REG - Royal Bk Scot.Grp. - 1st Quarter Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 1
RNS Number : 6230DRoyal Bank of Scotland Group PLC28 April 2017
The Royal Bank of Scotland Group plc
Q1 2017 results
Contents
Page
Introduction
1
Highlights
2
Summary consolidated results
7
Analysis of results
9
Segment performance
15
Selected statutory financial statements
25
Notes
29
Forward-looking statements
32
Appendix - Segmental income statement reconciliations
Contacts
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Available on www.rbs.com/results
Q1 2017 results and background slides.
A financial supplement containing income statement, balance sheet and segment performance information for the nine quarters ended 31 March 2017.
Pillar 3 supplement at 31 March 2017.
Globally Systemically Important Banks template as of and for the year ended 31 December 2016.
Introduction
In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its subsidiaries.
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2016 will be filed with the Registrar of Companies following the company's Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
In this document Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity, which continues to be reported as a separate operating segment.
Key operating indicators
As described in Note 1 on page 29, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP financial measures. These measures exclude certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These
measures include:
'Adjusted' measures of financial performance, principally operating performance before: own credit adjustments; gain or loss on redemption of own debt; strategic disposals; restructuring costs; litigation and conduct costs and write down of goodwill (refer to the Appendix for reconciliations of the statutory to adjusted basis);
Performance, funding and credit metrics such as 'return on tangible equity', 'adjusted return on tangible equity' and related RWA equivalents incorporating the effect of capital deductions (RWAes), total assets excluding derivatives (funded assets), net interest margin (NIM) adjusted for items designated at fair value through profit or loss (non-statutory NIM), cost:income ratio, loan:deposit ratio and REIL/impairment provision ratios. These are internal metrics used to measure business performance;
Personal & Business Banking (PBB) franchise, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI; and Commercial & Private Banking (CPB) franchise, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI); and
Cost savings progress and 2017 target calculated using operating expenses excluding litigation and conduct costs, restructuring costs, write down of goodwill and the VAT recoveries.
Highlights
RBS reported an operating profit before tax of 713 million for Q1 2017 and an attributable profit(1) of 259 million.
Across our Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and NatWest Markets (NWM) businesses, RBS reported an adjusted operating profit(2) of 1,326 million, an increase of 303 million, or 30%, compared with Q1 2016. Adjusted return on equity across PBB, CPB and NatWest Markets was 13.8% compared with 10.9% in Q1 2016.
Common Equity Tier 1 ratio increased by 70 basis points in the quarter to 14.1%, and remains ahead of our 13.0% target.
Quarter ended
31 March
31 December
31 March
Key metrics and ratios
2017
2016
2016
Attributable profit/(loss)
259m
(4,441m)
(968m)
Operating profit/(loss)
713m
(4,063m)
421m
Operating profit - adjusted (2)
1,371m
1,185m
440m
Net interest margin
2.24%
2.19%
2.15%
Cost:income ratio (3)
76.1%
230.2%
78.7%
Cost:income ratio - adjusted (3,4,5)
55.8%
66.3%
76.1%
Earnings/(loss) per share from continuing operations
- basic
2.2p
(37.7p)
(8.3p)
- adjusted (4,5)
7.1p
7.0p
(8.1p)
Return on tangible equity (6,7)
3.1%
(48.2%)
(9.6%)
Return on tangible equity - adjusted (4,5,7)
9.7%
8.6%
(9.4%)
Average tangible equity (6)
33,357m
36,855m
40,383m
Average number of ordinary shares
outstanding during the period (millions)
11,793
11,766
11,606
PBB, CPB & NWM
Total income - adjusted (4)
3,154m
2,914m
2,815m
Operating profit - adjusted (2)
1,326m
848m
1,023m
Return on tangible equity - adjusted (4,5,6)
13.8%
8.5%
10.9%
31 March
31 December
Balance sheet related key metrics and ratios
2017
2016
Tangible net asset value (TNAV) per ordinary share (7)
297p
296p
Liquidity coverage ratio (LCR) (8)
129%
123%
Liquidity portfolio
160bn
164bn
Net stable funding ratio (NSFR) (9)
120%
121%
Loan:deposit ratio (10,11)
93%
91%
Short-term wholesale funding (10,12)
16bn
14bn
Wholesale funding (10,12)
67bn
59bn
Common Equity Tier 1 (CET1) ratio
14.1%
13.4%
Risk-weighted assets (RWAs)
221.7bn
228.2bn
CRR leverage ratio (13)
5.0%
5.1%
UK leverage ratio (14)
5.7%
5.6%
Tangible equity (7)
35,186m
34,982m
Number of ordinary shares in issue (millions) (15)
11,842
11,823
Notes:
(1)
Attributable to ordinary shareholders.
(2)
Operating profit before tax excluding own credit adjustments, gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.
(3)
Operating lease depreciation included in income (Q1 2017 - 36 million; Q4 2016 - 37 million and Q1 2016 - 38 million).
(4)
Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.
(5)
Excluding restructuring costs and litigation and conduct costs.
(6)
Calculated using profit/(loss) for the period attributable to ordinary shareholders.
(7)
Tangible equity is equity attributable to ordinary shareholders less intangible assets. The dilutive impact was 2p (31 December 2016 - 2p).
(8)
On 1 October 2015 the LCR became the Prudential Regulation Authority's (PRA) primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 90% from 1 January 2017, rising to 100% by 1 January 2018. The published LCR excludes Pillar 2 add-ons. RBS calculates the LCR using its own interpretation of the EU LCR Delegated Act, which may change over time and may not be fully comparable with those of other institutions.
(9)
NSFR for all periods have been calculated using RBS's current interpretations of the revised BCBS guidance on NSFR issued in late 2014. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.
(10)
Excludes repurchase agreements and stock lending.
(11)
Includes disposal groups.
(12)
Excludes derivative collateral.
(13)
Based on end-point Capital Requirements Regulation (CRR) Tier 1 capital and leverage exposure under the CRR Delegated Act.
(14)
Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.
(15)
Includes 28 million treasury shares (31 December 2016 - 39 million).
Highlights
Q1 2017 RBS Performance Summary
RBS reported an attributable profit of 259 million for Q1 2017 compared with a loss of 968 million in Q1 2016 which included payment of the final Dividend Access Share (DAS) dividend of 1,193 million.
Q1 2017 operating profit of 713 million compared with 421 million in Q1 2016. An adjusted operating profit of 1,371 million was 931 million higher than Q1 2016.
Adjusted income of 3,239 million was 425 million, or 15.1%, higher than Q1 2016. NatWest Markets adjusted income of 508 million was 231 million, or 83.4%, higher than Q1 2016 reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016. Across PBB and CPB, income was 108 million, or 4.3%, higher supported by asset growth.
Net interest margin (NIM) of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 principally driven by deposit re-pricing in UK PBB and Commercial Banking.
Excluding a 51 million VAT recovery, adjusted operating expenses have reduced by 278 million, or 12.9%, compared with Q1 2016. The adjusted cost:income ratio for Q1 2017 was 55.8% compared with 76.1% in Q1 2016. Across the core PBB, CPB and NatWest Markets businesses, adjusted cost:income ratio of 54.9% compared with 62.4% in Q1 2016.
Restructuring costs were 577 million in the quarter, an increase of 339 million compared with Q1 2016, and included a charge of 235 million relating to the reduction of our property portfolio.
Litigation and conduct costs of 54 million comprised a number of small charges.
A net impairment loss of 46 million, 6 basis points of gross customer loans, compared with a loss of 223 million in Q1 2016, with the reduction principally reflecting a 226 million shipping impairment in Q1 2016. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016.
PBB and CPB net loans and advances have increased by 5.6% on an annualised basis in Q1 2017 principally driven by mortgage growth within UK PBB.
Tangible net asset value (TNAV) (1) per share increased by 1p from Q4 2016 to 297p.
PBB, CPB and NatWest Markets operating performance
Across our three customer facing businesses, PBB, CPB and NatWest Markets, adjusted operating profit of 1,326 million was 303 million, or 29.6%, higher than Q1 2016.
UK PBB adjusted operating profit of 629 million was 98 million, or 18.5%, higher than Q1 2016. Total income of 1,377 million was 102 million, or 8.0%, higher than Q1 2016 driven by increased lending, with net loans and advances 11.5% higher at 135.8 billion.
Ulster Bank RoI adjusted operating profit of 62 million was 2 million, or 3.1%, lower than Q1 2016 reflecting an asset disposal gain in Q1 2016 and reduced income on free funds, partially offset by an increased net impairment release.
Commercial Banking adjusted operating profit of 356 million was 47 million, or 11.7%, lower than Q1 2016 primarily driven by an increased impairment charge. Income was 12 million, or 1.4%, higher at 865 million with the benefit of increased net loans and advances, up 3.4% to 99.7 billion, offset by margin pressure, down 12 basis points to 1.76%.
Private Banking(2) adjusted operating profit of 44 million was 18 million, or 69.2%, higher than Q1 2016 driven by a 24 million, or 17.5%, reduction in adjusted operating expenses, principally reflecting various management actions to improve operational efficiency.
RBS International adjusted operating profit of 48 million reduced by 5 million, or 9.4%, compared with Q1 2016 driven by an 8 million, or 22.9%, increase in adjusted operating expenses principally reflecting increased regulatory and remediation costs.
NatWest Markets adjusted income of 508 million was 231 million, or 83.4%, higher than Q1 2016 reflecting the benefit of consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, notably in the Rates business. An adjusted operating profit of 187 million compared with a loss of 54 million for Q1 2016.
Notes:
(1)
Tangible equity is equity attributable to ordinary shareholders less intangible assets. The dilutive impact was 2p ( 31 December 2016 - 2p)
(2)
Private Banking serves high net worth individuals through Coutts and Adam & Co.
Highlights
Capital Resolution & Central items operating performance
Capital Resolution adjusted operating loss of 76 million compared with a loss of 377 million in Q1 2016 reflecting modest disposal losses and impairments of 5 million and a 70.3% reduction in adjusted operating expenses to 69 million. RWAs reduced by a further 4.0 billion in the quarter to 30.5 billion.
Central items adjusted operating profit of 10 million compared with a loss of 307 million in Q1 2016 and included a 18 million loss in respect of IFRS volatility (Q1 2016 - 356 million loss). In addition, a VAT recovery of 51 million was recognised in the quarter.
Building a stronger RBS
RBS is progressing with its plan to build a strong, simple, fair bank for customers and shareholders.
CET1 remains ahead of our 13% target at 14.1%, a 70 basis point increase on Q4 2016 driven by a 6.5 billion reduction in RWAs and the 259 million attributable profit.
RWAs decreased by 6.5 billion compared with Q4 2016 principally reflecting 4.0 billion of disposals and run-off in Capital Resolution and planned RWA reductions in the core businesses. Excluding volume growth, RWAs across PBB, CPB and NatWest Markets reduced by 3.2 billion (PBB 0.7 billion, CPB 1.4 billion and NatWest Markets 1.1 billion) during Q1 2017, and we remain committed to achieving at least a 20 billion gross reduction by the end of 2018.
