DVB Bank SE : posts positive consolidated net income before taxes for the first half of 2016

11.08.2016

DVB Bank posts positive consolidated net income before taxes for the first half of 2016

Frankfurt/Main - DVB Bank SE (ISIN DE0008045501), the international transport finance specialist, generated consolidated net income before taxes of €14.1 million (previous year: €75.7 million) for the first six months of 2016.

Ralf Bedranowsky, CEO and Chairman of DVB Bank SE's Board of Managing Directors, commented on DVB's consolidated net income:

'Thanks to our cycle-neutral, global market presence, sustainable client service, and our proximity to transactions being originated in the markets, DVB succeeded in generating positive consolidated net income before taxes. However, DVB's performance during the first half of 2016 was burdened by the persistent shipping crisis, the ECB's low-interest rate policy, and the high costs induced by banking regulation. Essentially, consolidated net income was shaped by the following five components:

In a continuously challenging environment the Bank originated 63 new transactions in its core Transport Finance business, with an aggregate volume of €2.8 billion during the first half of 2016 (previous year: 100 new transactions with a total volume of €3.6 billion). The Bank continues to be available to its clients in the persistently difficult segments of the shipping industry - given reduced opportunities to originate new business, however, on a lower level. New business in Aviation Finance with aircraft financings and in Land Transport Finance, where it finances rail rolling stock and other rail-related vehicles, continued to develop successfully.

Allowance for credit losses amounted to €83.4 million (previous year: €39.7 million), in line with DVB's expectations. The increase was largely required for legacy exposures in the Shipping Finance portfolio, and for financings in the Offshore Finance portfolio, which is burdened by the slump in oil prices.

The Bank was successful in the fee and advisory businesses: net fee and commission income rose by 8.0%, from €52.3 million to €56.5 million.

On another positive note, the Bank managed to keep general administrative expenses of €91.3 million almost in line with the previous year's figure (€89.5 million) - in spite of continued high expenses incurred from regulatory-driven projects.

Net income from financial instruments in accordance with IAS 39, generally subject to volatility, amounted to €10.0 million (previous year: €63.5 million). The considerable decline was primarily due to substantial non-recurring income from the sale of investment securities (the partial disposal of the stake in Wizz Air Holdings Plc) recognised in 2015 and generated by the Bank's Aviation Investment Management activities.

We continue to assess the 2016 financial year with cautious optimism, and are endeavouring to achieve consolidated net income that should approach the previous year's level. Given the persistent challenges on the shipping and offshore markets, DVB is of course aware that allowance for credit losses will remain on an elevated level.'

The detailed items of the half-yearly financial statements developed as follows:

Total income (before IAS 39) amounted to €106.5 million, thus 8.7% below the figure of the previous year (€116.6 million).

Net interest income increased by 34.6%, from €92.5 million to €124.5 million, driven mainly by lower interest expenses for securitised liabilities and for operating leases, as well as by currency translation effects.

Allowance for credit losses amounted to €83.4 million (previous year: €39.7 million). Specifically, new allowances recognised for credit losses totalled €196.4 million (previous year: €69.2 million), of which €167.0 million (previous year: €49.0 million) was accounted for by Shipping Finance and Offshore Finance, due to the persistently difficult environment surrounding the international shipping and offshore markets. Conversely, allowance for credit losses of €112.2 million (previous year: €34.8 million) was reversed, of which €95.8 million (previous year: €20.9 million) was in Shipping Finance and Offshore Finance.

Net interest income after allowance for credit losses of €41.1 million was lower than the previous year's figure of €52.8 million.

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, asset management fees, and fees generated from Corporate Finance advisory mandates, was up 8.0%, from €52.3 million to €56.5 million.

Results from investments accounting for using the equity method were up 32.3%, from €3.1 million to €4.1 million. Net other operating income/expenses amounted to €4.8 million (previous year: €8.4 million).

General administrative expenses rose by 2.0%, to €91.3 million (previous year: €89.5 million). Staff expenses increased by 7.2%, to €55.2 million (previous year: €51.5 million), which was largely due to additional staff required to fulfil a substantial range of new regulatory requirements. Together with its LogPay Financial Services subsidiary, DVB employed a total of 614 staff (in active employment) as at 30 June 2016, an increase of 26 compared to the previous year (588 employees). Non-staff expenses (including depreciation, amortisation and write-downs) decreased by 5.0%, from €38.0 million to €36.1 million.

