FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549


Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For August 6, 2010

Commission File Number: 001-10306

The Royal Bank of Scotland Group plc

RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F    X     Form 40-F        

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes           No    X  



If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________




The following information was issued as a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 

 
 
 
 
 
 
 
 
 
Interim results
for the half year ended
30 June 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Contents



Page 


Forward-looking statements
3 


Presentation of information
4 


Results summary - pro forma
5 


Results summary - statutory
7 


Pro forma results
8 


Summary consolidated income statement
8 


Condensed consolidated statement of comprehensive income
10 


Summary consolidated balance sheet
10 


Results summary
11 


Divisional performance
21 
UK Retail
24 
UK Corporate
28 
Wealth
31 
Global Banking & Markets
33 
Global Transaction Services
36 
Ulster Bank
38 
US Retail & Commercial
41 
RBS Insurance
46 
Central items
49 
Non-Core
50 


Allocation methodology for indirect costs
57 


Average balance sheet
59 


Condensed consolidated balance sheet
61 


Commentary on condensed consolidated balance sheet
62 


Condensed consolidated statement of changes in equity
64 


Notes
67 


Independent review report
77 
 
                                                                                                   


 
Contents
(
continued
)



Page 


Risk and capital management
78 


Presentation of information
78 


Capital
79 


Credit risk
83 


Funding and liquidity risk
115 


Market risk
120 


Other risk exposures
127 


Statutory results
144 


Condensed consolidated income statement
145 


Condensed consolidated statement of comprehensive income
146 


Financial review
147 


Condensed consolidated balance sheet
148 


Commentary on condensed consolidated balance sheet
149 


Condensed consolidated statement of changes in equity
151 


Condensed consolidated cash flow statement
154 


Notes
155 


Average balance sheet
192 


Capital resources and ratios
193 


Independent review report
194 


Principal risks and uncertainties
196 


Statement of directors' responsibilities
218 


Additional information
219 




Appendix 1  Reconciliations of pro forma to statutory income statements and
                     balance sheets



Appendix 2  Analysis by quarter
 


Appendix 3  The Asset Protection Scheme



Appendix 4  Businesses outlined for disposal



Appendix 5  Indicative impact of future transfers

 


 
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', 'believes', 'should', 'intend', 'plan', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited to: the Group's restructuring plans, capitalisation, portfolios, capital ratios, liquidity, risk weighted assets, return on equity, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; the Group's future financial performance; the level and extent of future impairments and write-downs; the protection provided by the
Asset Protection Scheme (APS)
; and the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements.  For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the global economy and instability in the global financial markets, and their impact on the financial industry in general and on the Group in particular; the financial stability of other financial institutions, and the Group's counterparties and borrowers; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain non-core assets and assets and businesses required as part of the EC State Aid restructuring plan; organisational restructuring; the ability to access sufficient funding to meet liquidity needs; cancellation, change or withdrawal of, or failure to renew, governmental support schemes; the extent of future write-downs and impairment charges caused by depressed asset valuations; the inability to hedge certain risks economically; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices and equity prices; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; HM Treasury exercising influence over the operations of the Group; the ability of the Group to attract or retain senior management or other key employees; regulatory change in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G7 central banks; impairments of goodwill; pension fund shortfalls; litigation and regulatory investigations; general operational risks; insurance claims; reputational risk; general geopolitical and economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the ability to achieve revenue benefits and cost savings from the integration of certain of RBS Holdings N.V.'s (formerly ABN AMRO Holding N.V.) businesses and assets; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the participation of the Group in the APS and the effect of the APS on the Group's financial and capital position; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group's activities as a result of HM Treasury's investment in the Group; and the success of the Group in managing the risks involved in the foregoing.
 
The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake 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 solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.


 
Presentation of information
 
Pro forma results
Pro forma results have been prepared to include only those business units of ABN AMRO that have been retained by RBS.  The business and strategic update, divisional performance and discussion of risk and capital management in this announcement focus on the pro forma results. The basis of preparation of the pro forma results is detailed on page 67.
 
Statutory results
RFS Holdings is the entity that acquired ABN AMRO and is jointly owned by the Consortium Members. It is controlled by RBS and is therefore fully consolidated in its financial statements. The interests of Fortis, and its successor the State of the Netherlands, and Santander in RFS Holdings are included in minority interests. Following legal separation on 1 April 2010, the interests of other Consortium Members in RFS Holdings relate only to shared assets. In future years, there will be no significant differences between pro forma and statutory results.