On 1 March 2017, RBS issued 1.5 billion Senior holding company (RBSG) debt which it expects to be eligible to meet its 'Minimum Requirement for Own Funds and Eligible Liabilities' (MREL). Total MREL eligible securities are now 55.3 billion, or 24.9% of RWAs.
Leverage ratio reduced by 10 basis points to 5.0% driven by increased lending exposure.
Risk elements in lending (REIL) of 9.7 billion were 0.6 billion lower than 31 December 2016 and represented 2.9% of gross customer loans, compared with 3.1% at 31 December 2016 and 3.6% as at 31 March 2016. Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were 4.1 billion or 1.4% of the respective gross customer loans.
As at 31 March 2017, there has been no material change to the surplus ratio of assets to liabilities in the Main Scheme of The Royal Bank of Scotland Group Pension Fund which at 31 December was c.115% under IAS valuation principles.
RBS has continued to utilise the Bank of England's Term Funding Scheme.A further 9 billion has been drawn since 31 December 2016, taking total RBS participation to 14 billion as at 31 March 2017.
Building the number one bank for customer service, trust and advocacy in the UK
RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending of 7.8 billion was 10% higher than Q1 2016 with market share of new mortgages at approximately 13% supporting growth in stock share to approximately 9.0%, up from 8.8% at 31 December 2016 and 8.3% at 31 March 2016. Positive momentum continued across business banking lending with balances up 4.7%, excluding transfers of 0.9 billion as at 31 March 2017, compared with Q1 2016.
RBS continues to enhance the functionality of its mobile app. Customers can now view remaining ISA allowances, register their travel plans, and apply for loans and credit cards. There are also improved transaction descriptions to help customers manage their finances and spot transactions they do not recognise. We now have 4.3 million customers regularly using our mobile app in the UK, over 4% higher than Q4 2016. Nearly 80% of our commercial customers' interaction with us is via digital channels.
In February 2017, RBS launched a fully automated lending platform, ESME, to originate unsecured SME lending of up to 150,000. Where our credit risk appetite permits, these loans can be processed and funded within an hour, responding to our customers' desire for speed and simplicity.
RBS launched 'Royal Bank Assist', our artificial intelligence-based, 'always-on' online support on the Royal Bank of Scotland website, supported by IBM Watson and LivePerson, answering our top 80 customer questions and getting customers to the right place to meet their needs more quickly.
RBS has launched a dedicated team of 1,200 TechXperts, who are in our branches helping customers make the most of online and mobile banking, providing advice on how to stay safe and secure.
Highlights
Capital reorganisation
It is our intention to implement a capital reorganisation in 2017 in order to increase the distributable reserves of the parent company, RBSG plc, providing greater flexibility for future distributions and preference share redemptions. We intend to seek shareholder approval to reduce the share premium account by around 25 billion and to cancel the capital redemption reserve of around 5 billion. This will, subject to approval by shareholders and regulators, and confirmation by the Court of Session in Edinburgh, increase RBSG plc distributable reserves by around 30 billion. As at 31 March 2017, distributable reserves were 7.9 billion.
IFRS 9
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018, RBS has adopted the provisions in respect of the presentation of gains and losses on financial liabilities at fair value that are not held for trading from 1 January 2017.Accordingly, a loss of 20 million has been reported in the Consolidated Statement of Other Comprehensive Income instead of in the Consolidated Income Statement. Comparatives have not been restated, however, in Q1 2016 a gain of 108 million was included in the Consolidated Income Statement. Own credit adjustments on financial liabilities held for trading will continue to be recognised in the Consolidated Income Statement, a loss of 29 million was reported in Q1 2017 (Q1 2016 - gain of 148 million).
Williams & Glyn
On 17 February 2017, RBS announced that it had been informed by HM Treasury (HMT) that the Commissioner responsible for EU competition policy planned to propose to the College of Commissioners to open proceedings to gather evidence on an alternative plan for RBS to meet its remaining state aid obligations. On 4 April 2017, the European Commission announced that it had opened an in-depth investigation into whether this alternative plan was an appropriate replacement for the existing requirement to achieve separation and divestment of Williams & Glyn by 31 December 2017.
Progress on 2017 targets
RBS remains committed to achieving its priority targets for 2017.
Strategy goal
2017 target
Q1 2017 Progress
Strength and sustainability
Maintain bank CET1 ratio of 13%
CET1 ratio of 14.1%; up 70 basis points from Q4 2016
Customer experience
Significantly increase NPS or maintain No.1 in chosen customer segments
The March 2017 NatWest Personal NPS score was the highest seen since we started to track it in 2009
Commercial Banking is a market leader for customer advocacy, seeing a significant improvement in NPS since Q1 2013 and as of Q1 2017 we have more promoters of our brand than ever before
Simplifying the bank
Reduce operating expenses by at least 750 million (1)
Operating expenses down 278 million, or 12.9%, excluding the VAT recovery
Supporting growth
Net 3% growth on total PBB and CPB loans to customers
Net customer loans in PBB and CPB are up 5.6% on an annualised basis for the year to date; 47% of the total full year target
Employee engagement
Improve employee engagement
Reviewed bi-annually
Note:
(1)
Cost saving target and progress 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and VAT recoveries.
Highlights
Outlook (1)
We retain the 2017 full year guidance and medium term outlook we provided in the 2016 Annual Results document. In addition, and subject to providing fully for remaining significantlegacy issues in 2017, our expectation remains that we will be profitable in 2018.
We anticipate that adjusted operating profit will be lower in Q2 2017 compared with Q1 2017 reflectingexpected reduced income in NatWest Markets, coupled with increased adjusted operating expenses, in part due to the absence of the Q1 2017 VAT recovery in Q2 2017. Separately,we expect to recognise a gain on the sale of RBS's stake in Vocalink of approximately 160 million during the quarter.
Recent developments
RBS N.V.'s associate Alawwal Bank announced on 25 April 2017 that it was starting merger discussions with Saudi British Bank (SABB). The 40% stake in Alawwal Bank is the remaining significant shared asset of the RFS Consortium.
Note:
(1) The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in this document and in the "Risk Factors" on pages 432 to 463 of the Annual Report and Accounts 2016. These statements constitute forward-looking statements; refer to Forward-looking statements in this announcement.
Summary consolidated income statement for the period ended 31 March 2017
Quarter ended
31 March
31 December
31 March
2017
2016
2016
m
m
m
Net interest income
2,234
2,208
2,156
Own credit adjustments
(29)
(114)
256
Gain on redemption of own debt
2
1
-
Strategic disposals
-
-
(6)
Other operating income
1,005
1,121
658
Non-interest income
978
1,008
908
Total income
3,212
3,216
3,064
Restructuring costs
(577)
(1,007)
(238)
Litigation and conduct costs
(54)
(4,128)
(31)
Other costs
(1,822)
(2,219)
(2,151)
Operating expenses
(2,453)
(7,354)
(2,420)
Profit/(loss) before impairment (losses)/releases
759
(4,138)
644
Impairment (losses)/releases
(46)
75
(223)
Operating profit/(loss) before tax
713
(4,063)
421
Tax charge
(327)
(244)
(80)
Profit/(loss) for the period
386
(4,307)
341
Attributable to:
Non-controlling interests
11
(27)
22
Other owners
116
161
94
Dividend access share
-
-
1,193
Ordinary shareholders
259
(4,441)
(968)
Notable items memo
Adjusted basis
Total income - adjusted (1)
3,239
3,329
2,814
Operating expenses - adjusted (2)
(1,822)
(2,219)
(2,151)
Operating profit - adjusted (1,2)
1,371
1,185
440
Within adjusted total income
IFRS volatility in Central items (3)
(18)
308
(356)
FX (losses)/gains in Central items
(52)
140
52
Capital Resolution disposal losses
(50)
(325)
4
Unwind of securitisations in the property portfolio
(105)
-
-
Within adjusted operating expenses
VAT recovery in Central items
51
-
-
Bank levy
-
(190)
-
Within restructuring costs
Property exit costs
(235)
-
-
Williams & Glyn restructuring costs
(12)
(810)
(158)
Within impairment (losses)/releases
Capital Resolution impairment releases/(losses)
45
130
(196)
Capital Resolution shipping portfolio impairment releases/(losses)
4
30
(226)
Ulster Bank RoI impairment releases
24
47
13
Commercial Banking impairment losses
(61)
(83)
(14)
Notes:
(1)
Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.
(2)
Excluding restructuring costs and litigation and conduct costs.
(3)
IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.
Details of other comprehensive income are provided on page 26.
Summary consolidated balance sheet as at 31 March 2017
31 March
31 December
2017
2016
m
m
Cash and balances at central banks
83,160
74,250
Net loans and advances to banks (1)
20,513
17,278
Net loans and advances to customers (1)
326,733
323,023
Reverse repurchase agreements and stock borrowing
45,451
41,787
Debt securities and equity shares
77,347
73,225
Assets of disposal groups
92
13
Other assets
25,927
22,099
Funded assets
579,223
551,675
Derivatives
204,052
246,981
Total assets
783,275
798,656
Bank deposits (2)
40,276
33,317
Customer deposits (2)
351,498
353,872
Repurchase agreements and stock lending
44,966
32,335
Debt securities in issue
28,163
27,245
Subordinated liabilities
15,514
19,419
Derivatives
196,224
236,475
Provisions for liabilities and charges
11,619
12,836
Liabilities of disposal groups
14
15
Other liabilities
45,490
33,738
Total liabilities
733,764
749,252
Non-controlling interests
805
795
Owners' equity
48,706
48,609
Total liabilities and equity
783,275
798,656
Contingent liabilities and commitments
148,324
150,691
Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing.
(2)
Excludes repurchase agreements and stock lending.
Analysis of results
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Net interest income
m
m
m
Net interest income
RBS
2,234
2,208
2,156
- UK Personal & Business Banking
1,111
1,093
1,019
- Ulster Bank RoI
105
105
105
- Commercial Banking
567
542
536
- Private Banking
112
111
113
- RBS International
80
77
75
- NatWest Markets
29
29
19
- Capital Resolution
33
44
86
- Williams & Glyn
165
170
162
- Central items & other
32
37
41
Average interest-earning assets (IEA)
RBS
405,122
401,548
403,384
- UK Personal & Business Banking
149,581
147,703
135,793
- Ulster Bank RoI
24,424
26,259
24,178
- Commercial Banking
130,885
128,174
114,855
- Private Banking
17,597
17,679
16,259
- RBS International
22,949
22,793
21,075
- NatWest Markets
17,192
14,085
11,568
- Capital Resolution
16,771
19,696
30,767
- Williams & Glyn
25,170
25,145
23,356
- Central items & other
553
14
25,533
Yields, spreads and margins of the banking business
Gross yield on interest-earning assets
of the banking business (1,2)
2.70%
2.72%
2.82%
Cost of interest-bearing liabilities of banking business (1)
(0.69%)
(0.82%)
(1.01%)
Interest spread of the banking business (1,3)
2.01%
1.90%
1.81%
Benefit from interest-free funds
0.23%
0.29%
0.34%
Net interest margin (4)
RBS
2.24%
2.19%
2.15%
- UK Personal & Business Banking
3.01%
2.94%
3.02%
- Ulster Bank RoI
1.74%
1.59%
1.75%
- Commercial Banking
1.76%
1.68%
1.88%
- Private Banking
2.58%
2.50%
2.80%
- RBS International
1.41%
1.34%
1.43%
- NatWest Markets
0.68%
0.82%
0.66%
- Capital Resolution
0.80%
0.89%
1.12%
- Williams & Glyn
2.66%
2.69%
2.79%
Third party customer rates (5)
Third party customer asset rate
- UK Personal & Business Banking
3.57%
3.64%
3.95%
- Ulster Bank RoI (6)
2.47%
2.20%
2.33%
- Commercial Banking
2.67%
2.65%
2.87%
- Private Banking
2.71%
2.76%
3.01%
- RBS International
2.75%
2.93%
3.29%
Third party customer funding rate
- UK Personal & Business Banking
(0.17%)
(0.28%)
(0.62%)
- Ulster Bank RoI (6)
(0.40%)
(0.42%)
(0.59%)
- Commercial Banking
(0.14%)
(0.27%)
(0.35%)
- Private Banking
(0.07%)
(0.12%)
(0.23%)
- RBS International
(0.03%)
(0.08%)
(0.24%)
For the notes to this table refer to the following page.
