to mortgage loans and mortgage bonds issued by mBank Hipoteczny

The Group applies hedge accounting in relation to mortgage loans and mortgage bonds issued by mBank Hipoteczny. The purpose of the hedging strategy is to eliminate the risk of volatility of cash flows generated by mortgage loans in PLN due to changes in reference interest rates and mortgage bonds denominated in a convertible currency due to exchange rate changes using currency interest rate swaps (CIRS).

As part of hedge accounting, the Group designates a hedged item consisting of:

• ➢ parts of the portfolio of housing loans for retail customers entered in the collateral register for mortgage covered bonds, denominated in PLN with an interest rate indexed to 3M WIBOR, the loan margin is excluded from collateral;
• ➢ mortgage bonds issued by the Bank in EUR with a fixed interest rate

As hedging instruments, the Group uses CIRS derivative transactions in which, as a party to the transaction, it pays variable interest flows in PLN increased by a margin and receives fixed interest rates in EUR and the denominations are exchanged at the beginning and at the end of the transaction. As transactions concluded by a mortgage bank, CIRS transactions are subject to entry in the register of covered bond collateral. In addition, if the bank's bankruptcy is announced by the court, it will not be immediately terminated, it will last until the end of the original maturity on the conditions specified on the date of the transaction (they will not be extended beyond the original maturity).

The Group hedges the interest rate risk and currency risk within one economic relationship between the concluded CIRS transactions and part of the loan portfolio in PLN and mortgage bonds financing them in EUR. For the purposes of cash flow hedge accounting, the Group simultaneously establishes two hedging relationships:

• ➢ by decomposing the part of the actual CIRS transaction securing the portfolio of loans in PLN with a variable interest rate (hedging against interest rate risk) and
• ➢ by decomposing the actual portion of the CIRS transaction securing the liability in EUR (protection against currency risk).

For the purpose of calculating changes in the fair value of future cash flows of items being hedged, the Group uses the "hypothetical derivative" method, which assumes the possibility of reflecting the hedged item and the characteristics of the risk being hedged in the form of a derivative. The valuation principles are analogous to the principles for the valuation of interest rate derivatives.

In the case of established relationships, the period in which cash flows are expected and when they should be expected to influence the results is the period from October 2020 to September 2025.

The following note presents other comprehensive income due to cash flow hedges for the three quarters of 2020 and for the three quarters of 2019.

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Other gross comprehensive income from cash flow hedge at the beginning of the period	147 088	103 263
Unrealised gains/losses included in other gross comprehensive income during the reporting period	606 914	135 264
Profits / (Losses) recognized in other comprehensive income in the period	(169 432)	(40 629)
- net interest income	(88 942)	(40 629)
- foreign exchange result	(80 490)	-
Accumulated other gross comprehensive income at the end of the reporting period	584 570	197 898
Deferred income tax on accumulated other comprehensive income at the end of the reporting period	(111 068)	(37 601)
Accumulated other net comprehensive income at the end of the reporting period	473 502	160 297
Impact on other comprehensive income in the reporting period (gross)	437 482	94 635
Deferred tax on cash flow hedges	(83 122)	(17 981)
Impact on other comprehensive income in the reporting period (net)	354 360	76 654

the period	from 01.01.2020 to 30.09.2020	from 01.01.2019 to 30.09.2019
Gains/losses recognised in comprehensive income (gross) during the reporting period, including:
Unrealised gains/losses included in other comprehensive income (gross)	437 482	94 635
Results of cash flow hedge accounting recognised in the income statement	171 050	40 844
- amount included as interest income in income statement during the reporting period (Note 5)	88 942	40 629
- ineffective portion of hedge recognised included in other net trading income in income statement (Note 8)	1 618	215
- foreign exchange result	80 490	-
Impact on other comprehensive income in the reporting period (gross)	608 532	135 479

17. Non-trading financial assets mandatorily at fair value through profit or loss

	30.09.2020	31.12.2019
Equity instruments	252 397	162 616
- Other financial corporations	180 729	106 250
- Non-financial corporations	71 668	56 366
Debt securities	71 615	133 774
- Other financial corporations	71 615	133 774
Loans and advances to customers	1 595 034	1 971 532
- Individual customers	1 325 443	1 685 799
- Corporate customers	267 560	279 062
- Public sector customers	2 031	6 671
Total non-trading financial assets mandatorily at fair value through profit or loss	1 919 046	2 267 922
Short-term (up to 1 year)	1 157 820	1 382 155
Long-term (over 1 year)	761 226	885 767

18. Financial assets at fair value through other comprehensive income

				Gross carrying amount		Accumulated impairment
30.09.2020	Carrying amount	Stage 1	Stage 2	Stage 3	POCI	Stage 1	Stage 2	Stage 3	POCI
Debt securities	35 484 841	35 419 689	68 654	-	-	(2 589)	(913)	-	-
- Central banks	999 997	999 997	-	-	-	-	-	-	-
- General governments, including:	32 485 072	32 485 161	-	-	-	(89)	-	-	-
pledged securities	1 234 708	1 234 708	-	-	-	-	-	-	-
- Credit institutions	186 806	186 996	-	-	-	(190)	-	-	-
- Other financial institutions	1 349 592	1 350 799	-	-	-	(1 207)	-	-	-
- Non-financial corporations	463 374	396 736	68 654	-	-	(1 103)	(913)	-	-
Total financial assets at fair value through other comprehensive income	35 484 841	35 419 689	68 654	-	-	(2 589)	(913)	-	-
Short-term (up to 1 year) gross	11 700 080

Long-term (over 1 year) gross 23 788 263

				Gross carrying amount		Accumulated impairment
31.12.2019	Carrying amount	Stage 1	Stage 2	Stage 3	POCI	Stage 1	Stage 2	Stage 3	POCI
Debt securities	22 773 921	22 737 162	41 121	-	-	(3 242)	(1 120)	-	-
- Central banks	3 219 627	3 219 627	-	-	-	-	-	-	-
- General governments, including:	17 573 979	17 574 048	-	-	-	(69)	-	-	-
pledged securities	1 232 295	1 232 295	-	-	-	-	-	-	-
- Credit institutions	263 460	264 583	-	-	-	(1 123)	-	-	-
- Other financial institutions	1 162 968	1 163 964	-	-	-	(996)	-	-	-
- Non-financial corporations	553 887	514 940	41 121	-	-	(1 054)	(1 120)	-	-
Total financial assets at fair value through other comprehensive income	22 773 921	22 737 162	41 121	-	-	(3 242)	(1 120)	-	-
Short-term (up to 1 year) gross	4 031 311

Long-term (over 1 year) gross	18 746 972

The above note includes government bonds pledged under the Bank Guarantee Fund, government bonds and treasury bills pledged as sell/buy back transactions and government bonds pledged as collateral for the loans received from the European Investment Bank.

Movements in expected credit losses allowance on financial assets at fair value through other comprehensive income

Change from 1 January to 30 September 2020	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Changes in credit risk	As at the end of the period
Debt securities	(4 362)	-	-	-	(1 313)	1 963	210	(3 502)
Stage 1	(3 242)	-	50	-	(1 313)	1 945	(29)	(2 589)
Stage 2	(1 120)	-	(50)	-	-	18	239	(913)
Expected credit losses allowance, total	(4 362)	-	-	-	(1 313)	1 963	210	(3 502)

Change from 1 January to 31 December 2019	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Changes in credit risk	As at the end of the period
Debt securities	(4 535)	-	-	-	(963)	2 518	(1 382)	(4 362)
Stage 1	(4 171)	(214)	72	-	(963)	2 367	(333)	(3 242)
Stage 2	(364)	214	(72)	-	-	151	(1 049)	(1 120)
Expected credit losses allowance, total	(4 535)	-	-	-	(963)	2 518	(1 382)	(4 362)

Explanation of changes in the financial instruments gross carrying amount impacting the changes on expected credit losses allowance

Change from 1 January to 30 September 2020	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Other movements	As at the end of the period
Debt securities	22 778 283	-	-	-	24 124 758	(12 014 989)	600 291	35 488 343
Stage 1	22 737 162	-	(48 900)	-	24 120 094	(12 014 989)	626 322	35 419 689
Stage 2	41 121	-	48 900	-	4 664	-	(26 031)	68 654
Financial assets at fair value through other comprehensive income, gross	22 778 283	-	-	-	24 124 758	(12 014 989)	600 291	35 488 343

Change from 1 January to 31 December 2019	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Other movements	As at the end of the period
Debt securities	24 342 819	-	-	-	15 882 431	(18 387 362)	940 395	22 778 283
Stage 1	24 321 098	12 952	(40 218)	-	15 882 431	(18 378 592)	939 491	22 737 162
Stage 2	21 721	(12 952)	40 218	-	-	(8 770)	904	41 121
Financial assets at fair value through other comprehensive income, gross	24 342 819	-	-	-	15 882 431	(18 387 362)	940 395	22 778 283

19. Financial assets at amortised cost

	Carrying amount		Gross carrying amount			Accumulated impairment
30.09.2020		Stage 1	Stage 2	Stage 3	POCI	Stage 1	Stage 2	Stage 3	POCI
Debt securities	14 471 422	14 471 502	-	-	-	(80)	-	-	-
- General governments, including:	10 393 924	10 393 924	-	-	-	-	-	-	-
pledged securities	2 700 080	2 700 080	-	-	-	-	-	-	-
- Credit institutions	1 975 346	1 975 346	-	-	-	-	-	-	-
- Other financial institutions	2 102 152	2 102 232	-	-	-	(80)	-	-	-
Loans and advances to banks	8 991 355	8 992 274	-	-	-	(919)	-	-	-
Loans and advances to customers	107 876 830	92 746 539	13 869 249	4 690 178	308 031	(295 097)		(426 096) (2 994 010)	(21 964)
Individual customers	61 950 975	53 802 152	7 714 146	2 161 288	111 786	(169 937)	(295 793)	(1 369 119)	(3 548)
Corporate customers	45 618 494	38 637 210	6 155 103	2 527 821	196 245	(124 867)	(130 303)	(1 624 299)	(18 416)
Public sector customers	307 361	307 177	-	1 069	-	(293)	-	(592)	-
Total financial assets at amortised cost		131 339 607 116 210 315	13 869 249	4 690 178	308 031	(296 096)		(426 096) (2 994 010)	(21 964)

Short-term (up to 1 year) gross 48 918 668 Long-term (over 1 year) gross 86 159 105

			Gross carrying amount			Accumulated impairment
31.12.2019	Carrying amount	Stage 1	Stage 2	Stage 3	POCI	Stage 1	Stage 2	Stage 3	POCI
Debt securities	11 234 873	11 234 952	-	-	-	(79)	-	-	-
- General governments, including:	9 975 484	9 975 484	-	-	-	-	-	-	-
pledged securities	1 799 235	1 799 235	-	-	-	-	-	-	-
- Other financial institutions	1 259 389	1 259 468	-	-	-	(79)	-	-	-
Loans and advances to banks	4 341 758	4 342 890	-	-	-	(1 132)	-	-	-
Loans and advances to customers	103 203 254	94 130 201	7 920 046	4 105 697	237 588	(313 118)		(258 035) (2 603 391)	(15 734)
Individual customers	56 999 856	52 456 328	4 076 251	2 039 606	102 706	(189 868)	(198 492)	(1 284 124)	(2 551)
Corporate customers	45 819 083	41 290 212	3 843 795	2 065 043	134 882	(122 923)	(59 543)	(1 319 200)	(13 183)
Public sector customers	384 315	383 661	-	1 048	-	(327)	-	(67)	-
Total financial assets at amortised cost		118 779 885 109 708 043	7 920 046	4 105 697	237 588	(314 329)		(258 035) (2 603 391)	(15 734)
Short-term (up to 1 year) gross	42 975 941

Long-term (over 1 year) gross 78 995 433

The above note includes government bonds pledged under the Bank Guarantee Fund, government bonds pledged as sell-buy-back transactions, government bonds pledged as collateral for the loans received from the European Investment Bank.

