Income statements items

The comparison of income statement items with the previous year was influenced by the acquisition of the former Toscana Finanza Group, which contributed to the results for the year 2011 as from 30 June 2011.

Formation of net banking income

Net banking income passed from 121.453 thousand Euro to 244.917 thousand Euro, an increase of 101.7%.

Net banking income is made up of interest income (59,6%), commission income (38%) and other components (2,4%).

The development of products with high-value related services, revenue from which is represented by commission income only, leads to marked volatility between net interest income and commission income, such as to make comparisons between periods meaningless. For information purposes, however, a detailed analysis is provided below.

(in thousands of Euro)
2012 2011 ABSOLUTE %
Net interest income 145.946 42.245 103.701 245,5%
Net commission income 92.983 78.788 14.195 18,0%
Dividends and similar income 9 161 (152) (94,4)%
Net result from trading (175) (245) 70 (28,6)%
Profit from sale or buyback of financial assets 6.154 504 5.650 1.121,0%
Net banking income 244.917 121.453 123.464 101,7%

Net interest income went from 42.245 thousand Euro at 31 December 2011 to 145.946 thousand Euro at 31 December 2012 (+245.5%).

The increase is partly due to the NPL and tax receivables sectors, which contributed 22.367 thousand Euro to net interest income, compared with 11.507 thousand euro in the second half of 2011.

In addition, the rising contribution to interest income deriving from the securities portfolio due to its increased volumes, totalling 92.919 thousand euro (+430% compared to 31 December 2011), had a positive impact.

Please note that at 31 December 2012, interest on arrears accrued on amounts due from the Public Administration relates to already collected debts (25,1 million Euro) and non collected debts (43,3 million Euro). Such amounts do not contribute to the annual results as there is insufficient information to allow confirmation of recoverability. Contribution of default interest to overall results usually follows definition definition of judicial and non-judicial collection actions.

Interest expense relating to the rendimax savings accounts amounted to 92.280 thousand Euro overall (+135,2% compared to 31 December 2011).

Net commission income performed well and was up by 18% compared to the previous year. This result is due in particular to the higher charges for the factoring service offered by the Group, owing to the management complexity involved and the increase in credit risk.

Commission income, totalling 98.479 thousand Euro compared to 82.624 thousand Euro at the end of 2011, came primarily from factoring commission on the turnover generated by individual customers (with or without recourse, in a flat or monthly formula) as well as other fees usually charged to customers for services.

Commission expense, totalling 5.496 thousand Euro compared to 3.836 thousand Euro at 31 December 2011, came primarily from approved banks’ brokering, the work of other credit brokers, and commissions paid to correspondent factors. At 31 December 2012 commissions paid on bonds covered by the Italian Government are also included.

(in thousands of Euro)
2012 2011 ABSOLUTE %
Endorsement loans (2.223) (100) (2.123) 2123,0%
Management and brokerage services 850 (119) 969 (814,3)%
Collection and payment services 1.155 826 329 39,8%
Factoring services 94.238 78.695 15.543 19,8%
Other services (1.037) (514) (523) 101,8%
Total net commission income 92.983 78.788 14.195 18,0%

Profit from the sale of financial assets equalling 6.154 thousand Euro was thanks to selling some government bonds held in portfolio and classified under available for sale assets.

Formation of net profit from financial activities

Net profit from financial activities of the Group totalled 191.166 thousand Euro compared to 89.310 thousand Euro at 31 December 2011, up by 114%. Based on the data concerning the trends in banking income and .impairment losses on loans and receivables, we can state that as far as asset quality is concerned, the Bank manages to generate enough returns to achieve a high and stable level of profitability, despite a market with uncertain prospects for recovery.

(in thousands of Euro)
2012 2011 ABSOLUTE %
Net banking income 244.917 121.453 123.464 101,7%
Net impairment losses on: (53.751) (32.143) (21.608) 67,2%
   receivables (50.862) (32.143) (18.719) 58,2%
   available for sale financial assets (2.889) - (2.889) n.a.
Net profit from financial activities 191.166 89.310 101.856 114,0%

Net impairment losses on receivables totalled 50.862 thousand Euro, compared to 32.143 thousand Euro at 31 December 2011 (+67,2%), reflecting constant general unstable economic conditions. Furthermore, two particularly significant events affected this item: the 17,6 million Euro write-down on part of the exposure to a real estate group based on its recent corporate results and the reference market; and the 3,5 million Euro write-down on the exposure to a non-financial company in which the bank has a non-controlling interest.

Net impairment losses on available for sale financial assets, amounting to 2.899 thousand Euro, were recognised following the write-down of equity instruments for 2.199 thousand Euro and debit instruments for 770 thousand Euro largely relating to a non-financial company in which the Bank has a non-controlling interest, purchased in 2009.

Formation of profit for the year

The table below shows the formation of the Group’s profit for the period starting from the previously mentioned profit from financial activities, compared with the previous year.

(in thousands of Euro)
2012 2011 ABSOLUTE %
Net profit from financial activities 191.166 89.310 101.856 114,0%
Operating costs (68.368) (47.475) (20.893) 44,0%
Pre-tax profit from continuing operations 122.798 41.835 80.963 193,5%
Income tax expense (44.722) (15.300) (29.422) 192,3%
Profit for the year 78.076 26.535 51.541 194,2%

The expansion of the Group's scope due to the acquisition and consolidation of Toscana Finanza and Fast Finance clearly affected operating costs, which amounted to 68.368 million Euro (47.475 million Euro in the comparison period). This amount includes also refunding costs related to the reorganisation following the business combinations.