Analysis of results
Notes:
(1)
For the purpose of calculating gross yields and interest spread, interest receivable has been decreased by 18 million and interest payable has been decreased by 18 million in respect of negative interest relating to both financial assets and financial liabilities that attracted negative interest.
(2)
Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.
(3)
Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.
(4)
Net interest margin is net interest income as a percentage of average interest-earning assets.
(5)
Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(6)
Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.
Net interest income
Key points
Net interest income of 2,234 million was 78 million, or 3.6%, higher than Q1 2016 principally reflecting higher volumes in UK PBB, up 92 million or 9.0%, and Commercial Banking, up 31 million or 5.8%. Partially offsetting, Capital Resolution reduced by 53 million in line with the planned shrinkage of the balance sheet.
NIM of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 largely driven by increases in UK PBB and Commercial Banking associated with deposit book re-pricing.
Across PBB and CPB, NIM reduced by 6 basis points to 2.32% compared with Q1 2016, but increased by 8 basis points compared with Q4 2016.
UK PBB NIM decreased by 1 basis point compared with Q1 2016 to 3.01% principally reflecting a decline in current account hedge returns and reduced mortgage margins, partially offset by savings re-pricing benefits. Compared with Q4 2016, NIM increased by 7 basis points driven by the full effect of savings re-pricing in November 2016.
Ulster Bank RoI NIM of 1.74% increased by 15 basis points compared with Q4 2016 principally reflecting income recognised on a cohort of non performing loans in Q1 2017.
Commercial Banking NIM fell by 12 basis points from Q1 2016 to 1.76% driven by asset margin pressure in a competitive market and lower rate environment. Compared with Q4 2016, NIM increased by 8 basis points due to the active re-pricing of the deposit book and asset pricing actions on new lending.
Private Banking NIM of 2.58% reduced by 22 basis points compared with Q1 2016 reflecting the competitive market and low rate environment.
Structural hedges of 126 billion generated a benefit of 0.3 billion through net interest income for Q1 2017.
Analysis of results
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Non-interest income
m
m
m
Net fees and commissions
605
608
654
Income/(loss) from trading activities
428
622
(110)
Own credit adjustments (OCA)
(29)
(114)
256
Gain on redemption of own debt
2
1
-
Strategic disposals
-
-
(6)
Other operating income
(28)
(109)
114
Total non-interest income
978
1,008
908
Key points
Non-interest income was 978 million, an increase of 70 million, or 7.7%, compared with Q1 2016. NatWest Markets non-interest income increased by 137 million, or 42.5%, to 459 million reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, partially offset by an 84 million adverse movement in OCA. Central items non-interest income improved by 117 million principally reflecting a reduction in IFRS volatility losses, 18 million compared with 356 million in Q1 2016, partially offset by a 52 million FX loss (compared with a 52 million gain in Q1 2016) and a 105 million charge in respect of the unwind of securitisations relating to our property portfolio. Partially offsetting, Capital Resolution non-interest income was a loss of 92 million compared with a gain of 67 million in Q1 2016 reflecting a 115 million adverse movement in OCA and increased disposal losses, 50 million compared with 2 million in Q1 2016.
Income from trading activities increased by 538 million compared with Q1 2016 largely reflecting reduced IFRS volatility losses and increased NatWest Markets income.
Other operating income decreased by 142 million compared with Q1 2016 largely reflecting a 105 million charge in respect of the unwind of securitisations relating to our property portfolio.
Analysis of results
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Operating expenses
m
m
m
Staff costs
1,024
1,025
1,202
Premises and equipment
310
346
315
Other administrative expenses
320
601
446
Restructuring costs (see below)
577
1,007
238
Litigation and conduct costs
54
4,128
31
Administrative expenses
2,285
7,107
2,232
Depreciation and amortisation
168
178
178
Write down of intangible assets
-
69
10
Operating expenses
2,453
7,354
2,420
Adjusted operating expenses (1)
1,822
2,219
2,151
Restructuring costs comprise:
- staff expenses
291
117
121
- premises, equipment, depreciation and amortisation
241
107
9
- other
45
783
108
577
1,007
238
Staff costs as a % of total income
31.9%
31.9%
39.2%
Cost:income ratio (2)
76.1%
230.2%
78.7%
Cost:income ratio - adjusted (2,3)
55.8%
66.3%
76.1%
Employee numbers (FTE - thousands)
76.2
77.8
92.4
Notes:
(1)
Excluding restructuring costs and litigation and conduct costs.
(2)
Operating lease depreciation included in income (Q1 2017 - 36 million; Q4 2016 - 37 million and Q1 2016 - 38 million).
(3)
Excluding restructuring costs, litigation and conduct costs, own credit adjustments, gain on redemption of own debt and strategic disposals.
Key points
Total operating expenses of 2,453 million were 33 million, or 1.4%, higher than Q1 2016 reflecting a 339 million increase in restructuring costs and a 23 million increase in litigation and conduct costs, partially offset by a 329 million, or 15.3%, reduction in adjusted operating expenses.
Excluding a 51 million VAT recovery, adjusted operating expenses reduced by 278 million, or 12.9%, compared with Q1 2016 and we remain on target to achieve a 750 million reduction for the full year. The cost reduction was principally driven by Capital Resolution, down 163 million or 70.3%, and Central items, down 79 million, excluding the VAT recovery. Across PBB, CPB and NatWest Markets, adjusted operating expenses reduced by 22 million, or 1.2%.
Staff costs of 1,024 million, were 178 million, or 14.8%, lower than Q1 2016 underpinned by a 16,200, or 17.5%, reduction in FTEs.
Restructuring costs of 577 million included a 235 million charge associated with the planned reduction of our property portfolio, a 73 million net settlement relating to the RBS Netherlands pension scheme and a 70 million charge in Capital Resolution, primarily in respect of Asia-Pacific restructuring.
Litigation and conduct costs of 54 million were 23 million higher than Q1 2016 and reflected a number of small items.
Compared with Q4 2016, adjusted operating expenses reduced by 397 million principally reflecting the 190 million UK bank levy charge and a 69 million write down of intangible assets in Q4 2016 and a 51 million VAT recovery in Q1 2017.
Analysis of results
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Impairment losses/(releases)
m
m
m
Loan impairment losses/(releases)
- individually assessed
42
(40)
186
- collectively assessed
38
(1)
16
- latent
4
(25)
21
Total loan impairment losses/(releases)
84
(66)
223
Securities
(38)
(9)
-
Total impairment losses/(releases)
46
(75)
223
31 March
31 December
31 March
Credit metrics (1)
2017
2016
2016
Gross customer loans
330,843m
327,478m
325,339m
Loan impairment provisions
4,110m
4,455m
6,701m
Risk elements in lending (REIL)
9,726m
10,310m
11,867m
Provisions as a % of REIL
42%
43%
57%
REIL as a % of gross customer loans
2.9%
3.1%
3.6%
Provisions as a % of gross customer loans
1.2%
1.4%
2.1%
Note:
(1)
Includes disposal groups and excludes reverse repos.
Key points
A net impairment loss of 46 million, 6 basis points of gross customer loans, compared with a loss of 223 million in Q1 2016.
Capital Resolution reported a net impairment release of 45 million in Q1 2017 compared with a loss of 196 million in Q1 2016 which included a 226 million charge in respect of the shipping portfolio.
Commercial Banking reported a net impairment loss of 61 million in Q1 2017, 47 million higher than Q1 2016 with four specific impairment charges totalling 47 million in the quarter.
REIL reduced by 2,141 million, compared with Q1 2016, to 9,726 million reflecting Capital Resolution run-down and a portfolio sale in Ulster Bank RoI partially offset by an increase in the shipping portfolio, foreign exchange movements and the implementation of a revised mortgage methodology in Ulster Bank RoI. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016. Provision coverage was 42% compared with 57% at 31 March 2016 and 43% at 31 December 2016.
Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were 4.1 billion or 1.4% of the respective gross customer loans.
Capital and leverage
Key points
CET1 has increased by 70 basis points to 14.1% as a result of the attributable profit and the reduction in RWAs in the period.
RWAs have decreased by 6.5 billion to 221.7 billion primarily driven by a 4.0 billion reduction in Capital Resolution reflecting disposal and run offs in line with exit strategy and a 1.1 billion reduction in NatWest Markets principally due to business movements. Excluding volume growth, RWAs across PBB, CPB and NatWest Markets reduced by 3.2 billion during Q1 2017.
Operational risk RWAs have decreased by 1.9 billion as a result of the annual recalculation.
Leverage ratio decreased marginally to 5.0% as increased lending exposure was offset by movements in capital.
Capital and leverage ratios
End-point CRR basis (1)
31 March
31 December
2017
2016
Risk asset ratios
%
%
CET1
14.1
13.4
Tier 1
15.9
15.2
Total
19.2
19.2
Capital
m
m
Tangible equity
35,186
34,982
Expected loss less impairment provisions
(1,396)
(1,371)
Prudential valuation adjustment
(377)
(532)
Deferred tax assets
(887)
(906)
Own credit adjustments
(245)
(304)
Pension fund assets
(186)
(208)
Cash flow hedging reserve
(888)
(1,030)
Other deductions
45
(8)
Total deductions
(3,934)
(4,359)
CET1 capital
31,252
30,623
AT1 capital
4,041
4,041
Tier 1 capital
35,293
34,664
Tier 2 capital
7,370
9,161
Total regulatory capital
42,663
43,825
Risk-weighted assets
Credit risk
- non-counterparty
160,100
162,200
- counterparty
20,800
22,900
Market risk
17,000
17,400
Operational risk
23,800
25,700
Total RWAs
221,700
228,200
Leverage (2)
Derivatives
204,100
247,000
Loans and advances
347,200
340,300
Reverse repos
45,500
41,800
Other assets
186,500
169,600
Total assets
783,300
798,700
Derivatives
- netting and variation margin
(204,200)
(241,700)
- potential future exposures
63,400
65,300
Securities financing transactions gross up
2,800
2,300
Undrawn commitments
55,100
58,600
Regulatory deductions and other adjustments
300
100
CRR leverage exposure
700,700
683,300
Tier 1 capital
35,293
34,664
CRR leverage ratio %
5.0
5.1
UK leverage exposure (3)
622,200
614,600
UK leverage ratio % (3)
5.7
5.6
Notes:
(1)
CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.