 
Results summary - pro forma
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 

£m 
£m 
£m 

£m 
£m 







Core*






Total income (1)
7,909 
8,020 
6,808 

15,929 
17,254 
Operating expenses (2)
(3,511)
(3,774)
(3,529)

(7,285)
(7,497)
Insurance net claims
(1,108)
(1,003)
(788)

(2,111)
(1,577)
Operating profit before impairment losses (3)
3,290 
3,243 
2,491 

6,533 
8,180 
Impairment losses
(1,097)
(971)
(1,147)

(2,068)
(2,177)
Operating profit (3)
2,193 
2,272 
1,344 

4,465 
6,003 







Non-Core






Total income (1)
873 
934 
(687)

1,807 
(2,463)
Operating expenses (2)
(592)
(656)
(537)

(1,248)
(1,236)
Insurance net claims
(215)
(133)
(137)

(348)
(314)
Operating profit/(loss) before impairment
  losses (3)
66 
145 
(1,361)

211 
(4,013)
Impairment losses
(1,390)
(1,704)
(3,516)

(3,094)
(5,344)
Operating loss (3)
(1,324)
(1,559)
(4,877)

(2,883)
(9,357)







Total






Total income (1)
8,782 
8,954 
6,121 

17,736 
14,791 
Operating expenses (2)
(4,103)
(4,430)
(4,066)

(8,533)
(8,733)
Insurance net claims
(1,323)
(1,136)
(925)

(2,459)
(1,891)
Operating profit before impairment losses (3)
3,356 
3,388 
1,130 

6,744 
4,167 
Impairment losses
(2,487)
(2,675)
(4,663)

(5,162)
(7,521)
Operating profit/(loss) (3)
869 
713 
(3,533)

1,582 
(3,354)
Integration and restructuring costs
(254)
(168)
(355)

(422)
(734)
Gain on redemption of own debt
553 
- 
3,790 

553 
3,790 
Asset Protection Scheme credit default swap
- fair value changes
500 
(500)
- 

- 
- 
Other
(511)
(66)
157 

(577)
313 
Profit/(loss) before tax (4)
1,157 
(21)
59 

1,136 
15 







* Includes fair value of own debt impact
619 
(169)
(960)

450 
71 
 
For definitions of the notes see page 6.
 


 
Results summary - pro forma
 
Key metrics
Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 







Performance ratios






Core






- Net interest margin
2.24% 
2.12% 
2.11% 

2.18% 
2.16% 
- Cost:income ratio (5)
44% 
47% 
52% 

46% 
43% 
- Adjusted cost:income ratio (6)
52% 
54% 
59% 

53% 
48% 
Non-Core






- Net interest margin
1.22% 
1.25% 
0.45% 

1.24% 
0.54% 
- Cost:income ratio (5)
68% 
70% 
(78%)

69% 
(50%)
- Adjusted cost:income ratio (6)
90% 
82% 
(65%)

86% 
(45%)
Group






- Net interest margin
2.03% 
1.92% 
1.70% 

1.97% 
1.74% 
- Cost:income ratio (5)
47% 
49% 
66% 

48% 
59% 
- Adjusted cost:income ratio (6)
55% 
57% 
78% 

56% 
68% 
Continuing operations:






Basic earnings/(loss) per ordinary and B
  share (7)
0.8p 
(0.2p)
0.1p 

0.6p 
(1.7p)
 

30 June 
2010 
31 March 
2010 
Change 

31 December 
2009 
Change 







Capital and balance sheet






Total assets
£1,581bn 
£1,583bn 
- 

£1,522bn 
4% 
Funded balance sheet (8)
£1,058bn 
£1,121bn 
(6%)

£1,084bn 
(2%)
Loan:deposit ratio (Core - net of provisions)
102%
102%
- 

104%
(200bp)
Loan:deposit ratio (Group - net of provisions)
128%
131%
(300bp)

135%
(700bp)
Risk-weighted assets - gross
£597bn 
£586bn 
2% 

£566bn 
5% 
Benefit of Asset Protection Scheme
(£123bn)
(£125bn)
(2%)

(£128bn)
(4%)
Risk-weighted assets
£474bn 
£461bn 
3% 

£438bn 
8% 
Total equity
£79bn 
£81bn 
(2%)

£80bn 
(1%)
Core Tier 1 ratio*
10.5%
10.6%
(10bp)

11.0%
(50bp)
Tier 1 ratio
12.8%
13.7%
(90bp)

