rbs201408016k1.htm
 
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 1, 2014
 
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:

 
 
The Royal Bank of Scotland Group plc
Interim Results 2014

Contents
 
Page 
   
Highlights
1
Contacts
8
Presentation of information
9
Summary consolidated results
12
Analysis of results
14
Segment performance
24
   
Statutory results
69
   
Condensed consolidated income statement
69
Condensed consolidated statement of comprehensive income
70
Condensed consolidated balance sheet
71
Average balance sheet
72
Condensed consolidated statement of changes in equity
75
Condensed consolidated cash flow statement
77
Notes
78
   
Independent review report to The Royal Bank of Scotland Group plc
132
Disposal of Direct Line Group
134
Risk factors
135
Statement of directors’ responsibilities
138
   
Additional information
139
   
Share information
139
Statutory results
139
Financial calendar
139
   
Appendix 1 Capital and risk management
  
   
Appendix 2 Income statement reconciliations
  


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’, ‘believe’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘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 and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios, liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, funding and risk profile; discretionary coupon and dividend payments; implementation of legislation of ring-fencing and bail-in measures; sustainability targets; litigation, regulatory and governmental investigations; the Group’s future financial performance; the level and extent of future impairments and write-downs; and the Group’s exposure to political risks, including the referendum on Scottish independence, credit rating risk and 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 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: global and UK economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on the Group in particular; the ability to implement strategic plans on a timely basis, or at all, including the simplification of the Group’s structure, rationalisation of and investment in its IT systems, the divestment of Citizens Financial Group and the exiting of assets in RBS Capital Resolution as well as the disposal of certain other assets and businesses as announced or required as part of the State Aid restructuring plan; the achievement of capital and costs reduction targets; ineffective management of capital or changes to capital adequacy or liquidity requirements; organisational restructuring in response to legislation and regulation in the United Kingdom (UK), the European Union (EU) and the United States (US); the implementation of key legislation and regulation including the UK Financial Services (Banking Reform Act) 2013 and the EU Recovery and Resolution Directive; the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; litigation, government and regulatory investigations including investigations relating to the setting of interest rates and foreign exchange trading and rate setting activities; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the US; the reliability and resilience of its IT system, the extent of future write-downs and impairment charges caused by depressed asset valuations; 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, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group’s operations) in the UK, the US and other countries in which the Group operates or a change in UK Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of the Group; reputational risk; 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.

Highlights
 
The Royal Bank of Scotland Group (“RBS”) reports a profit before tax of £2,652 million for H1 2014, up from £1,374 million in H1 2013, driven by more favourable credit conditions and good results from RBS Capital Resolution, with a consequential beneficial impact on capital ratios.

Operating profit(1) for the period was £2,601 million, up from £708 million in H1 2013.

“The results show the steady progress we are making as we take the steps to be a much simpler, smaller and fairer bank. These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders.”
 
“There is progress on all of our key priorities - capital is stronger, costs are lower and customer activity is gradually improving - although we have only just started with our programme to make it easier for customers to do more business with us.”
 
“But let me sound a note of caution. We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will likely hit our profits going forward. I am pleased we have had two good quarters, but no one should get ahead of themselves here - there are bumps in the road ahead of us.”
 
“These results are pleasing but no one at this bank is complacent about the challenges ahead.”

Ross McEwan, Chief Executive







Note:
(1)
Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest (‘operating profit’). Statutory operating profit before tax was £2,652 million for the half year ended 30 June 2014.

 
Highlights
 
Key financial data
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014 
2013*
 
2014 
2014*
2013*
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Total income (1)
9,978 
10,608 
 
4,925 
5,053 
5,447 
Operating expenses (2)
(7,108)
(7,750)
 
(3,700)
(3,408)
(4,156)
Operating profit before impairment losses (3)
2,870 
2,858 
 
1,225 
1,645 
1,291 
Impairment (losses)/recoveries
(269)
(2,150)
 
93 
(362)
(1,117)
 
 
 
 
 
 
 
Operating profit (3)
2,601 
708 
 
1,318 
1,283 
174 
 
 
 
 
 
 
 
Own credit adjustments
(51)
376 
 
(190)
139 
127 
Gain on redemption of own debt
20 
191 
 
- 
20 
242 
Write-down of goodwill
(130)
- 
 
(130)
- 
- 
Strategic disposals
191 
- 
 
- 
191 
6 
RFS Holdings minority interest
21 
99 
 
12 
9 
(1)
 
 
 
 
 
 
 
Profit before tax
2,652 
1,374 
 
1,010 
1,642 
548 
 
 
 
 
 
 
 
Profit attributable to ordinary and B shareholders
1,425 
535 
 
230 
1,195 
142 
 
 
 
 
 
 
 
*Restated - refer to page 10.
 
 
 
 
 
 

 
 
 
 
30 June
31 March
31 December
Capital and balance sheet
2014 
2014 
2013 
 
 
 
 
Funded balance sheet (4)
£736bn
£746bn
£740bn
Total assets
£1,011bn
£1,024bn
£1,028bn
Loan:deposit ratio (5)
96%
97%
94%
Common Equity Tier 1 ratio
10.1%
9.4%
8.6%
Leverage ratio (6)
3.7%
3.6%
3.4%
Tangible net asset value per ordinary and B share (7)
376p
376p
363p
Liquidity portfolio
£138bn
£131bn
£146bn
Liquidity coverage ratio (LCR) (8)
104%
103%
102%
Net stable funding ratio (NSFR) (9)
111%
110%
118%

Notes:
(1)
Excluding own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest.
(2)
Excluding RFS Holdings minority interest and write-down of goodwill.
(3)
Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals, and RFS Holdings minority interest.
(4)
Funded balance sheet represents total assets less derivatives.
(5)
Net of provisions, including disposal groups and excluding repurchase agreements.
(6)
Leverage ratio represents CRR end-point Tier 1 capital as a percentage of the exposure based on the Basel Committee on Banking Supervision (BCBS) January 2014 proposal.
(7)
Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares in issue and the effect of convertible B shares.
(8)
In January 2013, the BCBS published its final guidance for calculating LCR which is currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors the LCR based on its own interpretations of current guidance available for EU LCR reporting. Therefore, the reported LCR will change over time with regulatory developments. Due to differences in interpretation of the rules RBS’s ratio may not be comparable with those of other financial institutions.
(9)
The NSFR for all periods has been calculated using RBS’s current interpretations of the existing rules relating to various BCBS guidance to date. Ratios for 31 March 2014 and 31 December 2013 have been revised accordingly. BCBS is expected to issue revised guidance on the NSFR towards the end of 2014 or early 2015.

Highlights
 
Key points

H1 2014 performance
●
Operating performance in the first half of 2014 was good, with all customer-facing businesses reporting improved operating profits compared with H1 2013. Operating profit(1) of £2,601 million included £514 million of restructuring costs (compared with £271 million in H1 2013) and £250 million of litigation and conduct costs, with £150 million added to provisions for Payment Protection Insurance and £100 million to interest rate swap redress provisions.
   
●
Operating profit(1), excluding restructuring and litigation and conduct costs (‘adjusted operating profit’), improved to £3,365 million, compared with £1,599 million in H1 2013.
   
●
Total income declined 6% to £9,978 million. Growth of 3% in Personal & Business Banking (PBB) and 2% in Commercial & Private Banking (CPB) was more than offset by lower income, down 10%, in Corporate & Institutional Banking (CIB), reflecting its smaller balance sheet and reduced risk profile. Net interest margin improved to 2.17%, up 20 basis points compared with H1 2013, with continuing benefits from deposit repricing in PBB and CPB outweighing modest erosion of asset margins.
   
●
Total expenses were 8% lower at £7,108 million, including £514 million of restructuring costs and £250 million of litigation and conduct costs. Operating expenses, excluding restructuring and litigation and conduct costs (‘adjusted operating expenses’), were down 8% to £6,344 million. Overall headcount has fallen by 8,000 over the past 12 months.
   
●
Impairment losses declined by £1,881 million to £269 million. All core businesses showed significant reductions in impairment losses as UK and Irish credit conditions continued to improve. In RBS Capital Resolution (RCR) there was a net write-back of provisions, reflecting disposals at favourable prices. At 30 June 2014, risk elements in lending (REIL) represented 8.3% of gross loans to customers, compared with 9.4% at 31 December 2013.
   
●
Profit before tax was £2,652 million compared with £1,374 million in the first half of 2013, including a gain of £191 million from the sale of the remaining interest in Direct Line Insurance Group in Q1 2014 and a write-down of goodwill of £130 million in Q2 2014. Own credit adjustment was a charge of £51 million compared with a credit of £376 million in H1 2013 which also included a gain of £191 million on redemption of own debt compared with £20 million in H1 2014.
   
●
The tax charge was £733 million, representing 27.6% of profit before tax, and included a £76 million write-off of deferred tax assets.
   
●
The Common Equity Tier 1 (CET1) capital ratio strengthened to 10.1%(2) from 8.6% at the end of 2013, principally driven by reductions in risk-weighted assets in CIB and RCR and the retained profit for the period. RBS remains on track to achieve its medium-term capital targets.
   
●
After charging the initial £320 million Dividend Access Share retirement dividend, profit attributable to ordinary and B shareholders was £1,425 million. Tangible net asset value per ordinary and B share was 376p at 30 June 2014 compared with 363p at the end of 2013.


Highlights
 
Key points (continued)

Q2 2014 performance
●
Operating profit(1) in Q2 2014 was £1,318 million, compared with £174 million in Q2 2013 and £1,283 million in Q1 2014. Restructuring costs totalled £385 million and litigation and conduct costs £250 million. Adjusted operating profit rose to £1,953 million, compared with £893 million in Q2 2013 and £1,412 million in Q1 2014.
   
●
Total income was 10% lower than in Q2 2013 at £4,925 million, with a 4% improvement in UK PBB more than offset by the 13% reduction in CIB, reflecting its smaller balance sheet and lower risk levels. Within CIB, Rates, Currencies and Credit income was £765 million, down 10% from Q2 2013 and 25% from Q1 2014. Citizens Financial Group benefited from a net gain of $283 million on the sale of its Illinois branch network.
   
●
Adjusted operating expenses were £3,065 million, down 11% from Q2 2013 and 7% from Q1 2014.
   
●
Impairments amounted to a net release of £93 million compared with losses of £1,117 million in Q2 2013 and £362 million in Q1 2014, benefiting from improvements in bad debt flows and latent provision releases totalling £258 million, primarily reflecting improving credit conditions.
   
●
Profit before tax totalled £1,010 million, after a write-down of goodwill of £130 million and a charge of £190 million for own credit. Profit attributable to ordinary and B shareholders was £230 million, after charging the initial £320 million Dividend Access Share retirement dividend.

Balance sheet
●
Funded assets fell to £736 billion, down £107 billion from June 2013, principally driven by the reduction in CIB’s balance sheet and the run-off of RCR and Non-Core assets.
 
○
In UK PBB, gross new mortgage lending totalled £9.8 billion in H1 2014, a market share of 9.9%. Repayments remain high, with the low interest rate environment enabling higher levels of principal repayment.
 
○
In CPB, Commercial Banking, loans and advances in the growable book increased to £64.9 billion, up £2 billion from the prior year, but this was offset by a £2.8 billion planned decline in the non-growable book, which comprises real estate finance, businesses in restructuring and excess single-name concentrations.
 
○
Overall SME applications were 11% higher in H1 2014 than in the prior year and gross new lending was up 31% at £5.0 billion, with run-off remaining at a similar level to previous years.
 
○
Total net lending flows reported within the scope of the Funding for Lending Scheme were minus £1.5 billion in Q2 2014 with the majority of the decline in large corporates.
●
Risk-weighted assets (RWAs) fell to £392 billion at the end of June 2014, down £22 billion from the end of March 2014.
   
●
The CET1 ratio was 10.1%(2) at the end of June 2014, up from 8.6% at the end of 2013 and 9.4% at the end of March 2014 reflecting the attributable profit for the period and lower RWAs.
   
●
The bank’s liquid asset buffer was £138 billion at the end of June 2014, up slightly from the first quarter but down from £146 billion at the end of 2013, leaving ample headroom to accommodate lending growth in H2 2014.

Highlights
 
Key points (continued)

Segmental performance
●
Personal & Business Banking
 
○
Operating profit increased to £1,049 million from £307 million in the first half of 2013. Adjusted operating profit was £1,232 million in H1 2014, up from £622 million in H1 2013. The increase in adjusted operating profit was principally driven by a decline in impairment losses, predominantly in Ulster Bank. In addition, income grew by 5% in UK PBB with higher personal mortgage and deposit balances and stronger deposit margins.
 
○
Within PBB, UK Personal & Business Banking (UK PBB) operating profit increased to £994 million from £688 million in the first half of 2013. Adjusted operating profit rose 22% to £1,163 million, driven by strong income growth (up 5% compared with H1 2013) and a 42% decline in impairment losses.
 
○
Ulster Bank operating profit increased to £55 million from a loss of £381 million in the first half of 2013. Adjusted operating profit was £69 million compared with a loss of £335 million in H1 2013, principally as a result of the marked improvement in impairment losses.

●
Commercial & Private Banking
 
○
Operating profit increased to £780 million from £501 million in the first half of 2013. Adjusted operating profit of £895 million was 60% higher than in H1 2013, with net interest income benefiting from improving deposit margins and impairment losses substantially reduced.
 
○
Commercial Banking operating profit increased to £635 million from £413 million in the first half of 2013. Adjusted operating profit rose by 60% to £747 million, with the effect of repricing activity offsetting the impact of a decline in CIB (Markets) revenue share income. Lower impairments reflected fewer significant individual cases together with £60 million of latent provision releases.
 
○
Private Banking operating profit was £145 million compared with £88 million in the first half of 2013. Adjusted operating profit was 59% higher at £148 million, with net interest income benefiting from improved deposit margins and with cost saving initiatives contributing to an 8% reduction in adjusted expenses.

●
Corporate & Institutional Banking
 
○
Operating profit was £308 million, compared with a loss of £197 million in H1 2013. Adjusted operating profit was £549 million, up 85% from H1 2013. The improvement primarily reflected lower impairments (a net recovery of £39 million compared with losses of £223 million in the prior year).
 
○
While Rates income improved from a weak H1 2013 (up 40%), Currencies declined by 27% and Credit by 22%, reflecting lower market volatility and the reduction in CIB’s RWA deployment.
 
○
RWAs fell from £147 billion to £128 billion driven by deleveraging, mitigation and risk-reduction.

●
Citizens Financial Group
 
○
Operating profit increased by £68 million ($158 million), or 19%, to £421 million ($704 million), reflecting the sale of the Illinois retail branches and small business and select middle market relationships in the Illinois market. Excluding the impact of the sale, $283 million net gain, and restructuring costs of $115 million (H1 2013 - $5 million), operating profit was down 3% driven by lower non-interest income and higher impairment losses partially offset by higher net interest income.
 
○
The Illinois branch transaction, completed on 20 June 2014, resulted in a net gain of $283 million and restructuring costs of $17 million.
 
○
Net interest income rose 14%, reflecting an expanded investment securities portfolio and 8% growth in average loans and advances, driven by the transfer of a $3.6 billion portfolio from Non-Core.

Highlights
 
Key points (continued)

Segmental performance (continued)
●
RBS Capital Resolution
 
○
Over the course of H1 2014 RCR reduced funded assets by £8 billion, or 28%, to £21 billion. RWA equivalent(3) decreased by £21 billion, or 33%, to £44 billion.
 
○
Operating loss in H1 2014 was £48 million, with an operating profit of £66 million recorded in the second quarter of the year, driven by net impairment releases of £128 million.
 
○
The combined effect of the small operating loss and RWA equivalent reduction was net CET1 capital accretion of £2 billion.

Building the number one bank for trust and service in the UK
●
RBS is making steady progress towards building a simpler, smaller and fairer bank, and remains focused on delivering the commitments for personal and business customers it announced on 27 February 2014.
 
○
RBS now offers its best rates to existing credit card and home insurance customers, adding to earlier progress on savings, mortgages, loans and current accounts. There is now no deal across the entire Personal Banking product set that is not available to existing customers.
 
○
Customer letters and emails have been simplified, and simplification of the product set has continued, with the number of products on offer to Personal Banking customers reduced by 29% since 2012; this will reach over 50% by end 2014.
 
○
The branch refurbishment programme has continued with a further roll-out of WiFi.
 
○
RBS has reduced the time taken to open an account from five days to one for most personal customers.
 
○
By the end of the year, 84% of business banking frontline staff will be based in or above a branch. So that more time can be spent with customers, a further 40 experienced relationship managers have been allocated to serve commercial customers, with a central focus on lending.
 
○
Lending procedures are being improved. Lending decisions for commercial customers will by the end of the year be made within five days for all but the most complex applications.