(2)
Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.
(3)
Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.
Segment performance
Quarter ended 31 March 2017
PBB
CPB
Central
Ulster
Commercial
Private
RBS
NatWest
Capital
Williams
items &
Total
UK PBB
Bank RoI
Banking
Banking
International
Markets
Resolution
& Glyn (1)
other (2)
RBS
m
m
m
m
m
m
m
m
m
m
Income statement
Net interest income
1,111
105
567
112
80
29
33
165
32
2,234
Other non-interest income
266
41
298
48
18
479
(85)
41
(101)
1,005
Total income - adjusted (3)
1,377
146
865
160
98
508
(52)
206
(69)
3,239
Own credit adjustments
-
(1)
-
-
-
(20)
(7)
-
(1)
(29)
Gain on redemption of own debt
-
-
-
-
-
-
-
-
2
2
Total income
1,377
145
865
160
98
488
(59)
206
(68)
3,212
Direct expenses - staff costs
(163)
(49)
(125)
(38)
(12)
(71)
(16)
(53)
(497)
(1,024)
- other costs
(64)
(12)
(55)
(7)
(3)
(17)
(9)
(11)
(620)
(798)
Indirect expenses
(489)
(47)
(268)
(68)
(28)
(233)
(44)
(20)
1,197
-
Operating expenses - adjusted (4)
(716)
(108)
(448)
(113)
(43)
(321)
(69)
(84)
80
(1,822)
Restructuring costs - direct
(20)
(19)
(39)
-
-
-
(70)
-
(429)
(577)
- indirect
(111)
(15)
(60)
(11)
(3)
(68)
(16)
-
284
-
Litigation and conduct costs
(4)
-
(3)
-
-
(31)
(6)
-
(10)
(54)
Operating expenses
(851)
(142)
(550)
(124)
(46)
(420)
(161)
(84)
(75)
(2,453)
Operating profit/(loss) before impairment (losses)/releases
526
3
315
36
52
68
(220)
122
(143)
759
Impairment (losses)/releases
(32)
24
(61)
(3)
(7)
-
45
(11)
(1)
(46)
Operating profit/(loss)
494
27
254
33
45
68
(175)
111
(144)
713
Operating profit/(loss) - adjusted (3,4)
629
62
356
44
48
187
(76)
111
10
1,371
Additional information
Return on equity (5)
24.8%
4.0%
5.7%
6.0%
12.0%
1.7%
nm
nm
nm
3.1%
Return on equity - adjusted (3,4,5)
32.0%
9.3%
8.9%
8.6%
13.0%
7.9%
nm
nm
nm
9.7%
Cost:income ratio (6)
61.8%
97.9%
62.0%
77.5%
46.9%
86.1%
nm
40.8%
nm
76.1%
Cost:income ratio - adjusted (3,4,6)
52.0%
74.0%
49.7%
70.6%
43.9%
63.2%
nm
40.8%
nm
55.8%
Total assets (bn)
159.1
24.7
153.3
18.1
25.1
225.3
119.2
25.8
32.7
783.3
Funded assets (bn) (7)
159.1
24.6
153.3
18.1
25.1
113.9
29.2
25.8
30.1
579.2
Net loans and advances to customers (bn)
135.8
19.0
99.7
12.5
8.9
17.9
12.3
20.6
-
326.7
Risk elements in lending (bn)
1.9
3.5
1.7
0.1
0.1
-
2.1
0.3
-
9.7
Impairment provisions (bn)
(1.2)
(1.1)
(0.8)
-
-
-
(0.7)
(0.2)
(0.1)
(4.1)
Customer deposits (bn)
146.3
16.6
97.2
25.7
25.3
8.0
7.6
24.0
0.8
351.5
Risk-weighted assets (RWAs) (bn)
32.7
17.7
77.8
8.7
9.5
34.1
30.5
9.7
1.0
221.7
RWA equivalent (bn) (5)
35.7
18.9
81.8
8.7
9.5
36.0
32.7
10.2
1.2
234.7
Employee numbers (FTEs - thousands)
18.2
3.1
5.4
1.7
0.8
1.2
0.3
4.3
41.2
76.2
For the notes to this table refer to page 17. nm = not meaningful
Segment performance
Quarter ended 31 December 2016
PBB
CPB
Central
Ulster
Commercial
Private
RBS
NatWest
Capital
Williams
items &
Total
UK PBB
Bank RoI
Banking
Banking
International
Markets
Resolution
& Glyn (1)
other (2)
RBS
m
m
m
m
m
m
m
m
m
m
Income statement
Net interest income
1,093
105
542
111
77
29
44
170
37
2,208
Other non-interest income
246
32
325
50
19
285
(329)
47
446
1,121
Total income adjusted (3)
1,339
137
867
161
96
314
(285)
217
483
3,329
Own credit adjustments
-
-
-
-
-
(29)
(8)
-
(77)
(114)
Gain on redemption of own debt
-
-
-
-
-
-
-
-
1
1
Total income
1,339
137
867
161
96
285
(293)
217
407
3,216
Direct expenses - staff costs
(161)
(57)
(130)
(39)
(12)
(64)
(23)
(60)
(479)
(1,025)
- other costs
(72)
(23)
(69)
(12)
(4)
(7)
(3)
(13)
(991)
(1,194)
Indirect expenses
(544)
(65)
(357)
(95)
(45)
(267)
(150)
(24)
1,547
-
Operating expenses - adjusted (4)
(777)
(145)
(556)
(146)
(61)
(338)
(176)
(97)
77
(2,219)
Restructuring costs - direct
(1)
(6)
(12)
(6)
(1)
(3)
(21)
-
(957)
(1,007)
- indirect
(50)
2
(34)
(8)
(1)
(43)
13
-
121
-
Litigation and conduct costs
(214)
(77)
(407)
1
(1)
(466)
(3,156)
-
192
(4,128)
Operating expenses
(1,042)
(226)
(1,009)
(159)
(64)
(850)
(3,340)
(97)
(567)
(7,354)
Operating profit/(loss) before impairment (losses)/releases
297
(89)
(142)
2
32
(565)
(3,633)
120
(160)
(4,138)
Impairment (losses)/releases
(16)
47
(83)
8
1
-
130
(11)
(1)
75
Operating profit/(loss)
281
(42)
(225)
10
33
(565)
(3,503)
109
(161)
(4,063)
Operating profit/(loss) - adjusted (3,4)
546
39
228
23
36
(24)
(331)
109
559
1,185
Additional information
Return on equity (5)
13.5%
(5.8%)
(9.1%)
1.6%
8.8%
(30.2%)
nm
nm
nm
(48.2%)
Return on equity - adjusted (3,4,5)
27.8%
5.4%
5.3%
4.5%
9.8%
(2.7%)
nm
nm
nm
8.6%
Cost:income ratio (6)
77.8%
165.0%
117.1%
98.8%
66.7%
nm
nm
44.7%
nm
230.2%
Cost:income ratio - adjusted (3,4,6)
58.0%
105.8%
62.6%
90.7%
63.5%
107.6%
nm
44.7%
nm
66.3%
Total assets (bn)
155.6
24.1
150.5
18.6
23.4
240.0
132.5
25.8
28.2
798.7
Funded assets (bn) (7)
155.6
24.0
150.5
18.5
23.4
100.9
27.6
25.8
25.4
551.7
Net loans and advances to customers (bn)
132.1
18.9
100.1
12.2
8.8
17.4
12.8
20.6
0.1
323.0
Risk elements in lending (bn)
2.0
3.5
1.9
0.1
0.1
-
2.3
0.4
-
10.3
Impairment provisions (bn)
(1.3)
(1.2)
(0.8)
-
-
-
(0.8)
(0.2)
(0.2)
(4.5)
Customer deposits (bn)
145.8
16.1
97.9
26.6
25.2
8.4
9.5
24.2
0.2
353.9
Risk-weighted assets (RWAs) (bn)
32.7
18.1
78.5
8.6
9.5
35.2
34.5
9.6
1.5
228.2
RWA equivalent (bn) (5)
35.7
19.5
82.6
8.6
9.5
37.2
37.5
10.1
1.7
242.4
Employee numbers (FTEs - thousands)
18.3
3.1
5.5
1.7
0.8
1.2
0.4
4.5
42.3
77.8
For the notes to this table refer to page 17. nm = not meaningful.
Segment performance
Quarter ended 31 March 2016
PBB
CPB
Central
Ulster
Commercial
Private
RBS
NatWest
Capital
Williams
items &
Total
UK PBB
Bank RoI
Banking
Banking
International
Markets
Resolution
& Glyn (1)
other (2)
RBS
m
m
m
m
m
m
m
m
m
m
Income statement
Net interest income
1,019
105
536
113
75
19
86
162
41
2,156
Other non-interest income
256
50
317
52
15
258
(35)
43
(298)
658
Total income - adjusted (3)
1,275
155
853
165
90
277
51
205
(257)
2,814
Own credit adjustments
-
3
-
-
-
64
108
-
81
256
Strategic disposals
-
-
-
-
-
-
(6)
-
-
(6)
Total income
1,275
158
853
165
90
341
153
205
(176)
3,064
Direct expenses - staff costs
(181)
(51)
(131)
(40)
(10)
(67)
(45)
(62)
(615)
(1,202)
- other costs
(63)
(11)
(49)
(14)
(5)
(14)
(33)
(15)
(745)
(949)
Indirect expenses
(484)
(42)
(256)
(83)
(20)
(250)
(154)
(21)
1,310
-
Operating expenses - adjusted (4)
(728)
(104)
(436)
(137)
(35)
(331)
(232)
(98)
(50)
(2,151)
Restructuring costs - direct
(13)
(6)
(1)
(1)
-
-
(7)
(20)
(190)
(238)
- indirect
(9)
-
1
(15)
(1)
(12)
(9)
-
45
-
Litigation and conduct costs
-
-
(2)
-
-
(18)
(10)
-
(1)
(31)
Operating expenses
(750)
(110)
(438)
(153)
(36)
(361)
(258)
(118)
(196)
(2,420)
Operating profit/(loss) before impairment (losses)/releases
525
48
415
12
54
(20)
(105)
87
(372)
644
Impairment (losses)/releases
(16)
13
(14)
(2)
(2)
-
(196)
(6)
-
(223)
Operating profit/(loss)
509
61
401
10
52
(20)
(301)
81
(372)
421
Operating profit/(loss) - adjusted (3,4)
531
64
403
26
53
(54)
(377)
101
(307)
440
Additional information
Return on equity (5)
26.1%
8.8%
11.1%
1.5%
16.0%
(2.6%)
nm
nm
nm
(9.6%)
Return on equity - adjusted (3,4,5)
27.3%
9.2%
11.2%
5.1%
16.3%
(4.4%)
nm
nm
nm
(9.4%)
Cost:income ratio (6)
58.8%
69.6%
49.3%
92.7%
40.0%
105.9%
nm
57.6%
nm
78.7%
Cost:income ratio - adjusted (3,4,6)
57.1%
67.1%
49.0%
83.0%
38.9%
119.5%
nm
47.8%
nm
76.1%
Total assets (bn)
146.3
22.7
139.4
17.4
23.7
255.9
218.8
24.2
34.5
882.9
Funded assets (bn) (7)
146.3
22.6
139.4
17.3
23.7
116.0
50.2
24.2
31.0
570.7
Net loans and advances to customers (bn)
121.8
17.9
96.4
11.6
8.0
18.6
22.4
20.1
1.8
318.6
Risk elements in lending (bn)
2.4
4.5
2.2
0.1
0.1
-
2.2
0.4
-
11.9
Impairment provisions (bn)
(1.6)
(2.7)
(1.1)
-
-
-
(1.0)
(0.3)
-
(6.7)
Customer deposits (bn)
136.9
13.7
97.1
23.2
21.6
6.7
24.9
24.3
6.6
355.0
Risk-weighted assets (RWAs) (bn)
34.7
20.4
75.7
8.6
9.1
36.1
47.6
9.7
7.6
249.5
RWA equivalent (bn) (5)
37.5
21.7
79.7
8.6
9.1
36.7
48.4
10.1
7.8
259.6
Employee numbers (FTEs - thousands)
21.4
3.2
6.0
1.8
0.7
1.3
1.0
5.5
51.5
92.4
nm = not meaningful.