14.4%
(160bp)
Risk elements in lending (REIL)
£36bn 
£37bn 
                (3%) 

£35bn 
3% 
REIL as a % of gross loans and advances
6.5%
6.3%
20bp 

6.1% 
40bp 
Provision balance as % of REIL and PPL
43%
45%
(200bp)

42% 
100bp 
Tier 1 leverage ratio (9)
17.2x 
17.6x 
(2%)

17.0x 
1%
Tangible equity leverage ratio (10)
5.5%
5.1%
40bp 

5.2% 
30bp 
Net tangible equity per share
52.8p 
51.5p 
3% 

51.3p 
3%
* Benefit of APS in Core Tier 1 ratio is 1.3% at 30 June 2010, 1.4% at 31 March 2010 and 1.6% at 31 December 2009.
 
Notes:
(1)
Excluding gain on redemption of own debt, strategic disposals and Asset Protection Scheme credit default swap - fair value changes.
(2)
Excluding
amortisation of purchased intangible assets
, integration and restructuring costs, bonus tax and write-down of goodwill and other intangible assets.
(3)
Operating profit/(loss) before tax, a
mortisation of purchased intangible assets
, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax,
Asset Protection Scheme credit default swap - fair value changes
and write-down of goodwill and other intangible assets.
(4)
Excluding write-down of goodwill and other intangible assets.
(5)
Cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above.
(6)
Adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(7)
Adjusted profit/(loss) from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue. Refer to page 73.
(8)
Total assets less derivatives.
(9)
Tier 1 leverage ratio is total tangible assets (after netting derivatives) divided by Tier 1 capital.
(10)
Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives).


 
Results summary - statutory
 
 
Highlights
 
·
Income of £17,960 million for H1 2010.


·
Operating profit before tax of £1,169 million for H1 2010.


·
Core Tier 1 ratio 10.5%
 
 

Half year ended

30 June 
2010 
30 June 
2009
*
 

£m 
£m 



Continuing operations:


Total income
17,960 
19,021 
Operating expenses
(9,170)
(9,960)
Operating profit before impairment losses
6,331 
7,170 
Impairment losses
(5,162)
(7,521)
Operating profit/(loss) before tax
1,169 
(351)



Profit/(loss) attributable to ordinary and B shareholders
9 
(1,042)
 
* Restated for the reclassification of the results attributable to other Consortium Members as discontinued operations.
 
For an explanation of the statutory presentation refer to page 4.


Summary consolidated income statement
for the half year ended 30 June 2010 - pro forma
 
In the income statement set out below, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, Asset Protection Scheme credit default swap - fair value changes and write-down of goodwill and other intangible assets are shown separately.  In the statutory condensed consolidated income statement on page 145, these items are included in income and operating expenses as appropriate.  
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 

£m 
£m 
£m 

£m 
£m 







Core*













Net interest income
3,212 
3,035 
3,133 

6,247 
6,349 







Non-interest income (excluding insurance net
premium income)
3,592 
3,864 
2,570 

7,456 
8,688 
Insurance net premium income
1,105 
1,121 
1,105 

2,226 
2,217 







Non-interest income
4,697 
4,985 
3,675 

9,682 
10,905 







Total income (1)
7,909 
8,020 
6,808 

15,929 
17,254 
Operating expenses (2)
(3,511)
(3,774)
(3,529)

(7,285)
(7,497)







Profit before other operating charges
4,398 
4,246 
3,279 

8,644 
9,757 
Insurance net claims
(1,108)
(1,003)
(788)

(2,111)
(1,577)







Operating profit before impairment losses
3,290 
3,243 
2,491 

6,533 
8,180 
Impairment losses
(1,097)
(971)
(1,147)

(2,068)
(2,177)







Operating profit (3)
2,193 
2,272 
1,344 

4,465 
6,003 







* Includes fair value of own debt impact
619 
(169)
(960)

450 
71 














Non-Core













Net interest income
472 
499 
189 

971 
511 







Non-interest income (excluding insurance net
premium income)
228 
267 
(1,072)

495 
(3,414)
Insurance net premium income
173 
168 
196 

341 
440 







Non-interest income
401 
435 
(876)

836 
(2,974)







Total income (1)
873 
934 
(687)

1,807 
(2,463)
Operating expenses (2)
(592)
(656)
(537)

(1,248)
(1,236)







Profit/(loss) before other operating
  charges
281 
278 
(1,224)

559 
(3,699)
Insurance net claims
(215)
(133)
(137)

(348)
(314)







Operating profit/(loss) before impairment
 losses
66 
145 
(1,361)

211 
(4,013)
Impairment losses
(1,390)
(1,704)
(3,516)

(3,094)
(5,344)







Operating loss
(3)
(1,324)
(1,559)
(4,877)

(2,883)
(9,357)
 
For definitions of the notes see page 6.