In the item loans and advances granted to corporate clients were also included loans granted to microenterprises serviced by mBank S.A. Retail Banking.

mBank S.A. Group

IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

Loans and advances to customers	Gross carrying	including:
30.09.2020	amount	Individual customers	Corporate customers	Public sector customers
Current accounts	12 872 989	7 495 291	5 376 275	1 423
Term loans, including:	82 808 774	55 984 292	26 517 662	306 820
- housing and mortgage loans to natural persons	43 587 389	43 587 389
Reverse repo or buy/sell back	1 176 154	-	1 176 154	-
Finance leases	11 971 533	-	11 971 533	-
Other loans and advances	2 453 978	-	2 453 978	-
Other receivables	330 569	309 789	20 777	3
Total gross carrying amount	111 613 997	63 789 372	47 516 379	308 246

Loans and advances to customers	Accumulated	including
30.09.2020	impairment	Individual customers	Corporate customers	Public sector customers
Current accounts	(1 011 627)	(654 420)	(357 207)	-
Term loans, including:	(2 282 895)	(1 183 977)	(1 098 033)	(885)
- housing and mortgage loans to natural persons	(442 679)	(442 679)
Finance leases	(392 094) -		(392 094)	-
Other loans and advances	(50 551) -		(50 551)
Total accumulated impairment	(3 737 167) (1 838 397)		(1 897 885)	(885)
Total gross carrying amount	111 613 997	63 789 372	47 516 379	308 246
Total accumulated impairment	(3 737 167)	(1 838 397)	(1 897 885)	(885)
Total carrying amount	107 876 830	61 950 975	45 618 494	307 361
Short-term (up to 1 year) gross	37 369 871
Long-term (over 1 year) gross	74 244 126

Loans and advances to customers	Gross carrying	including:
31.12.2019	amount	Individual customers	Corporate customers	Public sector customers
Current accounts	13 455 553	7 493 468	5 958 926	3 159
Term loans, including:	78 051 279	50 819 397	26 850 332	381 550
- housing and mortgage loans to natural persons	38 979 040	38 979 040
Reverse repo or buy/sell back	13 398	-	13 398	-
Finance leases	11 631 675	-	11 631 675	-
Other loans and advances	2 629 690	-	2 629 690	-
Other receivables	611 937	362 026	249 911	-
Total gross carrying amount	106 393 532	58 674 891	47 333 932	384 709

		including
Loans and advances to customers 31.12.2019	Accumulated impairment	Individual customers	Corporate customers	Public sector customers
Current accounts	(966 201)	(664 889)	(301 312)	-
Term loans, including:	(1 901 009)	(1 010 146)	(890 469)	(394)
- housing and mortgage loans to natural persons	(414 932)	(414 932)
Finance leases	(289 832)	-	(289 832)	-
Other loans and advances	(33 236)	-		-
Total accumulated impairment	(3 190 278)	(1 675 035)	(1 514 849)	(394)
Total gross carrying amount	106 393 532	58 674 891	47 333 932	384 709
Total accumulated impairment	(3 190 278)	(1 675 035)	(1 514 849)	(394)
Total carrying amount	103 203 254	56 999 856	45 819 083	384 315
Short-term (up to 1 year) gross	36 875 519
Long-term (over 1 year) gross	69 518 013

The currency structure of housing and mortgage loans granted to individual customers

	30.09.2020	31.12.2019
Net housing and mortgage loans to natural persons (in PLN '000), including:	43 144 710	38 564 108
- PLN	22 307 847	18 624 049
- CHF	13 638 489	13 561 831
- EUR	3 580 810	3 120 555
- CZK	3 396 969	3 024 539
- USD	195 819	206 635
- Other currency	24 776	26 499
Net housing and mortgage loans to natural persons in original currencies (main currencies in '000)
- PLN	22 307 847	18 624 049
- CHF	3 256 719	3 458 504
- EUR	791 025	732 783
- CZK	20 389 970	18 046 175
- USD	50 654	54 411

Movements in expected credit losses allowance

Change from 1 January to 30 September 2020	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Changes in credit risk	Write-offs	Other movements	As at the end of the period
Debt securities	(79)	-	-	-	-	-	(1)	-	-	(80)
Stage 1	(79)	-	-	-	-	-	(1)	-	-	(80)
Loans and advances to banks	(1 132)	-	-	-	(736)	1 011	(62)	-	-	(919)
Stage 1	(1 132)	-	-	-	(736)	1 011	(62)	-	-	(919)
Loans and advances to customers	(3 190 278)	-	-	-	(152 098)	150 068	(971 236)	388 785	37 592	(3 737 167)
Stage 1	(313 118)	(366 674)	162 089	3 207	(79 554)	45 616	253 336	-	1	(295 097)
Stage 2	(258 035)	341 259	(200 547)	132 723	(9 064)	21 322	(453 752)	-	(2)	(426 096)
Stage 3	(2 603 391)	25 415	38 458	(135 910)	(53 903)	82 983	(773 129)	387 874	37 593	(2 994 010)
POCI	(15 734)	-	-	(20)	(9 577)	147	2 309	911	-	(21 964)
Expected credit losses allowance, total	(3 191 489)	-	-	-	(152 834)	151 079	(971 299)	388 785	37 592	(3 738 166)

Change from 1 January to 31 December 2019	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Changes in credit risk	Write-offs	Other movements	As at the end of the period
Debt securities	(87)	-	-	-	-	-	8	-	-	(79)
Stage 1	(87)	-	-	-	-	-	8	-	-	(79)
Loans and advances to banks	(1 518)	-	-	-	(1 560)	1 529	417	-	-	(1 132)
Stage 1	(1 518)	-	-	-	(1 560)	1 529	417	-	-	(1 132)
Loans and advances to customers	(3 042 547)	-	-	-	(265 758)	144 356	(623 937)	597 253	355	(3 190 278)
Stage 1	(214 875)	(382 332)	102 610	4 397	(119 016)	50 598	245 500	-	-	(313 118)
Stage 2	(220 963)	333 478	(130 698)	128 900	(21 970)	21 901	(368 616)	-	(67)	(258 035)
Stage 3	(2 599 882)	48 854	28 088	(133 297)	(124 522)	76 222	(488 828)	589 552	422	(2 603 391)
POCI	(6 827)	-	-	-	(250)	(4 365)	(11 993)	7 701	-	(15 734)
Expected credit losses allowance, total	(3 044 152)	-	-	-	(267 318)	145 885	(623 512)	597 253	355	(3 191 489)

Explanation of changes in the gross carrying amount impacting the changes on expected credit losses allowancee

Change from 1 January to 30 September 2020	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Write-offs	Other movements	As at the end of the period
Debt securities	11 234 952	-	-	-	4 355 309	(1 764 212)	-	645 453	14 471 502
Stage 1	11 234 952	-	-	-	4 355 309	(1 764 212)	-	645 453	14 471 502
Loans and advances to banks	4 342 890	-	-	-	8 223 298	(3 559 051)	-	(14 863)	8 992 274
Stage 1	4 342 890	-	-	-	8 223 298	(3 559 051)	-	(14 863)	8 992 274
Loans and advances to customers	106 393 532	-	-	-		21 985 469 (14 201 313)	(388 825)	(2 174 866)	111 613 997
Stage 1	94 130 201	2 151 927	(8 871 611)	(697 867)	20 739 615	(12 786 919)	-	(1 918 807)	92 746 539
Stage 2	7 920 046	(2 127 549)	8 943 097	(635 424)	1 118 960	(1 176 645)	-	(173 236)	13 869 249
Stage 3	4 105 697	(24 378)	(71 486)	1 239 128	121 813	(234 420)	(387 914)	(58 262)	4 690 178
POCI	237 588	-	-	94 163	5 081	(3 329)	(911)	(24 561)	308 031
Financial assets at amortised cost, gross	121 971 374	-	-	-		34 564 076 (19 524 576)	(388 825)	(1 544 276)	135 077 773

Change from 1 January to 31 December 2019	As at the beginning of the period	Transfer to Stage 1	Transfer to Stage 2	Transfer to Stage 3	New financial assets originated or purchased	Financial assets derecognised during the period	Write-offs	Other movements	As at the end of the period
Debt securities	9 000 626	-	-	-	1 952 008	(486 122)	-	768 440	11 234 952
Stage 1	9 000 626	-	-	-	1 952 008	(486 122)	-	768 440	11 234 952
Loans and advances to banks	2 547 864	-	-	-	3 517 663	(1 696 413)	-	(26 224)	4 342 890
Stage 1	2 547 864	-	-	-	3 517 663	(1 696 413)	-	(26 224)	4 342 890
Loans and advances to customers	95 059 979	-	-	-		34 350 790 (18 991 377)	(597 253)	(3 428 607)	106 393 532
Stage 1	82 159 668	3 406 464	(3 116 956)	(626 902)	32 103 237	(16 817 502)	-	(2 977 808)	94 130 201
Stage 2	8 714 545	(3 253 951)	3 189 531	(450 634)	1 916 470	(1 861 076)	-	(334 839)	7 920 046
Stage 3	3 976 749	(152 513)	(72 575)	992 776	318 861	(302 412)	(589 552)	(65 637)	4 105 697
POCI	209 017	-	-	84 760	12 222	(10 387)	(7 701)	(50 323)	237 588
Financial assets at amortised cost, gross	106 608 469	-	-	-		39 820 461 (21 173 912)	(597 253)	(2 686 391)	121 971 374

The table below includes loans and advances at amortized cost and does not include the loans and advances measured at fair value through profit or loss.

The structure of concentration of carrying amounts of exposure of mBank Group

		Gross value		Gross value	%
No.	Sectors	30.09.2020	%	31.12.2019
1.	Household customers	63 789 372	57.15	58 674 891	55.15
2.	Real estate	7 050 713	6.32	6 305 974	5.93
3.	Construction	5 057 808	4.53	5 160 496	4.85
4.	Food sector	2 964 006	2.66	3 017 507	2.84
5.	Transport and logistics	2 823 909	2.53	2 825 670	2.66
6.	Financial sector	2 727 715	2.44	1 766 892	1.66
7.	Metals	2 234 670	2.00	2 331 810	2.19
8.	Motorisation	2 104 264	1.89	2 240 037	2.11
9.	Construction materials	2 083 192	1.87	2 178 231	2.05
10.	Chemicals and plastic products	1 846 394	1.65	1 915 441	1.80
11.	Wood, furniture and paper products	1 643 161	1.47	1 782 443	1.68
12.	Scientific and technical activities	1 376 562	1.23	1 406 065	1.32
13.	Wholesale trade	1 311 569	1.18	1 427 747	1.34
14.	Retail trade	1 297 464	1.16	1 231 428	1.16
15.	IT	1 201 635	1.08	1 172 087	1.10
16.	Power, power and heating distribution	1 146 786	1.03	1 126 577	1.06
17.	Rental and leasing activities	965 751	0.87	1 116 106	1.05
18.	Pharmacy	893 011	0.80	894 470	0.84
19.	Hotels and Restaurants	782 896	0.70	748 789	0.70
20.	Fuels	778 329	0.70	1 033 659	0.97

As at 30 September 2020, the total exposure of the Group in the above sectors (excluding household customers) amounts to 36.11% of the credit portfolio (31 December 2019: 37.31%).