Notes:
(1)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented W&G has not operated as a separate legal entity.
(2)
Central items include unallocated transactions which principally comprise volatile items under IFRS and balances in relation to international private banking for Q1 2016.
(3)
Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.
(4)
Excluding restructuring costs and litigation and conduct costs.
(5)
RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(6)
Operating lease depreciation included in income (Q1 2017 - 36 million; Q4 2016 - 37 million and Q1 2016 - 38 million).
(7)
Funded assets exclude derivative assets.
Segment performance
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Total income by segment
m
m
m
UK PBB
Personal advances
225
215
204
Personal deposits
204
184
168
Mortgages
590
598
564
Cards
137
150
142
Business banking
194
188
182
Other
27
4
15
Total
1,377
1,339
1,275
Ulster Bank RoI
Corporate
45
34
56
Retail
100
101
100
Other
-
2
2
Total
145
137
158
Commercial Banking
Commercial lending
468
503
436
Deposits
123
109
125
Asset and invoice finance
171
175
177
Other
103
80
115
Total
865
867
853
Private Banking
Investments
25
23
28
Banking
135
138
137
Total
160
161
165
RBS International
98
96
90
NatWest Markets
Rates
325
129
121
Currencies
128
157
144
Financing
88
78
42
Other
(33)
(50)
(30)
Total excluding own credit adjustments
508
314
277
Own credit adjustments
(20)
(29)
64
Total
488
285
341
Capital Resolution
Portfolio and GTS
16
34
52
Shipping
5
6
16
Markets
16
6
(29)
Other
(39)
(6)
8
Total excluding disposals and own credit adjustments
(2)
40
47
Disposal losses
(50)
(325)
(2)
Own credit adjustments
(7)
(8)
108
Total
(59)
(293)
153
Williams & Glyn (1)
Retail
119
129
115
Commercial
87
88
90
Total
206
217
205
Central items
(68)
407
(176)
Total RBS
3,212
3,216
3,064
Note:
(1)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprisesRBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented Williams & Glyn has not operated as a separate legal entity.
Segment performance
Quarter ended
31 March
31 December
31 March
2017
2016
2016
Impairment losses/(releases) by segment
m
m
m
UK PBB
Personal advances
28
38
6
Mortgages
(18)
(39)
4
Business banking
2
(3)
-
Cards
20
20
6
Total
32
16
16
Ulster Bank RoI
Mortgages
(14)
(30)
1
Commercial real estate
- investment
2
(1)
(5)
- development
(3)
(1)
(2)
Other lending
(9)
(15)
(7)
Total
(24)
(47)
(13)
Commercial Banking
Commercial real estate
2
8
(2)
Asset and invoice finance
16
21
3
Private sector services (education, health etc)
(2)
7
1
Banks & financial institutions
1
-
-
Wholesale and retail trade repairs
7
6
3
Hotels and restaurants
3
7
-
Manufacturing
2
1
1
Construction
-
13
1
Other
32
20
7
Total
61
83
14
Private Banking
3
(8)
2
RBS International
7
(1)
2
Capital Resolution
(45)
(130)
196
Williams & Glyn (1)
Retail
8
7
5
Commercial
3
4
1
Total
11
11
6
Central items
1
1
-
Total RBS
46
(75)
223
31 March
31 December
31 March
2017
2016
2016
Analysis of Capital Resolution RWAs by portfolio
bn
bn
bn
Portfolio and GTS
2.8
3.2
8.5
Shipping
2.4
2.8
4.2
Markets
14.0
15.8
22.4
Alawwal Bank
7.8
7.9
7.3
Other
1.7
2.0
2.4
Total credit and market risk RWAs
28.7
31.7
44.8
Operational risk
1.8
2.8
2.8
Total RWAs
30.5
34.5
47.6
Note:
(1)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprisesRBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented Williams & Glyn has not operated as a separate legal entity.
Segment performance
31 March
31 December
31 March
2017
2016
2016
Loans and advances to customers (gross) by segment (1)
bn
bn
bn
UK PBB
Personal advances
6.1
6.0
6.0
Mortgages
120.6
117.1
108.0
Business banking
6.6
6.4
5.5
Cards
3.7
3.9
3.9
Total
137.0
133.4
123.4
Ulster Bank RoI
Mortgages
15.0
15.3
14.8
Commercial real estate
- investment
0.8
0.7
1.0
- development
0.2
0.2
0.6
- other lending
4.1
3.9
4.2
Total
20.1
20.1
20.6
Commercial Banking
Commercial real estate
17.1
16.9
17.5
Asset and invoice finance
14.2
14.1
14.4
Private sector services (education, health etc)
6.8
6.9
7.0
Banks & financial institutions
8.9
8.9
7.4
Wholesale and retail trade repairs
8.3
8.4
8.3
Hotels and restaurants
3.9
3.7
3.5
Manufacturing
6.3
6.6
6.4
Construction
2.2
2.1
2.2
Other
32.8
33.3
30.8
Total
100.5
100.9
97.5
Private Banking
Personal advances
2.2
2.3
2.6
Mortgages
7.4
7.0
6.8
Other
2.9
2.9
2.2
Total
12.5
12.2
11.6
RBS International
Corporate
6.3
6.2
5.4
Mortgages
2.6
2.6
2.6
Total
8.9
8.8
8.0
Capital Resolution
13.0
13.6
23.4
Williams & Glyn (2)
Retail
12.3
12.3
11.7
Commercial
8.5
8.5
8.7
Total
20.8
20.8
20.4
Central items
0.1
0.3
1.8
Balance sheet
NatWest Markets
Loans and advances to customer (excluding reverse repos)
17.9
17.4
18.6
Loans and advances to banks (excluding reverse repos) (3)
4.9
3.3
5.2
Reverse repos
40.8
38.6
40.4
Securities
25.4
22.0
29.5
Cash and eligible bills
15.0
13.4
12.2
Other
9.9
6.2
10.1
Total funded assets
113.9
100.9
116.0
Notes:
(1)
Excludes reverse repurchase agreements and includes disposal groups.
(2)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprisesRBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented Williams & Glyn has not operated as a separate legal entity.
(3)
Excludes disposal groups.
Segment performance
UK Personal & Business Banking
Operating profit was 494 million compared with 509 million in Q1 2016 with income growth of 102 million, or 8.0%, more than offset by a 16 million increase in impairments and a 109 million higher restructuring charge. Return on equity of 24.8% compared with 26.1% in Q1 2016. Adjusted operating profit of 629 million was 98 million, or 18.5%, higher than Q1 2016.
UK PBB continued to deliver support for both personal and business customers with net loans and advances of 135.8 billion up 14.0 billion, or 11.5%, compared with Q1 2016 driven by continued strong growth across key product areas. Gross new mortgage lending in the quarter of 7.8 billion was 10% higher than Q1 2016 with market share of new mortgages at approximately 13% supporting growth in stock share to approximately 9.0% at 31 March 2017, up from 8.8% at 31 December 2016 and 8.3% at 31 March 2016. Positive momentum continued across business banking lending with balances up 4.7%, excluding transfers of 0.9 billion as at 31 March 2017, compared with Q1 2016. Margins across asset products were stable with Q4 2016, although we have seen more aggressive new business pricing in the quarter from competitors.
Customer deposits increased by 9.4 billion, or 6.9%, to 146.3 billion compared with Q1 2016 largely driven by personal current account balance growth of 12.1%. Continued strong balance growth in Q1 2017 has offset lower hedge income in personal current accounts.
We continue to see higher customer retention and deepening relationships from our Reward Account proposition with overall current account attrition 14% lower than Q1 2016. The Reward Account is being re-positioned from 26 June 2017 with a reduced monthly fee and cashback reduced to 2% from the current 3% level.
The number of active mobile users has increased by over 4% to 4.3 million since Q4 2016. Our mobile app won Best Banking App at the British Bank Awards, helping maintain strong customer advocacy for our growing number of mobile customers. Total branch service transactions have reduced by 10% since Q1 2016. In recognition of this customer behaviour shift we have announced the closure of approximately 250 branches over 2017, from 1,315 at the end of 2016. However, we continue to invest in our network and enhance our digital capabilities for our customers.
Total income of 1,377 million was 102 million, or 8.0%, higher than Q1 2016. Net interest income increased by 92 million, or 9.0%, principally reflecting strong volume growth and savings re-pricing benefits partially offset by a decline in current account hedge returns and lower mortgage margins. Non-interest income increased by 10 million, or 3.9%, compared with Q1 2016 primarily due to a 7 million debt sale profit. Compared with Q4 2016, non-interest income increased by 20 million due to an annual home insurance profit share of 20 million.
Net interest margin increased by 7 basis points to 3.01% compared with Q4 2016 driven by the full effect of savings re-pricing in November 2016. Mortgage book margins were broadly stable as were the level of average SVR balances from Q4 2016 to Q1 2017 at around 11% of total mortgage balances.
Adjusted expenses of 716 million were 12 million, or 1.6%, lower than Q1 2016, with direct costs 17 million, or 7.0%, down due to a 15.0% reduction in FTEs driving reduced staff costs, partially offset by increased technology infrastructure investment costs. Adjusted cost:income ratio decreased from 57.1% to 52.0%. Compared with Q4 2016, adjusted expenses reduced by 61 million reflecting a 35 million intangible asset write down and a 34 million bank levy charge in Q4 2016, partially offset by higher technology infrastructure investment in ATM and cash deposit machines and branch refurbishment costs.
Restructuring costs of 131 million were 109 million higher than Q1 2016 largely due to a 92 million charge for property exits as we rationalise our back office property location strategy and branch distribution network.
The net impairment charge of 32 million, 9 basis points of gross customer loans, continued to reflect benign credit conditions. Defaults in Q1 2017 continue to remain at very low levels across all portfolios.
RWAs were 2.0 billion, or 5.8%, lower than Q1 2016 with lending growth more than offset by asset mix benefits from lower card balances and improved credit quality, reflecting the continued benign credit conditions.