Summary consolidated income statement
for the half year ended 30 June 2010 - pro forma
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 

£m 
£m 
£m 

£m 
£m 







Total













Net interest income
3,684 
3,534 
3,322 

7,218 
6,860 







Non-interest income (excluding insurance net
  premium income)
3,820 
4,131 
1,498 

7,951 
5,274 
Insurance net premium income
1,278 
1,289 
1,301 

2,567 
2,657 







Non-interest income
5,098 
5,420 
2,799 

10,518 
7,931 







Total income (1)
8,782 
8,954 
6,121 

17,736 
14,791 
Operating expenses (2)
(4,103)
(4,430)
(4,066)

(8,533)
(8,733)







Profit before other operating charges
4,679 
4,524 
2,055 

9,203 
6,058 
Insurance net claims
(1,323)
(1,136)
(925)

(2,459)
(1,891)







Operating profit before impairment
  losses (3)
3,356 
3,388 
1,130 

6,744 
4,167 
Impairment losses
(2,487)
(2,675)
(4,663)

(5,162)
(7,521)







Operating profit/(loss) (3)
869 
713 
(3,533)

1,582 
(3,354)
Amortisation of purchased intangible assets
(85)
(65)
(55)

(150)
(140)
Integration and restructuring costs
(254)
(168)
(355)

(422)
(734)
Gain on redemption of own debt
553 
- 
3,790 

553 
3,790 
Strategic disposals
(411)
53 
212 

(358)
453 
Bonus tax
(15)
(54)
- 

(69)
- 
Asset Protection Scheme credit default swap - 
fair value changes
500 
(500)
- 

- 
- 







Profit/(loss) before tax (4)
1,157 
(21)
59 

1,136 
15 
Tax (charge)/credit
(825)
(106)
640 

(931)
412 







Profit/(loss) from continuing operations
332 
(127)
699 

205 
427 
Loss from discontinued operations, net of tax
(26) 
(4)
(13)

(30) 
(58)







Profit/(loss) for the period
306 
(131)
686 

175 
369 
Minority interests
(30)
(12)
(83)

(42)
(554)
Preference share and other dividends
(19)
(105)
(432)

(124)
(546)







Profit/(loss) attributable to ordinary and B 
shareholders before write-down of goodwill
and other intangible assets
257 
(248)
171 

9 
(731)
Write-down of goodwill and other intangible 
  assets, net of tax
- 
- 
(311)

- 
(311)







Profit/(loss) attributable to ordinary and B 
shareholders
257 
(248)
(140)

9 
(1,042)
 
For definitions of the notes see page 6.


Condensed consolidated statement of comprehensive income
for the half year ended 30 June 2010 - pro forma
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 

£m 
£m 
£m 

£m 
£m 







Profit/(loss)
for the period
306 
(131)
375 

175 
58 







Other comprehensive income






Available-for-sale financial assets
117 
381 
1,319 

498 
(1,633)
Cash flow hedges
38 
(1)
277 

37 
521 
Currency translation
480 
766 
(2,262)

1,246 
(2,447)
Tax on other comprehensive income
10 
(160)
(154)

(150)
408 







Other comprehensive income/(loss) for 
the period, net of tax
645 
986 
(820)

1,631 
(3,151)







Total comprehensive income/(loss) for the 
period
951 
855 
(445)

1,806 
(3,093)







Attributable to:






Minority interests
44 
89 
(81)

133 
53 
Preference shareholders
- 
105 
396 

105 
510 
Paid-in equity holders
19 
- 
36 

19 
36 
Ordinary and B shareholders
888 
661 
(796)

1,549 
(3,692)








951 
855 
(445)

1,806 
(3,093)
 
Summary consolidated balance sheet
at 30 June 2010 - pro forma
 

30 June 
2010 
31 March 
2010 
31 December 
2009
 

£m 
£m 
£m 




Loans and advances to banks (1)
54,471 
56,508 
48,777 
Loans and advances to customers (1)
539,340 
553,872 
554,654 
Reverse repurchase agreements and stock borrowing
87,059 
95,925 
76,137 
Debt securities and equity shares
253,586 
273,170 
265,055 
Other assets
123,526 
141,151 
139,659 