20. Non-current assets and liabilities held for sale

On 7 November 2019, as part of implementing the mBank Group plan to withdraw from development activity and focus on the main activity in the financial industry, mBank S.A. signed a conditional agreement for the sale of shares in the company BDH Development Sp. z o.o. (BDH) to Archicom Polska S.A. The transaction will be finalized after all the conditions precedent are met in the form of the sale by BDH of shares held in CSK Sp. z o. o. registration by the registry court of the reduction in BDH's share capital related to the redemption of shares, and the President of the Office for Competition and Consumer Protection's consent to the concentration consisting in the acquisition by Archicom Polska S.A. control over BDH (conditions met) and after signing the promised agreement between the parties. The parties undertook to sign a promised agreement transferring the value of BDH shares no later than 31 December 2020.

In connection with the above agreement, in accordance with the accounting principles described in Note 2.19 to the Consolidated Financial Statements of mBank S.A. Group for 2019, published on 28 February 2020, as at 31 December 2019, the Group classified BDH as non-current assets held for sale.

The financial data regarding assets and liabilities held for sale are presented below.

ASSETS	30.09.2020	31.12.2019
Other assets	15 261	10 651
TOTAL ASSETS	15 261	10 651
LIABILITIES	30.09.2020	31.12.2019
Financial liabilities measured at amortised cost, including:	159	96
Amounts due to banks	96	96
Amounts due to customers	63	-
Other liabilities	258	1 219
TOTAL LIABILITIES	417	1 315

mBank S.A. Group IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

21. Intangible assets

	30.09.2020	31.12.2019
Goodwill	27 760	27 760
Patents, licences and similar assets, including:	721 099	696 491
- computer software	545 362	576 535
Other intangible assets	4 119	1 199
Intangible assets under development	341 280	229 990
Total intangible assets	1 094 258	955 440

22. Tangible assets

	30.09.2020	31.12.2019
Tangible assets, including:	622 075	698 634
- land	653	1 033
- buildings and structures	154 355	163 524
- equipment	160 836	188 496
- vehicles	212 804	238 850
- other fixed assets	93 427	106 731
Fixed assets under construction	66 080	75 416
The right to use, including:	429 499	488 347
- real estate	379 579	437 295
- the right of perpetual of usufruct of land	47 842	48 358
- cars	1 460	1 561
- other	618	1 133
Total tangible assets	1 117 654	1 262 397

23. Financial liabilities held for trading and derivatives held for hedges

	30.09.2020	31.12.2019
Derivatives, including:	1 087 757	948 764
- Held for trading derivative financial instruments classified into banking book	205 140	104 161
- Held for trading derivative financial instruments classified into trading book	1 168 761	957 386
- Derivative financial instruments held for fair value hedging	2 158	6 451
- Derivative financial instruments held for cash flow hedging	-	12 960
- Offsetting effect	(288 302)	(132 194)
Total financial liabilities held for trading and derivatives held for hedges	1 087 757	948 764

24. Financial liabilities measured at amortised cost – amounts due to banks and customers

	Amount due to	Amount due to	including:
30.09.2020	banks	customers	Individual customers	Corporate customers	Public sector customers
Deposits	1 174 820	136 522 243	92 187 598	43 799 174	535 471
Current accounts	496 349	118 644 190	81 405 744	36 868 086	370 360
Term deposits	-	17 521 181	10 781 854	6 574 216	165 111
Repo transactions	678 471	356 872	-	356 872	-
Loans and advances received	-	3 198 190	-	3 198 190	-
Other financial liabilities	599 364	1 398 116	115 742	1 241 926	40 448
Liabilities in respect of cash collaterals	362 043	544 614	38 488	506 126	-
Leasing liabilities	-	461 807	-	421 418	40 389
Other liabilities	237 321	391 695	77 254	314 382	59
Deposits and other financial liabilities, total	1 774 184	141 118 549	92 303 340	48 239 290	575 919
Short-term (up to 1 year)	1 151 429	136 956 618
Long-term (over 1 year)	622 755	4 161 931

31.12.2019	Amount due to	Amount due to	including:
	banks	customers	Individual customers	Corporate customers	Public sector customers
Deposits	528 448	112 424 332	77 525 267	34 083 016	816 049
Current accounts	424 200	88 073 656	62 639 670	24 823 049	610 937
Term deposits	-	24 175 269	14 885 597	9 084 560	205 112
Repo transactions	104 248	175 407	-	175 407	-
Loans and advances received	189 901	2 980 294	-	2 980 294	-
Other financial liabilities	448 522	1 256 512	139 105	1 074 601	42 806
Liabilities in respect of cash collaterals	301 021	423 059	43 854	377 593	1 612
Leasing liabilities	-	496 912	-	456 052	40 860
Other liabilities	147 501	336 541	95 251	240 956	334
Deposits and other financial liabilities, total	1 166 871	116 661 138	77 664 372	38 137 911	858 855
Short-term (up to 1 year)	816 830	112 608 069
Long-term (over 1 year)	350 041	4 053 069

The Group presents amounts due to micro enterprises provided by Retail Banking of mBank S.A. under amounts due to individual customers.

25. Provisions

	30.09.2020	31.12.2019
Provisions for legal proceedings, including:	872 896	484 760
- provisions for individual cases concerning indexation clauses in mortgage and housing loans in CHF	796 351	417 653
- provisions for other legal proceedings relating to loans in foreign currencies	66 078	61 103
- provisions for remaining legal proceedings	10 467	6 004
Provisions for commitments and guarantees given	196 118	153 432
Other provisions	73 229	101 104
Provisions, total	1 142 243	739 296

The issues related to individual cases concerning indexation clauses in mortgage and housing loans in CHF is presented in point 26 Selected explanatory information.

The methodology of the measurement of provisions for legal risk regarding individual court cases concerning indexation clauses in mortgage and housing loans in CHF is presented in Note 3.

The item Other provisions includes provisions recognized related to the judgment of the CJEU of 11 September 2019 regarding reimbursement of commissions in case of earlier loan repayments of consumer loans and mortgage loans, which is described in detail in Note 3.

Movements in the provisions for remaining legal proceedings and other provisions

	2020
Change from 1 January to 30 September	Provisions for individual cases concerning indexation clauses in mortgage and housing loans in CHF	Provisions for other legal proceedings relating to loans in foreign currencies	Provisions for remaining legal proceedings	Other provisions
Provisions as at the beginning of the period	417 653	61 103	6 004	101 104
Change in the period, due to:	378 698	4 975	4 463	(27 875)
- increase of provisions	380 925	8 270	5 170	12 150
- release of provisions	-	(461)	-	(7 799)
- utilization	(2 227)	(2 834)	(710)	(29 225)
- reclassification to non-current assets held for sale	-	-	-	(3 040)
- foreign exchange differences	-	-	3	39
Provisions as at the end of the period	796 351	66 078	10 467	73 229

	2019
Change from 1 January to 31 December	Provisions for individual cases concerning indexation clauses in mortgage and housing loans in CHF	Provisions for other legal proceedings relating to loans in foreign currencies	Provisions for remaining legal proceedings	Other provisions
Provisions as at the beginning of the period	30 565	67 258	8 498	42 553
Change in the period, due to:	387 088	(6 155)	(2 494)	58 551
- increase of provisions	387 855	3 776	2 114	136 179
- release of provisions	(339)	(3 506)	(2 894)	(5 947)
- utilization	(428)	(6 425)	(1 714)	(71 985)
- reclassification to non-current assets held for sale	-	-	-	302
- foreign exchange differences	-	-	-	2
Provisions as at the end of the period	417 653	61 103	6 004	101 104

Movements in provisions for loan commitments, guarantees and other financial facilities and other commitments

Change from 1 January to 30 September 2020	As at the beginning of the period	Transfer to stage 1	Transfer to stage 2	Transfer to stage 3	Increases due to granting and takeover	Decreased results of derecognised from balance sheet	Changes in credit risk (net)	As at the end of the period
Loan commitments	63 864	-	-	-	36 775	(35 705)	27 623	92 557
Stage 1	35 708	28 210	(4 535)	(1)	16 941	(11 664)	(22 352)	42 307
Stage 2	23 639	(28 210)	4 576	(249)	9 176	(10 226)	34 305	33 011
Stage 3	2 136	-	(41)	250	10 097	(13 018)	15 685	15 109
POCI	2 381	-	-	-	561	(797)	(15)	2 130
Guarantees and other financial facilities	89 568	-	-	-	26 536	(36 757)	24 212	103 559
Stage 1	4 781	1 017	(648)	-	13 524	(12 730)	(1 243)	4 701
Stage 2	4 713	(1 017)	648	(278)	1 290	(2 480)	2 285	5 161
Stage 3	79 684	-	-	278	11 722	(20 967)	23 188	93 905
POCI	390	-	-	-	-	(580)	(18)	(208)
Other commitments	-	-	-	-	11	(9)	-	2
Stage 1	-	-	-	-	11	(9)	-	2
Provisions on off balance sheet commitments and financial guarantees	153 432	-	-	-	63 322	(72 471)	51 835	196 118

mBank S.A. Group

IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

Change from 1 January to 31 December 2019	As at the beginning of the period	Transfer to stage 1	Transfer to stage 2	Transfer to stage 3	Increases due to granting and takeover	Decreased results of derecognised from balance sheet	Changes in credit risk (net)	As at the end of the period
Loan commitments	57 914	-	-	-	36 450	(43 974)	13 474	63 864
Stage 1	32 575	32 226	(4 616)	(112)	22 736	(13 204)	(33 897)	35 708
Stage 2	18 247	(32 226)	4 688	(145)	10 844	(11 234)	33 465	23 639
Stage 3	6 231	-	(72)	257	1 695	(19 479)	13 504	2 136
POCI	861	-	-	-	1 175	(57)	402	2 381
Guarantees and other financial facilities	51 495	-	-	-	60 502	(28 484)	6 055	89 568
Stage 1	2 784	1 484	(674)	(3)	13 852	(7 847)	(4 815)	4 781
Stage 2	4 994	(1 484)	674	(189)	2 773	(1 755)	(300)	4 713
Stage 3	47 154	-	-	192	43 877	(20 477)	8 938	79 684
POCI	(3 437)	-	-	-	-	1 595	2 232	390
Other commitments	-	-	-	-	109	(109)	-	-
Stage 1	-	-	-	-	109	(109)	-	-
Provisions on off balance sheet commitments and financial guarantees	109 409	-	-	-	97 061	(72 567)	19 529	153 432

26. Assets and liabilities for deferred income tax

Deferred income tax assets	30.09.2020	31.12.2019
As at the beginning of the period	1 473 790	1 344 037
Changes recognized in the income statement	116 423	124 182
Changes recognized in other comprehensive income	11 455	855
Other changes	324	4 716
As at the end of the period	1 601 992	1 473 790

Provisions for deferred income tax	30.09.2020	31.12.2019
As at the beginning of the period	(536 160)	(385 044)
Changes recognized in the income statement	(109 337)	(136 256)
Changes recognized in other comprehensive income	(136 286)	(11 231)
Other changes	-	(3 629)
As at the end of the period	(781 783)	(536 160)

Income tax	The period from 01.01.2020 to 30.09.2020	The period from 01.01.2019 to 30.09.2019
Current income tax	(345 968)	(304 203)
Deferred income tax recognised in the income statement	7 086	(70 920)
Income tax recognised in the income statement	(338 882)	(375 123)
Recognised in other comprehensive income	(124 831)	(21 462)
Total income tax	(463 713)	(396 585)

27. Fair value of assets and liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction of selling the asset or transferring a liability occurs either:

• ◼ on the main market for the asset or liability,
• ◼ in the absence of a main market, for the most advantageous market for the asset or liability.

