Financial Results 2005

HIGHLIGHTS 2005


 

KEY FIGURES


NET PROFIT

In 2005 net profit increased by 1% to € 185 million, despite circumstances that had a large impact such as the liquidation of NPD, NIBC’s change of ownership, the conversion to International Financial Reporting Standards (IFRS) and a decline of NIBC’s credit ratings. Net profit in 2005 includes a net loss of € 78 million for NPD, which was liquidated on December 20, 2005 and is included as discontinued business.

The growth in net profit was mainly achieved from an increase in operating income of € 50 million and a higher release of credit impairments. Th e increase in operating income reflects - among others - the growth in client-related transactions and assets under management, increased revenues on residential mortgages and favourable exits from equity investments. The net release of € 39 million in credit impairments was due to the combination of favourable economic conditions and a healthy loan portfolio. The net release of credit impairments for the whole of 2004 and 2005 is exceptional.

PROFIT AND LOSS

Operating Income

In 2005 operating income increased by 11% to € 514 million. Interest income remained relatively stable, increasing by 1% to € 291 million. This partly refl ects the origination of new assets being off-set by securitisation transactions executed during 2005. Non-interest income increased by 27% to € 223 million, refl ecting the increased diversification of income sources. The 35% increase in fees to € 58 million is a result of the growth in client-related finance and advisory transactions and the increase of assets under management to € 6.9 billion. Th e increase in trading and other revenues by 25% to € 165 million is mainly related to favourable exits by Principal Investments, increased mark-to-market revenues on residential mortgages, write-offs on investments in 2004 and adjustments following from the transition to IFRS that, on balance, were negative in 2004 and positive in 2005.

Operating Expenses

In 2005 operating expenses grew by 18% to € 192 million. This increase of € 29 million compared with 2004 results from expenses incurred by NIBC’s change of ownership: liquidity event plan (€ 22 million) and transaction costs (€ 8 million). Adjusted for this effect, expenses did not increase. Th e effi ciency ratio (operating expenses divided by operating income) increased to 37%, but remains favourable compared to NIBC’s peers.

Tax

In 2005 the effective tax rate decreased slightly to 26% (2004: 27%).
Among others this decrease reflects the lower corporate tax rate in the Netherlands
in 2005 (31.5% compared to 34.5% in 2004).

RESULTS STRATEGIC BUSINESS UNITS

The overview in the following table gives a breakdown of the operating profi t before tax per SBU. A more detailed assessment of SBU-results follows later in this report.

BALANCE SHEET AND RATIOS

Shareholders’ equity before profit appropriation amounted to € 2.0 billion at the end of 2005, 4% down from 2004. The decline stems from the dividend payment in 2005 of € 300 million, compensated by the net profit in 2005 of € 185 million and - to a lesser extent - the increase of the revaluation and hedging reserves with € 28 million.

NIBC proposes to pay out a dividend over 2005 of € 102 million, amounting to € 1.00 per share. If the proposed distribution is approved, shareholders’ equity at yearend 2005 will amount to € 1.9 billion, an increase of 6% (post dividend) compared to year-end 2004. Th is mainly reflects retained earnings of € 83 million from the 2005 net profit of € 185 million. The Tier-1 ratio of NIBC Bank N.V. on December 31, 2005 amounts to 12.4% (December 31, 2004: 10.8%), is well above the minimum Tier-1 requirement of 4% and illustrates the strength of NIBC’s capital structure. The increase of the Tier-1 ratio reflects the increase of shareholders’ equity through retained earnings and the decrease of risk weighted assets. The BIS-ratio improved in 2005 from 11.8% to 13.9%.

The new international shareholders’ group has decided upon a supportive and conservative shareholders’ policy to maintain a strong capitalisation and liquidity level for NIBC.

The return on net asset value improved in 2005 to 14.0% from 11.9% in 2004. Th is return is defined as net profit divided by shareholders’ equity (excluding minority interest) at the beginning of the year subtracted by the book value of capitalised goodwill, the hedging reserve, and the revaluation reserve.

Economic Capital

The risk profile of NIBC is translated into economic capital criteria formulated by management. Available economic capital is defined as shareholders’ equity (excluding minority interest) from which is subtracted the book value of capitalised goodwill, the hedging reserve, the revaluation reserve and the proposed dividend, and to which is added issued hybrid capital. At the end of 2005 available economic capital amounted to € 1,689 million, compared to € 1,598 million at the end of 2004. Th e difference between the allocated economic capital and the available economic capital can be used for dividends and expansion. Average economic capital usage in 2005 was € 1,072 million (see the Risk Management paragraph).