Funded assets
1,057,982 
1,120,626 
1,084,282 
Derivatives
522,871 
462,272 
438,199 




Total assets
1,580,853 
1,582,898 
1,522,481 




Owners' equity
76,802 
78,676 
77,736 
Minority interests
2,109 
2,305 
2,227 
Subordinated liabilities
27,523 
31,936 
31,538 
Deposits by banks (2)
96,614 
100,168 
115,642 
Customer accounts (2)
420,890 
425,102 
414,251 
Repurchase agreements and stock lending
114,820 
129,227 
106,359 
Derivatives, settlement balances and short positions
571,690 
514,855 
472,409 
Other liabilities
270,405 
300,629 
302,319 




Total liabilities and equity
1,580,853 
1,582,898 
1,522,481 
 
Notes:
(1)
Excluding reverse repurchase agreements and stock borrowing.
(2)
Excluding repurchase agreements and stock lending.


 
Results summary
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Net interest income
£m 
£m 
£m 

£m 
£m 







Net interest income (1)
3,567 
3,447 
3,276 

7,014 
6,746 







Net interest margin






- Group
2.03% 
1.92% 
1.70% 

1.97% 
1.74% 
- Core






  - Retail & Commercial (2)
3.11% 
2.97% 
2.92% 

3.04% 
2.81% 
  - Global Banking & Markets
1.01% 
1.11% 
1.48% 

1.06% 
1.73% 
- Non-Core
1.22% 
1.25% 
0.45% 

1.24% 
0.54% 







Selected average balances






Loans and advances to banks
47,090 
47,254 
55,062 

47,172 
49,484 
Loans and advances to customers
517,450 
529,914 
585,925 

523,682 
602,236 
Debt securities
139,722 
140,732 
129,190 

140,227 
124,059 
Interest earning assets
704,262 
717,900 
770,177 

711,081 
775,779 
Deposits by banks
94,330 
86,048 
128,733 

90,189 
141,778 
Customer accounts
351,282 
340,872 
359,539 

346,077 
365,187 
Subordinated liabilities
30,639 
32,629 
33,813 

31,634 
36,234 
Interest bearing liabilities
618,736 
627,192 
688,432 

622,964 
688,273 
Non-interest bearing deposits
49,928 
43,946 
36,790 

46,937 
36,664 







Selected average yields (%)






Loans and advances to banks
1.12 
1.19 
1.85 

1.15 
1.94 
Loans and advances to customers
3.67 
3.48 
4.07 

3.58 
3.96 
Debt securities
2.88 
2.43 
2.96 

2.65 
3.67 
Interest earning assets
3.34 
3.13 
3.72 

3.23 
3.79 
Deposits by banks
1.77 
1.38 
2.23 

1.59 
2.50 
Customer accounts
1.09 
1.03 
1.49 

1.06 
1.50 
Subordinated liabilities
1.91 
2.46 
3.60 

2.19 
4.04 
Interest bearing deposits
1.50 
1.38 
2.26 

1.44 
2.31 
Non-interest bearing deposits as a
  percentage of interest earning assets
7.09 
6.12 
4.78 

6.60 
4.73 
 
Notes:
(1)
Refer to notes on page 59.
(2)
Retail & Commercial comprises UK Retail, UK Corporate, Wealth, Global Transaction Services, Ulster Bank and US Retail & Commercial divisions.
 


 
Results summary
(continued)
 
Key points
 
Q2 2010 compared with Q1 2010
·
Group net interest margin improved to 2.03%, up 11 basis points from the first quarter, with underlying up 8 basis points excluding the positive impact of capital hedging.
 

·
NIM in the Core Retail & Commercial business improved by 14 basis points, with improved asset margins offsetting continued pressure on liability margins as higher yielding hedges roll off. Wider asset margins primarily reflect the roll-off of older business written at lower margins, with front book margins remaining attractive, but stabilising.
 

·
Net interest income benefited from the higher day count in the second quarter (approximately 4 basis points of the 14 basis point movement in Core Retail & Commercial NIM), as well as from modest growth in UK Retail and Corporate loan balances.
 
Q2 2010 compared with Q2 2009
·
Group NIM widened by 33 basis points compared with Q2 2009.
 

·
In Core Retail & Commercial, net interest income increased by 10%, while average interest earning assets increased by 4%, leaving NIM 19 basis points higher.
 
H1 2010 compared with H1 2009
 
·
Group NIM recovered to 1.97%, up 23 basis points from the trough of 1.74% reached in the first half of 2009.
 