In line with IFRS9, for accounting purposes, the Group determines the valuation of its assets and liabilities through amortised cost or through fair value. In addition, for the positions that are valued through amortised cost, there is calculated and disclosed the fair value, but only for disclosure purposes – according to IFRS7.

The approach to the method used for the loans that are fair valued in line of IFRS9 requirements, is described in the Note 3.3.7 to the Consolidated Financial Statements of mBank Group for 2019, published on 28 February 2020.

Following market practices the Group values open positions in financial instruments using either the markto-market approach or is applying pricing models well established in market practice (mark-to-model method) which use as inputs market prices or market parameters, and in few cases parameters estimated internally by the Group. All significant open positions in derivatives are valued by marked-to-model using prices observable in the market. Domestic commercial papers are marked to model (by discounting cash flows), which in addition to market interest rate curve uses credit spreads estimated internally.

For disclosure purposes, the Group assumed that the fair value of short-term financial liabilities (less than 1 year) is equal to the balance sheet values of such items. In addition, the Group assumes that the estimated fair value of financial assets and financial liabilities longer than 1 year is based on discounted cash flows using appropriate interest rates.

Positions that are recognised in GL through amortised cost

The following table presents a summary of balance sheet values and fair values for each group of financial assets and liabilities not recognised in the statement of financial position of the Group at their fair values.

	30.09.2020		31.12.2019
	Carrying value	Fair value	Carrying value	Fair value
Financial assets at amortised cost
Debt securities	14 471 422	14 980 925	11 234 873	11 409 164
Loans and advances to banks	8 991 355	8 986 245	4 341 758	4 338 448
Loans and advances to customers, including:	107 876 830	108 915 015	103 203 254	103 538 180
Loans and advances to individuals	61 950 975	63 950 473	56 999 856	58 296 285
Current accounts	6 840 871	6 989 206	6 828 579	7 011 607
Term loans	54 800 315	56 651 478	49 809 251	50 922 652
Other	309 789	309 789	362 026	362 026
Loans and advances to corporate entities	45 618 494	44 652 530	45 819 083	44 854 574
Current accounts	5 019 068	4 878 131	5 657 614	5 522 094
Term loans, including finance lease	36 999 068	36 174 041	37 301 706	36 472 717
Reverse repo or buy/sell back transactions	1 176 154	1 176 154	13 398	13 398
Other loans and advances	2 403 427	2 403 427	2 596 454	2 596 454
Other	20 777	20 777	249 911	249 911
Loans and advances to public sector	307 361	312 012	384 315	387 321
Financial liabilities at amortised cost
Amounts due to other banks	1 774 184	1 774 184	1 166 871	1 166 836
Amounts due to customers	141 118 549	141 139 987	116 661 138	116 661 251
Debt securities in issue	13 849 349	14 005 753	17 435 143	17 711 082
Subordinated liabilities	2 561 855	2 532 904	2 500 217	2 519 770

The following sections present the key assumptions and methods used by the Group for estimation of the fair values of financial instruments.

Loans and advances to banks and loans and advances to customers. The fair value for loans and advances to banks and loans and advances to customers is disclosed as the estimated value of future cash flows using current interest rates including appropriate credit spreads and is based on the expected maturity of the respective loan agreements. The level of credit spread was determined based on market quotation of median credit spreads for Moody's rating grade. Attribution of a credit spread to a given credit exposure is based on a mapping between Moody's rating grade and internal rating grades of the Group. To reflect the fact that the majority of the Group's exposures is collateralised whereas the median of market quotation is centred around unsecured issues, the Group applied appropriate adjustments.

Financial liabilities. Financial instruments representing liabilities for the Group include the following:

• ◼ Contracted borrowings;
• ◼ Deposits;
• ◼ Issues of debt securities;
• ◼ Subordinated liabilities.

The fair value for these financial liabilities with more than 1 year to maturity is based on discounted cash flows by the use of discounting factor including an estimation of a spread reflecting the credit spread for mBank and the liquidity margin. For the loans received from European Investment Bank in EUR and in CHF the Group used the EBI yield curve. With regard to the own issue as part of the EMTN programme the market price of the relevant financial services has been used.

In the case of deposits, the Group has applied the curve constructed on the basis of quotations of money market rates as well as FRA and IRS contracts for appropriate currencies and maturities. In case of subordinated liabilities, the Group used curves based on cross-currency basis swap levels taking into account the original spread on subordinated liabilities and their maturities.

In case of covered bonds and other debt securities issued by mBank Hipoteczny, for the purpose of the disclosures swap curves and forecasted initial spreads for certain issues are used.

The Group assumed that the fair values of these instruments with less than 1 year to maturity was equal to the carrying amounts of the instruments.

According to the fair value methodology applied by the Group, financial assets and liabilities are classified as follows:

• ◼ Level 1: prices quoted on active markets for the same instrument (without modification);
• ◼ Level 2: prices quoted on active markets for the similar instruments or other valuation techniques for which all significant input data are based on observable market data;
• ◼ Level 3: valuation methods for which at least one significant input data is not based on observable market data.

Positions that are recognised in GL through fair value

The following table presents the hierarchy of fair values of financial assets and liabilities recognised in the statement of financial position of the Group at their fair values.

		Level 1	Level 2	Level 3
30.09.2020	Including:	Quoted prices in active markets	Valuation techniques based on observable market data	Other valuation techniques
RECURRING FAIR VALUE MEASUREMENTS
Financial assets
Financial assets held for trading and hedging derivatives	2 353 905	405 495	1 395 065	553 345
Loans and advances to customers	186 432	-	-	186 432
Debt securities	678 604	405 495	-	273 109
Derivative financial instruments, including:	1 488 869	-	1 395 065	93 804
Derivative financial instruments held for trading	1 582 613	-	1 582 613	-
Hedging derivative financial instruments	1 148 614	-	1 054 810	93 804
Offsetting effect	(1 242 358)	-	(1 242 358)	-
Non-trading financial assets mandatorily at fair value through profit or loss	1 919 046	90 469	-	1 828 577
Loans and advances to customers	1 595 034	-	-	1 595 034
Debt securities	71 615	-	-	71 615
Equity securities	252 397	90 469	-	161 928
Financial assets at fair value through other comprehensive income	35 484 841	33 752 079	999 997	732 765
Debt securities	35 484 841	33 752 079	999 997	732 765
Total financial assets	39 757 792	34 248 043	2 395 062	3 114 687
Financial liabilities
Derivative financial instruments, including:	1 087 757	-	1 087 757	-
Derivative financial instruments held for trading	1 373 901	-	1 373 901	-
Hedging derivative financial instruments	2 158	-	2 158	-
Offsetting effect	(288 302)	-	(288 302)	-
Total financial liabilities	1 087 757	-	1 087 757	-

mBank S.A. Group IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

Assets and Liabilities Measured at Fair Value Based on Level 3 - changes from 1 January to 30 September 2020	Debt trading securities	Derivative financial instruments	Non-trading debt securities mandatorily at fair value through profit or loss	Non-trading equity securities mandatorily at fair value through profit or loss	Debt securities at fair value through other comprehensive income
As at the beginning of the period	403 028	(7 524)	133 774	161 791	1 032 369
Gains and losses for the period:	3 120	101 328	8 179	137	(9 258)
Recognised in profit or loss:	3 120	81 002	8 179	137	-
Net trading income	3 120	81 002	3 382	69	-
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	-	-	4 797	1 446	-
Gains or losses on subsidiaries and associates	-	-	-	(1 378)	-
Recognised in other comprehensive income:	-	20 326	-	-	(9 258)
Financial assets at fair value through other comprehensive income	-	-	-	-	(9 258)
Cash flow hedges	-	20 326	-	-	-
Purchases	1 148 808	-	-	-	226 460
Redemptions	(139 644)	-	-	-	(279 324)
Sales	(5 961 318)	-	-	-	(4 345 244)
Issues	4 819 115	-	-	-	4 107 762
Conversion	-	-	(70 338)	-	-
As at the end of the period	273 109	93 804	71 615	161 928	732 765

During the three quarters of 2020 there were no transfers of financial instruments between the levels of fair value hierarchy.

		Level 1	Level 2	Level 3
31.12.2019	Including:	Quoted prices in active markets	Valuation techniques based on observable market data	Other valuation techniques
RECURRING FAIR VALUE MEASUREMENTS
Financial assets
Financial assets held for trading and hedging derivatives	2 866 034	1 330 541	959 776	575 717
Loans and advances to customers	172 689	-	-	172 689
Debt securities	1 733 569	1 330 541	-	403 028
Derivative financial instruments, including:	959 776	-	959 776	-
Derivative financial instruments held for trading	1 016 808	-	1 016 808	-
Hedging derivative financial instruments	504 219	-	504 219	-
Offsetting effect	(561 251)	-	(561 251)	-
Non-trading financial assets mandatorily at fair value through profit or loss	2 267 922	825	-	2 267 097
Loans and advances to customers	1 971 532	-	-	1 971 532
Debt securities	133 774	-	-	133 774
Equity securities	162 616	825	-	161 791
Financial assets at fair value through other comprehensive income	22 773 921	18 521 925	3 219 627	1 032 369
Debt securities	22 773 921	18 521 925	3 219 627	1 032 369
Total financial assets	27 907 877	19 853 291	4 179 403	3 875 183
Financial liabilities
Derivative financial instruments, including:	948 764	-	941 240	7 524
Derivative financial instruments held for trading	1 061 547	-	1 061 547	-
Hedging derivative financial instruments	19 411	-	11 887	7 524
Offsetting effect	(132 194)	-	(132 194)	-
Total financial liabilities	948 764	-	941 240	7 524

mBank S.A. Group

IFRS Condensed Consolidated Financial Statements for the third quarter of 2020 PLN (000's)

Assets Measured at Fair Value Based on Level 3 - changes from 1 January to 31 December 2019	Debt trading securities	Derivative financial instruments	Non-trading debt securities mandatorily at fair value through profit or loss	Non-trading equity securities mandatorily at fair value through profit or loss	Debt securities at fair value through other comprehensive income
As at the beginning of the period	306 763	-	58 130	72 005	1 266 558
Gains and losses for the period:	429	(7 524)	75 644	75 041	(8 352)
Recognised in profit or loss:	429	(3 810)	75 644	75 041	-
Net trading income	429	(3 810)	320	(8)	-
Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss	-	-	75 324	75 326	-
Gains or losses on subsidiaries and associates	-	-	-	(277)	-
Recognised in other comprehensive income:	-	(3 714)	-	-	(8 352)
Financial assets at fair value through other comprehensive income	-	-	-	-	(8 352)
Cash flow hedges	-	(3 714)	-	-	-
Purchases	1 330 096	-	-	11 055	1 098 460
Redemptions	(233 141)	-	-	-	(274 629)
Sales	(3 246 823)	-	-	(10 891)	(1 838 078)
Issues	2 245 704	-	-	14 581	788 410
As at the end of the period	403 028	(7 524)	133 774	161 791	1 032 369

In 2019 there were no transfers of financial instruments between the levels of fair value hierarchy.

