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.