Income statements items

As described in the Introductory notes on how to read the data, the tables in this paragraph include a comparison of 2016 with the prior year excluding all effects attributable to the acquisition of the former GE Capital Interbanca Group (the data are presented in a column named “31.12.2016 normalised”), as if the business combination never took place.

Please note that the former GE Capital Interbanca Group contributed to the 2016 results only in the month of December.

 

Formation of net banking income

Net banking income totalled 358,6 million Euro, down 12,1% from 408,0 million Euro in the prior year. Normalising the results for the material impacts from the acquisition of the former GE Capital Interbanca Group in 2016, net banking income amounted to 364,6 million Euro.

The acquisition added 6,0 million Euro to net banking income, and this amount mainly included: the contribution from the receivables of the new Corporate Banking and Leasing sectors, as well as the positive impact of the breakdown of the difference between the fair value as measured in the business combination and the carrying amount of the receivables recognised by the subsidiaries over time; the costs related to the funding for the acquisition of the former GE Capital Interbanca Group, which concerned the increase in Rendimax funding volumes and the securitisations carried out at the end of 2016.

The table below shows the results for the year excluding the above effects: net banking income fell 10,6% net of the gain on the sale of financial assets realised in April 2015 as part of the rebalancing of the government bond portfolio (124,5 million Euro), while the Group's net banking income was up 28,6%.

In 2016, net banking income rose as a result of, among other things, the 44,5 million Euro gain on the sale of some portfolios of receivables of the NPL Area and the 15,8 million Euro positive effect recognised under interest income from the implementation of the new model to estimate the cash flows of health service receivables.

NET BANKING INCOME
(in thousands of Euro)
YEAR NORMALISED CHANGE
  2016 31.12.2016
NORMALISED
2015 ABSOLUTE %
Net interest income 268,183 262,312 208,626 53,686 25.7%
Net commission income 41,111 52,807 58,783 (5,976) (10.2)%
Net result from trading (702) (553) (78) (475) 609.0%
Profit (loss) from sale or buyback of receivables 44,529 44,529 14,948 29,581 197.9%
Profit from sale or buyback of financial assets 5,478 5,495 125,679 (120,184) (95.6)%
Net banking income 358,599 364,590 407,958 (43,368) (10.6)%
 

In the fourth quarter, net banking income stood at 97,3 million Euro, up from 76,8 million Euro in the prior-year period (+26,7%). The normalised net banking income for the fourth quarter of 2016 was up 34,5% to 103,3 million Euro.   

Net interest income rose from 208,6 million Euro at 31 December 2015 to 268,2 million Euro at 31 December 2016 (+28,5%). Interest expense included 10,7 million Euro in costs associated with the acquisition, including the differential funding cost on Rendimax deposits and the funding cost of the securitisation. The normalised net interest income was 263,3 million Euro, up 25,7% from 31 December 2015.

Net commission income totalled 41,1 million Euro, down from 31 December 2015 (-30,1%). The normalised amount was 52,8 million Euro, down 10,2%.

Commission income, totalling 59,4 million Euro (normalised amount: 58,1 million Euro), compared to 63,2 million Euro at 31 December 2015, came primarily from factoring commissions on the turnover generated by individual customers (with or without recourse, in a flat or monthly scheme) as well as from other fees usually charged to customers for services.

Commission expense, totalling 18,3 million Euro (4,4 at 31 December 2015), included 12,5 million Euro in up-front commissions for the factoring, leasing and lending securitisations carried out in December 2016; the normalised amount was 5,3 million Euro and referred largely to approved banks’ mediation activities, the work of other credit intermediaries, and commissions paid to correspondent banks and factors.

The gain on the sale of receivables, totalling 44,5 million Euro, arose from the sale of a number of portfolios of receivables of the NPL Area. The item included a 279 thousand Euro loss on the repurchase of some portfolios sold in late 2015.

The gain on the sale of financial assets arose from the sale of part of the government bond portfolio completed in the first half of 2016, resulting in a 5,5 million Euro gain.

 

Formation of net profit from financial activities

The Group's net profit from financial activities totalled 299,4 million Euro, compared to 373,7 million Euro at 31 December 2015 (-19,9%). The net profit from financial activities normalised for the acquisition totalled 306,9 million Euro.

The table below shows the results for the year excluding the above effects: net profit from financial activities fell 17,9% net of the gain on the sale of financial assets realised in April 2015 as part of the rebalancing of the government bond portfolio (124,5 million Euro), while the Group's net profit from financial activities was up 23,2%.