Segment performance
Ulster Bank RoI
An operating profit of 32 million for the quarter compared with 78 million in Q1 2016. The decrease in operating profit primarily reflects the non recurrence of asset disposal benefits in Q1 2016 (28 million), reduced income on free funds (14 million) and an increase in restructuring costs in Q1 2017(31 million) associated with recent announcements to invest in and transform key segments of the business. Adjusted operating profit of 72 million was 10 million, or 12.2%, lower than Q1 2016. Adjusted return on equity of 9.3% compared with 9.2% in Q1 2016.
Ulster Bank RoI added a further 0.2 billion of gross new mortgage lending in the quarter, up 25% compared with Q1 2016. The low yielding tracker mortgage portfolio declined by 0.9 billion to 10.8 billion.
Customer deposits increased 2.1 billion, or 12.1%, compared with Q1 2016 largely driven by an increase in commercial customer funding. The loan:deposit ratio reduced by 17 percentage points to 114%.
A non-recurring profit of 28 million relating to asset disposals was recognised in Q1 2016, of which 14 million was reported in income.
Total income of 168 million was 37 million, or 18.0%, lower than Q1 2016. Excluding the 14 million asset disposal gain, income decreased by 23 million primarily due to reduced income on free funds and a 3 million interim adjustment to the pricing of FX transactions between Ulster Bank RoI and NatWest Markets, pending completion of a detailed pricing review.
Compared with Q4 2016 total income increased 12 million, or 7.7%, primarily due to income recognised on a cohort of non performing loans in Q1 2017 which contributed to a 15 basis point increase in net interest margin to 1.74%.
Adjusted operating expenses of 125 million were 11 million, or 8.1%, lower than Q1 2016, largely reflecting progress in the delivery of cost saving initiatives and one off accrual releases of 8 million in Q1 2017, partially offset by a 4 million reduction in costs recharged to other business segments. Adjusted cost:income ratio increased from 67.1% to 74.0%. Restructuring costs of 39 million were 31 million higher than Q1 2016 reflecting recent announcements to invest in and restructure the bank, including the closure of 22 branches.
Adjusted operating expenses were 44 million lower than Q4 2016 largely driven by intangible asset write-offs and a reduction in costs recharged to other business segments in Q4 2016, in addition to business driven savings and a one off accrual release in Q1 2017.
Risk elements in lending reduced by 1.7 billion or 29.8% to 4.0 billion compared with Q1 2016, and benefited from the sale of a portfolio of loans in 2016. As at end Q1 2017, REIL were 17.0% of gross customer loans.
RWAs of 20.8 billion reduced by 4.9 billion, or 19.1%, compared with Q1 2016 driven by the sale of a portfolio of non-performing loans, combined with adjustments to the mortgage modelling approach and an improvement in the macro economic environment. RWAs on the tracker mortgage portfolio reduced by 2.5 billion, or 25.3%, compared with Q1 2016 to 7.5 billion.
Segment performance
Commercial Banking
Operating profit of 254 million compared with 401 million in Q1 2016. Adjusted operating profit of 356 million was 47 million, or 11.7%, lower than Q1 2016, principally reflecting an increased number of specific impairment losses taken in the quarter. An adjusted return on equity of 8.9% compared with 11.2% in Q1 2016.
Net loans and advances increased by 3.3 billion, or 3.4%, compared with Q1 2016 reflecting increased borrowing across sectors. Compared with Q4 2016, net loans and advances decreased by 0.4 billion as reductions in exposures with weak returns have been partially offset by growth in some segments.
Total income of 865 million was 12 million, or 1.4%, higher than Q1 2016 principally reflecting higher asset volumes. Net interest margin fell by 12 basis points from Q1 2016 to 1.76% driven by asset margin pressure in a competitive market and lower rate environment. Compared with Q4 2016, net interest margin increased by 8 basis points due to the active re-pricing of the deposit book and asset pricing actions on new lending.
Adjusted operating expenses increased by 12 million, or 2.8%, compared with Q1 2016, reflecting the non recurrence of one off releases in Q1 2016, with underlying cost reductions of 11 million driven by a 10.0% reduction in front office headcount. Adjusted cost:income ratio was 49.7% compared with 49.0% in Q1 2016.
Net impairment losses of 61 million, 24 basis points of gross customer loans, were 47 million higher than Q1 2016 with four specific impairment charges totalling 47 million in the quarter.
RWAs were 77.8 billion, an increase of 2.1 billion compared to Q1 2016, reflecting asset growth partially offset by reduced RWA intensity. Compared with Q4 2016, RWAs reduced by 0.7 billion reflecting planned reductions in exposures with weak returns, partially offset by moderate growth in some segments.
Private Banking
Operating profit of 33 million was 23 million higher than Q1 2016 principally reflecting lower operating expenses. An adjusted return on equity of 8.6% compared with 5.1% in Q1 2016.
Total income of 160 million decreased by 5 million, or 3.0%, compared with Q1 2016 as the benefit of increased asset volumes has been more than offset by reduced net interest margin, down 22 basis points to 2.58% primarily reflecting the competitive market and low rate environment.
Adjusted operating expenses were 24 million, or 17.5%, lower than Q1 2016 at 113 million principally reflecting management actions to reduce operational costs. Adjusted cost:income ratio of 70.6% compared with 83.0% in Q1 2016.
Net loans and advances increased by 0.9 billion, or 7.8%, to 12.5 billion compared with Q1 2016 driven by mortgages. Assets under management of 17.8 billion were 3.8 billion higher compared with Q1 2016 reflecting underlying growth in net new assets and positive market returns. In addition, investment cash balances were included in assets under management for the first time in Q3 2016. Excluding this, growth was 2.6 billion.
RBS International
Operating profit of 45 million was 7 million, or 13.5%, lower than Q1 2016 driven by higher operating expenses, partially offset by increased income. An adjusted return on equity of 13.0% compared with 16.3% in Q1 2016.
Total income increased by 8 million, or 8.9%, to 98 million compared with Q1 2016 reflecting higher asset volumes. Net interest margin was broadly stable on Q1 2016 at 1.41% as asset and liability margin pressures have been offset by mitigating pricing actions.
Adjusted operating expenses were 8 million, or 22.9%, higher than Q1 2016 at 43 million principally reflecting increased regulatory and remediation costs (a combined 5 million). Adjusted cost:income ratio of 43.9% compared with 38.9% in Q1 2016.
Net loans and advances to customers increased by 0.9 billion, or 11.3%, to 8.9 billion compared with Q1 2016 principally reflecting balance draw-downs in the funds sector lending portfolio and foreign exchange movements.
Customer deposits increased by 3.7 billion, or 17.1%, to 25.3 billion principally reflecting the transfer in of the Luxembourg branch from Capital Resolution in Q2 2016 and foreign exchange movements.
Segment performance
NatWest Markets
An operating profit of 68 million compared with an operating loss of 20 million in Q1 2016. Adjusted operating profit of 187 million compared with an adjusted operating loss of 54 million in Q1 2016, with the improvement principally reflecting an increase in adjusted income. This generated an adjusted return on equity of 7.9% for the quarter.
Adjusted income increased by 231 million, or 83.4%, to 508 million. The increase reflected a consistent level of customer activity and an improved trading environment compared to a particularly difficult Q1 2016, notably in Rates. Total income, which includes own credit adjustments, increased by 147 million, or 43.1%, to 488 million compared with 341 million in Q1 2016.
Total expenses increased by 59 million, or 16.3%, principally reflecting an increase in restructuring costs. Adjusted operating expenses of 321 million were 10 million, or 3.0%, lower than Q1 2016, and 17 million lower than Q4 2016 driven by non-repeat of the annual bank levy charge of 13 million.
Funded assets decreased by 2.1 billion to 113.9 billion compared with Q1 2016. Compared with Q4 2016, funded assets increased by 13.0 billion in the quarter following the seasonally low levels of activity at the end of 2016.
RWAs decreased by 2.0 billion compared with Q1 2016 to 34.1 billion principally due to business movements, partially offset by an increase due to the weakening of sterling.
Capital Resolution
RWAs reduced by 4.0 billion in the quarter to 30.5 billion primarily reflecting disposal activity and updates to operational risk.
An operating loss of 175 million compared with a 301 million loss in Q1 2016. Total income losses of 59 million compared with income of 153 million in Q1 2016, reflecting a 115 million decrease in own credit adjustments and increased disposal losses, up 48 million to 50 million.
Adjusted expenses of 69 million reduced by 163 million, or 70.3%, compared with Q1 2016, principally reflecting the impact of a 791 reduction in headcount to 254 FTEs by the end Q1 2017.
A net impairment release of 45 million was recorded in the quarter, compared with a net impairment loss of 196 million in Q1 2016 which was driven by a shipping portfolio charge of 226 million.
RWAs have fallen by 17.1 billion to 30.5 billion from Q1 2016, primarily due to run-off and loan portfolio disposals. Funded assets have reduced by 21.0 billion to 29.2 billion for the same period.
Williams & Glyn
Operating profit of 111 million was 30 million, or 37.0%, higher than Q1 2016 due to a 13 million, or 16.9%, reduction in direct expenses and a 20 million restructuring charge incurred in Q1 2016.
Total income was broadly stable at 206 million compared with Q1 2016. Net interest income was 3 million, or 1.9%, higher driven by retail deposits, largely offset by a 2 million, or 4.7%, reduction in non-interest income.
Operating expenses of 84 million were 34 million, or 28.8%, lower than Q1 2016 driven by reduced staff and restructuring costs. Direct expenses were 13 million, or 16.9%, lower driven by a substantial reduction in FTEs, down over 1,000 compared with Q1 2016.
A net impairment loss of 11 million compared with 6 million in Q1 2016, and reflects the continued benign credit conditions.
Net loans and advances increased by 0.5 billion, or 2.5%, to 20.6 billion compared with Q1 2016 driven by a 0.3 billion increase in mortgage balances.
Customer deposits were broadly stable at 24.0 billion compared with Q1 2016.
Central items & other
Central items not allocated represent a charge of 144 million in the quarter compared with a charge of 372 million in Q1 2016. Treasury funding costs were a charge of 52 million, compared with a charge of 286 million in Q1 2016, and included a 52 million foreign exchange loss (Q1 2016 - 52 million gain) and a 18 million charge for volatile items under IFRS (Q1 2016 - 356 million charge). Restructuring costs of 145 million included a 73 million net settlement charge related to the RBS Netherlands pension scheme. These were partially offset by a 51 million VAT recovery recognised in the quarter.