Assets

NIBC’s total assets at year-end 2005 amounted to € 32.0 billion, displaying a slight increase of 1% from the 2004 year-end level. The main development within the assets concerns residential mortgages. Securitised residential mortgages increased from € 4.0 billion to € 8.4 billion, which to a large extent was compensated by a decrease of residential mortgages for NIBC’s own book from € 8.2 billion to € 5.0 billion. Securitisation transactions executed in 2005 concern Dutch MBS XII, Dutch MBS XIV and Sound I. Other assets remained, on balance, relatively stable.

Risk weighted assets decreased in 2005 from € 14.8 billion to € 13.6 billion. Besides the residential mortgage securitisations, this also stems from follow up securitisation transactions in other asset classes supporting NIBC’s investment management business. In this respect it is important to note that assets under management of NIBC’s investment management business increased in 2005 by 42% to € 6.9 billion. Furthermore the liquidation of NPD lead to a decline of risk weighted assets. Return on risk weighted assets increased in 2005 from 1.24% to 1.36%. Th e capital ratio, i.e. shareholders’ equity as a percentage of total assets, was 6.3% at the end of 2005, a decline compared to year-end 2004 (6.7%). Taking into account (proposed) dividend payments the capital ratio increased from 5.8% to 6.0%.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

Starting January 1, 2005, NIBC has adopted IFRS. This resulted in first time adoption adjustments to shareholders’ equity as of that date of +€ 247 million. All amounts in this paragraph are net of (deferred) tax.

First time adoption: IAS 32 and IAS 39

NIBC aims to provide as much insight as possible into the market value of individual assets. As a result, NIBC opted under IFRS to value its financial assets based on “fair value”. The First Time Adoption (“FTA”) of IAS 32 and IAS 39 amounts to € 111 million positive impact on equity and mainly concerns the following items:

NIBC has used the option in IAS 32 and IAS 39 to apply first time adoption on January 1, 2005 without showing restated comparative figures over 2004. Th e main reason is the late announcement of the final IAS 32 and IAS 39 standards by the IAS Board and the subsequent “carved out” approval (4th quarter 2004) of these standards by the European Community. Consequently, NIBC did not have all formal documentation in place for hedge accounting in 2004. Th is can not be reconstructed retrospectively. However, in the tables at the end of this paragraph we have presented pro forma comparative figures 2004 for fi nancial instruments indicating the basis for preparation of these comparatives to allow for analysis.

First time adoption: other IFRS items

Besides IAS 32 and IAS 39 a number of other items had an effect on the fi rst time adoption. These items amounted to € 136 million positive and mainly concern the following:

Furthermore, the balance sheet total grew approximately € 4 billion as a result of the consolidation of the Dutch Mortgage Backed Securities transactions originated and arranged by NIBC.

MANAGEMENT REPORTING VERSUS FINANCIAL REPORTING

With effect from January 1, 2005 NIBC reports its balance sheet and results under International Financial Reporting Standards (IFRS). In the annual accounts all fi gures for 2005 are based on IFRS including IAS 32 and IAS 39 and all figures for 2004 are based on IFRS excluding IAS 32 and IAS 39. In this paragraph, “Financial Results 2005” as well as in the paragraphs on the SBUs an assessment is made of the figures 2005 compared to (for comparison reasons) “pro forma” figures 2004 including IAS 32 and IAS 39. These 2004 figures have not been audited. Furthermore, the figures in this paragraph and the SBU paragraphs are displayed in management format. Reconciliations between IFRS and management format of the 2004 and 2005 figures, as well as a reconciliation between the 2004 figures including and excluding IAS 32 and IAS 39 are presented in tables at the end of this paragraph.

In the following tables a reconciliation is displayed between the profit and loss account 2005 discussed in this paragraph based on management reporting and the IFRS financial statements in the annual accounts.

RECONCILIATION MANAGEMENT VIEW TO IFRS VIEW 2005

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In the table above the main differences between the Annual Accounts presented in management view and those in IFRS view are:

RECONCILIATION MANAGEMENT VIEW TO IFRS PRO FORMA VIEW 2004

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In the table above the main differences between the Annual Accounts presented in management view and those in IFRS view are:

RECONCILIATION IFRS PRO FORMA VIEW TO IFRS EXCL IAS 32/39 VIEW 2004