FORMATION OF NET PROFIT FROM FINANCIAL ACTIVITIES

(in thousands of Euro)
YEAR NORMALISED CHANGE
  2016 31.12.2016
NORMALISED
2015 ABSOLUTE %
Net banking income 358,599 364,590 407,958 (43,368) (10.6)%
Net impairment losses on: (59,233) (57,651) (34,250) (23,401) 68.3%
loans and receivables (54,882) (53,295) (25,273) (28,022) 110.9%
available for sale financial assets (4,356) (4,356) (8,977) 4,621 (51.5)%
other financial transactions 5 - - - n.a.
Net profit (loss) from financial activities 299,366 306,939 373,708 (66,769) (17.9)%
 

Net value adjustments on receivables totalled 54,9 million Euro (compared to 25,3 million Euro at 31 December 2015, +117,2%). 20,3 million Euro referred to Trade Receivables, 32,6 million Euro to the NPL Area,1,5 million Euro to the Leasing sector, and 0,4 million Euro to Tax Receivables. As for net value adjustments on NPL receivables, they referred to positions for which trigger events occurred, causing

the position to become impaired under the adopted measurement model and the relevant accounting policy, as detailed in Contribution of business segments.

Net value adjustments on available for sale financial assets, totalling 4,4 million Euro at 31 December 2016 (9,0 million Euro in the prior-year period), referred to impairment losses recognised on unlisted equity instruments that were found to be impaired.

In the fourth quarter, net profit from financial activities totalled 81,2 million Euro (compared to 68,7 million Euro in the fourth quarter of 2015).

Formation of profit for the year

Profit for the year, including 40 thousand Euro attributable to non-controlling interests, amounted to 688,0 million Euro, compared to 162,0 million Euro in 2015, up 324,7%. Normalising for the business combination, the profit for the year totalled 89,8 million Euro.

The impact of the acquisition of the former GE Capital Interbanca Group on the Banca IFIS Group's profit for the year mainly referred to the 623,6 million Euro gain on bargain purchase recognised under operating costs.

FORMATION OF PROFIT FOR THE YEAR
(in thousands of Euro)
YEAR NORMALISED CHANGE
  2016 31.12.2016
NORMALISED
2015 ABSOLUTE %
Net profit (loss) from financial activities 299,366 306,939 373,708 (66,769) (17.9)%
Operating costs 421,160 (172,161) (128,119) (44,042) 34.4%
Pre-tax profit from continuing operations 720,526 134,778 245,589 (110,811) (45.1)%
Income tax expense (32,541) (44,983) (83,623) 38,640 (46.2)%
Profit for the period 687,985 89,795 161,966 (72,171) (44.6)%
Non-controlling interests 40 - - - n.a.
Parent Company profit for the year 687,945 89,795 161,966 (72,171) (44.6)%
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The cost/income ratio based on the normalised income statement totalled 47,2%, compared to 31,4% at 31 December 2015.

OPERATING COSTS
(in thousands of Euro)
YEAR NORMALISED CHANGE
  2016 31/12/2016
NORMALISED
2015 ABSOLUTE %
Personnel expenses 65,878 56,621 48,342 8,279 17.1%
Other administrative expenses 126,276 106,343 78,828 27,515 34.9%
Allocations to provisions for risks and charges 1,849 (251) 229 (480) (209.6)%
Net value adjustments on property. plant and equipment and intangible assets 6,055 5,851 3,746 2,105 56.2%
Other operating charges (income) (621,218) 3,597 (3,026) 6,623 (218.9)%
Total operating costs (421,160) 172,161 128,119 44,042 34.4%
 

Personnel expenses rose 36,3% to 65,8 million Euro (48,3 million Euro in December 2015), and included 5,5 million Euro in costs deriving from the agreements with some top executives of the GE Capital Interbanca Group attributable to the previous management. Normalised personnel expenses totalled 56,6 million Euro (+17,1% from 2015) as a result of new hiring (190 staff added during 2016, compared

to 177 in 2015). The increase is consistent with the goal to strengthen some areas and services supporting the business—especially in the NPL Area sector—and the scenario in which the Group operates. At December 2016, the Group had 1.323 employees, of which 479 from the former GE Capital Interbanca Group.

Other administrative expenses totalled 126,3 million Euro, up 60,2% from 78,8 million Euro at 31 December 2015 because of the costs incurred for the acquisition of the former GE Capital Interbanca Group (9,5 million Euro in legal and consulting fees) and the higher business volumes in the NPL Area. The relevant costs for collecting debts and gathering information on clients (29,4 and 9,4 million Euro, compared to 15,4 and 5,3 million Euro at 31 December 2015, respectively), are included in this item of the income statement. The cost of gathering information on clients specifically concern master data and employment information search costs, which are necessary to reclassify the positions being processed.