With regard to financial instruments valuated in repetitive way to the fair value classified as level 1 and 2 in hierarchy of fair value, any cases in which transfer between these levels may occur, are monitored by the Bank on the basis of internal rules. In case if there is no market price used to a direct valuation for more than 5 working days, the method of valuation is changed, i.e. change from marked-to-market valuation to marked-to-model valuation under the assumption that the valuation model for the respective type of this instrument has been already approved. The return to marked-to-market valuation method takes place after a period of at least 10 working days in which the market price was available on a continuous basis. If there are no market prices for a debt treasury bonds the above terms are respectively 2 and 5 working days.

Level 1

As at 30 September 2020, at level 1 of the fair value hierarchy, the Group has presented the fair value of held for trading government bonds in the amount of PLN 405 495 thousand (see Note 16) and the fair value of government bonds and treasury bills measured at fair value through other comprehensive income in the amount of PLN 32 448 866 thousand (see Note 18) (31 December 2019 respectively: PLN 1 330 541 thousand and PLN 17 537 697 thousand). Level 1 includes the fair values of corporate bonds in the amount of PLN 1 303 213 thousand (31 December 2019: PLN 984 228 thousand).

In addition, as at 30 September 2020 level 1 includes the value of the registered privileged shares of Giełda Papierów Wartościowych in the amount of PLN 951 thousand (31 December 2019: PLN 825 thousand) and shares of Visa Inc. in the amount of PLN 89 518 thousand, resulting from the conversion of a part of a debt instrument measured at fair value through profit or loss, resulting from the reclassification of preferred stock in Visa Inc.

These instruments are classified as level 1 because their valuation is directly derived by applying current market prices quoted on active and liquid financial markets.

Level 2

Level 2 of the fair value hierarchy mainly includes the fair values of bills issued by NBP in the amount of PLN 999 997 thousand (31 December 2019: PLN 3 219 627 thousand), whose valuation is based on a NPV model (discounted future cash flows) fed with interest rate curves generated by transformation of quotations taken directly from active and liquid financial markets.

In addition, the level 2 category includes the valuation of derivative financial instruments borne on models consistent with market standards and practices, using parameters taken directly from the markets (e.g., foreign exchange rates, implied volatilities of fx options, stock prices and indices) or parameters which transform quotations taken directly from active and liquid financial markets (e.g. interest rate curves).

As at 30 September 2020 and 31 December 2019, level 2 also includes the value of options referencing on the WIG-20 index. For options valuation on WIG-20 index an internal Bank's model (based on implied volatility model) using market parameters is applied.

Level 3

Level 3 of the hierarchy presents the fair values of commercial debt securities issued by local banks and companies in the amount of PLN 1 041 283 thousand (31 December 2019: PLN 1 532 889 thousand) and includes the fair value of a debt instrument measured at fair value through profit or loss, resulting from the reclassification of preferred stock in Visa Inc.

Level 3 includes also the fair value of local government bonds in the amount of PLN 36 206 thousand (31 December 2019 - PLN 36 282 thousand).

Model valuation for these items assumes a valuation based on the market interest rate yield curve adjusted by the level of credit spread. The credit spread parameter reflects the credit risk of the security issuer and is determined in accordance with the Bank's internal model. This model uses credit risk parameters (e.g. PD, LGD) and information obtained from the market (including implied spreads from transactions). PD and LGD parameters are not observed on active markets and therefore have been determined on the basis of statistical analysis. Models the valuation of debt instruments and the credit spread were built internally in the Bank by risk units, were approved by the Model Risk Committee and are subject to periodic monitoring and validation carried out by an entity independent of the units responsible for building and maintaining the model.

Level 3 as at 30 September 2020 includes the value of loans and advances to customers in the amount of PLN 1 781 466 thousand (31 December 2019 – PLN 2 144 221 thousand).

The Fair Value calculation for loans and advances to customers is based on its discounted estimated future cash flows. Future cash flows are determined taking into account:

• repayment schedule,
• time value of money, based on risk-free interest rates set in the process of forecasting interest flows,
• uncertainty of cash flows resulting from credit risk throughout the forecasted lifetime of the exposure by modifying contract flows using multi-year credit risk parameters Lt PD and Lt LGD,
• other factors that would be taken into consideration by the potential exposure buyer (overhead costs and the profit margin expected by market participants) during the process of calibration of the discount rate used in the valuation process.

Due to requirements of IFRS 13 for the exposures for which there are no quotes on an active market, the Bank calibrates the discount rate based on fair value at the date of the initial recognition (i.e. the cost price of exposure). Calibration margin reflects market valuation of costs related to maintaining exposures in the portfolio and market expectations about profit margin realized on similar exposures.

Moreover, level 3 covers mainly the fair value of equity securities amounting to PLN 161 928 thousand (31 December 2019: PLN 161 791 thousand). The equity securities presented at level 3 have been valuated using the market multiples method. The market multiples method consists of valuating the equity capital of a company by using a relation between the market values of the own equity capital or market values of the total capital invested in comparable companies (goodwill) and selected economic and financial figures.

Level 3 also includes the valuation of CIRS contracts concluded under cash flow hedge accounting of the PLN mortgage loan portfolio and covered bonds issued by mBank Hipoteczny (for more information, see Note 16). As at 30 September 2020, the valuation of these contracts was positive (assets) and amounted to PLN 93 804 thousand, while as at 31 December 2019 the valuation was negative (liabilities) and amounted to PLN 7 524 thousand.

Selected explanatory information

1. Compliance with international financial reporting standards

The presented condensed consolidated report for the third quarter of 2020 fulfils the requirements of the International Accounting Standard (IAS) 34 "Interim Financial Reporting" relating to interim financial reports.

In addition, selected explanatory information provide additional information in accordance with Decree of the Minister of Finance dated 29 March 2018 concerning the publication of current and periodic information by issuers of securities and the conditions of acceptance as equal information required by the law of other state, which is not a member state (Journal of Laws 2018, item 757).

2. Consistency of accounting principles and calculation methods applied to the drafting of the quarterly report and the last annual financial statements

The description of the Group's accounting policies is presented in Note 2 and 3 of these condensed consolidated financial statements. The accounting principles adopted by the Group were applied on a continuous basis for all periods presented in the financial statements, except for the changes in accounting principles, which were presented under Note 2 in point "Comparative data".

3. Seasonal or cyclical nature of the business

The business operations of the Group do not involve significant events that would be subject to seasonal or cyclical variations.

4. Nature and values of items affecting assets, liabilities, equity, net profit/(loss) or cash flows, which are extraordinary in terms of their nature, magnitude or exerted impact

In the three quarters of 2020 the COVID-19 pandemic significantly affected the Group's results, mainly by increasing expected credit losses charges and valuation of loan portfolio measured at fair value through profit or loss. The financial results for the third quarter of 2020 also include additional costs related to the increase in the provision for individual court cases regarding indexation clauses in mortgage and housing loans in CHF in the amount of PLN 185.8 million. Detailed information in this regard is presented in Note 3 "Major estimates and judgments made in connection with the application of accounting policy principles".

5. Nature and amounts of changes in estimate values of items, which were presented in previous interim periods of the current reporting year, or changes of accounting estimates indicated in prior reporting years, if they bear a substantial impact upon the current interim period

In the third quarter of 2020, the Group increased the provisions for individual court cases regarding indexation clauses in mortgage and housing loans in CHF by PLN 185.8 million. The increase in the provision for legal risk related to foreign currency loans resulted mainly from the change in the loss probability ratio used in the calculation of the provision and an increase in the projected number of new cases. Detailed information in this regard is presented in Note 3 "Major estimates and judgments made in connection with the application of accounting policy principles".

6. Issues, redemption and repayment of non-equity and equity securities

In the third quarter of 2020 the following issues and redemptions of debt securities took place:

• mBank Hipoteczny S.A. redeemed long term bonds in the amount of PLN 200 ⁰⁰⁰ thousand and mortgage bonds in the amount of PLN 500 000 thousand and EUR 30 000 thousand.
• mFinance France redeemed Eurobonds issued on 21 September 2016 with a nominal value of EUR 500 000 thousand, maturing on 26 September 2020. The nominal value of redeemed Eurobonds remaining in trading as at 26 September 2020 amounted to EUR 464 822 thousand.

7. Dividends paid (or declared) altogether or broken down by ordinary shares and other shares

On 27 March 2020, the 33rd Annual General Meeting of mBank S.A. adopted a resolution regarding the distribution of the net profit for 2019. The net profit of mBank S.A. in the amount of PLN 980 980 thousand was left undivided.

8. Significant events after the end of the third quarter of 2020, which are not reflected in the financial statements

Events as indicated above did not occur in the Group.

9. Effect of changes in the structure of the entity in the third quarter of 2020, including business combinations, acquisitions or disposal of subsidiaries, long-term investments, restructuring, and discontinuation of business activities

Events as indicated above did not occur in the Group.

10. Changes in contingent liabilities and commitments

In the third quarter of 2020, there were no changes in contingent liabilities and commitments of credit nature, i.e. guarantees, letters of credit or unutilised loan amounts, other than resulting from current operating activities of the Group. There was no single case of granting of guarantees or any other contingent liability of any material value for the Group.

11. Write-offs of the value of inventories down to net realisable value and reversals of such write-offs

In the third quarter of 2020, events as indicated above did not occur in the Group.

12. Revaluation write-offs on account of impairment of tangible fixed assets, intangible assets, or other assets as well as reversals of such write-offs

In the third quarter of 2020, events as indicated above did not occur in the Group.

13. Revaluation write-offs on account of impairment of financial assets

Data regarding write-offs on account of impairment of financial assets is presented under Note 12 of these condensed consolidated financial statements.

14. Reversals of provisions against restructuring costs

In the third quarter of 2020, events as indicated above did not occur in the Group.

15. Acquisitions and disposals of tangible fixed asset items

In the third quarter of 2020, there were no material transactions of acquisition or disposal of any tangible fixed assets, with the exception of typical lease operations that are performed by the companies of the Group.

16. Material liabilities assumed on account of acquisition of tangible fixed assets

In the third quarter of 2020, events as indicated above did not occur in the Group.

17. Information about changing the process (method) of measurement the fair value of financial instruments

In the reporting period there were no changes in the process (method) of measurement the fair value of financial instruments.

18. Changes in the classification of financial assets due to changes of purpose or use of these assets

In the reporting period there were no changes in the classification of financial assets as a result of a change in the purpose or use of these assets.

19. Corrections of errors from previous reporting periods

In the third quarter of 2020, events as indicated above did not occur in the Group. The restatements of comparative data have been described in the Note 2, in the item "Comparative data".

20. Information on changes in the economic situation and operating conditions that have a significant impact on the fair value of financial assets and financial liabilities of the entity, regardless of whether these assets and liabilities are included in the fair value or in the adjusted purchase price (amortized cost)

As part of the actions taken in Poland and around the world related to the COVID-19 pandemic, in March, April and May 2020, the Monetary Policy Council reduced interest rates by a total of 140 basis points, which affected the valuation of assets and liabilities to fair value. The COVID-19 pandemic also caused a sharp slowdown in economic activity at the end of the first quarter of 2020. Efforts to slow down the spread of the virus, introduced gradually from mid-March, froze activities in many sectors of the economy. In the first half of May, a gradual opening of the economy began and this process is taking place in stages and consists in resuming activity by individual industries while maintaining an increased sanitary regime. The recent rapid increase in the number of new infections at the end of September and in October has brought back tighter restrictions. Their scale is expected to be smaller than in spring, but in their current form they are already severe for consumers and companies.