Net income from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from derivatives entered into without intention to trade, and the result from investment securities), which is generally volatile, amounted to €10.0 million (previous year: €63.5 million). The previous year's figure included substantial non-recurring income from the sale of investment securities, due to the partial disposal of the stake in Wizz Air Holdings Plc. This one-off effect, which was generated in the Bank's Aviation Investment Management activities, did not materialise during the reporting period 2016.

Consolidated net income before bank levy, BVR Deposit Guarantee Scheme, and taxes decreased by 72.2%, to €25.2 million (previous year: €90.6 million). Estimated bank levy charges of €6.4 million for the 2016 financial year (2015: actual bank levy of €3.3 million) as well as €4.7 million in expenses for the Deposit Guarantee Scheme of the National Association of German Cooperative Banks (BVR; 2015: €4.6 million in expenses for the BVR Deposit Guarantee Scheme) needed to be deducted from this figure already at the beginning of the year.

Consolidated net income before taxes amounted to €14.1 million (previous year: €75.7 million), and consolidated net income after taxes of €10.6 million was short of the previous year's figure of €62.5 million.

DVB's total assets decreased to €26.5 billion as at 30 June 2016, down 0.4% from the 2015 year-end figure of €26.6 billion - largely due to currency translation effects.

DVB's nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indemnities, irrevocable loan commitments, and derivatives) decreased by 3.6%, to €24.4 billion. In US dollar terms, it was down 1.8%, from US$27.5 billion to US$27.0 billion.

The Bank employs key financial indicators to assess and manage its business: return on equity (ROE) before taxes, cost/income ratio (CIR) and risk-adjusted Economic Value Added (EVA™). In order to harmonise the calculation methodology and enhance transparency thereof, the Bank has included expenses for the bank levy and the BVR Deposit Guarantee Scheme, as well as the operative component of the IAS 39 result (the result from investment securities) in its calculation methodology for all three management indicators since the first quarter of 2016. Expenses for the bank levy and the BVR Deposit Guarantee Scheme must be recognised at the beginning of each financial year, for the full year, and are then no longer amortised over the course of the year. However, in DVB's view, amortising these charges over the periods within a financial year is commercially sensible for calculating key financial indicators, since this allows for a more realistic reflection of business performance.

On this basis, the financial indicators developed as follows:

ROE (before taxes) of 0.6% (previous year: 8.8%) was calculated as follows: consolidated net income before IAS 39 and taxes (but including the result from investment securities), in the amount of €3.8 million was divided by the pro-rata total of weighted capital in the amount of €1,335.4 million (issued share capital, capital reserve, retained earnings excluding funds for general banking risks, non-controlling interests and deferred taxes, as well as before appropriation of consolidated net income).

CIR of 52.6% (previous year: 49.9%) was calculated in the following manner: the aggregate of general administrative expenses and pro-rata expenses for the bank levy and the BVR Deposit Guarantee Scheme (€96.9 million) was divided by the total of net interest income before allowance for credit losses, net fee and commission income, results from investments in companies accounted for using the equity method, net other operating income/expenses, and the result from investment securities (€184.1 million).

Risk-adjusted EVA totalled €-47.2 million (previous year: €8.0 million). It was calculated by deducting risk capital costs (€51.0 million), on a pro-rata basis, from consolidated net income before IAS 39 and taxes, but including the result from investment securities (€3.8 million).

DVB discloses capital ratios determined in accordance with the Basel III framework (Advanced Approach). On this basis, DVB's common equity tier 1 ratio as at 30 June 2016 was 12.6% (31 December 2015: 16.3%), whilst the total capital ratio amounted to 17.2% (31 December 2015: 22.4%).

About DVB Bank SE
DVB Bank SE, headquartered in Frankfurt/Main, Germany, is the leading specialist in the international Transport Finance business. The Bank offers integrated financing solutions and advisory services in respect of Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance. DVB is present at all key international financial centres and transport hubs: at its Frankfurt/Main head office, as well as various European locations (Amsterdam, Athens, Hamburg, London, Oslo and Zurich), plus offices in the Americas (New York City and Curaçao) and in Asia (Singapore and Tokyo). DVB Bank SE is listed at the Frankfurt Stock Exchange (ISIN: DE0008045501).