Selected statutory financial statements
Condensed consolidated income statement for the period ended 31 March 2017
Quarter ended
31 March
31 December
31 March
2017
2016
2016
m
m
m
Interest receivable
2,732
2,770
2,845
Interest payable
(498)
(562)
(689)
Net interest income (1)
2,234
2,208
2,156
Fees and commissions receivable
822
821
866
Fees and commissions payable
(217)
(213)
(212)
Income from trading activities
399
590
38
Gain on redemption of own debt
2
1
-
Other operating income
(28)
(191)
216
Non-interest income
978
1,008
908
Total income
3,212
3,216
3,064
Staff costs
(1,315)
(1,142)
(1,323)
Premises and equipment
(377)
(382)
(324)
Other administrative expenses
(419)
(5,511)
(575)
Depreciation and amortisation
(342)
(249)
(178)
Write down of intangible assets
-
(70)
(20)
Operating expenses
(2,453)
(7,354)
(2,420)
Profit/(loss) before impairment (losses)/releases
759
(4,138)
644
Impairment (losses)/releases
(46)
75
(223)
Operating profit/(loss) before tax
713
(4,063)
421
Tax charge
(327)
(244)
(80)
Profit/(loss) for the period
386
(4,307)
341
Attributable to:
Non-controlling interests
11
(27)
22
Preference share and other dividends
116
161
94
Dividend access share
-
-
1,193
Ordinary shareholders
259
(4,441)
(968)
386
(4,307)
341
Earnings/(loss) per ordinary share (EPS)
Basic and diluted EPS from continuing and discontinued operations (2)
2.2p
(37.7p)
(8.3p)
Basic and diluted EPS from continuing operations (2)
2.2p
(37.7p)
(8.3p)
Notes:
(1)
Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits classed as interest receivable. Q1 2016 has been
re-presented accordingly.
(2)
There is no dilutive impact in any period.
Selected statutory financial statements
Condensed consolidated statement of comprehensive income for the period ended 31 March 2017
Quarter ended
31 March
31 December
31 March
2017
2016
2016
m
m
m
Profit/(loss) for the period
386
(4,307)
341
Items that do not qualify for reclassification
Loss on remeasurement of retirement benefit schemes
(21)
(2)
(529)
Loss on fair value of credit in financial liabilities designated at fair value
through profit or loss due to own credit risk
(20)
-
-
Tax
(16)
3
143
(57)
1
(386)
Items that do qualify for reclassification
Available-for-sale financial assets
60
68
(8)
Cash flow hedges
(189)
(750)
946
Currency translation
(6)
(13)
582
Tax
33
191
(238)
(102)
(504)
1,282
Other comprehensive (loss)/income after tax
(159)
(503)
896
Total comprehensive income/(loss) for the period
227
(4,810)
1,237
Total comprehensive income/(loss) is attributable to:
Non-controlling interests
10
(36)
72
Preference shareholders
40
68
56
Paid-in equity holders
76
93
38
Dividend access share
-
-
1,193
Ordinary shareholders
101
(4,935)
(122)
227
(4,810)
1,237
Selected statutory financial statements
Condensed consolidated balance sheet as at 31 March 2017
31 March
31 December
2017
2016
m
m
Assets
Cash and balances at central banks
83,160
74,250
Net loans and advances to banks
20,513
17,278
Reverse repurchase agreements and stock borrowing
18,200
12,860
Loans and advances to banks
38,713
30,138
Net loans and advances to customers
326,733
323,023
Reverse repurchase agreements and stock borrowing
27,251
28,927
Loans and advances to customers
353,984
351,950
Debt securities
76,656
72,522
Equity shares
691
703
Settlement balances
9,128
5,526
Derivatives
204,052
246,981
Intangible assets
6,464
6,480
Property, plant and equipment
4,996
4,590
Deferred tax
1,697
1,803
Prepayments, accrued income and other assets
3,642
3,700
Assets of disposal groups
92
13
Total assets
783,275
798,656
Liabilities
Bank deposits
40,276
33,317
Repurchase agreements and stock lending
5,988
5,239
Deposits by banks
46,264
38,556
Customer deposits
351,498
353,872
Repurchase agreements and stock lending
38,978
27,096
Customer accounts
390,476
380,968
Debt securities in issue
28,163
27,245
Settlement balances
9,210
3,645
Short positions
28,519
22,077
Derivatives
196,224
236,475
Provisions for liabilities and charges
11,619
12,836
Accruals and other liabilities
6,938
6,991
Retirement benefit liabilities
186
363
Deferred tax
637
662
Subordinated liabilities
15,514
19,419
Liabilities of disposal groups
14
15
Total liabilities
733,764
749,252
Equity
Non-controlling interests
805
795
Owners' equity*
Called up share capital
11,843
11,823
Reserves
36,863
36,786
Total equity
49,511
49,404
Total liabilities and equity
783,275
798,656
*Owners' equity attributable to:
Ordinary shareholders
41,650
41,462
Other equity owners
7,056
7,147
48,706
48,609
The parent company distributable reserves at 31 March 2017 were 7.9 billion (31 December 2016 - 8.0 billion).
Selected statutory financial statements
Condensed consolidated statement of changes in equity for the period ended 31 March 2017
Share
capital and
Total
Non
statutory
Paid-in
Retained
Other
owners'
controlling
Total
reserves
equity
earnings
reserves*
equity
interests
equity
m
m
m
m
m
m
m
At 1 January 2017
41,926
4,582
(12,936)
15,037
48,609
795
49,404
Profit attributable to ordinary shareholders
and other equity owners
-
-
375
-
375
11
386
Other comprehensive income
- changes in fair value of credit in financial
liabilities designated at fair value through profit
or loss due to own credit risk
-
-
(20)
-
(20)
-
(20)
- other amounts recognised in equity
-
-
(21)
128
107
(1)
106
- amounts transferred from equity to profit or loss
-
-
-
(289)
(289)
-
(289)
- recycled to profit or loss on disposal
of businesses (1)
-
-
-
27
27
-
27
- tax
-
-
(16)
33
17
-
17
Preference share and other dividends paid
-
-
(116)
-
(116)
-
(116)
Shares and securities issued during the period
69
-
(4)
-
65
-
65
Reclassification of paid-in equity (2)
-
(91)
-
-
(91)
-
(91)
Share-based payments - gross
-
-
(38)
-
(38)
-
(38)
Movement in own shares held
60
-
-
-
60
-
60
At 31 March 2017
42,055
4,491
(12,776)
14,936
48,706
805
49,511
31 March
2017
Total equity is attributable to:
m
Non-controlling interests
805
Preference shareholders
2,565
Paid-in equity holders
4,491
Ordinary shareholders
41,650
49,511
*Other reserves consist of:
Merger reserve
10,881
Available-for-sale reserve
287
Cash flow hedging reserve
888
Foreign exchange reserve
2,880
14,936
Notes:
(1)
No tax impact.
(2)
Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust D in March 2017.
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2016 Annual Report and Accounts which was prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).
Accounting policies
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has adopted the provisions in respect of the presentation of gains and losses on financial liabilities designated as at fair value through profit or loss from 1 January 2017. Accordingly, a loss of 20 million has been reported in the Consolidated Statement of Other Comprehensive Income instead of in the Consolidated Income Statement. Comparatives have not been restated, however, in Q1 2016 a gain of 108 million was included in the Consolidated Income Statement. Own credit adjustments on financial liabilities held for trading will continue to be recognised in the Consolidated Income Statement, a loss of 29 million was reported in Q1 2017 (Q1 2016 - gain of 148 million).
Apart from the above RBS's principal accounting policies are as set out on pages 297 to 306 of the 2016 Annual Report and Accounts. Other amendments to IFRS effective for 2017 have not had a material effect on RBS's Q1 2017 results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on pages 306 to 308 of RBS's 2016 Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 31 March 2017 have been prepared on a going concern basis.
2. Provisions for liabilities and charges
Payment
Other
Residential
Litigation
protection
customer
mortgage
and other
insurance
redress (1)
backed securities
regulatory
Other
Total
m
m
m
m
m
m
At 1 January 2017
1,253
1,105
6,752
1,918
1,808
12,836
Currency translation and other movements
-
(1)
(114)
(13)
10
(118)
Charge to income statement
-
-
-
32
204
236
Releases to income statement
-
(2)
-
(3)
(39)
(44)
Provisions utilised
(78)
(99)
-
(950)
(164)
(1,291)
At 31 March 2017
1,175
1,003
6,638
984
1,819
11,619
Note:
(1)
Closing provision predominantly relates to investment advice, packaged accounts (including costs) and tracker mortgages.
There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided. RBS will continue to monitor the position closely and refresh the underlying assumptions.
3. Litigation, investigations and reviews
RBS's 2016 Annual Report and Accounts issued on 24 February 2017 included comprehensive disclosures about RBS's litigation, investigations and reviews in Note 31. Set out below are the material developments in these matters since the 2016 Annual Report & Accounts were published. RBS generally does not disclose information about the establishment or existence of a provision for a particular matter where disclosure of the information can be expected to prejudice seriously RBS's position in the matter.
Notes
3. Litigation, investigations and reviews (continued)
Litigation
RMBS-related litigation in the US
RBS is in discussions with the US Federal Housing Finance Agency (FHFA) in relation to its primary lawsuit (which is described in the 2016 Annual Report & Accounts) but there can be no assurance as to whether such discussions will continue or result in a settlement. As it has previously stated, RBS reiterates that in connection with its RMBS litigation matters and RMBS investigations taken as a whole, further substantial provisions and costs may be recognised and, depending upon the final outcomes, other adverse consequences may occur.
UK 2008 rights issue shareholder litigation
In December 2016 RBS concluded full and final settlements with four of the five shareholder groups representing 78% of the claims by value. Further, RBS has recently concluded a full and final settlement, without any admission of liability, with shareholders representing around 40% by value of the remaining claimant group. As part of this further settlement, RBS has made available an additional sum in respect of the costs incurred by the remaining group of claimants since December 2016, subject to claim validation. RBS has now reached a resolution with shareholders representing 87% of the original claims by value in the litigation.Should the remaining group's claim not be settled with all claimants, the court timetable provides that a trial of the preliminary issue of whether the rights issue prospectus contained untrue and misleading statements and/or improper omissions will commence on 22 May 2017.
London Interbank Offered Rate (LIBOR)
As previously disclosed, certain members of the Group have been named as defendants in US class actions relating to alleged manipulation of various interest rate benchmarks, each of which is pending in the United States District Court for the Southern District of New York. On 10 March 2017, the court in the action relating primarily to over-the-counter derivatives allegedly linked to JPY LIBOR and Euroyen TIBOR dismissed the case on the ground that the plaintiffs lack standing. The plaintiffs are seeking to amend their complaint in an attempt to address the deficiencies identified by the court in its dismissal order.
FX antitrust litigation
As previously disclosed, RBS plc is a defendant in an FX-related antitrust class action pending in the United States District Court for the Southern District of New York, on behalf of an alleged class of "consumers and end-user businesses." On 24 March 2017, the court granted a motion to dismiss the complaint in this matter on the ground that the purported class lacks standing to pursue antitrust claims.
Claim by the US Federal Deposit Insurance Corporation
On 10 March 2017, the US Federal Deposit Insurance Corporation (FDIC), on behalf of 39 failed US banks,issued a claim inthe High Court of Justice of England and Wales against RBS, other LIBOR panel banks and the British Bankers' Association, alleging collusion with respect to the setting of USD LIBOR. The action alleges that the defendantsbreached English and Europeancompetition lawas well as asserting common law claims of fraud under US law. The FDIC previously asserted many of the same USD LIBOR-related claims against RBS and others in a lawsuit pending in the United States District Court for the Southern District of New York, though most of the claims in that case have been dismissed as a result of a series of rulings by that court.