Performance measures(4)

 
Measure
2013
H1 2014
Medium-term
Long-term
           
Efficiency
Cost:income ratio
95%
71%
~55%
~50%
 
Adjusted cost:income ratio(5)
72%
64%
    
Returns
Return on tangible equity
Negative
7%
~9-11%
~12%+
Capital strength
Common Equity Tier 1 ratio(6)
8.6%
10.1%
≥12%
≥12%
 
Leverage ratio(7)
3.4%
3.7%
3.5-4%
≥4%

Notes:
(1)
Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest (‘operating profit’). Statutory operating profit before tax was £2,652 million for the half year ended 30 June 2014.
(2)
The CET1 ratio includes the benefit of the retained profit for the period.
(3)
RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier of 10.
(4)
This table contains forecasts with significant contingencies. Please refer to ‘Forward-looking statements’ and ‘Risk factors’.
(5)
Excluding restructuring costs and litigation and conduct costs.
(6)
CRR end-point basis.
(7)
BCBS basis (refer to page 20 for further details).

Highlights
 
Outlook
These results reflect increasing economic confidence and improvements in asset values seen in RBS’s core UK and Irish markets. Economic growth is expected to continue, although the pace may moderate.

NIM is expected to remain close to H1 levels, with the majority of deposit re-pricing benefits having now taken place.

Income from the fixed income product suite is expected to be lower in the second half of 2014, reflecting both normal seasonal trends and the continuation of the bank’s reduced balance sheet risk appetite.

RBS remains on track to deliver its target of £1 billion cost reductions in 2014. Restructuring costs are expected to be higher in the second half of 2014 as the pace of activity to reduce costs in later years picks up. A restructuring charge of around £1.5 billion is expected for 2014, with overall restructuring costs still expected to be around £5 billion over 2014 to 2017 as the change agenda across the bank from economic, legal and regulatory perspectives remains very full.

Credit impairment charges in the second half of the year are expected to remain low, subject to macro economic conditions, resulting in a full year charge of around £1 billion, although at these low levels there will be volatility from quarter to quarter.

RCR funded assets are expected to be down from £29 billion at its inception to around £15 to £18 billion at the end of 2014. The overall cost (comprising impairments, disposal losses and running expenses) for RCR to achieve its goals was originally expected to be around £4.0 to £4.5 billion between 2014 and 2016. In light of the strong performance in the first half and the more favourable economic environment, these costs are now expected to total around £2.5 to £3.0 billion, of which c.£0.8 billion in 2014, although outcomes are subject to significant potential volatility.

The bank is making good progress towards achieving its target CET1 ratio of 11% by the end of 2015 and at least 12% by the end of 2016. However, ongoing conduct and regulatory investigations and litigation continue to present challenges and uncertainties and are expected to be a drag on capital generation over the coming quarters. The timing and amounts of any further settlements or redress remain uncertain and could be significant.

Contacts
 
For analyst enquiries:
    
     
Richard O’Connor
Head of Investor Relations
+44 (0) 20 7672 1758
     
     
For media enquiries:
    
     
RBS Press Office
  
+44 (0) 131 523 4205

Announcement and slides
This announcement and the background slides are available on www.rbs.com/results

Financial supplement
A financial supplement containing income statement and balance sheet information for the last nine quarters is available on www.rbs.com/results

Presentation of information
 
The financial information on pages 12 to 68, prepared using the Group’s accounting policies, shows the operating performance of RBS on a non-statutory basis which excludes own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest (RFS MI). Information is provided in this form to give a better understanding of the results of RBS’s operations.

Divisional Reorganisation

Organisational change
On 27 February 2014, RBS announced a refreshed strategic direction with the ambition of building a bank which earns its customers’ trust by serving them better than any other bank.

Business structure
RBS is now structured to deliver this ambition by organising itself around the needs of its customers, so as to combine customer groups with similar needs into franchises able to deliver co-ordinated services.

The reorganised bank will be a UK-focused retail and corporate bank with an international footprint to drive its corporate business. The previously reported operating divisions are now realigned into three franchises:

·
Personal & Business Banking (PBB) serves individual and mass affluent customers together with small businesses (generally up to £2 million turnover), with more business bankers moving back into branches. PBB comprises two reportable segments, UK Personal & Business Banking, including Williams & Glyn, (UK PBB) and Ulster Bank.
   
·
Commercial & Private Banking (CPB) serves commercial and mid-corporate customers and high net worth individuals, deepening relationships with commercial clients, operating overseas through its market-leading trade and foreign exchange services, while connecting our private banking brands more effectively to successful business owners and entrepreneurs. CPB comprises two reportable segments, Commercial Banking and Private Banking.
   
·
Corporate & Institutional Banking (CIB) serves our corporate and institutional clients primarily in the UK and Western Europe, as well as those US and Asian multinationals with substantial trade and investment links in the region, with debt financing, risk management and trade services, focusing on core product capabilities that are of most relevance to our clients. CIB is a single reportable segment.

In addition to the segments noted above, RBS will continue to manage and report Citizens Financial Group (CFG) and RBS Capital Resolution (RCR) separately until disposal or wind-down. Residual unallocated costs will continue to be reported within Central items.

In the new reporting structure, US Retail & Commercial (US R&C) is now referred to as CFG and Wealth is now referred to as Private Banking.

Comparatives have been restated accordingly.

Presentation of information
 
Reporting changes
In order to present a more complete picture of funding, operational and business costs of the franchises and operating segments, the following reporting changes have been implemented:

To improve the transparency of the operating performance of the reportable segments, a number of previously reported reconciling items (Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs, regulatory and legal actions, restructuring costs, amortisation of purchased intangible assets and bank levy) have now been allocated to the reportable segments. Only the following will now be reported as reconciling items:

·
Own credit adjustments
   
·
Gain on redemption of own debt
   
·
Write-down of goodwill
   
·
Strategic disposals
   
·
RFS Holdings minority interest

Revised allocation of costs
As part of its internal reorganisation, RBS has centralised all services and functions. The costs relating to Services and Functions previously reported as direct expenses in the divisions are now reallocated to businesses using appropriate drivers and reported as indirect expenses in the segmental income statements.

Treasury allocations
The basis of allocation of Treasury costs has been amended to align the recovery of funding and hedging costs across RBS and for the transfer of certain assets and their associated costs out of Treasury.

Revised segmental return on equity
For the purposes of computing segmental return on equity, notional equity is calculated as a percentage of the monthly average of segmental RWAs. Previously, notional equity was allocated at 10% of RWAs after capital deductions (RWAe). This has been revised to 12% of RWAs across all businesses.

Comparatives have been restated accordingly.

For further information on the restatements refer to the Q2 2014 Restatement Document dated 21 July 2014, available on www.investors.rbs.com/restatement


Presentation of information
 
Statutory results
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes presented on pages 69 to 131 inclusive are on a statutory basis. Reconciliations between the non-statutory basis and statutory basis are included in Appendix 2.

Non-Core
Non-Core was dissolved with effect from 31 December 2013.

RBS Capital Resolution
RBS Capital Resolution (RCR) was established with effect from 1 January 2014 by the transfer of capital intensive and higher risk assets from existing divisions. No business lines moved to RCR and prior period segmental reporting has not been restated. The results of RCR were reported separately for the first time in Q1 2014.
 
Summary consolidated income statement
for the period ended 30 June 2014
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013*
 
2014
2014*
2013*
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Net interest income
5,496 
5,442 
 
2,798 
2,698 
2,770 
Non-interest income
4,482 
5,166 
 
2,127 
2,355 
2,677 
 
 
 
 
 
 
 
Total income (1)
9,978 
10,608 
 
4,925 
5,053 
5,447 
Operating expenses (2)
(7,108)
(7,750)
 
(3,700)
(3,408)
(4,156)
 
 
 
 
 
 
 
Operating profit before impairment losses (3)
2,870 
2,858 
 
1,225 
1,645 
1,291 
Impairment (losses)/recoveries
(269)
(2,150)
 
93 
(362)
(1,117)
 
 
 
 
 
 
 
Operating profit (3)
2,601 
708 
 
1,318 
1,283 
174 
Own credit adjustments
(51)
376 
 
(190)
139 
127 
Gain on redemption of own debt
20 
191 
 
- 
20 
242 
Write-down of goodwill
(130)
- 
 
(130)
- 
- 
Strategic disposals
191 
- 
 
- 
191 
6 
RFS Holdings minority interest
21 
99 
 
12 
9 
(1)
 
 
 
 
 
 
 
Operating profit before tax
2,652 
1,374 
 
1,010 
1,642 
548 
Tax charge
(733)
(678)
 
(371)
(362)
(328)
 
 
 
 
 
 
 
Profit from continuing operations
1,919 
696 
 
639 
1,280 
220 
Profit from discontinued operations, net of tax
35 
138 
 
26 
9 
9 
 
 
 
 
 
 
 
Profit for the period
1,954 
834 
 
665 
1,289 
229 
Non-controlling interests
(42)
(117)
 
(23)
(19)
14 
Other owners’ dividends
(167)
(182)
 
(92)
(75)
(101)
Dividend Access Share dividend
(320)
- 
 
(320)
- 
- 
 
 
 
 
 
 
 
Profit attributable to ordinary and B shareholders
1,425 
535 
 
230 
1,195 
142 

*Restated - see page 10.

Notes:
(1)
Excluding own credit adjustments, gain on redemption of own debt, strategic disposals and RFS Holdings minority interest.
(2)
Excluding RFS Holdings minority interest and write-down of goodwill.
(3)
Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals, and RFS Holdings minority interest.

Analysis of results is set out on pages 14 to 23.

Summary consolidated balance sheet
at 30 June 2014
 
 
30 June
31 March
31 December
 
2014
2014
2013
 
£m
£m
£m
 
 
 
 
Cash and balances at central banks
68,670 
69,647 
82,659 
Net loans and advances to banks (1,2)
28,904 
28,302 
27,555 
Net loans and advances to customers (1,2)
385,554 
390,780 
390,825 
Reverse repurchase agreements and stock borrowing
81,705 
78,213 
76,413 
Debt securities and equity shares
120,628 
130,498 
122,410 
Settlement balances
19,682 
16,900 
5,591 
Intangible assets
12,173 
12,428 
12,368 
Other assets (3)
18,886 
19,708 
22,018 
 
 
 
 
Funded assets
736,202 
746,476 
739,839 
Derivatives
274,906 
277,294 
288,039 
 
 
 
 
Total assets
1,011,108 
1,023,770 
1,027,878 
 
 
 
 
Bank deposits (2,4)
39,179 
35,371 
35,329 
Customer deposits (2,4)
401,226 
401,276 
414,396 
Repurchase agreements and stock lending
83,262 
88,776 
85,134 
Debt securities in issue
59,087 
61,755 
67,819 
Settlement balances
15,128 
17,175 
5,313 
Short positions
39,019 
37,850 
28,022 
Subordinated liabilities
24,809 
24,139 
24,012 
Other liabilities (3)
18,348 
21,986 
23,112 
 
 
 
 
Liabilities excluding derivatives
680,058 
688,328 
683,137 
Derivatives
270,087 
274,506 
285,526 
 
 
 
 
Total liabilities
950,145 
962,834 
968,663 
Non-controlling interests
618 
612 
473 
Owners’ equity
60,345 
60,324 
58,742 
 
 
 
 
Total liabilities and equity
1,011,108 
1,023,770 
1,027,878 
 
 
 
 
Memo:
 
 
 
Tangible equity (5)
42,880 
42,604 
41,082 
Tangible net asset value per ordinary and B share
376p
376p
363p

Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing.
(2)
Excludes disposal groups.
(3)
Includes disposal groups.
(4)
Excludes repurchase agreements and stock lending.
(5)
Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

Key points

30 June 2014 compared with 31 March 2014
·
Funded assets decreased by £10 billion to £736 billion principally attributable to lower debt securities balances within CIB coupled with RCR disposals and run-off.
   
·
Net loans and advances to customers decreased by £5 billion to £386 billion primarily driven by RCR run-off and disposals and the impact of sterling strengthening on US dollar denominated loans, partly offset by strong mortgage balance growth in UK PBB.
   
·
Customer deposits remained stable at £401 billion as lower deposits in Private Banking, driven by repricing, and lower balances in CIB were offset by increased deposits in UK PBB.
 
 

Analysis of results

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
Net interest income
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Net interest income (1)
5,468 
5,435 
 
2,784 
2,684 
2,748 
 
 
 
 
 
 
 
Average interest-earning assets (1)
507,268 
556,294 
 
502,347 
512,244 
552,072 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
 
 
  - RBS
2.17%
1.97%
 
2.22%
2.12%
2.00%
  - Personal & Business Banking
3.39%
3.15%
 
3.40%
3.37%
3.20%
  - Commercial & Private Banking
2.90%
2.69%
 
2.91%
2.89%
2.77%
  - Citizens Financial Group
2.94%
2.90%
 
2.93%
2.94%
2.89%

Note:
(1)
For further analysis and details refer to pages 73 and 74.

Key points

H1 2014 compared with H1 2013
·
Net interest income improved by 1% to £5,468 million. The increase was consistent across all businesses, with notable improvements in PBB (£97 million, 4%) and CPB (£90 million, 7%).
   
·
Net interest margin (NIM) increased by 20 basis points to 2.17%, driven by deposit repricing initiatives across a number of businesses. The benefit of reduced funding costs outweighed lower yields on assets.

Q2 2014 compared with Q1 2014
·
Net interest income improved by 4% to £2,784 million principally driven by improved margins and an additional day in the quarter.
   
·
NIM increased by 10 basis points to 2.22%, driven by lower funding costs, reflecting repricing initiatives across a number of businesses, RCR run-off and a small number of one-off recoveries.

Q2 2014 compared with Q2 2013
·
Net interest income improved by 1% to £2,784 million reflected by improved margins.
   
·
NIM increased by 22 basis points to 2.22% benefiting from repricing initiatives across a number of businesses.


Analysis of results

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
Non-interest income
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Net fees and commissions
2,118 
2,248 
 
1,063 
1,055 
1,142 
Income from trading activities
1,482 
1,890 
 
626 
856 
874 
Other operating income
882 
1,028 
 
438 
444 
661 
 
 
 
 
 
 
 
Total non-interest income
4,482 
5,166 
 
2,127 
2,355 
2,677 

Key points

H1 2014 compared with H1 2013
·
Non-interest income declined by £684 million or 13%, principally reflecting a 22% reduction in income from trading activities, in line with CIB’s smaller balance sheet and reduced risk profile.
   
·
A net gain of £170 million ($283 million) was recorded on CFG’s sale of its Illinois branch network.
   
·
Gains on the disposal of available-for-sale securities in Treasury were down £245 million to £215 million for H1 2014 (Q2 2014 - £15 million; Q1 2014 - £200 million).

Q2 2014 compared with Q1 2014
·
Non-interest income declined by £228 million or 10%, principally reflecting the seasonality of CIB income and lower disposal income in RCR. This was partly offset by the net gain on sale from CFG’s branch sale.

Q2 2014 compared with Q2 2013
·
Non-interest income declined by £550 million or 21%, which included the weaker performance of Currencies within CIB. This was largely in line with overall market trends and reflected weak client demand and low volatility.
   
·
These movements were partly offset by the stronger performance of Rates in CIB and the net gain on sale of the Illinois retail branches, coupled with higher current account-related fee income.

Analysis of results
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013**
 
2014
2014**
2013**
Operating expenses
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Staff expenses
3,340 
3,585 
 
1,693 
1,647 
1,764 
Premises and equipment
1,079 
1,079 
 
485 
594 
526 
Other
1,292 
1,479 
 
605 
687 
801 
Restructuring costs*
514 
271 
 
385 
129 
149 
Litigation and conduct costs
250 
620 
 
250 
- 
570 
 
 
 
 
 
 
 
Administrative expenses
6,475 
7,034 
 
3,418 
3,057 
3,810 
Depreciation and amortisation
551 
716 
 
282 
269 
346 
Write-down of other intangible assets
82 
- 
 
- 
82 
- 
 
 
 
 
 
 
 
Operating expenses
7,108 
7,750 
 
3,700 
3,408 
4,156 
 
 
 
 
 
 
 
Memo item
 
 
 
 
 
 
Adjusted operating expenses (1)
6,344 
6,859 
 
3,065 
3,279 
3,437 
 
 
 
 
 
 
 
*Restructuring costs impact:
 
 
 
 
 
 
  - staff expenses
196 
142 
 
153 
43 
76 
  - premises and equipment
196 
25 
 
137 
59 
22 
  - other
122 
104 
 
95 
27 
51 
 
 
 
 
 
 
 
Restructuring costs
514 
271 
 
385 
129 
149 
 
 
 
 
 
 
 
Staff costs as a % of total income
33%
34%
 
34%
33%
32%
Cost:income ratio
71%
73%
 
75%
67%
76%
Cost:income ratio - adjusted (1)
64%
65%
 
62%
65%
63%

**Restated - see page 10.

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.

Key points

H1 2014 compared with H1 2013
·
Operating expenses were £642 million, 8%, lower. Adjusted operating expenses decreased by £515 million or 8% to £6,344 million. Much of the decrease was achieved in CIB through headcount reductions and tight control of discretionary expenditure. Overall operating expense trends are starting to show the benefits of the reshaping of the bank’s cost base.
   