·
Core Retail & Commercial NIM was 23 basis points higher.
 


 
Results summary
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Non-interest income
£m 
£m 
£m 

£m 
£m 







Net fees and commissions
1,467 
1,479 
1,530 

2,946 
3,115 
Income from trading activities
1,606 
2,266 
384 

3,872 
2,044 
Other operating income
747 
386 
(416)

1,133 
115 







Non-interest income (excluding insurance net premium income)*
3,820 
4,131 
1,498 

7,951 
5,274 
Insurance net premium income
1,278 
1,289 
1,301 

2,567 
2,657 







Total non-interest income
5,098 
5,420 
2,799 

10,518 
7,931 














* Includes fair value of own debt impact:






Income/(loss) from trading activities
104 
41 
(159)

145 
131 
Other operating income
515 
(210)
(801)

305 
(60)







Fair value of own debt
619 
(169)
(960)

450 
71 
 
Key points
 
Q2 2010 compared with Q1 2010
·
Income from trading activities, excluding movements in the fair value of own debt, declined by £723 million, with economic uncertainty leading to weak capital market conditions, thereby reducing GBM trading volumes from the strong first quarter. Non-Core trading results improved, however, as banking book hedges benefited from spread widening.
 

·
Other operating income includes losses of £105 million booked on the disposal of a portfolio of lower-rated sovereign debt securities, including Portugal and Greece.
 

·
The Group's credit spreads widened during the quarter, resulting in a gain of £619 million on the fair value of own debt, compared with a charge of £169 million in the first quarter.
 
Q2 2010 compared with Q2 2009
·
Excluding fair value of own debt, GBM trading income was 24% lower than in the buoyant second quarter of 2009.
 

·
Non-Core trading results are inevitably volatile, with gains booked on single name credit default swaps, compared with losses booked on the same positions in Q2 2009.
 

·
UK Retail non-interest income fell, reflecting the reduction in overdraft administration charges following changes to the pricing structure introduced in Q4 2009.
 

·
The gain of £619 million on the fair value of own debt contrasts with a charge of £960 million in the second quarter of 2009, during which the Group's credit spreads tightened sharply.
 
H1 2010 compared with H1 2009
 
·
Lower revenues in GBM were offset by a £3.7 billion increase in Non-Core trading income as conditions improved and risk continued to be reduced.
 

·
Excluding the reduction in UK Retail overdraft
administration
fees, Core Retail & Commercial non-interest income rose modestly.
 


 
Results summary
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Operating expenses
£m 
£m 
£m 

£m 
£m 







Staff costs
2,178 
2,553 
2,150 

4,731 
4,660 
Premises and equipment
516 
528 
587 

1,044 
1,231 
Other
974 
935 
915 

1,909 
1,961 







Administrative expenses
3,668 
4,016 
3,652 

7,684 
7,852 
Depreciation and amortisation
435 
414 
414 

849 
881 







Operating expenses
4,103 
4,430 
4,066 

8,533 
8,733 





















General insurance
1,348 
1,107 
895 

2,455 
1,865 
Bancassurance
(25)
29 
30 

4 
26 







Insurance net claims
1,323 
1,136 
925 

2,459 
1,891 





















Staff costs as a percentage of total income
25%
29%
35%

27%
32%
 
Key points
 
Q2 2010 compared with Q1 2010
·
Staff costs fell, driven by the reduction in GBM performance-related pay accruals in line with reduced revenue and a £74 million credit relating to changes to the US defined benefit pension plan. This was partially offset by the effects of the annual salary award.
 

·
Insurance net claims rose by 16%, reflecting higher reserves for bodily injury claims relating to prior years, partially offset by lower weather-related claims.
 
Q2 2010 compared with Q2 2009
·
Administrative expenses were broadly flat compared with a year ago. 
 

·
Insurance claims increased by £398 million, largely as a result of the increased bodily injury reserving.
 
H1 2010 compared with H1 2009
 
·
Lower first half costs reflect more than £600 million of benefits from the Group's cost reduction programme, partially offset by increased investment activity across the core businesses.
 

·
US deposit insurance levies were lower than in the first half of 2009, which included a one-off FDIC assessment.


