RBS 2011 Annual Report Download - page 79

RBS Group 2011 77
2011 compared with 2010
Operating profit increased to $769 million from $473 million, an increase
of $296 million, or 63%. Excluding a credit of $113 million related to
changes to the defined benefit plan in Q2 2010, operating profit increased
$409 million, or 114%, substantially driven by lower impairments and
improved income.
The macroeconomic operating environment remained challenging, with
low rates, high unemployment, a soft housing market, sluggish consumer
activity and the continuing impact of legislative changes including the
Durbin Amendment in the Dodd-Frank Act which became effective on 1
October 2011.
The Durbin Amendment lowers the allowable interchange on debit
transactions to $0.23-$0.24 per transaction. The current annualised
impact of the Durbin Amendment is estimated at $150 million.
Net interest income was up $80 million, or 3%. Net interest margin
improved by 21 basis points to 3.06% reflecting changes in deposit mix,
continued discipline around deposit pricing and the positive impact from
the balance sheet restructuring programme carried out during Q3 2010
combined with strong commercial loan growth, partially offset by run-off
of consumer loans.
Non-interest income was up $20 million, or 1%, primarily driven by higher
account and transaction fees, partially offset by the impact of legislative
changes on debit card and deposit fees.
Excluding the defined benefit plan credit of $113 million in Q2 2010, total
expenses were down $31 million, or 1%, due to a number of factors
including lower Federal Deposit Insurance Corporation (FDIC) deposit
insurance levies, and lower litigation and marketing costs, partially offset
by higher regulatory costs.
Impairment losses declined by $278 million, or 35%, largely reflecting an
improved credit environment slightly offset by higher impairments related
to securities. Loan impairments as a percent of loans and advances
improved to 0.5% from 1.0%.
Customer deposits were up 1% with particularly strong growth achieved
in checking balances. Consumer checking balances grew by 6%, while
small business checking balances grew by 5% over the year.
2010 compared with 2009
Operating profit of £306 million ($473 million) represented a marked
improvement from an operating loss of £113 million ($174 million) with
income up 7%, expenses down 2% and impairment losses down 27%.
Net interest income was up 7%, despite a smaller balance sheet, with net
interest margin improving by 48 basis points to 2.85%.
Non-interest income was up 7% reflecting higher mortgage banking and
debit card income, commercial banking fees and higher gains on
securities realisations. This was partially offset by lower deposit fees
which were impacted by Regulation E legislative changes in 2010. In
addition, gains of £213 million ($330 million) were recognised on the sale
of available-for-sale securities as part of the balance sheet restructuring
exercise, but these were almost wholly offset by losses crystallised on the
termination of swaps hedging fixed-rate funding.
Total expenses were down 2%, reflecting a £73 million ($113 million)
credit related to changes to the defined benefit pension plan, and lower
Federal Deposit Insurance Corporation (FDIC) deposit insurance levies,
partially offset by the impact of changing rates on the valuation of
mortgage servicing rights and litigation costs.
Impairment losses declined 27%, following significant loan reserve
building in 2009 and a gradual improvement in the underlying credit
environment, offset by higher impairments related to securities. Loan
impairments as a percentage of loans and advances decreased from
1.4% to 1.0%.