·
Litigation and conducts costs totalled £250 million compared with £620 million in H1 2013, with an additional provision of £150 million (H1 2013 - £160 million) for Payment Protection Insurance redress recorded in UK PBB and a further £100 million (H1 2013 - £150 million) relating to interest rate hedging product redress booked within Commercial Banking and CIB. H1 2013 included provisions for other regulatory and legal actions of £385 million in CIB.
   
·
Restructuring costs increased by £243 million to £514 million, including significant charges in relation to Williams & Glyn and to the restructuring of the property portfolio.


Analysis of results
 
Key points (continued)

Q2 2014 compared with Q1 2014
·
Operating expenses were up £292 million, 9% reflecting higher restructuring and litigation and conduct costs. Adjusted operating expenses decreased by £214 million or 7%. This was principally driven by lower staff costs in CIB, operational cost saving initiatives in CPB and lower costs in PBB. This was only partly offset by higher staff costs in RCR.

Q2 2014 compared with Q2 2013
·
Operating expenses were down £456 million, 11%, reflecting lower litigation and conduct costs. Adjusted operating expenses decreased by £372 million or 11%. The fall was consistent across all businesses, with notable declines in CIB (£114 million, 11%), CPB (£46 million, 7%). The decrease was helped by favourable foreign exchange movements.


Analysis of results
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014 
2013 
 
2014 
2014 
2013 
Impairment losses/(recoveries)
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Loans
271 
2,161 
 
(89)
360 
1,125 
Securities
(2)
(11)
 
(4)
2 
(8)
 
 
 
 
 
 
 
Total impairment losses/(recoveries)
269 
2,150 
 
(93)
362 
1,117 
 
 
 
 
 
 
 
Loan impairment losses/(recoveries)
 
 
 
 
 
 
  - individually assessed
113 
1,472 
 
(42)
155 
826 
  - collectively assessed
348 
734 
 
221 
127 
293 
  - latent
(180)
(36)
 
(258)
78 
15 
 
 
 
 
 
 
 
Customer loans
281 
2,170 
 
(79)
360 
1,134 
Bank loans
(10)
(9)
 
(10)
- 
(9)
 
 
 
 
 
 
 
Loan impairment losses/(recoveries)
271 
2,161 
 
(89)
360 
1,125 
 
 
 
 
 
 
 
RBS excluding RCR/Non-Core
290 
1,258 
 
36 
254 
659 
RCR
(19)
n/a
 
(125)
106 
n/a
Non-Core
n/a
903 
 
n/a
n/a
466 
 
 
 
 
 
 
 
RBS
271 
2,161 
 
(89)
360 
1,125 
 
 
 
 
 
 
 
Customer loan impairment charge as a % of
 
 
 
 
 
 
  gross loans and advances (1)
 
 
 
 
 
 
RBS excluding RCR/Non-Core
0.2%
0.6%
 
- 
0.3%
0.7%
RCR
(0.1%)
n/a
 
(1.7%)
1.2%
n/a
Non-Core
n/a
3.9%
 
n/a
n/a
4.0%
 
 
 
 
 
 
 
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2014 
2014 
2013 
 
 
 
 
 
 
 
Loan impairment provisions
 
 
 
£22.4bn
£24.2bn
£25.2bn
Risk elements in lending
 
 
 
£34.1bn
£37.4bn
£39.4bn
Provision coverage (2)
 
 
 
66%
65%
64%

Notes:
(1)
Excludes reverse repurchase agreements and includes disposals groups.
(2)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

Key points

H1 2014 compared with H1 2013
·
Loan impairment losses declined sharply by £1,890 million or 87%, including £180 million of releases of latent provisions (H1 2013 - £36 million). Asset quality continued to improve in the UK and Ireland.
   
·
Loan impairments in RCR amounted to a net recovery of £19 million.
   
·
Provision coverage strengthened to 66% compared with 64% at the end of 2013. REIL were £5.3 billion lower and represented 8.3% of gross customer loans, compared with 9.4% at the end of 2013.

Q2 2014 compared with Q1 2014
·
A net recovery of £89 million was recorded in Q2 2014, compared with losses of £360 million in Q1 2014.
   
·
The improvement in loan impairment losses was driven by the release of latent provisions in CPB and CIB and by a strong credit performance in RCR (a net recovery of £125 million compared with losses of £106 million in Q1 2014).
   
·
REIL fell by £3.3 billion. As a percentage of gross loans to customers, REIL declined to 8.3% from 9.0% at 31 March 2014.

Analysis of results

Key points (continued)

Q2 2014 compared with Q2 2013
·
Loan impairment recoveries totalled £89 million compared with losses of £1,125 million in Q2 2013 which included £466 million in respect of Non-Core.
   
·
The improvement in impairments reflected significantly lower losses in Ulster Bank reflecting stronger credit metrics and the benefits of the investment in programmes to support customers in financial difficulty, and continued strong recoveries across UK PBB and release of latent provisions and non-repeat of significant individual cases in CPB.
   
·
In Q2 2014 loan impairment recoveries in RCR were £125 million.

Analysis of results
 
 
 
 
 
Capital and leverage ratios
 
 
 
CRR end-point basis (1)
 
30 June
31 March
31 December
 
2014 
2014 
2013 (2)
Capital
£bn
£bn
£bn
 
 
 
 
CET1
39.7 
39.1 
36.8 
Tier 1
39.7 
39.1 
36.8 
Total
48.7 
47.3 
45.5 
 
 
 
 
RWAs by risk
 
 
 
 
 
 
 
Credit risk
 
 
 
  - non-counterparty
283.3 
295.2 
317.9 
  - counterparty
38.6 
41.3 
39.1 
Market risk
33.4 
41.0 
30.3 
Operational risk
36.8 
36.8 
41.8 
 
 
 
 
 
392.1 
414.3 
429.1 
 
 
 
 
Risk asset ratios
%
%
%
 
 
 
 
CET1
10.1 
9.4 
8.6 
Tier 1
10.1 
9.4 
8.6 
Total
12.4 
11.4 
10.6 
 
 
 
 
 
 
30 June
31 March
31 December
Leverage ratio (3)
2014 
2014 
2013 
 
 
 
 
Tier 1 capital - £bn
39.7 
39.1 
36.8 
Exposure - £bn
1,070.2 
1,083.4 
1,082.0 
Leverage ratio - % (3)
3.7 
3.6 
3.4 


Notes:
(1)
Capital Requirements Regulation (CRR) as implemented by the Prudential Resolution Authority in the UK, with effect from 1 January 2014.
(2)
Estimated.
(3)
Leverage ratio is calculated using:
· CRR end-point Tier 1 capital; and
· Exposure measure based on guidance in the BCBS 270 proposal issued in January 2014, supplemented by the instructions in the March 2014 Basel III Quantitative Impact Study and the related FAQs.

See Appendix 1 for further details on capital and leverage.

Key points

30 June 2014 compared with 31 March 2014
·
The CRR end-point CET 1 ratio improved to 10.1% from 9.4%, principally driven by retained earnings after charging the initial DAS dividend of £320 million, and continuing reduction in RWAs and expected loss.
   
·
RWAs decreased by £22 billion principally reflecting the £12 billion fall in CIB driven by risk reductions and mitigation costs and £5 billion of run-off and disposals in RCR.

 
Analysis of results

Key points (continued)

Capital and leverage ratios (continued)

30 June 2014 compared with 31 December 2013
·
The CRR end-point CET 1 ratio improved to 10.1% from 8.6%, principally driven by retained earnings, continuing reduction in RWAs and regulatory capital deductions relating to deferred tax assets and expected loss.
   
·
RWAs decreased by £37 billion principally attributable to the risk reductions and mitigation actions in CIB, and run-off and disposals in RCR.
   
·
Leverage ratio improved by 30 basis points reflecting attributable profit, lower regulatory deductions as well as lower leverage exposure, particularly relating to derivatives in CIB.

For further details of RBS’s capital and leverage ratios refer to Appendix 1.

Analysis of results

 
 
 
 
30 June
31 March
31 December
Balance sheet
2014
2014
2013
 
 
 
 
Funded balance sheet (1)
£736bn
£746bn
£740bn
Total assets
£1,011bn
£1,024bn
£1,028bn
Net loans and advances to customers (2)
£387bn
£392bn
£393bn
Customer deposits (3)
£401bn
£404bn
£418bn
Loan:deposit ratio - RBS (4)
96%
97%
94%
Loan:deposit ratio - RBS excluding RCR/Non-Core (4)
93%
93%
89%
Equity attributable to ordinary and B shareholders
£55bn
£55bn
£53bn
Intangible assets
£12bn
£12bn
£12bn
Tangible net assets
£43bn
£43bn
£41bn
Number of ordinary and equivalent B shares in issue
11,400m
11,341m
11,303m
Tangible net asset value per ordinary and B share (5)
376p
376p
363p

Notes:
(1)
Funded balance sheet represents total assets less derivatives.
(2)
Excludes reverse repurchase agreements and stock borrowing, and includes disposal groups.
(3)
Excludes repurchase agreements and stock lending, and includes disposal groups.
(4)
Net of provisions, including disposal groups and excluding repurchase agreements. Excluding disposal groups, the loan:deposit ratios for RBS at 30 June 2014 was 96% (31 March 2014 - 97%; 31 December 2013 - 94%).
(5)
Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares in issue and the effect of convertible B shares.

Key points

30 June 2014 compared with 31 March 2014
·
Funded assets decreased by £10 billion to £736 billion principally attributable to lower debt securities in CIB coupled with RCR run-off.
   
·
Net loans and advances to customers decreased by £5 billion to £387 billion principally driven by RCR run-off and disposals, the impact of stronger sterling on US dollar denominated loans, partly offset by good mortgage balance growth in UK PBB.
   
·
Customer deposits decreased by £3 billion driven by lower balances in CFG adversely impacted by foreign exchange movements, deposit repricing in Private Banking and lower balances in CIB. This was partly offset by increased deposit balances in UK PBB.

30 June 2014 compared with 31 December 2013
·
Funded assets decreased by £4 billion to £736 billion principally driven by RCR run-off.
   
·
Net loans and advances to customers decreased by £6 billion reflecting RCR run-off and the impact of currency movements.
   
·
Customer deposits fell by £17 billion reflecting a managed run-down of surplus liquidity. The customer funding surplus decreased to £14 billion, while the loan:deposit ratio increased by 2 percentage points to 96%.


Analysis of results

 
 
 
 
30 June
31March
31 December
Funding and liquidity metrics
2014
2014
2013
 
 
 
 
Deposits (1)
£440bn
£440bn
£453bn
Deposits as a percentage of funded balance sheet
60%
59%
61%
Short-term wholesale funding (2)
£34bn
£31bn
£32bn
Wholesale funding (2)
£102bn
£102bn
£108bn
Wholesale funding as a percentage of funded balance sheet
14%
14%
15%
Short-term wholesale funding as a percentage of funded balance sheet
5%
4%
4%
Short-term wholesale funding as a percentage of total wholesale funding
33%
30%
30%
 
 
 
 
Liquidity portfolio
£138bn
£131bn
£146bn
Liquidity portfolio as a percentage of funded balance sheet
19%
18%
20%
Liquidity portfolio as a percentage of short-term wholesale funding
406%
423%
456%

Notes:
(1)
Customer and bank deposits excluding repurchase agreements and stock lending and includes disposal groups.
(2)
Excludes derivative collateral.

Key points

30 June 2014 compared with 31 March 2014
·
The bank remains highly liquid with short-term wholesale funding covered 4 times by its liquidity portfolio as at 30 June 2014 (4.2 times as at 31 March 2014).
   
·
The liquidity portfolio increased by £7 billion to £138 billion, mainly driven by decreases in customer loan balances and higher Discount Window Facility assets.

30 June 2014 compared with 31 December 2013
·
The liquidity portfolio decreased by £8 billion to £138 billion, mainly driven by a targeted reduction in volatile financial institution deposits in the first quarter of 2014, partly offset by decreases in customer loan balances and higher Discount Window Facility assets in the second quarter.
   
·
Targeted reductions in long-term wholesale funding and customer deposits contributed to a 700 basis point decrease in the net stable funding ratio to 111%.


Segment performance

Key measures for each segment are shown in the tables below:

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Operating profit/(loss) (1) before impairment
 
 
 
 
 
 
  losses by segment
 
 
 
 
 
 
UK Personal & Business Banking
1,142 
944 
 
544 
598 
394 
Ulster Bank
112 
122 
 
56 
56 
53 
 
 
 
 
 
 
 
Personal & Business Banking
1,254 
1,066 
 
600 
654 
447 
 
 
 
 
 
 
 
Commercial Banking
666 
695 
 
305 
361 
384 
Private Banking
145 
95 
 
71 
74 
49 
 
 
 
 
 
 
 
Commercial & Private Banking
811 
790 
 
376 
435 
433 
 
 
 
 
 
 
 
Corporate & Institutional Banking
269 
26 
 
(70)
339 
(251)
Central items
79 
550 
 
73 
6 
349 
Citizens Financial Group
525 
404 
 
308 
217 
199 
RCR
(68)
n/a
 
(62)
(6)
n/a
Non-Core
n/a
22 
 
n/a
n/a
114 
 
 
 
 
 
 
 
RBS operating profit before impairment losses
2,870 
2,858 
 
1,225 
1,645 
1,291 
 
 
 
 
 
 
 
Impairment losses/(recoveries) by segment
 
 
 
 
 
 
UK Personal & Business Banking
148 
256 
 
60 
88 
126 
Ulster Bank
57 
503 
 
10 
47 
263 
 
 
 
 
 
 
 
Personal & Business Banking
205 
759 
 
70 
135 
389 
 
 
 
 
 
 
 
Commercial Banking
31 
282 
 
(9)
40 
155 
Private Banking
- 
7 
 
1 
(1)
2 
 
 
 
 
 
 
 
Commercial & Private Banking
31 
289 
 
(8)
39 
157 
 
 
 
 
 
 
 
Corporate & Institutional Banking
(39)
223 
 
(45)
6 
144 
Central items
(12)
(3)
 
(13)
1 
(3)
Citizens Financial Group
104 
51 
 
31 
73 
32 
RCR
(20)
n/a
 
(128)
108 
n/a
Non-Core
n/a
831 
 
n/a
n/a
398 
 
 
 
 
 
 
 
RBS impairment losses/(recoveries)
269 
2,150 
 
(93)
362 
1,117 
 
 
 
 
 
 
 
Operating profit/(loss) (1) by segment
 
 
 
 
 
 
UK Personal & Business Banking
994 
688 
 
484 
510 
268 
Ulster Bank
55 
(381)
 
46 
9 
(210)
 
 
 
 
 
 
 
Personal & Business Banking
1,049 
307 
 
530 
519 
58 
 
 
 
 
 
 
 
Commercial Banking
635 
413 
 
314 
321 
229 
Private Banking
145 
88 
 
70 
75 
47 
 
 
 
 
 
 
 
Commercial & Private Banking
780 
501 
 
384 
396 
276 
 
 
 
 
 
 
 
Corporate & Institutional Banking
308 
(197)
 
(25)
333 
(395)
Central items
91 
553 
 
86 
5 
352 
Citizens Financial Group
421 
353 
 
277 
144 
167 
RCR
(48)
n/a
 
66 
(114)
n/a
Non-Core
n/a
(809)
 
n/a
n/a
(284)
 
 
 
 
 
 
 
RBS operating profit
2,601 
708 
 
1,318 
1,283 
174 

Note:
(1)
Operating profit/(loss) before own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest.

Segment performance

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
%
%
 
%
%
%
 
 
 
 
 
 
 
Net interest margin by segment
 
 
 
 
 
 
UK Personal & Business Banking
3.62 
3.50 
 
3.64 
3.61 
3.56 
Ulster Bank
2.32 
1.82 
 
2.35 
2.29 
1.84 
 
 
 
 
 
 
 
Personal & Business Banking
3.39 
3.15 
 
3.40 
3.37 
3.20 
 
 
 
 
 
 
 
Commercial Banking
2.70 
2.53 
 
2.73 
2.68 
2.63 
Private Banking
3.72 
3.33 
 
3.73 
3.70 
3.34 
 
 
 
 
 
 
 
Commercial & Private Banking
2.90 
2.69 
 
2.91 
2.89 
2.77 
 
.
 