The cost/income ratio improved markedly, falling from 39,1% at 31 December 2011 to 27,9% at 31 December 2012.

(in thousands of Euro)
  2012 2011 ABSOLUTE %
Personnel expenses 36.319 27.235 9.084 33,4%
Other administrative expenses 30.927 21.527 9.400 43,7%
Allocation to provisions for risks and charges 1.549 17 1.532 9.011,8%
Net impairment losses ontangible and intangible assets 3.229 2.948 281 9,5%
Other operating income (3.656) (4.252) 596 (14,0)%
Total operating costs 68.368 47.475 20.893 44,0%

Personnel expenses, amounting to 36.319 thousand Euro, rose by 33,4% compared to the year 2011, in particular due to the acquisition of the Toscana Finanza Group: the number of Group employees, also thanks to this acquisition, rose at period-end to 456 (compared to 422 at 31 December 2011, +8%). Personnel cost includes also the CEO's variable remuneration. It should be noted that the CEO himself decided to limit the variable part of its remuneration for this year: in particular, it shall not grow by more than 5% compared to his remuneration for 2011.

Other administrative expenses at 31 December 2012 reached 6.328 thousand Euro, compared to 3.841 thousand Euro in the prior year period (+43,7%).

The increase was caused, among other things, by the higher organisational complexity following the Toscana Finanza Group acquisition.

This item includes some entries relating to the management of the rendimax account, especially costs for the stamp duty, which rise in direct correlation to the number of operating customers and, as a result of a commercial policy decision, are not charged back to customers.

Please note that part of the expenses included in this item (in particular legal expenses and indirect taxes) is charged back to customers and the relevant revenue is recognised under other operating income. Net of this component, other administrative expenses totalled 26,932 thousand Euro at 31 December 2012, compared to 19.198 thousand Euro at 31 December 2011 (+40,3%).

(in thousands of Euro)
2012 2011 ABSOLUTE %
Expenses for professional services 11.246 7.221 4.025 55,7%
   Legal and consulting services 5.419 4.688 731 15,6%
   Auditing 428 394 34 8,6%
   Outsourced services 5.399 2.139 3.260 152,4%
Direct and indirect taxes 5.598 3.344 2.254 67,4%
Expenses for purchasing non-professional goods and other services 14.083 10.962 3.121 28,5%
   Property expenses 3.118 2.832 286 10,1%
   Customer information 2.081 910 1.171 128,7%
   Postage of documents 1.422 1.097 325 29,6%
   Telephone and data transmission expenses 1.167 898 269 29,9%
   Advertising and inserts 1.004 938 66 7,0%
   Software assistance and hire 830 529 301 56,9%
   Other sundry expenses 4.461 3.758 703 18,7%
Total administrative expenses 30.927 21.527 9.400 43,7%
Expense recoveries (3.995) (2.329) (1.666) 71,5%
Total other administrative expenses net 26.932 19.198 7.734 40,3%

The increase in the item "outsourced services" is largely due to fees paid to debt collection companies for the collection of receivables in the NPL sector. The fees paid are proportioned to the sums recovered, equalling 4.015 thousand Euro at 31 December 2012 against 1.347 thousand Euro in the second half 2011.

Other sundry expenses include for 414 thousand Euro the costs of managing the special purpose vehicles set up for the purposes of the ongoing securitisation operation, which are commented on in Part E, Section 1.3, of the Notes.

Allocations to provisions for risks and charges refer for 1.025 thousand Euro to the allocation set aside for the probable settlement of a lawsuit with a former customer's receiver and for 330 thousand euro to the litigation risk with an account debtor. This item includes the 194 thousand euro allocation related to the tax dispute concerning the fiscal year 2005. For more details, please refer to Part B, Section 12 Provisions for risks and charges in the Notes

Value adjustments on intangible assets largely refer to IT devices, and at 31 December 2012 stood at 1.873 thousand Euro, up 19,1% compared to 2011.

Net impairment losses on property, plant and equipment and investment property totalled 1.356 thousand Euro, compared to 1.375 thousand Euro at 31 December 2011 (+1,4%).

Other net operating income totalled 3.656 thousand Euro (-14% compared to 2011) and refers mainly to revenue from the recovery of expenses charged to third parties. The relevant cost item is included in other administrative expenses, namely under legal expenses and indirect taxes. Figures at 31 December 2011 included income of 1.887 thousand Euro arising from the equity investment in the Toscana Finanza Group at a favourable price. Net of this extraordinary item, other net operating income increased by 54,6% compared to the previous year.

Pre-tax profit for the year stood at 122.798 thousand Euro, an increase of 193,5% compared to 31 December 2011.

Income tax expense amounted to 44.722 thousand Euro, compared to 15.300 thousand Euro at 31 December 2011 (+192,3%).

Profit for the year totalled 78.076 thousand Euro compared to 26.535 thousand Euro in 2011 (+194,2%). In the absence of profit attributable to non-controlling interests, these results refer entirely to the Group.

(in thousands of Euro) YEAR 2012 YEAR 2011
Parent company balance 305.786 76.773 196.820 24.943
Difference compared to the carrying amounts of the companies consolidated line by line 3.231 1.303 (538) 1.592
  - IFIS Finance Sp. Zo.o. Zo.o. 3.202 1.362 (606) 1.524
   - Fast Finance   S.p.A. - (21) (21)
   - TF Sec S.r.l. 29 (59) 89 89
Group consolidated balance 309.017 78.076 196.282 26.535

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