These activities also affected the fair value of financial assets and liabilities. For more information on the impact of COVID-19 on the valuation of loans, see Note 3, "Major estimates and judgments made in connection with the application of accounting policies".

21. Default or infringement of a loan agreement or failure to initiate composition proceedings

In the third quarter of 2020, events as indicated above did not occur in the Group.

22. Position of the management on the probability of performance of previously published profit/loss forecasts for the year in light of the results presented in the half-yearly report compared to the forecast

The Bank did not publish a performance forecast for the year 2020.

23. Registered share capital

The total number of ordinary shares as at 30 September 2020 was 42 365 259 shares (31 December 2019: 42 350 367 shares) at PLN 4 nominal value each. All issued shares were fully paid up.

REGISTERED SHARE CAPITAL (THE STRUCTURE) AS AT 30 SEPTEMBER 2020
Share type	Type of privilege	Type of limitation	Number of shares	Series / face value of issue in PLN	Paid up	Registered on
ordinary bearer*	-	-	9 989 000	39 956 000	fully paid in cash	1986
ordinary registered*	-	-	11 000	44 000	fully paid in cash	1986
ordinary bearer	-	-	2 500 000	10 000 000	fully paid in cash	1994
ordinary bearer	-	-	2 000 000	8 000 000	fully paid in cash	1995
ordinary bearer	-	-	4 500 000	18 000 000	fully paid in cash	1997
ordinary bearer	-	-	3 800 000	15 200 000	fully paid in cash	1998
ordinary bearer	-	-	170 500	682 000	fully paid in cash	2000
ordinary bearer	-	-	5 742 625	22 970 500	fully paid in cash	2004
ordinary bearer	-	-	270 847	1 083 388	fully paid in cash	2005
ordinary bearer	-	-	532 063	2 128 252	fully paid in cash	2006
ordinary bearer	-	-	144 633	578 532	fully paid in cash	2007
ordinary bearer	-	-	30 214	120 856	fully paid in cash	2008
ordinary bearer	-	-	12 395 792	49 583 168	fully paid in cash	2010
ordinary bearer	-	-	16 072	64 288	fully paid in cash	2011
ordinary bearer	-	-	36 230	144 920	fully paid in cash	2012
ordinary bearer	-	-	35 037	140 148	fully paid in cash	2013
ordinary bearer	-	-	36 044	144 176	fully paid in cash	2014
ordinary bearer	-	-	28 867	115 468	fully paid in cash	2015
ordinary bearer	-	-	41 203	164 812	fully paid in cash	2016
ordinary bearer	-	-	31 995	127 980	fully paid in cash	2017
ordinary bearer	-	-	24 860	99 440	fully paid in cash	2018
ordinary bearer	-	-	13 385	53 540	fully paid in cash	2019
ordinary bearer	-	-	14 892	59 568	fully paid in cash	2020
Total number of shares			42 365 259
Total registered share capital				169 461 036
Nominal value per share (PLN)		4

* As at the end of the reporting period

On 4 August 2020, the National Depository of Securities (KDPW) registered of 7 826 shares of mBank S.A. with a nominal value of PLN 4 each. The shares were registered as part of the conditional share capital increase on the securities accounts of persons participating in the Bank's incentive program.

On 22 September 2020, KDPW registered 7 066 ordinary bearer shares of the Bank with a nominal value of PLN 4 each. The shares were registered under the conditional share capital increase on the securities accounts of persons participating in the Bank's incentive programs.

Due to the registration of the above-mentioned shares by the KDPW the Bank's share capital increased in the third quarter of 2020 by PLN 59 568.

Moreover, on 23 October 2020, KDPW registered of 172 shares of mBank S.A. with a nominal value of PLN 4 each, issued in connection with incentive programs. As at the date of publication of these financial statements, the share capital of the Bank amounts to PLN 169 462 thousand.

24. Material share packages

Commerzbank AG is a shareholder holding over 5% of the share capital and votes at the General Meeting and as at 30 September 2020 it held 69.29% of the share capital and votes at the General Meeting of mBank S.A. In the third quarter of 2020 there were no changes in the ownership structure of Bank's material shares packages.

25. Change in Bank shares and rights to shares held by managers and supervisors

	Number of the rights to shares held as at the date of publishing the report for H1 2020	Number of the rights to shares acquired from the date of publishing the report for H1 2020 to the date of publishing the report for Q3 2020	Number of the rights to shares sold from the date of publishing the report for H1 2020 to the date of publishing the report for Q3 2020	Number of the rights to shares held as at the date of publishing the report for Q3 2020
Management Board
1. Cezary Stypułkowski	-	-	-	-
2. Frank Bock	-	111	111	-
3. Andreas Böger	-	90	90	-
4. Krzysztof Dąbrowski	-	223	223	-
5. Cezary Kocik	-	570	570	-
6. Marek Lusztyn	-	-	-	-
7. Adam Pers	-	-	-	-

	Number of shares held as at the date of publishing the report for H1 2020	Number of shares acquired from the date of publishing the report for H1 2020 to the date of publishing the report for Q3 2020	Number of shares sold from the date of publishing the report for H1 2020 to the date of publishing the report for Q3 2020	Number of shares held as at the date of publishing the report for Q3 2020
Management Board
1. Cezary Stypułkowski	22 167	-	-	22 167
2. Frank Bock	655	111	-	766
3. Andreas Böger	729	90	-	819
4. Krzysztof Dąbrowski	1 459	223	-	1 682
5. Cezary Kocik	1 591	570	-	2 161
6. Marek Lusztyn	-	-	-	-
7. Adam Pers	-	-	-	-

As at the date of publishing the report for the first half of 2020 and as at the date of publishing the report for the third quarter of 2020, the Members of the Management Board had no and they have no rights to Bank's shares.

As at the date of publishing the report for the first half of 2020 the Member of the Supervisory Board of mBank S.A. Mr Jörg Hessenmüller had the 7 175 Bank's shares. As at the date of publishing the report for the third quarter of 2020, Mr Jörg Hessenmüller had the 7 958 Bank's shares.

As at the date of publishing the report for the first half of 2020 and as at the date of publishing the report for the third quarter of 2020, the other Members of the Supervisory Board of mBank S.A. had neither Bank shares nor rights to Bank shares.

26. Proceedings before a court, arbitration body or public administration authority

The Group monitors the status of all court cases brought against entities of the Group, including the status of court rulings regarding loans in foreign currencies in terms of shaping of and possible changes in the line of verdicts of the courts, as well as the level of required provisions for legal proceedings.

The Group creates provisions for litigations against entities of the Group, which as a result of the risk assessment involve a probable outflow of funds from fulfilling the liability and when a reliable estimate of the amount of the liability can be made. The amount of provisions is determined taking into account the amounts of outflow of funds calculated on the basis of scenarios of potential settlements of disputable issues and their probability estimated by the Group based on the previous decisions of courts in similar matters and the experience of the Group.

The value of provisions for litigations as at 30 September 2020 amounted to PLN 872 896 thousand (PLN 484 760 thousand as at 31 December 2019). A potential outflow of funds due to the fulfilment of the obligation takes place at the moment of the final resolution of the cases by the courts, which is beyond the control of the Group.

Information on the most important court proceedings relating to the issuer's contingent liabilities

1. Claims of Interbrok's clients

Since 14 August 2008, 170 entities which have been clients of Interbrok Investment E. Dróżdż i Spółka Spółka jawna (hereinafter Interbrok) called the Bank for amicable settlement for the total amount of PLN 386 086 thousand via the District Court in Warsaw. Nine compensation lawsuits were filed against the Bank. Eight of the nine lawsuits were filed by former clients of Interbrok for the total amount of PLN 800 thousand with the proviso that the claims may be extended up to the total amount of PLN 5 950 thousand. The plaintiffs alleged that the Bank had aided in Interbrok's illegal activities, which caused damage to them. With regard to seven of the afore-mentioned cases, legal proceedings against the Bank were dismissed and the cases were finally concluded. In the eighth case, a plaintiff withdrew their suit waiving the claim and the Regional Court dismissed the action. As far as the ninth suit is concerned, the amount in dispute is PLN 276 499 thousand, including statutory interest and costs of proceedings. According to the claims brought in the suit, this amount comprises the receivables, acquired by the plaintiff by way of assignment, due to the parties aggrieved by Interbrok on account of a reduction (as a result of Interbrok's bankruptcy) of the receivables by a return of the deposits paid by the aggrieved for making investments on the forex market. The plaintiff claims the Bank's liability on the grounds of the Bank's aid in committing the illicit act of Interbrok, consisting in unlicensed brokerage operations. On 7 November 2017, the Regional Court in Warsaw dismissed the action in its entirety. The ruling is not final. The plaintiff appealed.

1. A lawsuit filed by LPP S.A.

On 17 May 2018, mBank S.A. received a lawsuit filed by LPP S.A. with its registered office in Gdańsk seeking damages amounting to PLN 96 307 thousand on account of interchange fee. In the lawsuit, LPP S.A. petitioned the court for awarding the damages jointly from mBank S.A. and from other domestic bank.

The plaintiff accuses the two sued banks as well as other banks operating in Poland of taking part in a collusion breaching the Competition and Consumer Protection Act and the Treaty on the Functioning of the European Union. In the plaintiff's opinion, the collusion took the form of an agreement in restriction of competition in the market of acquiring services connected with settling clients' liabilities towards the plaintiff on account of payments for goods purchased by them with payment cards in the territory of Poland.

On 16 August 2018 mBank S.A. has submitted its statement of defence and requested that the action be dismissed. The court accepted the Defendants' requests to summon sixteen banks to join the proceedings and ordered that the banks be served with the summons. Two banks have notified of their intention to intervene in the case as an indirect intervener.

1. A lawsuit filed by Polski Koncern Naftowy ORLEN S.A.

On 7 February 2020, mBank S.A. received a lawsuit filed by Polski Koncern Naftowy ORLEN S.A. (Orlen) with its registered office in Płock seeking damages amounting to PLN 635 681 thousand on account of interchange fee. In the lawsuit, Orlen petitioned the court for awarding the damages jointly from mBank S.A. and other domestic bank and also from Master Card Europe and VISA Europe Management Services.

The plaintiff accuses the two sued banks as well as other banks operating in Poland of taking part in a collusion breaching the Competition and Consumer Protection Act and the Treaty on the Functioning of the European Union, i.e. a collusion restricting competition in the market of acquiring services connected with settling clients' liabilities towards the plaintiff on account of card payments for goods and services purchased by clients on the territory of Poland.

On 28 May 2020, mBank S.A. filed a response to the lawsuit.

1. Class action against mBank S.A. concerning the clause on changing interest rate

On 4 February 2011, a class action filed with the Regional Court in Łódź on 20 December 2010 by the Municipal Consumer Ombudsman representing a group of 835 individuals, the Bank's retail banking clients, was served on the Bank. The class action was filed to determine the Bank's liability for the improper performance of mortgage loan agreements. It was in particular claimed that the Bank had improperly applied provisions of agreements on changing interest rate, namely that the Bank had not lowered interest on loans, despite the fact that, according to the Plaintiff, it was obliged to do so. The Bank does not agree with the above-mentioned allegations. On 18 February 2011, the Bank responded to the lawsuit filing for its dismissal in whole.