 
 
 
 
Corporate & Institutional Banking
0.88 
0.72 
 
0.90 
0.85 
0.67 
Citizens Financial Group
2.94 
2.90 
 
2.93 
2.94 
2.89 
RCR
(0.01)
n/a
 
0.08 
(0.08)
n/a
Non-Core
n/a
(0.06)
 
n/a
n/a
0.15 
 
 
 
 
 
 
 
RBS net interest margin
2.17 
1.97 
 
2.22 
2.12 
2.00 

 
30 June
31 March
31 December
2014
2014
2013
 
£bn
£bn
£bn
 
 
 
 
Funded assets by segment
 
 
 
UK Personal & Business Banking
133.6 
132.8 
132.2 
Ulster Bank
26.6 
26.0 
28.0 
 
 
 
 
Personal & Business Banking
160.2 
158.8 
160.2 
 
 
 
 
Commercial Banking
88.6 
89.6 
87.9 
Private Banking
20.8 
21.1 
21.0 
 
 
 
 
Commercial & Private Banking
109.4 
110.7 
108.9 
 
 
 
 
Corporate & Institutional Banking
278.7 
286.6 
268.6 
Central items
90.3 
89.5 
101.9 
Citizens Financial Group
75.7 
75.7 
71.3 
RCR
20.9 
24.3 
n/a
Non-Core
n/a
n/a
28.0 
 
 
 
 
 
735.2 
745.6 
738.9 
RFS Holdings minority interest
1.0 
0.9 
0.9 
 
 
 
 
RBS funded assets
736.2 
746.5 
739.8 


Segment performance

 
FLB3
Basel 2.5
 
30 June
31 March
1 January
31 December
2014 
2014 
2014 
2013 
 
£bn
£bn
£bn
£bn
 
 
 
 
 
Risk-weighted assets by segment
 
 
 
 
UK Personal & Business Banking
47.0 
48.5 
49.7 
51.2 
Ulster Bank
27.7 
28.7 
28.2 
30.7 
 
 
 
 
 
Personal & Business Banking
74.7 
77.2 
77.9 
81.9 
 
 
 
 
 
Commercial Banking
63.0 
63.5 
61.5 
65.8 
Private Banking
11.8 
12.0 
12.0 
12.0 
 
 
 
 
 
Commercial & Private Banking
74.8 
75.5 
73.5 
77.8 
 
 
 
 
 
Corporate & Institutional Banking
127.8 
140.2 
147.1 
120.4 
Other
14.8 
15.5 
19.4 
16.2 
Citizens Financial Group
60.7 
61.3 
60.6 
56.1 
RCR
35.1 
40.5 
46.7 
n/a
Non-Core
n/a
n/a
n/a
29.2 
 
 
 
 
 
RBS before RFS Holdings minority interest
387.9 
410.2 
425.2 
381.6 
RFS Holdings minority interest
4.2 
4.1 
3.9 
3.9 
 
 
 
 
 
RBS risk-weighted assets
392.1 
414.3 
429.1 
385.5 


Employee numbers by segment
(full time equivalents rounded to the nearest hundred)
30 June
31 March
31 December
2014
2014 
2013 
 
 
 
 
UK Personal & Business Banking
 25,700 
 26,300 
 26,700 
Ulster Bank
 4,500 
 4,600 
 4,700 
 
 
 
 
Personal & Business Banking
30,200 
30,900 
31,400 
 
 
 
 
Commercial Banking
7,100 
7,300 
7,300 
Private Banking
3,500 
3,500 
3,500 
 
 
 
 
Commercial & Private Banking
10,600 
10,800 
10,800 
 
 
 
 
Corporate & Institutional Banking
4,500 
4,400 
4,700 
Centre
12,800 
13,100 
12,800 
Citizens Financial Group
17,700 
18,500 
18,800 
RCR
800 
1,100 
n/a
Non-Core
n/a
n/a
1,300 
 
 
 
 
 
76,600 
78,800 
79,800 
Services
36,900 
37,800 
38,600 
Integration and restructuring
100 
100 
200 
 
 
 
 
RBS employee numbers
113,600 
116,700 
118,600 

Personal & Business Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
2,599 
2,502 
 
1,321 
1,278 
1,270 
 
 
 
 
 
 
 
Net fees and commissions
703 
693 
 
338 
365 
351 
Other non-interest income
72 
78 
 
51 
21 
57 
 
 
 
 
 
 
 
Non-interest income
775 
771 
 
389 
386 
408 
 
 
 
 
 
 
 
Total income
3,374 
3,273 
 
1,710 
1,664 
1,678 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff costs
(576)
(593)
 
(288)
(288)
(302)
  - other costs
(260)
(227)
 
(113)
(147)
(108)
Indirect expenses
(1,101)
(1,072)
 
(518)
(583)
(549)
Restructuring costs
 
 
 
 
 
 
  - direct
2 
(85)
 
2 
- 
(61)
  - indirect
(35)
(45)
 
(43)
8 
(26)
Litigation and conduct costs
(150)
(185)
 
(150)
- 
(185)
 
 
 
 
 
 
 
Operating expenses
(2,120)
(2,207)
 
(1,110)
(1,010)
(1,231)
 
 
 
 
 
 
 
Profit before impairment losses
1,254 
1,066 
 
600 
654 
447 
Impairment losses
(205)
(759)
 
(70)
(135)
(389)
 
 
 
 
 
 
 
Operating profit
1,049 
307 
 
530 
519 
58 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
1,232 
622 
 
721 
511 
330 

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.


Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
17.0%
4.3%
 
17.4%
16.7%
1.7%
Return on equity - adjusted (1,2)
20.0%
8.8%
 
23.6%
16.4%
9.5%
Net interest margin
3.39%
3.15%
 
3.40%
3.37%
3.20%
Cost:income ratio
63%
67%
 
65%
61%
73%
Cost:income ratio - adjusted (2)
57%
58%
 
54%
61%
57%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2)
Excluding restructuring costs and litigation and conduct costs.

Personal & Business Banking

 
 
 
 
 
 
 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
154.9 
155.0 
- 
159.2 
(3%)
Loan impairment provisions
(6.1)
(6.3)
(3%)
(8.4)
(27%)
 
 
 
 
 
 
Net loans and advances to customers
148.8 
148.7 
- 
150.8 
(1%)
 
 
 
 
 
 
Funded assets
160.2 
158.8 
1%
160.2 
- 
Risk elements in lending
9.1 
9.2 
(1%)
13.2 
(31%)
Provision coverage (1)
67%
68%
(100bp)
63%
400bp
 
 
 
 
 
 
Customer deposits
166.7 
165.7 
1%
166.6 
- 
Assets under management (excluding deposits)
5.3 
5.5 
(4%)
5.8 
(9%)
Loan:deposit ratio (excluding repos)
89%
90%
(100bp)
91%
(200bp)
Total risk-weighted assets
74.7 
77.2 
(3%)
81.9 
(9%)

Note:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

Key points
Personal & Business Banking (PBB) comprises the former UK Retail and business banking elements of former UK Corporate (UK Personal & Business Banking - UK PBB) and Ulster Bank reportable segments. PBB supports individuals in managing their personal and business banking, with a full range of financial services and advice. Through the RBS, NatWest, and Ulster Bank brands, PBB serves over 18 million personal and business customers in the UK and Ireland. Customers can choose how they manage their finances through access to our branches, online banking, fixed and mobile technology and one of the largest ATM networks in the UK and Ireland.

UK Personal & Business Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
2,276 
2,200 
 
1,152 
1,124 
1,118 
 
 
 
 
 
 
 
Net fees and commissions
637 
624 
 
304 
333 
316 
Other non-interest income
49 
5 
 
43 
6 
4 
 
 
 
 
 
 
 
Non-interest income
686 
629 
 
347 
339 
320 
 
 
 
 
 
 
 
Total income
2,962 
2,829 
 
1,499 
1,463 
1,438 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff costs
(451)
(469)
 
(226)
(225)
(235)
  - other costs
(225)
(200)
 
(95)
(130)
(96)
Indirect expenses
(975)
(947)
 
(455)
(520)
(484)
Restructuring costs
 
 
 
 
 
 
  - direct
(6)
(70)
 
(6)
- 
(47)
  - indirect
(13)
(39)
 
(23)
10 
(22)
Litigation and conduct costs
(150)
(160)
 
(150)
- 
(160)
 
 
 
 
 
 
 
Operating expenses
(1,820)
(1,885)
 
(955)
(865)
(1,044)
 
 
 
 
 
 
 
Profit before impairment losses
1,142 
944 
 
544 
598 
394 
Impairment losses
(148)
(256)
 
(60)
(88)
(126)
 
 
 
 
 
 
 
Operating profit
994 
688 
 
484 
510 
268 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
1,163 
957 
 
663 
500 
497 

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.


UK Personal & Business Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Analysis of income by product
 
 
 
 
 
 
Personal advances
467 
443 
 
232 
235 
220 
Personal deposits
302 
227 
 
160 
142 
124 
Mortgages
1,287 
1,277 
 
649 
638 
649 
Cards
374 
419 
 
176 
198 
210 
Business banking
490 
481 
 
245 
245 
247 
Other
42 
(18)
 
37 
5 
(12)
 
 
 
 
 
 
 
Total income
2,962 
2,829 
 
1,499 
1,463 
1,438 
 
 
 
 
 
 
 
Analysis of impairments by sector
 
 
 
 
 
 
Personal advances
79 
84 
 
40 
39 
49 
Mortgages
5 
26 
 
4 
1 
16 
Business banking
30 
87 
 
1 
29 
37 
Cards
34 
59 
 
15 
19 
24 
 
 
 
 
 
 
 
Total impairment losses
148 
256 
 
60 
88 
126 
 
 
 
 
 
 
 
Loan impairment charge as % of gross
 
 
 
 
 
 
   customer loans and advances (excluding
 
 
 
 
 
 
   reverse repurchase agreements) by sector
 
 
 
 
 
 
Personal advances
2.1%
2.0%
 
2.1%
2.0%
2.4%
Mortgages
- 
0.1%
 
- 
- 
0.1%
Business banking
0.4%
1.1%
 
- 
0.8%
1.0%
Cards
1.3%
2.1%
 
1.1%
1.4%
1.7%
 
 
 
 
 
 
 
Total
0.2%
0.4%
 
0.2%
0.3%
0.4%

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
25.7%
16.4%
 
25.3%
26.0%
12.8%
Return on equity - adjusted (1,2)
30.0%
22.8%
 
34.7%
25.5%
23.8%
Net interest margin
3.62%
3.50%
 
3.64%
3.61%
3.56%
Cost:income ratio
61%
67%
 
64%
59%
73%
Cost:income ratio - adjusted (2)
56%
57%
 
52%
60%
57%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2)
Excluding restructuring costs and litigation and conduct costs.

 
UK Personal & Business Banking

 
 
 
 
 
 
 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
  - personal advances
7.5 
7.9 
(5%)
8.1 
(7%)
  - mortgages
101.8 
100.4 
1%
99.3 
3%
  - business
14.6 
14.6 
- 
14.6 
- 
  - cards
5.3 
5.5 
(4%)
5.8 
(9%)
 
 
 
 
 
 
 
129.2 
128.4 
1%
127.8 
1%
Loan impairment provisions
(2.8)
(2.9)
(3%)
(3.0)
(7%)
 
 
 
 
 
 
Net loans and advances to customers
126.4 
125.5 
1%
124.8 
1%
 
 
 
 
 
 
Funded assets
133.6 
132.8 
1%
132.2 
1%
Risk elements in lending
4.2 
4.5 
(7%)
4.7 
(11%)
Provision coverage (1)
66%
65%
100bp
63%
300bp
 
 
 
 
 
 
Customer deposits
 
 
 
 
 
  - personal current accounts
34.2 
33.8 
1%
32.5 
5%
  - personal savings
80.9 
81.1 
- 
82.3 
(2%)
  - business/commercial
30.9 
29.7 
4%
30.1 
3%
 
 
 
 
 
 
Total customer deposits
146.0 
144.6 
1%
144.9 
1%
 
 
 
 
 
 
Assets under management (excluding deposits)
5.3 
5.5 
(4%)
5.8 
(9%)
Loan:deposit ratio (excluding repos)
87%
87%
- 
86%
100bp
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk (non-counterparty)
37.5 
39.0 
(4%)
41.4 
(9%)
  - Operational risk
9.5 
9.5 
- 
9.8 
(3%)
 
 
 
 
 
 
Total risk-weighted assets
47.0 
48.5 
(3%)
51.2 
(8%)

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.


UK Personal & Business Banking

Key points
The strategic goal of UK PBB is to become the number one personal and business bank for customer trust and advocacy in the UK. To support this, investment of over £1 billion is planned between 2014 and 2017. Through to the end of June 2014 these initiatives included:

·
Further enhancements to the customer experience were introduced to UK PBB’s mobile and digital services. The business currently has more than 5.5 million online users, and 2.8 million customers now using its mobile application, transacting more than £10 billion in digital payments on an annual basis.
   
·
UK PBB continued its branch refurbishment programme and completed the roll-out of WiFi across the branch network and expanded its ATM network to include increased presence at shopping centres and train stations across the UK.
   
·
UK PBB continued to focus on streamlining processes offering pre-approved loans through online banking and allowing mortgage customers to service their accounts online. We are moving further towards our goal of responding intelligently to each individual customer via their channel of choice.

In line with UK PBB’s goal of responsible lending, we introduced the new Clear Rate Credit card in March 2014 ending zero percent balance transfer deals that then revert to higher rates when the deal expires. This product is designed specifically for those customers that want to control and reduce their debt over time without the need to move their balance from card to card or remember when their introductory offer comes to an end.

The CashBack Plus scheme, which rewards personal debit card users through selected retailers, was launched in August 2013 and continued to expand, with more than 1.2 million customers now registered. In February 2014, CashBack Plus won ‘Best Card Benefits Programme’ at the annual Cards and Payments awards.

Business Banking is the number one business banking franchise in the UK, with a 23% current account market share. The bank’s share of business start-ups increased by 2 percentage points to 24% in the 6 months to June with strong gross new lending over the same period. Net promoter scores improved in the relationship-managed space and UK PBB believes that bringing together Personal and Business banking will enable it to more ably satisfy customer needs.

H1 2014 compared with H1 2013
·
Operating profit increased by 44% to £994 million, with restructuring costs down £90 million to £19 million. Adjusted operating profit increased by 22% to £1,163 million, driven by income growth of 5% and a 42% decline in impairment losses.
   
·
Net interest income increased by 3% to £2,276 million, driven by strong deposit growth of 4%, improved margins, and increased personal mortgage balances, up 4%, partly offset by lower income from unsecured lending.
   
·
Non-interest income increased by 9%, to £686 million, primarily driven by higher current account-related fee income and higher insurance profit share. Debit card transactional spend increased by 8%, supported by the CashBack Plus programme.

UK Personal & Business Banking

Key points (continued)

H1 2014 compared with H1 2013 (continued)
·
Direct costs were up 1% at £676 million, with higher customer compensation and marketing costs only partly offset by a decrease in staff costs driven by lower headcount. Indirect costs were 3% higher at £975 million, reflecting a technology write-off in Q1 2014 of £60 million.
   
·
Impairments were £108 million lower due to improved asset quality and lower default volumes.
   
·
Risk-weighted assets decreased by 10%, reflecting improvements in the quality of the book and business model enhancements, partly offset by mortgage balance growth.

Q2 2014 compared with Q1 2014
·
Operating profit decreased by 5% to £484 million, reflecting additional conduct costs of £150 million for Payment Protection Insurance redress. Adjusted operating profit increased by 33% to £663 million, driven by income growth of 2% and lower costs (down 11%). Impairments also continued to improve.
   
·
Net interest income increased by 2% to £1,152 million, primarily due to improved deposit income from increased balances and margins. Strong mortgage balance growth of £1.4 billion (gross new business lending market share was 10%) was offset by modest pressure on mortgage margins.
   
·
Non-interest income increased by 2% to £347 million, largely due to higher insurance profit share. Card transaction-related fee income improved with transaction levels up 6%.
   
·
Direct costs decreased by 10% to £321 million driven by a remediation provision of £15 million in Q1 2014. Indirect costs declined by 13% to £455 million.
   
·
Impairments were £28 million lower due to lower customer defaults across all products, reflecting continued improvement in asset quality. Recoveries across personal and business banking continued to improve.
   
·
Risk-weighted assets decreased by 3%, reflecting personal unsecured balance reductions partly offset by mortgage balance growth.

Q2 2014 compared with Q2 2013
·
Operating profit increased by 81% to £484 million, with restructuring, litigation and conduct costs down £50 million to £179 million. Adjusted operating profit increased by 33% to £663 million, with income up 4% and expenses, excluding restructuring and litigation and conduct costs, down 5%. Impairments also improved, halving to £60 million.
   
·
Net interest income increased by 3% to £1,152 million, driven by strong deposit income with balance growth of 4% and improved margins.
   
·
Non-interest income increased by 8% to £347 million, benefiting from higher current account-related fee income and higher insurance profit share.
   
·
Direct costs of £321 million were 3% lower, with staff cost benefits from lower headcount. Indirect costs were down 6%.
   
·
Impairments decreased by 52%, to £60 million, reflecting improvements in the quality of the book and continued strong recoveries across UK PBB.
 