There was also an increase in the expenses related to the new organisation of business processes and the internal control system. The normalised balance of other administrative expenses totalled 106,3 million Euro, +34,9% from 31 December 2015.

OTHER ADMINISTRATIVE EXPENSES

(in thousands of Euro)
YEARNORMALISED CHANGE
 201631.12.2016
NORMALISED
2015 ABSOLUTE%
Expenses for professional services56,99545,37531,04414,33146.2%
Legal and consulting services25,51114,34713,9483992.9%
Auditing4282552262912.8%
Outsourced services31,05630,77316,87013,90382.4%
Direct and indirect taxes14,88213,3578,7484,60952.7%
Expenses for purchasing goods and other services54,39947,61139,0368,57522.0%
Customer information11,37611,2826,7934,48966.1%
Software assistance and hire5,5504,9883,2671,72152.7%
Postage of documents5,2545,2113,6321,57943.5%
Property expenses4,6674,4294,585(156)(3.4)%
Advertising and inserts3,7693,6742,1501,52470.9%
Car fleet management and maintenance2,4072,3242,264602.7%
Telephone and data transmission expenses1,9231,8411,44140027.8%
Employee travel1,6651,6131,12049344.0%
Other sundry expenses17,78812,24913,784(1,535)(11.1)%
Total administrative expenses126,276106,34378,82827,51534.9%
Expense recoveries(2,348)(2,348)(2,998)650(21.7)%
Total net other administrative expenses 123,928103,99575,83028,16537.1%

 

The subline item direct and indirect taxes included 7,6 million Euro (+25,9% compared to 31 December 2015) in stamp duty costs for retail funding, which the Banks continues bearing.

Other sundry expenses included the contributions due to Italy's Bank Resolution Fund and Interbank Deposit Protection Fund for the current year, totalling 10,5 million Euro compared to 10,6 million Euro in the previous year.

Net allocations to provisions for risks and charges totalled 1,8 million Euro (compared to 229 thousand Euro in December 2015). The amount at 31 December 2016 consisted of 274 and 68 thousand Euro in net provisions for disputes concerning Trade Receivables and the NPL Area, respectively, as well as the 2,5 million Euro set aside for the commissions to be paid in early 2017 in order to buy back the senior tranche of the leasing securitisation (eligible securities). In addition, the Bank recouped 251 thousand Euro after settling a tax dispute, 461 thousand Euro related to an allocation to the Interbank Deposit Protection Fund, 141 thousand Euro following the settlement of a dispute involving Interbanca, and 281 thousand Euro by reversing an excess provision related to the Leasing sector.

Other net operating income, totalling 621,2 million Euro (3,0 million Euro at 31 December 2015), included the 623,6 million Euro gain on bargain purchase from the acquisition of the former GE Capital Interbanca Group. The normalised amount included 3,6 million Euro in other net operating expenses, which refer for 2,8 million Euro to the expense incurred for a legal dispute and 1,5 million Euro to contractual penalties following the termination of two service contracts. The item also includes revenue from the recovery of expenses charged to third parties: the relevant cost is included in other administrative expenses, namely under legal expenses and indirect taxes.

Pre-tax profit for the period stood at 720,5 million Euro, compared to 245,6 million Euro at 31 December 2015. The normalised pre-tax profit was 134,8 million Euro.

Income tax expense amounted to 32,5 million Euro (45,0 million Euro normalised), compared to 83,6 million Euro at 31 December 2015. The Group's tax rate fell from 34,0% at 31 December 2015 to 4,5% at 31 December 2016; the total for 2016 was influenced by the recognition of the above-mentioned gain on bargain purchase, which is not considered for tax purposes, in profit or loss. The tax rate based on the normalised income statement was 33,4%.

Profit for the year totalled 688,0 million Euro, compared to 162,0 million Euro in 2015; the normalised amount was 89,8 million Euro.

The corresponding figure for the fourth quarter was 621,7 million Euro (13,2 million Euro in the prior-year period).

With 40 thousand euro in profit attributable to non-controlling interests, the profit for the year attributable to the Parent Company totalled 687,9 million Euro.

(in thousands of Euro) YEAR 2016 YEAR 2015
  EQUITY: OF WHICH PROFIT FOR THE YEAR EQUITY: OF WHICH PROFIT FOR THE YEAR
Parent company balance 596,975 71,722 567,509 160,743
Difference compared to the carrying amounts of the companies consolidated line by line 621,808 616,223 5,958 1,223
- IFIS Finance Sp, Zo,o, 6,645 1,772 5,958 1,223
- Interbanca S,p,a,   615,163 614,451 n.a. n.a.
Group consolidated balance 1,218,783 687,945 573,467 161,966