Notes to the consolidated profit and loss account
20. Net interest income
Interest income
2019 | 2018 | |
Interest on loans measured at AC | 319,440 | 294,697 |
Interest on interest-bearing securities | 3,295 | 3,402 |
Total interest income from financial instruments measured at AC | 322,735 | 298,099 |
Interest on loans measured at FVPL | 56,264 | 45,252 |
Interest on short-term deposits | 29,419 | 18,276 |
Interest on derivatives related to asset portfolio | -32,159 | -25,532 |
Total interest income from financial instruments measured at FVPL | 53,524 | 37,996 |
Total interest income | 376,259 | 336,095 |
Included in the interest income on loans is €8,872 (2018: €13,206) related to specific impaired loans (calculated on amount net of impairment) for which adjustments to the interest income has been added.
Interest expense
2019 | 2018 | |
Interest on debentures and notes hedged | -46,336 | -37,890 |
Interest on debentures and notes not hedged | -88,236 | -62,384 |
Interest on short-term credits | -549 | 43 |
Interest expenses related to banks (assets)1 | -1,451 | -2,233 |
Interest on leases | -185 | - |
Total interest expense from financial instruments measured at AC | -136,757 | -102,464 |
Interest on derivatives | -24,283 | -23,742 |
Total interest expense from financial instruments measured at FVPL | -24,283 | -23,742 |
Total interest expense | -161,040 | -126,206 |
- 1 Interest expense is related to Cash and balances held at Central Bank. Overnight deposit rates at central banks are negative in the Eurozone, implying interest expense on assets. In Annual Report 2018, this amount was presented as negative income under Interest income. Comparatives have been adjusted accordingly for 2018.
21. Net fee and commission income
2019 | 2018 | |
Prepayment fees | 859 | 1,288 |
Front-end fees for FVPL loans | 641 | 1,173 |
Administration fees | 2,321 | 2,058 |
Other fees (like arrangement, cancellation and waiver fees)1 | 3,391 | 2,117 |
Total fee and commission income | 7,212 | 6,636 |
Custodian fees and charges for the early repayment of debt securities | -1,107 | -844 |
Guarantee fees related to unfunded risk participants2 | -10,119 | -9,913 |
Total fee and commission expense | -11,226 | -10,757 |
Net fee and commission income | -4,014 | -4,121 |
- 1 Fees income related to guarantees given have been reclassed from line item 'interest income for loans at AC. Comparatives have been restated for 2018
- 2 Fees expenses related to guarantees received have been reclassed from line item interest income for loans at AC. Comparatives have been restated for 2018
22. Dividend income
2019 | 2018 | |
Dividend income direct investments | 25,606 | 24,400 |
Dividend income fund investments | 4,039 | 3,887 |
Total dividend income | 29,645 | 28,287 |
23. Results from equity investments
2019 | 2018 | |
Results from equity investments: | ||
Unrealized results from capital results | 50,113 | -1,690 |
Unrealized results from FX conversions - capital results | 775 | 4,153 |
Unrealized results from FX conversions - cost price | 24,098 | 40,003 |
Net unrealized results | 74,986 | 42,466 |
Results from sales, distributions: | ||
Realized results | 9,950 | 91,202 |
Release unrealized results | -11,659 | -92,827 |
Net results from sales, distributions and write-offs | -1,709 | -1,625 |
Total results from equity investments | 73,277 | 40,841 |
24. Results from financial transactions
2019 | 2018 | |
Result on valuation of hedged items | -46,375 | -6,153 |
Result on valuation of hedging instruments | 46,692 | 10,210 |
Result on hedge accounting | 317 | 4,057 |
Result on sale and valuation of derivatives not under hedge accounting | -13,304 | -15,035 |
Result on sale and valuation of embedded derivatives related to asset portfolio | -2,005 | 5,109 |
Result on sale and valuation of loans at FVPL | -12,961 | -16,477 |
Result on financial instruments mandatory at FVPL | -28,270 | -26,403 |
Foreign exchange results | 7,922 | 246 |
Other | 31 | -139 |
Total result from financial transactions | -20,000 | -22,239 |
The main driver for 2019 of €13,304 million is decrease of the USD curve by 1% across tenors (compared to 2018), leading to decrease in value of the Overlay swaps (where FMO pays fixed and receives floating USD)
25. Remuneration for services rendered
2019 | 2018 | |
Funds and programs managed on behalf of the State: | ||
- MASSIF | 10,896 | 10,895 |
- Building Prospects | 8,095 | 8,220 |
- Access to Energy Fund | 2,216 | 2,165 |
- FOM OS | 200 | 300 |
- Capacity Development Program | - | 337 |
- Syndication fees, remuneration from directorships and others | 8,654 | 7,177 |
Total remuneration for services rendered | 30,061 | 29,094 |
Remuneration for managing funds and programs is assessed for market conformity and expressed in gross amounts. Related management expenses are included in operating expenses.