 

Ulster Bank

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
323 
302 
 
169 
154 
152 
 
 
 
 
 
 
 
Net fees and commissions
66 
69 
 
34 
32 
35 
Other non-interest income
23 
73 
 
8 
15 
53 
 
 
 
 
 
 
 
Non-interest income
89 
142 
 
42 
47 
88 
 
 
 
 
 
 
 
Total income
412 
444 
 
211 
201 
240 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff costs
(125)
(124)
 
(62)
(63)
(67)
  - other costs
(35)
(27)
 
(18)
(17)
(12)
Indirect expenses
(126)
(125)
 
(63)
(63)
(65)
Restructuring costs
 
 
 
 
 
 
  - direct
8 
(15)
 
8 
- 
(14)
  - indirect
(22)
(6)
 
(20)
(2)
(4)
Litigation and conduct costs
- 
(25)
 
- 
- 
(25)
 
 
 
 
 
 
 
Operating expenses
(300)
(322)
 
(155)
(145)
(187)
 
 
 
 
 
 
 
Profit before impairment losses
112 
122 
 
56 
56 
53 
Impairment losses
(57)
(503)
 
(10)
(47)
(263)
 
 
 
 
 
 
 
Operating profit/(loss)
55 
(381)
 
46 
9 
(210)
 
 
 
 
 
 
 
Operating profit/(loss) - adjusted (1)
69 
(335)
 
58 
11 
(167)

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.


Ulster Bank

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Analysis of income by business
 
 
 
 
 
 
Corporate
134 
170 
 
65 
69 
88 
Retail
190 
209 
 
100 
90 
120 
Other
88 
65 
 
46 
42 
32 
 
 
 
 
 
 
 
Total income
412 
444 
 
211 
201 
240 
 
 
 
 
 
 
 
Analysis of impairments by sector
 
 
 
 
 
 
Mortgages
35 
181 
 
16 
19 
91 
Commercial real estate
 
 
 
 
 
 
  - investment
9 
97 
 
1 
8 
51 
  - development
(6)
26 
 
(3)
(3)
12 
Other corporate
8 
186 
 
(9)
17 
111 
Other lending
11 
13 
 
5 
6 
(2)
 
 
 
 
 
 
 
Total impairment losses
57 
503 
 
10 
47 
263 
 
 
 
 
 
 
 
Loan impairment charge as % of gross
 
 
 
 
 
 
   customer loans and advances (excluding
 
 
 
 
 
 
   reverse repurchase agreements) by sector
 
 
 
 
 
 
Mortgages
0.4%
1.8%
 
0.4%
0.4%
1.8%
Commercial real estate
 
 
 
 
 
 
  - investment
1.8%
5.4%
 
0.4%
3.2%
5.7%
  - development
(3.0%)
7.4%
 
(3.0%)
(3.0%)
6.9%
Other corporate
0.3%
5.0%
 
(0.7%)
1.3%
5.9%
Other lending
2.2%
2.0%
 
2.0%
2.4%
(0.6%)
 
 
 
 
 
 
 
Total
0.4%
3.1%
 
0.2%
0.7%
3.2%

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
2.7%
(14.9%)
 
4.6%
0.9%
(16.8%)
Return on equity - adjusted (1,2)
3.4%
(13.1%)
 
5.8%
1.1%
(13.4%)
Net interest margin
2.32%
1.82%
 
2.35%
2.29%
1.84%
Cost:income ratio
73%
73%
 
73%
72%
78%
Cost:income ratio - adjusted (2)
69%
62%
 
68%
71%
60%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2)
Excluding restructuring costs and litigation and conduct costs.

Ulster Bank

 
 
 
 
 
 
 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
Mortgages
18.1 
18.8 
(4%)
19.0 
(5%)
Commercial real estate
 
 
 
 
 
  - investment
1.0 
1.0 
- 
3.4 
(71%)
  - development
0.4 
0.4 
- 
0.7 
(43%)
Other corporate
5.2 
5.4 
(4%)
7.1 
(27%)
Other lending
1.0 
1.0 
- 
1.2 
(17%)
 
 
 
 
 
 
 
25.7 
26.6 
(3%)
31.4 
(18%)
Loan impairment provisions
(3.3)
(3.4)
(3%)
(5.4)
(39%)
 
 
 
 
 
 
Net loans and advances to customers
22.4 
23.2 
(3%)
26.0 
(14%)
 
 
 
 
 
 
Funded assets
26.6 
26.0 
2%
28.0 
(5%)
Risk elements in lending
 
 
 
 
 
  - Mortgages
3.3 
3.1 
6%
3.2 
3%
  - Commercial real estate
 
 
 
 
 
    - investment
0.3 
0.3 
- 
2.3 
(87%)
    - development
0.2 
0.2 
- 
0.5 
(60%)
  - Other corporate
0.9 
0.9 
- 
2.3 
(61%)
  - Other lending
0.2 
0.2 
- 
0.2 
- 
 
 
 
 
 
 
Total risk elements in lending
4.9 
4.7 
4%
8.5 
(42%)
Provision coverage (1)
68%
72%
(400bp)
64%
400bp
 
 
 
 
 
 
Customer deposits
20.7 
21.1 
(2%)
21.7 
(5%)
Loan:deposit ratio (excluding repos)
108%
110%
(200bp)
120%
(1,200bp)
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk
 
 
 
 
 
    - non-counterparty
26.0 
26.7 
(3%)
28.2 
(8%)
    - counterparty
0.1 
0.3 
(67%)
0.3 
(67%)
  - Market risk
0.1 
0.2 
(50%)
0.5 
(80%)
  - Operational risk
1.5 
1.5 
- 
1.7 
(12%)
 
 
 
 
 
 
Risk-weighted assets
27.7 
28.7 
(3%)
30.7 
(10%)
 
 
 
 
 
 
Spot exchange rate - €/£
1.25 
1.21 
 
1.20 
 

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Ulster Bank

Key points
Ulster Bank returned to profitability in H1 2014, the first half-yearly profit recorded since 2008. The macroeconomic environment across the island of Ireland has stabilised considerably but trading conditions continue to be volatile and the regulatory environment remains challenging.

Key financial highlights:
·
The transfer of assets to RCR coupled with the benefits of the investment in programmes to support customers in financial difficulty has driven a significant reduction in impairment losses.
   
·
Lending activity has increased in 2014, albeit repayments continue to exceed new lending.
   
·
Net interest margin has improved reflecting a strong focus on reducing the overall cost of funding for Ulster Bank.
   
·
Tight management of expenses remains a key priority; however the investment required to address legacy issues remains significant.
   
·
The right-sizing of the branch network and rationalising of the property footprint is progressing.
   
·
The number of mortgage customers more than 90 days in arrears has declined in each of the last 15 months, a trend not seen elsewhere in the market. This reflects the investment made to support customers in financial difficulty.

Further progress was made in H1 2014 to make it simple and easy for customers to do business:
·
There has been a significant increase in new lending activity following the launch of the big YES mortgage campaign and ‘Ahead for Business’ campaign. New mortgage lending increased by 44% compared with the same period in 2013 while over £650 million of new lending has been made available to business customers.
   
·
Customers have continued to move towards direct channels with 86% of all activity now outside the traditional branch.
   
·
The separation of Ulster Bank batch processing from NatWest and RBS brands was successfully delivered in H1 2014. This significantly reduces the risk of disruption to customers.

The creation of RCR resulted in the net transfer of £4.4 billion of gross assets to RCR on 1 January 2014. This has had a significant impact on the comparison of 2014 financial performance with that reported in 2013.

H1 2014 compared with H1 2013
·
Ulster Bank posted an operating profit of £55 million for H1 2014, compared with a loss of £381 million in H1 2013, with the improvement primarily driven by a significant reduction in impairment losses across all portfolios. Adjusted operating profit was £69 million for H1 2014, compared with a loss of £335 million for H1 2013.
   
·
Net interest margin increased by 50 basis points to 2.32% primarily reflecting a significant reduction in deposit pricing coupled with the impact of the transfer of underperforming assets to RCR. Net interest income increased by £21 million with the benefit of deposit repricing partly offset by lower income on the tracker mortgage book following reductions in the European Central Bank refinancing interest rate.
   
·
Non-interest income decreased by £53 million primarily due to a favourable mark-to-market movement of £36 million on economic hedges on the mortgage portfolio in H1 2013 as well as the impact of the asset transfer to RCR.

Ulster Bank

Key points (continued)

H1 2014 compared with H1 2013 (continued)
·
Expenses decreased by £22 million reflecting lower headcount and a £32 million reduction in restructuring, litigation and conduct costs, only partly offset by the impact of a cost realignment following the creation of RCR, £22 million, and the introduction of the new bank levy in the Republic of Ireland, £8 million.
   
·
Impairment losses decreased by £446 million or 89% with reductions across all portfolios. This reflects further de-risking of the balance sheet following the transfer of underperforming assets to RCR and the benefit of the ongoing reduction in mortgage arrears.
   
·
The loan:deposit ratio of 108% improved by 12 percentage points during H1 2014, largely reflecting the impact of the transfer of loan balances to RCR.

Q2 2014 compared with Q1 2014
·
Operating profit increased by £37 million to £46 million driven by higher income and a further reduction in impairment losses, partly offset by higher restructuring costs. Adjusted operating profit was up £47 million to £58 million.
   
·
Total income increased by £10 million to £211 million. Net interest income increased by £15 million, to £169 million, reflecting lower funding costs and the recognition of interest income on previously non-performing assets. Net interest margin increased by 6 basis points to 2.35%.
   
·
Expenses, excluding restructuring costs, remained stable. Restructuring costs increased by £10 million as Ulster Bank continued to adjust its property footprint. The adjusted cost:income ratio improved by 3 percentage points to 68% driven by higher income.
   
·
Impairment losses decreased by £37 million largely due to the release of a provision on a segment of the corporate portfolio. Within the mortgage portfolio, a change to the treatment of arrears capitalisations led to a 6% increase in risk elements in lending and a shift in the provisioning of these cases from latent to collective. This, coupled with improving credit metrics, contributed to a £102 million latent provision release in Q2.
   
·
Loan:deposit ratio improved from 110% to 108%.

Q2 2014 compared with Q2 2013
·
A significant reduction in impairment losses was the key driver of the £256 million improvement in operating profit. Adjusted operating profit was up £225 million to £58 million.
   
·
Total income decreased by £29 million primarily due to a number of substantial one-off gains in Q2 2013 in non-interest income. Net interest income increased by £17 million to £169 million largely driven by initiatives to reduce Ulster bank’s funding costs. Net interest margin increased by 51 basis points reflecting improved deposit margins coupled with the impact of the asset transfer to RCR.
   
·
Expenses reduced by £32 million largely due to a reduction in litigation and conduct costs. Excluding restructuring, litigation and conduct costs, expenses were flat with the benefit of lower headcount offset by the cost realignment following the creation of RCR, £11 million, and the introduction of the new bank levy in the Republic of Ireland, £4 million.
   
·
Impairment losses improved by £253 million or 96%, reflecting stronger credit metrics across all portfolios.


Commercial & Private Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
1,343 
1,253 
 
685 
658 
643 
 
 
 
 
 
 
 
Net fees and commissions
620 
657 
 
311 
309 
334 
Other non-interest income
150 
170 
 
74 
76 
101 
 
 
 
 
 
 
 
Non-interest income
770 
827 
 
385 
385 
435 
 
 
 
 
 
 
 
Total income
2,113 
2,080 
 
1,070 
1,043 
1,078 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(426)
(427)
 
(213)
(213)
(215)
  - other
(155)
(175)
 
(74)
(81)
(94)
Indirect expenses
(606)
(629)
 
(293)
(313)
(317)
Restructuring costs
 
 
 
 
 
 
  - direct
(42)
(15)
 
(42)
- 
(8)
  - indirect
(23)
(19)
 
(22)
(1)
(11)
Litigation and conduct costs
(50)
(25)
 
(50)
- 
- 
 
 
 
 
 
 
 
Operating expenses
(1,302)
(1,290)
 
(694)
(608)
(645)
 
 
 
 
 
 
 
Profit before impairment losses
811 
790 
 
376 
435 
433 
Impairment (losses)/recoveries
(31)
(289)
 
8 
(39)
(157)
 
 
 
 
 
 
 
Operating profit
780 
501 
 
384 
396 
276 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
895 
560 
 
498 
397 
295 

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (2)
12.9%
7.8%
 
12.8%
13.1%
8.6%
Return on equity - adjusted (1,2)
14.8%
8.7%
 
16.5%
13.1%
9.2%
Net interest margin
2.90%
2.69%
 
2.91%
2.89%
2.77%
Cost:income ratio
62%
62%
 
65%
58%
60%
Cost:income ratio - adjusted (1)
56%
59%
 
54%
58%
58%

Notes:
(1)
Excluding restructuring costs and litigation and conduct costs.
(2)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).


Commercial & Private Banking

 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
101.7 
103.0 
(1%)
101.8 
- 
Loan impairment provisions
(1.3)
(1.4)
(7%)
(1.6)
(19%)
 
 
 
 
 
 
Net loans and advances to customers
100.4 
101.6 
(1%)
100.2 
- 
 
 
 
 
 
 
Funded assets
109.4 
110.7 
(1%)
108.9 
- 
Assets under management (Private Banking)
28.7 
28.5 
1%
29.7 
(3%)
Risk elements in lending
3.1 
3.7 
(16%)
4.6 
(33%)
Provision coverage (1)
40%
38%
200bp
38%
200bp
 
 
 
 
 
 
Customer deposits (excluding repos)
123.9 
124.2 
- 
127.9 
(3%)
Loan:deposit ratio
81%
82%
(100bp)
78%
300bp
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk
 
 
 
 
 
    - non-counterparty
66.3 
67.2 
(1%)
69.7 
(5%)
    - counterparty
0.1 
- 
 -
- 
-
  - Market risk
0.1 
- 
 -
0.1 
- 
  - Operational risk
8.3 
8.3 
- 
8.0 
4%
 
 
 
 
 
 
 
74.8 
75.5 
(1%)
77.8 
(4%)

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Key points
Commercial & Private Banking comprises parts of the former UK Corporate, Wealth and International Banking divisions. It is committed to supporting the bank’s ambition to be the number one bank for customer service, trust and advocacy in its chosen markets by 2020. Commercial Banking’s customers range from UK businesses with an annual turnover of £2 million up to large UK corporations, including real estate and institutional customers. Aligning the Private Banking business with Commercial Banking will enable the bank to better serve and connect those who own and run businesses.

With a set of strong brands including NatWest, Lombard, Coutts and Adam & Company, the Commercial & Private Banking business provides its customers with dedicated relationship management and access to sophisticated products and services including lending, speciality finance, transaction banking, risk management and wealth management.

During the remainder of 2014, the Private Banking and Commercial Banking teams will continue to join forces to increase business in the UK.

Commercial Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
999 
936 
 
511 
488 
484 
 
 
 
 
 
 
 
Net fees and commissions
448 
477 
 
227 
221 
243 
Other non-interest income
121 
136 
 
60 
61 
82 
 
 
 
 
 
 
 
Non-interest income
569 
613 
 
287 
282 
325 
 
 
 
 
 
 
 
Total income
1,568 
1,549 
 
798 
770 
809 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(267)
(254)
 
(134)
(133)
(127)
  - other
(122)
(145)
 
(59)
(63)
(77)
Indirect expenses
(401)
(401)
 
(189)
(212)
(205)
Restructuring costs
 
 
 
 
 
 
  - direct
(40)
(14)
 
(40)
- 
(7)
  - indirect
(22)
(15)
 
(21)
(1)
(9)
Litigation and conduct costs
(50)
(25)
 
(50)
- 
- 
 
 
 
 
 
 
 
Operating expenses
(902)
(854)
 
(493)
(409)
(425)
 
 
 
 
 
 
 
Profit before impairment losses
666 
695 
 
305 
361 
384 
Impairment (losses)/recoveries
(31)
(282)
 
9 
(40)
(155)
 
 
 
 
 
 
 
Operating profit
635 
413 
 
314 
321 
229 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
747 
467 
 
425 
322 
245 

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.


Commercial Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014 
2013 
 
2014 
2014 
2013 
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Analysis of income by business
 
 
 
 
 
 
Commercial lending
894 
962 
 
448 
446 
501 
Deposits
153 
88 
 
81 
72 
50 
Asset and invoice finance
366 
334 
 
186 
180 
170 
Other
155 
165 
 
83 
72 
88 
 
 
 
 
 
 
 
Total income
1,568 
1,549 
 
798 
770 
809 
 
 
 
 
 
 
 
Analysis of impairments by sector
 
 
 
 
 
 
Commercial real estate
(6)
162 
 
(17)
11 
100 
Asset and invoice finance
2 
6 
 
- 
2 
5 
Private sector education, health, social work,
 
 
 
 
 
 
  recreational and community services
(10)
63 
 
- 
(10)
40 
Banks & financial institutions
1 
2 
 
(1)
2 
- 
Wholesale and retail trade repairs
14 
3 
 
2 
12 
(4)
Hotels and restaurants
(1)
19 
 
(4)
3 
8 
Manufacturing
7 
(4)
 
4 
3 
(5)
Construction
4 
(1)
 
2 
2 
(4)
Other
20 
32 
 
5 
15 
15 
 
 
 
 
 
 
 
 
31 
282 
 
(9)
40 
155 
 
 
 
 
 
 
 
Loan impairment charge as % of gross
 
 
 
 
 
 
  customer loans and advances by sector
 
 
 
 
 
 
Commercial real estate
(0.1%)
1.5%
 
(0.4%)
0.2%
1.8%
Asset and invoice finance
- 
0.1%
 
- 
0.1%
0.2%
Private sector education, health, social work,
 
 
 
 
 
 
  recreational and community services
(0.3%)
1.6%
 
- 
(0.5%)
2.1%
Banks & financial institutions
- 
0.1%
 
(0.1%)
0.1%
- 
Wholesale and retail trade repairs
0.5%
0.1%
 
0.1%
0.8%
(0.3%)
Hotels and restaurants
(0.1%)
0.9%
 
(0.5%)
0.3%
0.7%
Manufacturing
0.4%
(0.2%)
 
0.4%
0.3%
(0.5%)
Construction
0.4%
(0.1%)
 
0.4%
0.4%
(0.7%)
Other
0.2%
0.3%
 
0.1%
0.3%
0.3%
 
 
 
 
 
 
 
Total
0.1%
0.7%
 
- 
0.2%
0.7%

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
12.5%
7.6%
 
12.4%
12.6%
8.5%
Return on equity - adjusted (1,2)
14.7%
8.6%
 
16.8%
12.7%
9.1%
Net interest margin
2.70%
2.53%
 
2.73%
2.68%
2.63%
Cost:income ratio
58%
55%
 
62%
53%
53%
Cost:income ratio - adjusted (2)
50%
52%
 
48%
53%
51%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2)
Excluding restructuring costs and litigation and conduct costs.