As at 17 October 2012, the group of class members consisted of 1,247 individuals. On 3 July 2013, the Court announced its judgment allowing the claim in full. According to the Court, the Bank did not properly execute the agreements concluded with consumers, as a result of which they suffered losses. On 30 April 2014, the Court of Appeal in Łódź dismissed the appeal of mBank S.A., upholding the stance adopted by the Regional Court expressed in the judgment. On 14 May 2015, the Supreme Court revoked the ruling of the Court of Appeal in Łódź and referred the case back to that court for reexamination. By the decision of 24 September 2015, the Court of Appeal in Łódź admitted the expert opinion evidence in order to verify the legality of mBank's actions connected with changing the interest rates on the mortgage loans covered by the class action in the period from 1 January 2009 to 28 February 2010. On Hearing which took place on 15th July mBank S.A. withdrew the mBank's appeal against the ruling of 9 September 2013. In consequence the Appeal Court decided to dismissed proceedings what means that the ruling of the District Court in Łódź dated 3 July 2013 is final and nonappealable. The ruling dated 3 July 2013 does not question the validity of the concluded credit agreements. Once the ruling becomes final and non-appealable:

• interest on the loans covered by the class action will be charged at the fixed interest rate applicable on the date the loans were granted;

• a claim of the class members will arise for reimbursement of amounts potentially paid in excess of the fixed interest in the period covered by the class action.

The total value of claims in this class actions as at 30 June 2020 amounted to PLN 5.2 million.

The case is legally closed. Currently, the Bank has started communicating with customers regarding settlements in accordance with the judgment of 3 July 2013.

1. Class action against mBank S.A. concerning indexation clauses

On 4 April 2016, the Municipal Consumer Ombudsman representing a group of 390 individuals, retail clients of mBank, who concluded agreements on CHF-indexed mortgage loans with mBank, filed a class action with the Regional Court in Łódź against the Bank.

The class action includes alternative claims for declaring invalidity of the loan agreements in part i.e. in the scope of the provisions related to indexation, or in whole; or for finding that the indexation provisions are invalid as they permit indexation of over 20% and below 20% at the CHF exchange rate from the table of exchange rates of mBank S.A. applicable as at the date of conclusion of each of the loan agreements.

As decided by the Court on 13 March 2018, the group is composed of 1,731 persons. The said decision was appealed against by both parties. On 19 October 2018 the court issued a judgment in which it dismissed all claim of the plaintiff. In the oral justification, the court stated that the Plaintiff had not shown that he had a legal interest in bringing the claim in question, and also referred to the validity of loan agreements indexed by CHF, stressing that both the contract itself and the indexation clause are in compliance with both applicable regulations and rules of social coexistence. On 11 January 2019, the appeal of the plaintiff to which the Bank submitted a response. On 27 February 2020, a hearing was held at the Court of Appeal in Łódź. On 9 March 2020, a verdict was passed in a case in which the Court of Appeal referred the case for re-examination of the Regional Court. On 9 June 2020, the Court of Appeal agreed to the plaintiff's motion to secure the plaintiff's claims by suspending the obligation to repay principal and interest instalments and prohibiting the bank from issuing calls for payment and terminating credit agreements. The Bank lodged a complaint about this decision, which the court decided to reject. On 24 July 2020, the Court also rejected the Bank's complaint against the decision to reject the complaint lodged on 13 July 2020 against the decision to grant security. The hearing is scheduled for 21 March 2021.

As at 30 September 2020 the total value of claims in this class actions amounted to PLN 377 million.

1. Individual court proceedings concerning indexation clauses to CHF

Apart from the class action proceeding there are also individual court proceedings initiated against the Bank by its customers in connection with CHF loan agreements. As at 30 September 2020, 6 443 (31 December 2019: 3 715 proceedings) individual court proceedings were initiated against the Bank by its customers in connection with CHF loan agreements with the total value of claims amounting to PLN 1 150.9 million (31 December 2019: PLN 443.2 million). The value of provisions for all court proceedings related to CHF loan agreements amounted to PLN 862.4 million as at 30 September 2020 (as at 31 December 2019: PLN 478.8 million).

Out of the individual proceedings, 5 721 (31 December 2019: 2 902 proceedings) proceedings with the total value of claims amounting to PLN 1 138.4 million (31 December 2019: PLN 430.1 million) related to indexation clauses in CHF loan agreements and include claims for declaring ineffectiveness or invalidity in part (i.e. to the extent that the agreement contains contractual provisions related to indexation) or invalidity in whole of the loan agreements. Despite the prevailing number of negative final verdicts announced in the indexation clauses proceedings in 2020, approximately half of all final verdicts till 30 September 2020 was favourable to the Group.

The carrying amount of mortgage and housing loans granted to individual customers in CHF presented in the condensed consolidated financial statements of mBank S.A. Group as at 30 September 2020 amounted to PLN 13.6 billion (i.e. CHF 3.3 billion) compared to PLN 13.6 billion (i.e. CHF 3.5 billion) as at the end of 2019. Additionally the volume of the portfolio of loans granted in CHF that were already fully repaid as of 30 September 2020 amounted to PLN 6.6 billion (as at 31 December 2019: PLN 6.3 billion).

The Bank's approach to the measurement of provisions for legal risk associated with this portfolio of loans has been described in the Note 3 "Major estimates and judgments made in connection with the application of accounting policy principles".

Ruling of the Court of Justice of the European Union regarding a CHF mortgage

On 3 October 2019 the Court of Justice of the European Union issued the ruling in the prejudicial mode regarding a mortgage linked to the Swiss franc granted by a Polish bank. The submitted prejudicial questions were to determine, among other things, if a generally applicable custom can be used where there is no provision in domestic law that could replace an abusive exchange rate clause. In accordance with CJEU's ruling, the question of abusiveness will be decided by Polish courts. CJEU did not refer to this issue. In addition, CJEU did not make a clear-cut decision regarding the consequences of an exchange rate clause being considered abusive by a domestic court. However, the possibility of a credit agreement being performed further in PLN and with interest calculated according to LIBOR was found doubtful by the Court. If an exchange rate clause is found abusive, a domestic court must decide whether the agreement in question can be performed further or should be declared invalid, taking into account the client's will and the consequences of invalidity for the client. CJEU approved the application of a disposable norm (in the bank's opinion article 358 of the Polish Civil Code referring to the NBP fixing rate can be considered to be a disposable norm), if the invalidity of the agreement would be unfavourable for the client. CJEU rejected the application of general provisions referring to a custom or equity principles.

Tax audits

On 10 August 2020, mLeasing Sp. z o.o. a call was received from the First Masovian Tax Office in connection with the verification activities in the field of tax on goods and services for the month of June 2020. As a result of checking activities, no irregularities were found. The tax refund for June took place on 25 August 2020.

The tax authorities may inspect at any time the books and records within 5 years subsequent to the reported tax year and may impose additional tax assessments and penalties. The Management Board is not aware of any circumstances, which may give rise to a potential tax liability in this respect.

Inspection by the Office of the Polish Financial Supervision Authority (PFSA Office)

In the period from October till December 2018 the PFSA Office employees carried out an inspection in the Bank in order to investigate whether the activities of mBank S.A. in the area of fulfilling its duties as the depositary were in conformity with the law and agreements on the performance of functions of the depositary, in particular in conformity with the Act of 27 May 2004 on Investment Funds and Management of Alternative Investment Funds (Journal of Laws of 2018, item 1355, as later amended).

The detailed findings of the inspection were presented in the protocol delivered to the Bank on 11 February 2019. On 25 February 2019 the Bank delivered to the PFSA office its objections to the protocol as well as additional explanations related to the issues being the subject of the inspection.

On 1 April 2019 the Bank received PFSA response to the objections to the inspection protocol as well as PFSA recommendations in regard to the adjustment of Bank's activity as a depositary bank for investment funds to the applicable law. All objections of the Bank have been rejected by the regulator.

On 25 April 2019 the Bank submitted to PFSA Office a declaration of actions taken as realization of postinspection recommendations. PFSA by letter dated 4 September 2019 objected to the implementation of selected recommendations. On 11 October 2019 Bank submitted to PFSA the response addressing given objections, in which the description of taken actions was further specified as well as some new solutions for implementation were presented. On 5 December 2019, the PFSA Office sent to the Bank a reply to the letter containing the acceptance of some of the Bank's activities aimed at implementing post-audit recommendations and clarifications of other expectations that are being implemented. On 14 May 2020 the Bank formally confirmed the implementation of all the PFSA recommendations.

On 27 February 2020, the Bank received the decision of PFSA Office dated 25 February 2020 to initiate administrative proceedings regarding the imposition of an administrative penalty on the Bank, pursuant to the provisions of the Act dated 27 May 2004 on investment funds and management of alternative investment funds.

Proceedings initiated by the Office of Competition and Consumer Protection (UOKiK)

Proceedings for considering provisions of a template agreement as abusive instituted ex officio on 12 April 2019. The proceedings concern amendment clauses stipulating under which circumstances the bank is authorised to amend the terms and conditions of the agreement, including the amount of fees and commissions. In the opinion of the President of the Office of Competition and Consumer Protection (UOKiK), the amendment clauses used by the bank give it an unlimited right to unilaterally and freely change the manner of performing the agreement. As a consequence, the UOKiK President represents the view that the clauses used by the bank define the rights and obligations of consumers contrary to good morals and grossly violate their interest and, thus, are abusive. mBank does not agree with this stance. mBank responded to the decision on instituting the proceedings in letters dated 28 May 2019 and 10 January 2020. As at the date of approval these condensed consolidated financial statements, the UOKiK President did not take any further actions in the case in question, did not take a stance, and did not respond to mBank's letters.

27. Off-balance sheet liabilities

Off-balance sheet liabilities as at 30 September 2020 and 31 December 2019 were as follows.

Consolidated data of mBank S.A. Group

	30.09.2020	31.12.2019
1. Contingent liabilities granted and received	48 210 745	42 068 017
Commitments granted	42 565 139	38 073 362
- financing	32 975 046	29 134 935
- guarantees and other financial facilities	7 886 057	8 938 427
- other commitments	1 704 036	-
Commitments received	5 645 606	3 994 655
- financial commitments	546 425	392 130
- guarantees	5 099 181	3 602 525
2. Derivative financial instruments (nominal value of contracts)	761 571 057	596 187 240
Interest rate derivatives	654 624 224	497 168 526
Currency derivatives	100 547 331	93 546 161
Market risk derivatives	6 399 502	5 472 553
Total off-balance sheet items	809 781 802	638 255 257

Stand-alone data of mBank S.A.

	30.09.2020	31.12.2019
1. Contingent liabilities granted and received	49 237 981	46 072 755
Commitments granted	43 592 376	42 078 100
- financing	31 249 272	28 121 245
- guarantees and other financial facilities	10 639 068	13 956 855
- other commitments	1 704 036	-
Commitments received	5 645 605	3 994 655
- financial commitments	546 424	392 130
- guarantees	5 099 181	3 602 525
2. Derivative financial instruments (nominal value of contracts)	756 202 048	589 039 886
Interest rate derivatives	651 012 742	492 076 810
Currency derivatives	98 789 804	91 490 523
Market risk derivatives	6 399 502	5 472 553
Total off-balance sheet items	805 440 029	635 112 641

28. Transactions with related entities

mBank S.A. is the parent entity of the mBank S.A. Group and Commerzbank AG is the ultimate parent of the Group as well as the direct parent of mBank S.A.