 
Results summary
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Impairment losses
£m 
£m 
£m 

£m 
£m 







Division






UK Retail
300 
387 
470 

687 
824 
UK Corporate
198 
186 
450 

384 
550 
Wealth
7 
4 
16 

11 
22 
Global Banking & Markets
164 
32 
(31)

196 
238 
Global Transaction Services
3 
- 
4 

3 
13 
Ulster Bank
281 
218 
90 

499 
157 
US Retail & Commercial
144 
143 
146 

287 
369 
RBS Insurance
- 
- 
1 

- 
6 
Central items
- 
1 
1 

1 
(2)







Core
1,097 
971 
1,147 

2,068 
2,177 
Non-Core
1,390 
 1,704 
3,516 

3,094 
5,344 








2,487 
2,675 
4,663 

5,162 
7,521 







Asset category






Loan impairment losses
2,479 
2,602 
4,520 

5,081 
6,796 
Securities impairment losses
8 
73 
143 

81 
725 








2,487 
2,675 
4,663 

5,162 
7,521 







Loan impairment charge as % of gross
 loans and advances (excluding reverse
repurchase agreements)
1.8%
1.8% 
3.0%

1.8% 
2.2%
 
Key points
 
Q2 2010 compared with Q1 2010
·
Core Retail & Commercial impairments were flat on Q1 2010, with improvements in UK Retail offset by increased impairments in Ulster Bank commercial property portfolios.  UK Corporate and US Retail & Commercial impairments were stable as a percentage of loans and advances. GBM had a small number of individual impairments in Q2 2010.
 

·
The improvement in Non-Core impairments was largely driven by a provision recovery of £270 million on a significant single name exposure.
 
Q2 2010 compared with Q2 2009
·
The reduction in impairments stemmed principally from Non-Core, where impairments have now fallen for four consecutive quarters.  
 
H1 2010 compared with H1 2009
 
·
First half impairments were lower than in H1 2009 in every division except Ulster Bank. However, impairment levels remain sensitive to the economic environment and many of the Group's customers still face challenging financial circumstances.


 
Results summary
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Credit and other market losses (1)
£m 
£m 
£m 

£m 
£m 







Monoline exposures
139 
- 
26 

139 
1,671 
CDPCs (2)
56 
32 
371 

88
 
569 
Asset-backed products
(97)
55 
165 

(42)
541 
Other credit exotics
(47)
(11)
(1)

(58)
536 
Equities
6 
7 
17 

13
 
25 
Banking book hedges
(147)
36 
813 

(111)
996 
Other
183 
140 
(2)

323 
(85)







Net credit and other market losses
93 
259 
1,389 

352 
4,253 
 
Notes:
(1)
Included in 'Income from trading activities', significantly all in Non-Core.
(2)
Credit derivative product companies.
 
Key points
 
Q2 2010 compared with Q1 2010
●
Total net losses were significantly lower than in Q1 2010 reflecting the widening of corporate credit spreads (benefiting banking book hedges) while other asset prices continued to improve and sterling strengthened.


●
Losses on monoline exposures reflect widening credit spreads which more than offset reductions in exposures and gains on restructuring.


●
In Q2 2010, widening corporate credit spreads resulted in a higher exposure to CDPCs leading to an increase in CVA.


●
Gains on asset-backed products in Q2 2010 included gains on disposals as well as price improvements, compared with a more mixed outcome in Q1 2010.


●
The gain on other credit exotics principally reflects lower reserving as a result of risk reduction.


●
Gains on banking book hedges in Q2 2010 compared with losses in Q1 2010 resulted from the widening of corporate credit spreads and the continued roll off of capital relief trades.
 
Q2 2010 compared with Q2 2009
●
Losses decreased in Q2 2010 due to the continued reduction in underlying exposures.
 


 
Results summary
(continued)
 
Key points
(continued)
 
H1 2010 compared with H1 2009
 
●
The losses on monolines decreased by £1.5 billion, due to management actions to reduce the monoline exposures as a result of improved underlying asset prices.


●
Similarly, CDPC losses declined by £0.5 billion as exposures have been reduced and losses on hedges incurred in 2009 subsided. Exposures to CDPCs have declined over the course of 2009 and the first half of 2010, accounting for the lower losses.


●
In H1 2009, losses were experienced on ABS due to price deterioration, principally in Q1 2009. However, in H1 2010
prices have improved and some net gains were realised.


●
Gains on banking book hedges in H1 2010 compared with losses in H1 2009 reflect the combination of unwinding during 2010 and movements in credit spreads, both direction and extent.