Commercial Banking

 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
  - Commercial real estate
18.8 
19.0 
(1%)
20.2 
(7%)
  - Asset and invoice finance
13.7 
13.6 
1%
11.7 
17%
  - Private sector education, health, social work,
 
 
 
 
 
      recreational and community services
7.2 
7.5 
(4%)
7.9 
(9%)
  - Banks & financial institutions
6.9 
7.3 
(5%)
6.9 
- 
  - Wholesale and retail trade repairs
5.9 
6.0 
(2%)
5.8 
2%
  - Hotels and restaurants
3.3 
3.6 
(8%)
3.6 
(8%)
  - Manufacturing
3.9 
3.7 
5%
3.7 
5%
  - Construction
2.0 
2.1 
(5%)
2.1 
(5%)
  - Other
23.4 
23.4 
- 
23.1 
1%
 
 
 
 
 
 
 
85.1 
86.2 
(1%)
85.0 
- 
Loan impairment provisions
(1.2)
(1.3)
(8%)
(1.5)
(20%)
 
 
 
 
 
 
Net loans and advances to customers
83.9 
84.9 
(1%)
83.5 
0%
 
 
 
 
 
 
Funded assets
88.6 
89.6 
(1%)
87.9 
1%
Risk elements in lending
2.9 
3.4 
(15%)
4.3 
(33%)
Provision coverage (1)
41%
37%
400bp
38%
300bp
 
 
 
 
 
 
Customer deposits (excluding repos)
88.0 
87.6 
- 
90.7 
(3%)
Loan:deposit ratio
95%
97%
(200bp)
92%
300bp
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk (non-counterparty)
56.6 
57.1 
(1%)
59.7 
(5%)
  - Operational risk
6.4 
6.4 
- 
6.1 
5%
 
 
 
 
 
 
 
63.0 
63.5 
(1%)
65.8 
(4%)

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Key points
During the first half of 2014, the Commercial Banking business has been reshaped to meet the needs of its customers in the most efficient way. Complexity and costs are targeted to decline, with lower staff levels, predominantly in non-customer-facing departments, supported by focused investment aimed at making it easier for customers to do business:

·
Over 40 additional experienced relationship managers have been allocated to serve Commercial Banking customers, with a central focus on lending.
   
·
Lending procedures are changing to speed up the process and to meet the business’s commitment to make all but the most complex loan decisions within five days by the end of 2014.
   
·
A new online loan application facility for smaller business customers was launched in February 2014, which will be extended to larger SMEs over the course of 2014.
   
·
Two-thirds of lending decisions are now made locally.
   
·
60% of Relationship Managers have now completed an accreditation programme.

Commercial Banking

Key points (continued)
Whilst these changes and investments are being made, Commercial Banking continued to focus on delivering for its customers:

·
An additional 5,000 customers have received proactive ‘Statements of Appetite’, bringing the total to over 17,000. Over £7 billion of new or additional funding has now been offered.
   
·
The number of complaints from SME customers fell by 7.5% compared to last year.
   
·
A positive trend in the Net Promoter Score has been achieved over the last 12 months.
   
·
For the sixth consecutive year, Lombard received the Business Moneyfacts award for ‘Best Leasing & Asset Finance Provider’.

H1 2014 compared with H1 2013
·
Operating profit increased to £635 million delivering a return on equity of 12.5% with lower impairments and higher income more than offsetting increased charges for restructuring, litigation and conduct costs (£58 million). Excluding these costs, adjusted operating profit increased by £280 million and adjusted return on equity was 14.7%.
   
·
Net interest income increased by 7% reflecting re-pricing activity, partially offset by reduced yields on current accounts due to the continued low rate environment.
   
·
Non-interest income decreased by 7% from lower other income (£56 million), including fees and disposal gains (£27 million), a decline in CIB (Markets) revenue share income (£17 million) partially offset by lower costs arising from closing out interest rate hedging products associated with impaired loans (£30 million).
   
·
Total expenses increased by £48 million from higher restructuring and conduct related costs (£58 million), including interest rate swap redress, up £25 million, partially offset by direct costs down £10 million as cost saving initiatives start to take effect.
   
·
Impairments were down £251 million reflecting fewer individual cases across the portfolio, primarily in mid to large corporate and latent provision releases of £58 million, as credit conditions improved in Q2 2014.
   
·
The loan:deposit ratio increased by 200 basis points to 95%, primarily a result of reduced deposits, down 3%, reflecting the rebalancing of the Bank’s liquidity position.
   
·
Risk-weighted assets were £2.8 billion lower reflecting the net movement of transfers to RCR and from Non-Core, effective from 1 January 2014.

Q2 2014 compared with Q1 2014
·
Operating profit declined by 2% as increased income and lower impairments were more than offset by higher restructuring, litigation and conduct costs. Excluding these costs, adjusted operating profit increased by £103 million.
   
·
Net interest income increased by 5% from margin expansion on deposits and the benefit of an additional day in the quarter.
   
·
Non-interest income increased by 2% primarily from improved transaction services income £7 million, with stable income from asset finance, CIB revenue share and other lending fees.
   
·
Total expenses, up 21%, were impacted by £61 million of restructuring costs in the quarter, as the business aligns itself to better support its customers, and included a £50 million charge for interest rate swap redress. Adjusted expenses, excluding restructuring and litigation and conduct costs, decreased by 6% due to operational cost saving initiatives.

Commercial Banking

Key points (continued)

Q2 2014 compared with Q1 2014 (continued)
·
Impairments declined by £49 million primarily from a release of latent provisions of £58 million as credit conditions improved.
   
·
The loan:deposit ratio declined by 200 basis points from a 1% decline in asset volumes, most of which was in the mid to large corporate business.
   
·
Risk-weighted assets decreased by 1% primarily due to balance sheet movements.

Q2 2014 compared with Q2 2013
·
Operating profit improved by £85 million, driven by lower impairments partially offset by higher restructuring, litigation and conduct charges.
   
·
Net interest income increased by 6% in line with the half year trends noted above. Improved margins from re-pricing activity offset lower yields due to the continued low interest rate environment.
   
·
Non-interest income decreased by 12% from lower CIB (Markets) revenue share and gains from equity disposals partially offset by the reduced close out charges on interest rate hedging products as noted above.
   
·
Total expenses were up reflecting increased restructuring, litigation and conduct costs in Q2 2014, which were partially offset by lower direct and indirect costs.
   
·
Impairments decreased by £164 million reflecting fewer significant individual cases and the latent provisions release in Q2 2014.

Private Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
344 
317 
 
174 
170 
159 
 
 
 
 
 
 
 
Net fees and commissions
172 
180 
 
84 
88 
91 
Other non-interest income
29 
34 
 
14 
15 
19 
 
 
 
 
 
 
 
Non-interest income
201 
214 
 
98 
103 
110 
 
 
 
 
 
 
 
Total income
545 
531 
 
272 
273 
269 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(159)
(173)
 
(79)
(80)
(88)
  - other
(33)
(30)
 
(15)
(18)
(17)
Indirect expenses
(205)
(228)
 
(104)
(101)
(112)
Restructuring costs
 
 
 
 
 
 
  - direct
(2)
(1)
 
(2)
- 
(1)
  - indirect
(1)
(4)
 
(1)
- 
(2)
 
 
 
 
 
 
 
Operating expenses
(400)
(436)
 
(201)
(199)
(220)
 
 
 
 
 
 
 
Profit before impairment losses
145 
95 
 
71 
74 
49 
Impairment (losses)/recoveries
- 
(7)
 
(1)
1 
(2)
 
 
 
 
 
 
 
Operating profit
145 
88 
 
70 
75 
47 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
148 
93 
 
73 
75 
50 

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014 
2013 
 
2014 
2014 
2013 
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Analysis of income by business
 
 
 
 
 
 
Investments
90 
97 
 
45 
45 
49 
Banking
455 
434 
 
227 
228 
220 
 
 
 
 
 
 
 
Total income
545 
531 
 
272 
273 
269 

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
30 June
30 June
 
30 June
31 March
30 June
2014
2013 
 
2014
2014
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (2)
15.0%
8.9%
 
14.5%
15.3%
9.4%
Return on equity - adjusted (1,2)
15.3%
9.4%
 
15.1%
15.3%
10.0%
Net interest margin
3.72%
3.33%
 
3.73%
3.70%
3.34%
Cost:income ratio
73%
82%
 
74%
73%
82%
Cost:income ratio - adjusted (1)
73%
81%
 
73%
73%
81%

Notes:
(1)
Excluding restructuring costs and litigation and conduct costs.
(2)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).


Private Banking

 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
  - personal
5.5 
5.5 
- 
5.5 
- 
  - mortgages
8.7 
8.7 
- 
8.7 
- 
  - other
2.4 
2.6 
(8%)
2.6 
(8%)
 
 
 
 
 
 
 
16.6 
16.8 
(1%)
16.8 
(1%)
Loan impairment provisions
(0.1)
(0.1)
- 
(0.1)
- 
 
 
 
 
 
 
Net loans and advances to customers
16.5 
16.7 
(1%)
16.7 
(1%)
 
 
 
 
 
 
Funded assets
20.8 
21.1 
(1%)
21.0 
(1%)
Assets under management
28.7 
28.5 
1%
29.7 
(3%)
Risk elements in lending
0.2 
0.3 
(33%)
0.3 
(33%)
Provision coverage (1)
39%
45%
(600bp)
43%
(400bp)
 
 
 
 
 
 
Customer deposits (excluding repos)
35.9 
36.6 
(2%)
37.2 
(3%)
Loan:deposit ratio
46%
45%
100bp
45%
100bp
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk
 
 
 
 
 
    - non-counterparty
9.7 
10.1 
(4%)
10.0 
(3%)
    - counterparty
0.1 
- 
-
- 
-
  - Market risk
0.1 
- 
-
0.1 
- 
  - Operational risk
1.9 
1.9 
- 
1.9 
- 
 
 
 
 
 
 
 
11.8 
12.0 
(2%)
12.0 
(2%)

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Key points
The Private Banking business continues to invest in expanding its product offering in response to client demand for global, integrated solutions. Enhancements in the first half of 2014 included the introduction of an around-the-clock weekday dealing capability for foreign exchange products, serving Coutts’s UK and international client-base.

We are currently reviewing our strategy, focusing on options for our non-UK related activities. The review is expected to complete later in the year.

In the UK, further refinements to Coutts’s Retail Distribution Review compliant advice framework have improved efficiency, with total assets under advice now standing at £4.5 billion.

Private Banking

Key points (continued)

H1 2014 compared with H1 2013
·
Operating profit was £145 million for the first half of 2014, delivering a return on equity of 15.0%. Excluding restructuring costs, adjusted operating profit increased by £55 million and the adjusted return on equity was 15.3%, driven by improved income, lower expenses and lower impairments.
   
·
Total income was £14 million, or 3%, higher. Net interest income increased by £27 million due to a combination of improved deposit margins following a re-pricing exercise in the UK and lower treasury charges. Non-interest income declined by £13 million reflecting the impact of adverse foreign exchange movements and lower transactional activity in the international business.
   
·
Total expenses declined by 8% to £400 million. Adjusted expenses were down £34 million, 8%, at £397 million reflecting savings from the streamlining of the property footprint, favourable foreign exchange movements, reduced headcount and the continued management of discretionary costs.
   
·
Impairment charges declined by £7 million as a result of fewer specific impairments.
   
·
Client assets and liabilities were 7% lower than the previous year, with the decrease in assets under management driven by low margin custody asset outflows, adverse foreign exchange movements, portfolio exits and reduced balances in the UK. Deposits were £3.0 billion lower, largely as a result of re-pricing action in the UK. Lending declined by £0.5 billion as repayments outstripped new lending in the latter part of 2013.

Q2 2014 compared with Q1 2014
·
Operating profit was £70 million for the quarter, £5 million lower, largely as a result of a small increase in impairments and expenses, with income broadly flat.
   
·
Total expenses were up £2 million, wholly as a result of increased restructuring costs.
   
·
Client assets and liabilities were 1% lower than the prior quarter, wholly driven by a £0.7 billion reduction in deposits following the UK re-pricing exercise and outflows in the international business. Assets under management increased by £0.2 billion due to positive market movements. Lending remained broadly flat.

Q2 2014 compared with Q2 2013
·
Operating profit increased by £23 million benefitting from higher income, lower costs and lower impairments.
   
·
Total income was £3 million, 1%, higher. Net interest income rose by £15 million due to improved deposit margins following a re-pricing exercise in the UK and lower treasury charges. Non-interest income declined by £12 million largely as a result of adverse foreign exchange movements and lower transactional activity in the international business.
   
·
Total expenses declined by £19 million reflecting savings from the streamlining of the property footprint, reduced headcount, beneficial foreign exchange movements and the continued tight management of discretionary costs.


Corporate & Institutional Banking

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income from banking activities
365 
314 
 
186 
179 
142 
 
 
 
 
 
 
 
Net fees and commissions
490 
556 
 
247 
243 
275 
Income from trading activities
1,482 
1,753 
 
597 
885 
787 
Other operating income
90 
85 
 
46 
44 
32 
 
 
 
 
 
 
 
Non-interest income
2,062 
2,394 
 
890 
1,172 
1,094 
 
 
 
 
 
 
 
Total income
2,427 
2,708 
 
1,076 
1,351 
1,236 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(488)
(580)
 
(216)
(272)
(247)
  - other
(260)
(284)
 
(147)
(113)
(154)
Indirect expenses
(1,169)
(1,325)
 
(581)
(588)
(657)
Restructuring costs
 
 
 
 
 
 
  - direct
(28)
(37)
 
(13)
(15)
(24)
  - indirect
(163)
(46)
 
(139)
(24)
(20)
Litigation and conduct costs
(50)
(410)
 
(50)
-  
(385)
 
 
 
 
 
 
 
Operating expenses
(2,158)
(2,682)
 
(1,146)
(1,012)
(1,487)
 
 
 
 
 
 
 
Profit/(loss) before impairment losses
269 
26 
 
(70)
339 
(251)
Impairment recoveries/(losses)
39 
(223)
 
45 
(6)
(144)
 
 
 
 
 
 
 
Operating profit/(loss)
308 
(197)
 
(25)
333 
(395)
 
 
 
 
 
 
 
Operating profit - adjusted (1)
549 
296 
 
177 
372 
34 

Note:
(1)
Excluding restructuring costs and litigation and conduct costs.


 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2014 
2013 
 
2014 
2014 
2013 
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Analysis of income by product
 
 
 
 
 
 
Rates
656 
467 
 
297 
359 
255 
Currencies
351 
479 
 
159 
192 
282 
Credit
774 
992 
 
309 
465 
315 
Global Transaction Services
421 
425 
 
214 
207 
211 
Portfolio
318 
323 
 
156 
162 
167 
 
 
 
 
 
 
 
Total (excluding revenue share and run-off businesses)
2,520 
2,686 
 
1,135 
1,385 
1,230 
Inter-segment revenue share
(119)
(141)
 
(59)
(60)
(68)
Run-off businesses
26 
163 
 
- 
26 
74 
 
 
 
 
 
 
 
Total income
2,427 
2,708 
 
1,076 
1,351 
1,236 


Corporate & Institutional Banking

Key metrics
Half year ended
 
Quarter ended
30 June
30 June
 
30 June
31 March
30 June
2014 
2013 
 
2014 
2014 
2013 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
2.7%
(1.6%)
 
(0.5%)
5.6%
(6.8%)
Return on equity - adjusted (1,2)
4.8%
2.5%
 
3.3%
6.2%
0.6%
Net interest margin
0.88%
0.72%
 
0.90%
0.85%
0.67%
Cost:income ratio
89%
99%
 
107%
75%
120%
Cost:income ratio - adjusted (2)
79%
81%
 
88%
72%
86%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2)
Excluding restructuring costs and litigation and conduct costs.


