RBS 2012 Annual Report Download - page 85

RBS GROUP 2012
83
2012 compared with 2011
US Retail & Commercial posted an operating profit of £754 million
($1,196 million), up £217 million ($336 million), or 40%, from 2011.
Excluding the £88 million ($138 million) litigation settlement in Q1 2012
and the £39 million ($62 million) net gain on the sale of Visa B shares in
Q2 2012, operating profit was up £266 million ($412 million), or 50%,
largely reflecting lower impairment losses due to an improved credit
environment.
Net interest income was up £48 million ($39 million), or 3%, driven by
targeted commercial loan growth, deposit pricing discipline and lower
funding costs. This was partially offset by consumer loan run-off and
lower asset yields reflecting prevailing economic conditions.
Non-interest income was up £6 million. In US dollar terms non-interest
income was down $11 million, or 1%, reflecting a decline in debit card
fees as a result of the Durbin Amendment legislation and lower securities
gains and deposit fees. This was largely offset by strong mortgage
banking fees of £69 million ($109 million), up 71%, and the £47 million
($75 million) gross gain on the sale of Visa B shares.
Gross loans and advances to customers were down £0.3 billion. In US
dollar terms loans and advances to customers were up $3.1 billion, or
4%, due to strong growth in commercial loan volumes.
Customer deposits decreased by 1% as a result of movements in foreign
exchange rates partially offset by strong growth achieved in checking
balances. Consumer checking balances fell by 1% while small business
checking balances grew by 4% over the year.
Excluding the £88 million ($138 million) litigation settlement, relating to a
class action lawsuit regarding the way overdraft fees were assessed on
customer accounts prior to 2010, and the £8 million ($13 million) litigation
reserve associated with the sale of Visa B shares, and a one-off £21
million ($33 million) pension gain in Q4 2012, total expenses were down
1%, reflecting lower loan collection costs and the elimination of the
Everyday Points rewards programme for consumer debit card customers,
partially offset by higher operational losses.
During the year, RBS Citizens offered former employees a one-time
opportunity to receive the value of future pension benefits as a single
lump sum payment. The transaction allowed RBS Citizens to partially de-
risk its pension plan and future liability under the plan. A strong
participant take-up rate of 60% enabled RBS Citizens to reduce its
pension liability by 17% and recognise a £21 million ($33 million)
accounting gain.
Impairment losses were down £235 million ($379 million), or 72%,
reflecting an improved credit environment and lower impairments on
securities. Loan impairments improved by £168 million ($266 million)
driven primarily by commercial loan impairments. Impairments as a
percentage of loans and advances fell to 20 basis points.
2011 compared with 2010
Operating profit increased to £537 million ($860 million) from £349 million
($540 million), an increase of £188 million ($320 million), or 54%.
Excluding a credit of £73 million ($113 million) related to changes to the
defined benefit plan in Q2 2010, operating profit increased £261 million
($433 million), or 95%, 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 £94 million ($150
million).
Net interest income was down £2 million. In US dollar terms, net interest
income increased by $108 million, or 4%. Net interest margin improved
by 24 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 down £23 million. In US dollar terms, non
interest income increase by $31 million, or 2%. The increase was
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 £73 million ($113 million) in
Q2 2010, total expenses were down £93 million ($16 million), 4%, 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 £193 million ($278 million), or 37%, largely
reflecting an improved credit environment slightly offset by higher
impairments related to securities. Loan impairments as a percentage 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.