 
Results summary
(continued)
 

Quarter ended

Half year ended

30 June 
2010 
31 March 
2010 
30 June 
2009 

30 June 
2010 
30 June 
2009 
Other non-operating items
£m 
£m 
£m 

£m 
£m 







Amortisation of purchased intangible assets
(85)
(65)
(55)

(150)
(140)
Integration and restructuring costs
(254)
(168)
(355)

(422)
(734)
Gain on redemption of own debt
553 
- 
3,790 

553 
3,790 
Strategic disposals
(411)
53 
212 

(358)
453 
Bonus tax
(15)
(54)
- 

(69)
- 
Asset Protection Scheme credit default swap
- fair value changes
500 
(500)
- 

- 
- 








288 
(734)
3,592 

(446)
3,369 
 
Key points
·
A gain of £553 million was booked associated with the liability management exercise undertaken during the second quarter, through which the Group strengthened its Core Tier 1 capital base by repurchasing existing Tier 1 securities and exchanging selected existing Upper Tier 2 securities for new senior debt securities. Note that a further gain of £651 million was booked directly to equity in Q2 2010.
 

·
The Asset Protection Scheme is structured as a credit derivative, with movements in the fair value of the contract taken as a credit of £500 million in the second quarter, compared with £500 million charged in Q1 2010. This reflects widening credit spreads across the portfolio of covered assets.
 

·
Losses booked on strategic disposals during the second quarter reflect the momentum in the Group's restructuring programme, including a number of country exits, primarily in Latin America and Asia. In addition, the Group recognised a loss of £235 million in relation to the restructuring of its bancassurance distribution arrangements with Aviva.


 
Results summary
(continued)
 
Capital resources and ratios
30 June 
2010
 
31 March 
2010 
31 December 
2009 




Core Tier 1 capital
£50bn
£49bn 
£48bn 
Tier 1 capital
£61bn
£63bn 
£63bn 
Total capital
£66bn
£72bn 
£71bn 
Risk-weighted assets  - gross
£597bn
£586bn 
£566bn 
Benefit of Asset Protection Scheme
(£123bn)
(£125bn)
(£128bn)
Risk-weighted assets
£474bn
£461bn 
£438bn 
Core Tier 1 ratio *
10.5% 
10.6% 
11.0% 
Tier 1 ratio
12.8% 
13.7% 
14.4% 
Total capital ratio
13.9% 
15.7% 
16.3% 
 
* Benefit of APS in Core Tier 1 ratio is 1.3% at 30 June 2010, 1.4% at 31 March 2010 and 1.6% at 31 December 2009.
 
Key points
 
·
The Core Tier 1 ratio declined by 10 basis points during the second quarter, largely driven by an increase in risk-weighted assets, partially offset by the benefits of the liability management exercise.
 

·
RWAs were up £13 billion to £474 billion due to a new market risk-related event risk charge and an increase in RBS NV as historic capital relief trades rolled off.
 

·
The transition of RBS NV to the Basel II approach was successfully completed during the quarter. This resulted in an increase in Non-Core and Group Centre RWAs which was largely offset by reductions across other divisions.


·
Capital relief from the Asset Protection Scheme declined by £1 billion to £123 billion, reflecting run-off and the withdrawal of certain assets from the Scheme.
 

·
The Tier 1 capital ratio declined by 90 basis points to 12.8%, reflecting the increase in RWAs as well as the liability management exercise completed in the second quarter. The movement in the total capital ratio reflects the same drivers.
 
 


 
Results summary
(continued)
 
Balance sheet
30 June 
2010
 
31 March 
2010 
31 December 
2009 




Funded balance sheet
£1,058bn 
£1,121bn 
£1,084bn 
Total assets
£1,581bn 
£1,583bn 
£1,522bn 
Loans and advances to customers (excluding reverse repurchase agreements and
 stock borrowing)
£539bn 
£554bn 
£555bn 
Customer accounts (excluding repurchase agreements and stock lending)
£421bn 
£425bn 
£414bn 
Loan:deposit ratio (Core - net of provisions)
102%
102%
104%
Loan:deposit ratio (Group - net of provisions)
128%
131%
135%
 
Key points
·
The funded balance sheet decreased by £63 billion during the second quarter, including £44 billion asset reduction in GBM and £20 billion in Non-Core, of which £8 billion was from disposals.
 

·
Compared with 30 June 2009, loans and advances have fallen by £29 billion in GBM and by £36 billion in Non-Core, while growing by £11 billion in Core Retail & Commercial.
 
Further discussion of the Group's funding and liquidity positions is included on pages 115 to 119.
 

 

 





Signatures



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date:   August 6, 2010

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ Jan Cargill

  Name:
Title:		 Jan Cargill
Deputy Secretary