 
30 June
31 March
 
31 December
 
2014
2014 
2013 
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
69.2 
70.7 
(2%)
69.1 
- 
Loan impairment provisions
(0.2)
(0.2)
- 
(0.9)
(78%)
 
 
 
 
 
 
Net loans and advances to customers
69.0 
70.5 
(2%)
68.2 
1%
Net loans and advances to banks (1)
19.4 
20.0 
(3%)
20.5 
(5%)
Reverse repos
78.8 
78.1 
1%
76.2 
3%
Securities
67.9 
75.0 
(9%)
72.1 
(6%)
Cash and eligible bills
18.7 
21.0 
(11%)
20.6 
(9%)
Other
24.9 
22.0 
13%
11.0 
126%
 
 
 
 
 
 
Funded assets
278.7 
286.6 
(3%)
268.6 
4%
 
 
 
 
 
 
Provision coverage (2)
168%
199%
(3,100bp)
59%
10,900bp
 
 
 
 
 
 
Repos
73.1 
77.5 
(6%)
74.8 
(2%)
Customer deposits (excluding repos)
55.5 
57.1 
(3%)
64.8 
(14%)
Bank deposits (excluding repos)
31.7 
29.5 
7%
30.2 
5%
Debt securities in issue
17.3 
18.1 
(4%)
21.5 
(20%)
 
 
 
 
 
 
Risk-weighted assets (3)
 
 
 
 
 
  - Credit risk
 
 
 
 
 
     - non-counterparty
58.4 
59.0 
(1%)
61.8 
(6%)
     - counterparty
28.9 
34.0 
(15%)
17.5 
65%
  - Market risk
28.7 
35.3 
(19%)
26.4 
9%
  - Operational risk
11.8 
11.9 
(1%)
14.7 
(20%)
 
 
 
 
 
 
 
127.8 
140.2 
(9%)
120.4 
6%

Notes:
(1)
Excludes disposal groups.
(2)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. On a fully loaded Basel 3 basis risk-weighted assets at 1 January 2014 were £147.1 billion.

Corporate & Institutional Banking

Key points
The creation of Corporate & Institutional Banking (CIB) (which comprises the former Markets and International Banking divisions) is largely complete. The new franchise will continue to focus on the corporate and institutional client base while maintaining the same vigorous levels of cost reduction and capital management. The commitment to clients was highlighted this quarter when the business was awarded Global Finance’s Best Supply Chain Finance provider in Western Europe for the seventh consecutive year and also received The Banker’s Loans Deal of the Year Europe award.

The low interest rate and low volatility trading environment continues to be challenging. Investor activity remains subdued and excess client liquidity has curtailed lending. Opportunities for income generation were limited in comparison to the same period last year, when central bank intervention generated significant volatility.

H1 2014 compared with H1 2013
·
Operating profit increased by £505 million, reflecting lower impairments, cost reductions and lower litigation and conduct costs, partially offset by lower income as the business continued to reduce in size to focus on core activities. Restructuring costs were also higher. Adjusted operating profit increased by £253 million or 85% to £549 million.
   
·
Rates income increased by £189 million, 40%, compared with a weak H1 2013. Income associated with continued deleveraging and de-risking of the business supported the result.
   
·
Currencies income was £128 million or 27% lower than in H1 2013, when the business took advantage of volatility caused by central bank intervention in the United States and Japan.
   
·
Credit income was £218 million or 22% lower in H1 2014 compared with H1 2013, which benefited from the general credit market rally. This, combined with a reduced deployment of risk-weighted assets, resulted in lower income. Within Credit income, Asset Backed Product (ABP) income was £510 million, compared with £617 million in H1 2013.
   
·
Global Transaction Services and Portfolio were both flat compared with H1 2013, reflecting the subdued levels of client activity and continued low margin market environment.
   
·
Total expenses were down by 20%, reflecting lower litigation and conduct costs partly offset by higher restructuring costs. Adjusted expenses fell by 12%, driven by headcount reductions and tight control of discretionary expenditure.
   
·
Impairments represented a net recovery of £39 million, compared with a loss of £223 million in H1 2013, driven by the release of latent provisions, reflecting the creation of RCR and improving credit conditions and the non-repeat of significant individual cases.
   
·
Funded assets increased compared with 31 December 2013 as activity levels picked up. Compared with 30 June 2013, however, funded assets fell significantly, down from £328 billion to £279 billion, reflecting the refocusing of the business on core activities.
   
·
Risk-weighted assets increased following the introduction of CRD IV on 1 January 2014. On a like-for-like Basel III basis, risk-weighted assets fell significantly from £172 billion at 30 June 2013, to £128 billion at 30 June 2014. This was driven by a range of mitigation and de-risking actions and the transfer of £13 billion of risk-weighted assets to RCR.


Corporate & Institutional Banking

Key points (continued)

Q2 2014 compared with Q1 2014
·
An operating loss of £25 million was driven by restructuring costs and litigation and conduct costs of £202 million. Excluding these items, adjusted operating profit was £177 million, down £195 million, reflecting lower income principally in Credit and Rates.
   
·
Client activity in Rates weakened compared with Q1 2014, and trading gains were lower. As a result, income declined by £62 million.
   
·
Currencies income, down £33 million, continued to be impacted by limited volume and volatility in a highly competitive market environment.
   
·
Credit income decreased by 34%, driven by a lower level of gains in asset backed products following more favourable market movements in Q1 2014. ABP income was £188 million compared with £322 million in Q1 2014.
   
·
Global Transaction Services and Portfolio remained stable as they continued to be impacted by the low margin environment and subdued client activity.
   
·
Total expenses increased by 13% due to restructuring and litigation and conduct costs. Adjusted expenses were down 3%, driven by lower staff costs.
   
·
Funded  assets remained broadly stable in a subdued market environment. The small reduction was driven by debt securities in the Rates business.
   
·
Risk-weighted assets fell by £12 billion, reflecting continued mitigation actions and reduced risk exposures.

Q2 2014 compared with Q2 2013
·
Rates increased by £42 million, 16%, despite a low volatility environment, benefiting from income associated with de-risking the business in contrast to Q2 2013, which was impacted by difficult trading conditions.
   
·
Currencies income was £123 million or 44% lower, reflecting the subdued market conditions, compared to greater volatility in Q2 2013 following central bank intervention in the United States and Japan.
   
·
Income from Portfolio fell £11 million or 7%. Q2 2013 included a gain on an asset sale.
   
·
Total expenses fell by £341 million, 23%, driven by lower litigation and conduct costs and the ongoing cost reduction programme, partially offset by a £108 million increase in restructuring costs.


Central items

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Central items not allocated
91 
553 
 
86 
5 
352 

Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.

Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

Key points

H1 2014 compared with H1 2013
·
Central items not allocated represented a credit of £91 million compared with a credit of £553 million in H1 2013. The change was principally driven by lower gains on the disposal of available-for-sale securities in Treasury, which were down £245 million to £215 million for H1 2014, along with a £150 million restructuring charge relating to the Williams & Glyn franchise.

Q2 2014 compared with Q1 2014
·
Central items not allocated represented a credit of £86 million compared with a credit of £5 million in Q1 2014. The improvement principally reflects lower restructuring costs relating to Williams & Glyn and favourable movements in respect of fair value movements on derivatives not qualifying for hedge accounting in Treasury partially offset by lower AFS gains.

Q2 2014 compared with Q2 2013
·
Central items not allocated represented a credit of £86 million compared with a credit of £352 million in
Q2 2013. The change was principally driven by lower gains on the disposal of available-for-sale securities in Treasury, which were down £342 million to £13 million for Q2 2014.


Citizens Financial Group (£ Sterling)

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
987 
939 
 
499 
488 
469 
 
 
 
 
 
 
 
Net fees and commissions
350 
382 
 
181 
169 
192 
Other non-interest income
270 
188 
 
210 
60 
86 
 
 
 
 
 
 
 
Non-interest income
620 
570 
 
391 
229 
278 
 
 
 
 
 
 
 
Total income
1,607 
1,509 
 
890 
717 
747 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(512)
(572)
 
(261)
(251)
(286)
  - other
(501)
(482)
 
(252)
(249)
(233)
Indirect expenses
- 
(48)
 
- 
- 
(27)
Restructuring costs
(69)
(3)
 
(69)
- 
(2)
 
 
 
 
 
 
 
Operating expenses
(1,082)
(1,105)
 
(582)
(500)
(548)
 
 
 
 
 
 
 
Profit before impairment losses
525 
404 
 
308 
217 
199 
Impairment losses
(104)
(51)
 
(31)
(73)
(32)
 
 
 
 
 
 
 
Operating profit
421 
353 
 
277 
144 
167 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
490 
356 
 
346 
144 
169 
 
 
 
 
 
 
 
Average exchange rate - US$/£
1.669 
1.544 
 
1.683 
1.655 
1.536 
 
 
 
 
 
 
 
Analysis of income by product
 
 
 
 
 
 
Mortgages and home equity
223 
249 
 
111 
112 
123 
Personal lending and cards
204 
204 
 
106 
98 
104 
Retail deposits
376 
379 
 
190 
186 
189 
Commercial lending
333 
335 
 
168 
165 
167 
Commercial deposits
216 
200 
 
109 
107 
98 
Other
255 
142 
 
206 
49 
66 
 
 
 
 
 
 
 
Total income
1,607 
1,509 
 
890 
717 
747 
 
 
 
 
 
 
 
Analysis of impairments by sector
 
 
 
 
 
 
Residential mortgages
1 
12 
 
6 
(5)
10 
Home equity
34 
37 
 
15 
19 
18 
SBO home equity
4 
- 
 
(17)
21 
- 
Corporate and commercial
8 
(35)
 
(1)
9 
(11)
Other consumer
55 
37 
 
26 
29 
15 
Securities
2 
- 
 
2 
- 
- 
 
 
 
 
 
 
 
Total impairment losses
104 
51 
 
31 
73 
32 
 
 
 
 
 
 
 
Loan impairment charge as % of gross
 
 
 
 
 
 
  customer loans and advances (excluding
 
 
 
 
 
 
  reverse repurchase agreements) by sector
 
 
 
 
 
 
Residential mortgages
- 
0.4%
 
0.4%
(0.3%)
0.7%
Home equity
0.6%
0.5%
 
0.5%
0.6%
0.5%
SBO home equity
0.6%
- 
 
(5.6%)
6.5%
- 
Corporate and commercial
0.1%
(0.3%)
 
- 
0.1%
(0.2%)
Other consumer
1.2%
0.8%
 
1.2%
1.3%
0.7%
 
 
 
 
 
 
 
Total
0.4%
0.2%
 
0.2%
0.5%
0.2%

Note:
(1)
Excluding restructuring costs.

Citizens Financial Group (£ Sterling)
 
 
 
 
 
 
 
Key metrics
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
7.5%
6.6%
 
9.8%
5.1%
6.3%
Return on equity - adjusted (1,2)
8.7%
6.7%
 
12.2%
5.1%
6.4%
Net interest margin
2.94%
2.90%
 
2.93%
2.94%
2.89%
Cost:income ratio
67%
73%
 
65%
70%
73%
Cost:income ratio - adjusted (2)
63%
73%
 
58%
70%
73%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).
(2)
Excluding restructuring costs.

 
30 June
31 March
 
31 December
 
2014
2014 
2013
 
£bn
£bn
Change
£bn
Change
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
  - residential mortgages
6.4 
6.2 
3%
5.8 
10%
  - home equity
11.3 
12.0 
(6%)
12.1 
(7%)
  - SBO home equity
1.2 
1.3 
(8%)
- 
100%
  - corporate and commercial
24.2 
24.7 
(2%)
24.1 
- 
  - other consumer
9.1 
9.0 
1%
8.6 
6%
 
 
 
 
 
 
 
52.2 
53.2 
(2%)
50.6 
3%
Loan impairment provisions
(0.5)
(0.5)
- 
(0.3)
67%
 
 
 
 
 
 
Net loans and advances to customers
51.7 
52.7 
(2%)
50.3 
3%
 
 
 
 
 
 
Funded assets
75.7 
75.7 
- 
71.3 
6%
Investment securities
14.5 
14.9 
(3%)
12.9 
12%
Risk elements in lending
 
 
 
 
 
  - retail
1.1 
1.1 
- 
0.9 
22%
  - commercial
0.2 
0.2 
- 
0.1 
100%
 
 
 
 
 
 
Total risk elements in lending
1.3 
1.3 
- 
1.0 
30%
Provision coverage (1)
38%
41%
(300bp)
26%
1,200bp
 
 
 
 
 
 
Customer deposits (excluding repos)
52.9 
54.9 
(4%)
55.1 
(4%)
Bank deposits (excluding repos)
4.7 
3.4 
38%
2.0 
135%
Loan:deposit ratio (excluding repos)
98%
96%
200bp
91%
700bp
Risk-weighted assets (2)
 
 
 
 
 
  - Credit risk
 
 
 
 
 
    - non-counterparty
54.8 
55.4 
(1%)
50.7 
8%
    - counterparty
0.8 
0.8 
- 
0.5 
60%
  - Operational risk
5.1 
5.1 
- 
4.9 
4%
 
 
 
 
 
 
 
60.7 
61.3 
(1%)
56.1 
8%
 
 
 
 
 
 
Spot exchange rate - US$/£
1.711 
1.668 
 
1.654 
 

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Key points
●
Sterling strengthened against the US dollar during the first half of 2014, with the spot exchange rate at 30 June 2014 increasing 3% compared with 31 December 2013.
●
Performance is described in full in the US dollar-based financial statements set out on pages 56 to 60.


Citizens Financial Group (US dollar)

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
$m
$m
 
$m
$m
$m
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
Net interest income
1,647 
1,449 
 
838 
809 
720 
 
 
 
 
 
 
 
Net fees and commissions
584 
590 
 
305 
279 
295 
Other non-interest income
452 
291 
 
353 
99 
133 
 
 
 
 
 
 
 
Non-interest income
1,036 
881 
 
658 
378 
428 
 
 
 
 
 
 
 
Total income
2,683 
2,330 
 
1,496 
1,187 
1,148 
 
 
 
 
 
 
 
Direct expenses
 
 
 
 
 
 
  - staff
(855)
(883)
 
(439)
(416)
(439)
  - other
(835)
(744)
 
(423)
(412)
(359)
Indirect expenses
- 
(74)
 
- 
- 
(40)
Restructuring costs
(115)
(5)
 
(115)
- 
(3)
 
 
 
 
 
 
 
Operating expenses
(1,805)
(1,706)
 
(977)
(828)
(841)
 
 
 
 
 
 
 
Profit before impairment losses
878 
624 
 
519 
359 
307 
Impairment losses
(174)
(78)
 
(53)
(121)
(48)
 
 
 
 
 
 
 
Operating profit
704 
546 
 
466 
238 
259 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
819 
551 
 
581 
238 
262 
 
 
 
 
 
 
 
Analysis of income by product
 
 
 
 
 
 
Mortgages and home equity
373 
384 
 
188 
185 
189 
Personal lending and cards
340 
314 
 
178 
162 
159 
Retail deposits
627 
586 
 
319 
308 
291 
Commercial lending
556 
518 
 
283 
273 
257 
Commercial deposits
360 
309 
 
183 
177 
151 
Other
427 
219 
 
345 
82 
101 
 
 
 
 
 
 
 
Total income
2,683 
2,330 
 
1,496 
1,187 
1,148 
 
 
 
 
 
 
 
Analysis of impairments by sector
 
 
 
 
 
 
Residential mortgages
1 
19 
 
10 
(9)
16 
Home equity
57 
56 
 
25 
32 
27 
SBO home equity
6 
- 
 
(28)
34 
- 
Corporate and commercial
13 
(53)
 
(2)
15 
(17)
Other consumer
94 
56 
 
45 
49 
22 
Securities
3 
- 
 
3 
- 
- 
 
 
 
 
 
 
 
Total impairment losses
174 
78 
 
53 
121 
48 
 
 
 
 
 
 
 
Loan impairment charge as % of gross
 
 
 
 
 
 
  customer loans and advances (excluding
 
 
 
 
 
 
  reverse repurchase agreements) by sector
 
 
 
 
 
 
Residential mortgages
- 
0.4%
 
0.4%
(0.3%)
0.7%
Home equity
0.6%
0.5%
 
0.5%
0.6%
0.5%
SBO home equity
0.6%
- 
 
(5.6%)
6.5%
- 
Corporate and commercial
0.1%
(0.3%)
 
- 
0.1%
(0.2%)
Other consumer
1.2%
0.8%
 
1.2%
1.3%
0.7%
 
 
 
 
 
 
 
Total
0.4%
0.2%
 
0.2%
0.5%
0.2%

Note:
(1)
Excluding restructuring costs.

Citizens Financial Group (US dollar)

Key metrics
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014
2013
 
2014
2014
2013
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
Return on equity (1)
7.5%
6.6%
 
9.8%
5.1%
6.3%
Return on equity - adjusted (1,2)
8.7%
6.7%
 
12.2%
5.1%
6.4%
Net interest margin
2.94%
2.90%
 
2.93%
2.94%
2.89%
Cost:income ratio
67%
73%
 
65%
70%
73%
Cost:income ratio - adjusted (2)
63%
73%
 
58%
70%
73%

Notes:
(1)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).
(2)
Excluding restructuring costs.