26. Gains and losses due to derecognition
Gains and losses due to derecognition arise from loans measured at amortized cost, where modification of contractual terms and conditions have been triggered due to financial difficulties. Refer to 'Modification of financial assets' section in the 'Accounting Policies'.
Prior to 2019, these results were not presented separately but included under 'Impairments on loans'. Presentation changes are related to reclassification within the profit and loss statement and do not lead to changes in accounting treatment. Comparatives for 2018 have been therefore adjusted accordingly.
2019 | 2018 | |
Gains and losses due to derecognition | 3,916 | 14,980 |
27. Other operating income
2019 | 2018 | |
Other operating income1 | 1,695 | 589 |
Total other operating income | 1,695 | 589 |
- 1 As per December 31, 2019 recoveries related to written - off are presented under Impairments on loans. Comparative amount of €3.613 is reclassified to Impairments on loans as per December 31, 2018
28. Staff costs
The number of FTEs at December 31, 2019 amounted to 580 (2018: 508 FTEs). All FTEs are employed in the Netherlands except for 4 FTEs, which are employed in foreign offices.
2019 | 2018 | |
Salaries | -50,473 | -44,123 |
Social security costs | -6,854 | -6,148 |
Pension costs | -13,729 | -11,819 |
Temporaries | -10,809 | -5,763 |
Travel and subsistence allowances | -5,203 | -4,811 |
Other personnel expenses | -3,182 | -6,627 |
Total staff costs | -90,250 | -79,291 |
29. Administrative expenses
2019 | 2018 | |
IT expenses | -6,421 | -3,910 |
Advisory costs | -14,940 | -8,061 |
Other operational expenses | -10,834 | -11,657 |
Total administrative expenses | -32,195 | -23,628 |
These expenses consist primarily of services from third parties and other operational expenses. The remuneration paid to the Supervisory Board is included in these expenses. At December 31, 2019, the Supervisory Board consisted of six members (2018: six). The members of the Supervisory Board were paid a total remuneration of €138 (2018: €125).
With reference to Section 2:382a(1) and (2) of the Netherlands Civil Code, the following fees for the financial year have been charged by Ernst & Young Accountants LLP (2018: Ernst & Young Accountants LLP) to the company and its subsidiaries.
Fee charged by auditors | 2019 | 2018 |
Statutory audit of annual accounts | -720 | -587 |
Other assurance services | -490 | -122 |
Total | -1,210 | -709 |
30. Income taxes
Income tax by type
2019 | 2018 | |
Current income taxes | 1,681 | -14,185 |
Deferred income taxes | 203 | -553 |
Total income tax | 1,884 | -14,738 |
The reconciliation of the statutory income tax rate to the effective income tax rate is as follows:
2019 | 2018 | ||
Profit before taxation | 118,528 | 165,871 | |
Income taxes at statutory rate of 25% (2018: 25%) | -29,632 | -41,390 | |
Increase/decrease resulting from: | |||
ˑ | Settlement with local withholding taxes | 716 | 3,785 |
ˑ | Non-taxable income (participation exemption facility) | 29,189 | 18,874 |
ˑ | Tax adjustments to prior periods | 1,681 | 4,664 |
ˑ | Other | -70 | -671 |
Total income tax | 1,884 | -14,738 | |
Effective income tax rate | -1.6% | -8.9% |
Current income tax
FMO paid €20,356 (2018: €42,810) to tax authorities. The remaining current income tax receivable amounts to €46,484 (2018: €24,448). Per year end 2019 there were no unused tax losses and the unused tax credits amount to €2,575 (2018: €0).
Deferred tax
FMO’s deferred income tax assets and liabilities are summarized as follows:
2019 | 2018 | |
Deferred tax assets | ||
Pension provision | 3,095 | 2,911 |
Actuarial gains and losses on defined benefit plans | 3,872 | 5,446 |
Operational leases | 19 | - |
Total deferred tax assets | 6,986 | 8,357 |
Deferred tax liabilities | ||
Fair value movements equity investments | -5,638 | -2,801 |
Total deferred tax liabilities | -5,638 | -2,801 |
Net balance at December 31 | 1,348 | 5,556 |
The Dutch government has announced a lower corporate tax rate which will be gradually implemented in the coming years. FMO has determined the timing of expected cash flow of underlying assets and liabilities and has changed the applicable tax rate accordingly.