Investigations and reviews
Payment Protection Insurance (PPI)
On 2 March 2017, the FCA published Policy Statement 17/3 containing its final rules and guidance on PPI complaint handling. The Policy Statement made clear the FCA's intention to implement a two year PPI complaints deadline with effect from 29 August 2017, bringing an end to new PPI complaints in August 2019. New rules for the handling of Plevin complaints will also come into force on 29 August 2017.The proposals in the Policy Statement are largely as previously anticipated and RBS does not currently consider that an additional provision will be required.
Recent media coverage indicates that a claims management company may issue judicial review proceedings challenging the FCA's proposed 2019 deadline.
Notes
3. Litigation, investigations and reviews (continued)
Supervisory investigation in relation to Coutts & Co Ltd
On 11 April 2017, the Hong Kong Monetary Authority (HKMA) announced that its supervisory investigation in relation to the Hong Kong branch of Coutts & Co Ltd (a member of the Group incorporated in Switzerland) had revealed breaches of local anti-money laundering requirements for which the HKMA has imposed financial penalties of HKD 7 million.
Regulator requests concerning certain historic Russian transactions
Recent media coverage has highlighted an alleged money laundering scheme involving Russian entities between 2010 and 2014. Allegedly certain European banks, including RBS and 16 other UK based financial institutions, and certain US banks, were involved in processing certain transactions associated with this scheme. In common with other banks, RBS is responding to requests for information from the FCA, PRA and regulators in other jurisdictions.
4. Post balance sheet events
Other than matters disclosed, there have been no further significant events between 31 March 2017 and the date of approval of this announcement.
Forward-looking statements
Cautionary statement regarding forward-looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions.
In particular, this document includes forward-looking statements relating, but not limited to: future profitability and performance, including financial performance targets such as return on tangible equity; cost savings and targets, including cost:income ratios; litigation and government and regulatory investigations, including the timing and financial and other impacts thereof; structural reform and the implementation of the UK ring-fencing regime; the implementation of RBS's transformation programme, including the further restructuring of the NatWest Markets business; the satisfaction of the Group's residual EU State Aid obligations; the continuation of RBS's balance sheet reduction programme, including the reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other regulatory buffer requirements, minimum requirement for own funds and eligible liabilities, and other funding plans; funding and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth; the level and extent of future impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; future pension contributions; RBS's exposure to political risks, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risks, including as interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to the Group's strategy or operations, which may result in the Group being unable to achieve the current targets, predictions, expectations and other anticipated outcomes expressed or implied by such forward-looking statements. In addition certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.Accordingly, undue reliance should not be placed on these statements. Forward-looking statements speak only as of the date we make them and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements we describe in this document, including in the risk factors and other uncertainties set out in the Group's 2016 Annual Report on Form 20-F and other materials filed with, or furnished to, the US Securities and Exchange Commission, and other uncertainties discussed in this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is or may be subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes and the timing thereof (including where resolved by settlement); economic, regulatory and political risks, including as may result from the uncertainty arising from the EU Referendum; RBS's ability to satisfy its residual EU State Aid obligations and the timing thereof; RBS's ability to successfully implement the significant and complex restructuring required to be undertaken in order to implement the UK ring-fencing regime and related costs; RBS's ability to successfully implement the various initiatives that are comprised in its transformation programme, particularly the proposed further restructuring of the NatWest Markets business, the balance sheet reduction programme and its significant cost-saving initiatives and whether RBS will be a viable, competitive, customer focused and profitable bank especially after its restructuring and the implementation of the UK ring-fencing regime; the exposure of RBS to cyber-attacks and its ability to defend against such attacks; RBS's ability to achieve its capital and leverage requirements or targets which will depend in part on RBS's success in reducing the size of its business and future profitability as well as developments which may impact its CET1 capital including additional litigation or conduct costs, additional pension contributions, further impairments or accounting changes; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; RBS's ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS, RBS entities or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS's strategic refocus on the UK; as well as increasing competition from new incumbents and disruptive technologies.
Forward-looking statements
In addition, there are other risks and uncertainties that could adversely affect our results, ability to implement our strategy, cause us to fail to meet our targets or the accuracy of forward-looking statements in this document. These include operational risks that are inherent to RBS's business and will increase as a result of RBS's significant restructuring initiatives being concurrently implemented; the potential negative impact on RBS's business of global economic and financial market conditions and other global risks; the impact of a prolonged period of low interest rates or unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates as well as divergences in regulatory requirements in the jurisdictions in which RBS operates; the risks relating to RBS's IT systems or a failure to protect itself and its customers against cyber threats, reputational risks; risks relating to increased pension liabilities and the impact of pension risk on RBS's capital position; risks relating to the failure to embed and maintain a robust conduct and risk culture across the organisation or if its risk management framework is ineffective; RBS's ability to attract and retain qualified personnel; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting policies or rules which may impact the preparation of RBS's financial statements or adversely impact its capital position; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject; the recoverability of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or undertake any obligation or responsibility to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicit of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Appendix
Segmental Income statement reconciliations
Segmental income statement reconciliations
PBB
CPB
Central
Ulster
Commercial
Private
RBS
NatWest
Capital
Williams
items &
Total
UK PBB
Bank RoI
Banking
Banking
International
Markets
Resolution
& Glyn
other
RBS
Quarter ended 31 March 2017
m
m
m
m
m
m
m
m
m
m
Income statement
Total income - statutory
1,377
145
865
160
98
488
(59)
206
(68)
3,212
Own credit adjustments
-
1
-
-
-
20
7
-
1
29
Gain on redemption of own debt
-
-
-
-
-
-
-
-
(2)
(2)
Total income - adjusted
1,377
146
865
160
98
508
(52)
206
(69)
3,239
Operating expenses - statutory
(851)
(142)
(550)
(124)
(46)
(420)
(161)
(84)
(75)
(2,453)
Restructuring costs - direct
20
19
39
-
-
-
70
-
429
577
- indirect
111
15
60
11
3
68
16
-
(284)
-
Litigation and conduct costs
4
-
3
-
-
31
6
-
10
54
Operating expenses - adjusted
(716)
(108)
(448)
(113)
(43)
(321)
(69)
(84)
80
(1,822)
Impairment (losses)/releases
(32)
24
(61)
(3)
(7)
-
45
(11)
(1)
(46)
Operating profit/(loss) - statutory
494
27
254
33
45
68
(175)
111
(144)
713
Operating profit/(loss) - adjusted
629
62
356
44
48
187
(76)
111
10
1,371
Additional information
Return on equity (1)
24.8%
4.0%
5.7%
6.0%
12.0%
1.7%
nm
nm
nm
3.1%
Return on equity - adjusted (1,2)
32.0%
9.3%
8.9%
8.6%
13.0%
7.9%
nm
nm
nm
9.7%
Cost income ratio (3)
61.8%
97.9%
62.0%
77.5%
46.9%
86.1%
nm
40.8%
nm
76.1%
Cost income ratio - adjusted (2,3)
52.0%
74.0%
49.7%
70.6%
43.9%
63.2%
nm
40.8%
nm
55.8%
Quarter ended 31 December 2016
Income statement
Total income - statutory
1,339
137
867
161
96
285
(293)
217
407
3,216
Own credit adjustments
-
-
-
-
-
29
8
-
77
114
Gain on redemption of own debt
-
-
-
-
-
-
-
-
(1)
(1)
Total income - adjusted
1,339
137
867
161
96
314
(285)
217
483
3,329
Operating expenses - statutory
(1,042)
(226)
(1,009)
(159)
(64)
(850)
(3,340)
(97)
(567)
(7,354)
Restructuring costs - direct
1
6
12
6
1
3
21
-
957
1,007
- indirect
50
(2)
34
8
1
43
(13)
-
(121)
-
Litigation and conduct costs
214
77
407
(1)
1
466
3,156
-
(192)
4,128
Operating expenses - adjusted
(777)
(145)
(556)
(146)
(61)
(338)
(176)
(97)
77
(2,219)
Impairment (losses)/releases
(16)
47
(83)
8
1
-
130
(11)
(1)
75
Operating profit/(loss) - statutory
281
(42)
(225)
10
33
(565)
(3,503)
109
(161)
(4,063)
Operating profit/(loss) - adjusted
546
39
228
23
36
(24)
(331)
109
559
1,185
Additional information
Return on equity (1)
13.5%
(5.8%)
(9.1%)
1.6%
8.8%
(30.2%)
nm
nm
nm
(48.2%)
Return on equity - adjusted (1,2)
27.8%
5.4%
5.3%
4.5%
9.8%
(2.7%)
nm
nm
nm
8.6%
Cost income ratio (3)
77.8%
165.0%
117.1%
98.8%
66.7%
nm
nm
44.7%
nm
230.2%
Cost income ratio - adjusted (2,3)
58.0%
105.8%
62.6%
90.7%
63.5%
107.6%
nm
44.7%
nm
66.3%
For notes to this table refer to page 3
Segmental income statement reconciliations
PBB
CPB
Central
Ulster
Commercial
Private
RBS
NatWest
Capital
Williams
items &
Total
UK PBB
Bank RoI
Banking
Banking
International
Markets
Resolution
& Glyn
other
RBS
Quarter ended 31 March 2016
m
m
m
m
m
m
m
m
m
m
Income statement
Total income - statutory
1,275
158
853
165
90
341
153
205
(176)
3,064
Own credit adjustments
-
(3)
-
-
-
(64)
(108)
-
(81)
(256)
Strategic disposals
-
-
-
-
-
-
6
-
-
6
Total income - adjusted
1,275
155
853
165
90
277
51
205
(257)
2,814
Operating expenses - statutory
(750)
(110)
(438)
(153)
(36)
(361)
(258)
(118)
(196)
(2,420)
Restructuring costs - direct
13
6
1
1
-
-
7
20
190
238
- indirect
9
-
(1)
15
1
12
9
-
(45)
-
Litigation and conduct costs
-
-
2
-
-
18
10
-
1
31
Operating expenses - adjusted
(728)
(104)
(436)
(137)
(35)
(331)
(232)
(98)
(50)
(2,151)
Impairment (losses)/releases
(16)
13
(14)
(2)
(2)
-
(196)
(6)
-
(223)
Operating profit/(loss) - statutory
509
61
401
10
52
(20)
(301)
81
(372)
421
Operating profit/(loss) - adjusted
531
64
403
26
53
(54)
(377)
101
(307)
440
Additional information
Return on equity (1)
26.1%
8.8%
11.1%
1.5%
16.0%
(2.6%)
nm
nm
nm
(9.6%)
Return on equity - adjusted (1,2)
27.3%
9.2%
11.2%
5.1%
16.3%
(4.4%)
nm
nm
nm
(9.4%)
Cost income ratio (3)
58.8%
69.6%
49.3%
92.7%
40.0%
105.9%
nm
57.6%
nm
78.7%
Cost income ratio - adjusted (2,3)
57.1%
67.1%
49.0%
83.0%
38.9%
119.5%
nm
47.8%
nm
76.1%
Notes:
(1)
RBS's CET1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(2)
Excluding own credit adjustments, gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.
(3)
Operating lease depreciation included in income (Q1 2017 - 36 million; Q4 2016 - 37 million and Q1 2016 - 38 million).
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