All transactions between the Bank and related entities were typical and routine transactions concluded on terms, which not differ from arm's length terms, and their nature, terms and conditions resulted from the current operating activities conducted by the Bank. Transactions concluded with related entities as a part of regular operating activities include loans, deposits and foreign currency transactions.

The amounts of transactions with related entities, i.e., balances of receivables and liabilities as at 30 September 2020 and as at 31 December 2019, and related costs and income for the period from 1 January to 30 September 2020 and from 1 January to 30 September 2019 are presented in the table below.

	mBank's subsidiaries		Commerzbank AG		Other companies of the Commerzbank AG Group
As at the end of the period	30.09.2020	31.12.2019	30.09.2019	30.09.2020	31.12.2019	30.09.2019	30.09.2020	31.12.2019	30.09.2019
Statement of Financial Position
Assets	111 372	160 187		888 556	528 688		18	19
Liabilities	23 096	31 518		2 229 635	2 059 006		522 271	709 071
Income Statement
Interest income	1 304		4	36 190		50 457	349		519
Interest expense	(83)		(53)	(29 866)		(25 185)	(2 405)		(3 715)
Fee and commission income	267		74	4 482		3 509	35		42
Fee and commission expense	(323)		-	-		(1 030)	-		-
Other operating income	93		73	1 157		1 098	-		-
Overhead costs, amortisation and other operating expenses	(180)		(2)	(6 184)		(7 280)	-		-
Contingent liabilities granted and received
Liabilities granted	362 064	355 716		2 143 892	2 124 709		7 314	3 502
Liabilities received	-	-		1 891 335	1 816 577		-	-

The total costs of remuneration of Members of the Supervisory Board, the Management Board and other key management personnel of the Bank that perform their duties from 1 January to 30 September 2020 recognized in the Group's income statement for that period amounted to PLN 23 228 thousand (in the period from 1 January to 30 September 2019: PLN 26 058 thousand).

With regard to the Management Board and other key management personnel the remuneration costs include also remuneration in the form of shares and rights to shares.

29. Credit and loan guarantees, other guarantees granted of significant value

As at 30 September 2020, the Bank's significant exposure under guarantees granted related to the guarantee payment of all amounts to be paid in respect of debt securities issued by mFinance France S.A. (mFF), a subsidiary of the mBank S.A.

On 20 November 2014, mFF issued a tranche of Eurobonds with nominal value of EUR 500 000 thousand maturing on 26 November 2021. In this case, the guarantee was granted on 20 November 2014 for the duration of the Programme, i.e. to 26 November 2021. In June 2020, there was a partial redemption of bonds with nominal value of EUR 72 417 thousand, therefore the amount of the guarantee was reduced accordingly.

On 14 March 2017, mFF issued next tranche of Eurobonds with nominal value of CHF 200 000 thousand maturing on 28 March 2023. In this case, the guarantee was granted on 14 March 2017 for the duration of the Programme, i.e. to 28 March 2023.

On 16 September 2020, the process of substitution from the mFF to the Bank as an issuer of Eurobonds began. The substitution entered into force on 1 October 2020. The bank, as the current guarantor, replaced the mFF as the main debtor on bonds and therefore the mFF ceased to be a bond issuer. Moreover, as the Bank became the issuer and the main debtor under the bonds, the above-mentioned Bank guarantees expired on 1 October 2020. Information on substitution is presented in point 33 below.

30. Other information which the issuer deems necessary to assess its human resources, assets, financial position, financial performance and their changes as well as information relevant to an assessment of the issuer's capacity to meet its liabilities

▪ Change in the composition of the Management Board of mBank S.A.

On 25 June 2020, Supervisory Board of mBank S.A. adopted a resolution to dismiss Mr. Frank Bock from the function of the Vice President of the Management Board for Financial Markets mBank S.A. as of 31 December 2020.

The termination of the agreement with Mr. Frank Bock on 31 December 2020 is associated with the reorganization of the financial markets area within other business areas of the Bank, in order to increase the efficiency of the organizational and process structure, and its effect will be a reduction in the number of positions on the Bank's Management Board. Mr. Frank Bock will be involved in the reorganization of the area by the end of this year.

On 22 October 2020, Ms. Lidia Jabłonowska-Luba, Vice-President of the Management Board for Risk Management at mBank S.A., resigned from the position of a member of the Management Board of mBank S.A., from the position of Vice-President of the Management Board for Risk Management at mBank S.A., with the effective on 22 October 2020.

On 22 October 2020, the Supervisory Board of mBank S.A. adopted a resolution to appoint, on 22 October 2020, Mr. Marek Lusztyn to the Management Board of mBank S.A., for the period until the end of the current term of office of the Management Board of mBank S.A.

From the date of the approval by the Polish Financial Supervision Authority to appoint Mr. Marek Lusztyn as a Member of the Management Board supervising the management of risk relevant to the Bank's operations, Mr. Marek Lusztyn will take the position of Vice President of the Management Board of mBank S.A. for Risk Management at mBank S.A. (overseeing the management of risks relevant to mBank S.A.'s operations).

▪ Changes in the composition of the Supervisory Board of mBank S.A.

On 28 September 2020, Supervisory Board of mBank S.A., received the resignation of Mr. Michael Mandel, effective from 23 October 2020, from membership in the Bank's Supervisory Board as well as from the Executive and Nomination Committee and the Remuneration Committee. Mr. Michael Mandel resigned in connection with the planned departure from Commerzbank.

By a resolution of the Supervisory Board of mBank S.A. of 22 October 2020, Mrs. Sabine Schmittroth was appointed as a member of the Supervisory Board of mBank S.A. on 23 October 2020 for the period until the end of the current term of the Supervisory Board.

31. Factors affecting the results in the coming quarter

During the three quarters of 2020 the COVID-19 pandemic significantly affected the Group's results, mainly by increasing expected credit losses charges. The Group expects further impact of the pandemic and related activities undertaken in Poland and worldwide on the results of the next quarter and the entire 2020.

The reduction of interest rates by the Monetary Policy Council by 140 basis points in total, announced on 17 March, 8 April and on 28 May 2020, will have a negative impact on the Group's net interest income. The impact is currently estimated to be approximately in the range of PLN 250-300 million in 2020. The final impact may differ from the current estimation depending on the macroeconomic situation, business activity and volume development.

The Group has introduced a number of facilities for customers to limit the impact of the pandemic on their financial situation. Despite this, due to the potential deterioration of the macroeconomic situation, the Group expects that the financial situation of borrowers will deteriorate in the following quarters and thus further increase the expected credit losses charges in the fourth quarter and in the entire 2020 when compared to those charges in the fourth quarter of 2019 and entire 2019. Moreover, the weakening of the zloty as well as development of situation relating to new lawsuits and verdicts related to loans in CHF may have a negative impact on the amount of provisions created for legal risk of foreign currency mortgage and housing loans.

Considering the above, the Bank's Management Board expects that the consolidated net result in 2020 will be significantly lower than the net profit achieved in 2019.

32. Other information

▪ Requirements on mBank Group capital ratios as of 30 September ²⁰²⁰

On 19 March 2020, into force the repeal of the regulation on the systemic risk buffer applicable to banks in Poland under the provisions of the Act on Macro-prudential Supervision over the Financial System and Crisis Management in the Financial System of 5 August 2015 (Dz. U. 2019, item 483) into force. Thus, the value of the system buffer was reduced to 0% for mBank and mBank Group from 2.81% and 2.83%, respectively.

Given the above, as well as the other components that make up the required level of capital ratios, the minimum required level of capital ratios at the end of September 2020 was as follows:

• Individual total capital ratio 14.90% and Tier 1 capital ratio 12.00%,
• Consolidated total capital ratio –14.39% and Tier 1 capital ratio 11.61%.

At the date of approved of these financial statements, mBank S.A. and mBank Group S.A. fulfil the KNF requirements related to the required capital ratios on both individual and consolidated levels.

▪ Request of the Polish Financial Supervision (KNF) to the Financial Stability Committee Authority (KSF) to express an opinion concerning the other systemically important institution buffer imposed on mBank S.A.

On 22 September 2020, mBank S.A. received a letter, in which the KNF asked the KSF to express its opinion regarding the amount of the other systemically important institution (O-SII) buffer imposed on the Bank. As part of the review of the adequacy of the O-SII buffer, carried out by the PFSA in accordance with art. 46 par. 1 of the Act of 5 August 2015 on Macroprudential Supervision of the Financial System and Crisis Management (Journal of Laws of 2019, item 483), the PFSA indicated that the assessment of systemic importance of the Bank is the basis to impose on the Bank the O-SII buffer in the amount equivalent to 0.50% of the total risk exposure amount calculated in accordance with Art. art. 92 par. 3 of CRR, instead of the current buffer of 0.75%.

On 29 September 2020, the Bank received FSC's decision with a positive opinion on the imposition on the Bank the O-SII buffer equivalent to 0.50% of the total risk exposure amount. Until date of approved of these mBank Group's IFRS Condensed Consolidated Financial Statements for Q3/2020, the Bank has not received a decision of the PFSA in this administrative procedure.

33. Events after the balance sheet date

▪ Substitution from mFinance France S.A.

On 1 October 2020, the substitution from mFinance France (mFF) to the Bank as a bond issuer came into force. The substitution process began on 6 September 2020, after the Supervisory Board of mBank S.A. adopted a resolution expressing its consent to it. As a result of the substitution, the financial liabilities of the mFF towards the bondholders expired, and the corresponding liabilities towards the bondholders arose on the Bank's side. The substitution covers two series of bonds issued by the mFF as part of the established program for the issue of debt securities with a total nominal value of up to EUR 3 000 000 thousand:

a) bonds with a total nominal value of EUR 500 000 thousand, issued on 26 November 2014, with a fixed interest rate, maturing on 26 November 2021 and listed on the regulated market operated by the Luxembourg Stock Exchange. The current face value of these outstanding bonds is EUR 427 583 thousand (the equivalent of PLN 1 930 666 thousand according to the average NBP exchange rate as of 1 October 2020) and

b) bonds with a total nominal value of CHF 200 000 thousand, issued on 28 March 2017, with a fixed interest rate, maturing on 28 March 2023 and listed on the regulated market operated by the Swiss stock exchange (the equivalent of PLN 837 680 thousand according to the average NBP exchange rate of 1 October 2020).

▪ Liquidation of mFinance France S.A.

On 13 October 2020 the Management Board of mBank S.A. adopted a resolution on the liquidation of the subsidiary mFinance France S.A. (mFF), in which the Bank holds 100% of shares and 100% of votes in the share capital.

The liquidation of mFF will take place after all necessary procedures have been carried out in accordance with applicable law.

The liquidation of mFF is a consequence of the actions taken by the Bank's Management Board to simplify the organizational structure of the Bank's capital group.

▪ Change of the head office of mBank S.A. location

On 13 October 2020, the Management Board of mBank S.A. adopted a resolution on changing the address of the Bank's head office location as of 20 November 2020.

From 20 November 2020, the new address of the head office of the Bank is 18 Prosta St., 00-850 Warsaw.

▪ Changs in the composition of the Management Boards and Supervisory Board of mBank S.A.

Changes in the composition of the Management Boards and Supervisory Board of mBank S.A. that occurred after the balance sheet date are presented in point 30 above.