Group profit and loss account

Net Interest Income (pro-forma) for 2016 reached PLN 1,556.5 million and increased by 9.7% versus the previous year, thanks to both volume growth and margin improvement  after the period of margin compression resulting from significant central bank rates cuts in previous years.

Net Interest Margin (over average interest earning assets) reached 2.39% in 2016 which is 21 bps higher than in 2015 year. The growing quarterly levels of NIM can be observed which was mainly fuelled by decreasing cost of funding, especially deposits.

Net Commission Income for 2016 amounted to PLN 581.0 million, which means a 2.5% decrease year-on-year due to weaker capital markets related commissions (e.g. lower fees from investment products) as well as lower insurance fees. However, from the quarterly perspective, those fees and commissions groups started to increase in the 2nd half of the reported year. In 2016 the level of fees and commissions from loans and guarantees increased by PLN 21.2 million versus the previous year.

Core Income, defined as a combination of net interest and commission income, reached the amount of PLN 2,137.5 million for 2016 and increased by 6.1% compared to the previous year as a result of abovementioned rebound in Net Interest Income.

Other Non-interest Income, which comprise FX Result, Results on Financial Operations and net other operating income and costs, increased strongly by PLN 332.5 million due to the impact of one-off incomes and charges, which had altogether positive impact in 2016 year and visibly negative impact in 2015 year. The one-off items (pre-tax) in 2016 included mainly income from the transaction on Visa Europe shares of PLN 283 million and other one-off charges of PLN 51.5 million booked in 2nd quarter of the year. The value of one-off items in 2015 comprised mainly payment to Bank Guarantee Fund related to bankrupted co-operative bank in Wołomin and payment to the Fund for supporting distressed mortgage borrowers (plus other one-off charges) that amounted in total to PLN -140.3 million (pre-tax).

Total Operating Income of the Group for 2016 reached PLN 2,472.2 million and increased by 22.6% year-on-year (or by 3.9% without mentioned one-offs).

Total costs in 2016 amounted to PLN 1,112.3 million, which means an increase by 2.3% when compared to 2015 year.

Personnel Costs for 2016 amounted to PLN 558.8 million and increased slightly by 2.2% compared to the previous year. The total number of employees in the Group decreased by 67 employees compared to the end of December 2015, to the level of 5,844 persons (in Full Time Equivalents) in line with network optimisation process.

The structure of employment of Bank Millennium Group is presented in the table below:

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Employment structure (in FTEs)	31.12.2016	31.12.2015	Change y/y
Bank Millennium S.A.	5 497	5 575	-1.4%
Subsidiaries	347	336	3.3%
Total Bank Millennium Group	5 844	5 911	-1.1%

More information about employment structure and remuneration is presented in Chapter VIII of this document.

Other Administrative Costs (including depreciation) amounted to PLN 553.6 million and increased by 2.5% year-on-year mainly due to higher IT costs, cost of external services (such as legal, advisory, etc.) and depreciation (+8.8% yearly).

Cost-to-Income ratio (without taking into account one-off extraordinary incomes or charges) for 2016 stood at 49.6%, and was lower by 0.8 p.p. compared to the level of the previous year of 50.4% (also without one-offs). The reported cost-to-income reached 45.0% in 2016 i.e. lower by 8.9 percentage points compared to the previous year.

Total net impairment provisions created by the Group in 2016 amounted to PLN 231.2 million and were 4.2% lower compared to 2015 due to much lower provisions for corporate segment supported by positive recovery effect (a net release of PLN 0.7 million compared to PLN 41.8 million created in the previous year), which more than offset higher level of provisions in retail segment (an increase to PLN 228.5 million from PLN 198.0 million in 2015).

In relative terms, cost of risk (i.e. net provisions created to the average net loans) in 2016 decreased to 49 bps level from 52 bps in 2015 (i.e. 3 bps lower yearly).

Net Profit for the analysed period amounted to PLN 701.3 million and was 28.3% higher compared to the level of the previous year.  Commencing from February 2016 a new special banking tax was introduced, with 0.44% annual rate on the balance of total assets less own funds, Treasury bonds and PLN 4 billion tax-exempt amount. Bank Millennium was charged in 2016 with PLN 174.1 million of this tax. If not including this tax and one-off incomes and charges (net positive impact of PLN 180.3 million), the Net Profit for 2016 would be similar to the reported one and would amount to PLN 695 million, so it would be higher by 4.1% compared to the Net profit level without one-off items in 2015 (PLN 667.4 million).