The results of Citizens Financial Group on a comparable basis are set out below. These include Non-Core operations and exclude Group allocations.

 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
2014 
2013 
 
2014 
2014 
2013 
 
$m 
$m 
 
$m 
$m 
$m 
 
 
 
 
 
 
 
Total income
2,683 
2,401 
 
1,496 
1,187 
1,183 
Operating expenses
(1,805)
(1,656)
 
(977)
(828)
(815)
Impairment losses
(174)
(202)
 
(53)
(121)
(112)
 
 
 
 
 
 
 
Operating profit
704 
543 
 
466 
238 
256 
 
 
 
 
 
 
 
Operating profit - adjusted (1)
819 
548 
 
581 
238 
259 
 
 
 
 
 
 
 
Return on equity
7.5%
5.9%
 
9.8%
5.1%
5.7%
Return on equity - adjusted (1,2)
8.7%
6.0%
 
12.2%
5.1%
5.7%

Notes:
(1)
Excluding restructuring costs.
(2)
Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).

Citizens Financial Group (US dollar)

 
 
 
 
 
 
 
 
30 June
31 March
 
 
31 December
 
 
2014
2014 
 
 
2013 
 
 
$bn
$bn
Change
 
$bn
Change
 
 
 
 
 
 
 
Capital and balance sheet
 
 
 
 
 
 
Loans and advances to customers (gross)
 
 
 
 
 
 
  - residential mortgages
10.9 
10.3 
6%
 
9.6 
14%
  - home equity
19.4 
20.0 
(3%)
 
20.1 
(3%)
  - SBO home equity
2.0 
2.1 
(5%)
 
- 
100%
  - corporate and commercial
41.4 
41.2 
- 
 
39.8 
4%
  - other consumer
15.6 
15.2 
3%
 
14.1 
11%
 
 
 
 
 
 
 
 
89.3 
88.8 
1%
 
83.6 
7%
Loan impairment provisions
(0.9)
(0.9)
- 
 
(0.4)
125%
 
 
 
 
 
 
 
Net loans and advances to customers
88.4 
87.9 
1%
 
83.2 
6%
 
 
 
 
 
 
 
Funded assets
129.5 
126.2 
3%
 
117.9 
10%
Investment securities
24.9 
24.9 
- 
 
21.3 
17%
Risk elements in lending
 
 
 
 
 
 
  - retail
1.9 
1.9 
- 
 
1.5 
27%
  - commercial
0.3 
0.3 
- 
 
0.2 
50%
 
 
 
 
 
 
 
Total risk elements in lending
2.2 
2.2 
- 
 
1.7 
29%
Provision coverage (1)
38%
41%
(300bp)
 
26%
1,200bp
 
 
 
 
 
 
 
Customer deposits (excluding repos)
90.5 
91.6 
(1%)
 
91.1 
(1%)
Bank deposits (excluding repos)
8.0 
5.7 
40%
 
3.3 
142%
Loan:deposit ratio (excluding repos)
98%
96%
200bp
 
91%
700bp
 
 
 
 
 
 
 
Risk-weighted assets (2)
 
 
 
 
 
 
  - Credit risk
 
 
 
 
 
 
    - non-counterparty
93.8 
92.4 
2%
 
83.8 
12%
    - counterparty
1.3 
1.3 
- 
 
0.8 
63%
  - Operational risk
8.7 
8.5 
2%
 
8.2 
6%
 
 
 
 
 
 
 
 
103.8 
102.2 
2%
 
92.8 
12%

Notes:
(1)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2)
Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.

Key points
H1 2014 and Q2 2014 results are not directly comparable with prior year periods; prior year results exclude Non-Core operations and include Group allocations. In the context of the planned disposal of Citizens Financial Group, central Group costs are no longer allocated to the division.

H1 2014 compared with H1 2013
·
Operating profit increased by $158 million, or 29%, to $704 million, reflecting the sale of the Illinois retail branches and small business and select middle market relationships in the Illinois market. Excluding the impact of the sale, $283 million net gain, and restructuring costs, $115 million (H1 2013 - $5 million), operating profit was down 3% driven by lower non-interest income and higher impairment losses partially offset by higher net interest income.
   
·
The former Non-Core portfolio is now included on a prospective basis from 1 January 2014. On a comparable basis, operating profit excluding the impact of the sale, $283 million net gain, and restructuring costs, $115 million (H1 2013 - $5 million), was down 2% driven by lower non-interest income and higher expenses partially offset by higher net interest income and lower impairment losses.

Citizens Financial Group (US dollar)

Key points (continued)

H1 2014 compared with H1 2013 (continued)
·
The branch sale comprised retail branches located in Illinois, including certain customer deposits of $4.8 billion and selected loans of $1.0 billion (primarily middle market, small business, home equity and credit card balances). The transaction which completed on 20 June 2014 and resulted in a net gain of $283 million and restructuring costs of $17 million.
   
·
The operating environment and market conditions remained challenging, with intense competition for loans. An extended period of low short-term rates limited net interest margin expansion and the rise in long-term rates dramatically slowed mortgage refinance volumes.
   
·
Net interest income was up $198 million, or 14%, to $1,647 million driven by a larger investment portfolio, loan growth including the transfer of assets from Non-Core, the benefit of interest rate swaps and deposit pricing discipline.
   
·
Higher rates led to investment security purchases resulting in average portfolio growth of $6.3 billion over the year.
   
·
Average loans and advances were up 9%, driven by the $3.6 billion transfer of assets from Non-Core, commercial and auto loan growth, a strategic initiative to purchase residential mortgages and to hold more originations on the balance sheet. This was partially offset by home equity run-off.
   
·
Average customer deposits were down 3%, with planned run-off of high priced deposits. Consumer and small business checking balances both grew by 3% over the year.
   
·
Excluding the gain on the sale of the Illinois branches of $283 million, non-interest income was down $128 million, or 15%, to $753 million reflecting lower securities gains of $69 million, lower mortgage banking fees of $49 million, as refinancing volumes have slowed, and lower deposit fees of $31 million due to a change in the posting order of customer transactions, partially offset by higher commercial banking fee income of $21 million. Mortgage origination activity has slowed as market rates have risen, leading to lower applications combined with lower levels of gains on sales of mortgages.
   
·
Excluding restructuring costs of $115 million (H1 2013 - $5 million), total expenses were down $11 million, or 1%, to $1,690 million driven by the removal of indirect costs in 2014, incentive reversals for prior year plans and lower retirement costs partially offset by lower mortgage servicing rights impairment recapture and higher consumer regulatory compliance costs.
   
·
Restructuring costs include costs related to the sale of the Illinois branches and other initiatives intended to improve the overall effectiveness and efficiency of the franchise.
   
·
Impairment losses increased by $96 million to $174 million due to a reserve build of $15 million in H1 2014 compared with a reserve release of $58 million in H1 2013 and higher charge-offs including those related to assets transferred from Non-Core.

Q2 2014 compared with Q1 2014
·
Operating profit increased by $228 million, or 96%, to $466 million largely due to the sale of the Illinois retail branches and small business and select middle market relationships. Excluding the impact of the sale, $283 million, and restructuring costs, $115 million, operating profit was up $60 million, or 25%, to $298 million driven by lower impairment losses.
   
·
Net interest income was up $29 million, or 4% at $838 million driven by a larger investment portfolio, loan growth and the impact of day count.

Citizens Financial Group (US dollar)

Key points (continued)

Q2 2014 compared with Q1 2014 (continued)
·
Average loans and advances were up 2%, driven by higher commercial loans, auto loan organic growth and purchases and a strategic initiative to purchase residential mortgages.
   
·
Excluding the gain on the sale of the Illinois retail branches of $283 million in Q2 2014, non-interest income was broadly in line with the prior quarter.
   
·
Excluding restructuring costs of $115 million, total expenses were up $34 million, or 4%, at $862 million due to higher incentives as Q1 2014 included incentive reversals for prior year plans.
   
·
Impairment losses decreased by $68 million to $53 million for the quarter due to lower charge-offs of $19 million and a reserve release in Q2 2014 of $19 million reflecting asset quality improvements, compared to a reserve build in Q1 2014 of $34 million.

Q2 2014 compared with Q2 2013
·
Excluding the impact of the Illinois retail branch sale, $283 million net gain, and restructuring costs, $115 million (Q2 2013 - $3 million), operating profit increased by $36 million, or 14%, driven by higher net interest income partially offset by higher expenses.
   
·
Income and expense drivers are consistent with H1 2014 compared with H1 2013.
   
·
Impairment losses were broadly in line with prior year despite the Non-Core transfer.


RBS Capital Resolution

RCR is managed and analysed by four business pillars - Ulster Bank, Real Estate Finance, Corporate and Markets. Real Estate Finance excludes commercial real estate lending in Ulster Bank.

 
Half year
 
 
 
ended
Quarter ended
30 June
30 June
31 March
 
2014 
2014 
2014 
 
£m
£m
£m 
 
 
 
 
Income statement
 
 
 
Net interest income/(expense)
11 
16 
(5)
 
 
 
 
Net fees and commissions
31 
17 
14 
Income from trading activities (1)
(53)
(69)
16 
Other operating income (1)
119 
71 
48 
 
 
 
 
Non-interest income
97 
19 
78 
 
 
 
 
Total income
108 
35 
73 
 
 
 
 
Direct expenses
 
 
 
  - staff
(89)
(51)
(38)
  - other
(32)
(14)
(18)
Indirect expenses
(55)
(32)
(23)
 
 
 
 
Operating expenses
(176)
(97)
(79)
 
 
 
 
Operating loss before impairment losses
(68)
(62)
(6)
Impairment recoveries/(losses) (1)
20 
128 
(108)
 
 
 
 
Operating (loss)/profit
(48)
66 
(114)
 
 
 
 
Total income
 
 
 
Ulster Bank
1 
14 
(13)
Real Estate Finance
96 
13 
83 
Corporate
(14)
(12)
(2)
Markets
25 
20 
5 
 
 
 
 
Total income
108 
35 
73 
 
 
 
 
Impairment (recoveries)/losses
 
 
 
Ulster Bank
(15)
(67)
52 
Real Estate Finance
(34)
(123)
89 
Corporate
39 
73 
(34)
Markets
(10)
(11)
1 
 
 
 
 
Total impairment (recoveries)/losses
(20)
(128)
108 
 
 
 
 
Loan impairment charge as % of gross customer loans and advances (2)
 
 
 
Ulster Bank
(0.2%)
(1.9%)
1.3%
Real Estate Finance
(0.9%)
(6.6%)
4.1%
Corporate
1.0%
3.7%
(1.5%)
Markets
(2.0%)
(3.6%)
- 
 
 
 
 
Total
(0.1%)
(1.7%)
1.2%

Notes:
(1)
Q2 2014 results included £225 million (Q1 2014 - £56 million) of net gains from the disposal of assets, comprising £6 million gain (Q1 2014 - £5 million loss) in income from trading activities, £38 million of losses (Q1 2014 - £3 million) in other operating income and £257 million (Q1 2014 - £64 million) release of impairment provisions.
(2)
Includes disposal groups.


RBS Capital Resolution

 
 
30 June
31 March
 
2014 
2014 
 
 
£bn
£bn
 
 
 
 
Capital and balance sheet
 
 
 
Loans and advances to customers (gross) (1)
 
30.0 
34.0 
Loan impairment provisions
 
(14.4)
(15.7)
 
 
 
 
Net loans and advances to customers
 
15.6 
18.3 
 
 
 
 
Debt securities
 
1.9 
2.2 
Total funded assets
 
20.9 
24.3 
Total third party assets (including derivatives)
 
34.4 
38.8 
 
 
 
 
Risk elements in lending
 
20.4 
23.0 
Provision coverage (2)
 
71%
68%
Risk-weighted assets (3)
 
 
 
  - Credit risk
 
 
 
    - non-counterparty
 
22.6 
29.6 
    - counterparty
 
8.2 
5.7 
  - Market risk
 
4.3 
5.2 
 
 
 
 
 
 
35.1 
40.5 
 
 
 
 
Gross loans and advances to customers (1)
 
 
 
Ulster Bank
 
13.9 
15.5 
Real Estate Finance
 
7.4 
8.6 
Corporate
 
7.8 
9.1 
Markets
 
0.9 
0.8 
 
 
 
 
 
 
30.0 
34.0 
 
 
 
 
Funded assets
 
 
 
Ulster Bank
 
3.5 
4.4 
Real Estate Finance (3)
 
6.7 
7.7 
Corporate
 
7.4 
8.6 
Markets
 
3.3 
3.6 
 
 
 
 
 
 
20.9 
24.3 
 
 
 
 
Risk weighted assets (4)
 
 
 
Ulster Bank
 
2.3 
2.8 
Real Estate Finance
 
6.4 
11.5 
Corporate
 
15.1 
14.7 
Markets
 
11.3 
11.5 
 
 
 
 
 
 
35.1 
40.5 
 
 
 
 
RWA equivalent (RWAe) (5)
 
 
 
Ulster Bank
 
4.5 
6.7 
Real Estate Finance
 
10.5 
13.4 
Corporate
 
16.6 
17.0 
Markets
 
11.9 
13.8 
 
 
 
 
 
 
43.5 
50.9 

Notes:
(1)
Includes disposal groups.
(2)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3)
Real Estate Finance funded assets comprise those in the UK (£4.4 billion), Germany (£1.0 billion), Spain (£0.5 billion) and other geographies (£0.8 billion).
(4)
On a fully loaded Basel 3 basis risk-weighted assets at 1 January 2014 were £46.7 billion.
(5)
RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in divisions. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. The Group applies a CET 1 ratio of 10%; this results in an end point CRR RWAe conversion multiplier of 10.


RBS Capital Resolution

Funded assets and RWAe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-performing (1)
 
Performing (1)
 
Total
 
Funded assets
RWAe 
 
Capital
 
Funded assets
RWAe 
 
Capital
 
Funded assets
RWAe 
 
Capital
Gross
Net
RWA
deducts
Gross
Net
RWA
deducts (2)
Gross
Net
RWA
deducts
30 June 2014
£bn 
£bn 
£bn 
£bn 
£m
 
£bn 
£bn 
£bn 
£bn 
£m
£bn 
£bn 
£bn 
£bn 
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank
13.0 
2.6 
4.4 
- 
446 
 
1.1 
0.9 
0.1 
2.3 
(229)
 
14.1 
3.5 
4.5 
2.3 
217 
Real Estate Finance
5.0 
2.7 
4.1 
0.3 
389 
 
4.1 
4.0 
6.4 
6.1 
16 
 
9.1 
6.7 
10.5 
6.4 
405 
Corporate
2.6 
1.2 
1.8 
- 
184 
 
6.3 
6.2 
14.8 
15.1 
(28)
 
8.9 
7.4 
16.6 
15.1 
156 
Markets
0.1 
0.1 
0.5 
0.2 
34 
 
3.2 
3.2 
11.4 
11.1 
30 
 
3.3 
3.3 
11.9 
11.3 
64 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RCR
20.7 
6.6 
10.8 
0.5 
1,053 
 
14.7 
14.3 
32.7 
34.6 
(211)
 
35.4 
20.9 
43.5 
35.1 
842 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 March 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank
14.6 
3.6 
6.3 
0.1 
622 
 
1.1 
0.8 
0.4 
2.7 
(235)
 
15.7 
4.4 
6.7 
2.8 
387 
Real Estate Finance
5.4 
2.9 
2.9 
0.3 
260 
 
4.9 
4.8 
10.5 
11.2 
(76)
 
10.3 
7.7 
13.4 
11.5 
184 
Corporate
2.9 
1.2 
2.1 
0.1 
209 
 
7.5 
7.4 
14.9 
14.6 
28 
 
10.4 
8.6 
17.0 
14.7 
237 
Markets
0.2 
0.2 
0.3 
-
26 
 
3.4 
3.4 
13.5 
11.5 
205 
 
3.6 
3.6 
13.8 
11.5 
231 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RCR
23.1 
7.9 
11.6 
0.5 
1,117 
 
16.9 
16.4 
39.3 
40.0 
(78)
 
40.0 
24.3 
50.9 
40.5 
1,039 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 January 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank
14.8 
3.7 
7.6 
0.2 
738 
 
1.4 
1.1 
1.3 
3.1 
(179)
 
16.2 
4.8 
8.9 
3.3 
559 
Real Estate Finance
7.2 
4.2 
6.1 
0.3 
580 
 
5.8 
5.3 
12.5 
13.2 
(75)
 
13.0 
9.5 
18.6 
13.5 
505 
Corporate
3.3 
1.7 
2.9 
0.2 
269 
 
8.1 
8.1 
18.2 
16.2 
208 
 
11.4 
9.8 
21.1 
16.4 
477 
Markets
0.2 
0.1 
0.6 
-
58 
 
4.7 
4.7 
15.8 
13.5 
233 
 
4.9 
4.8 
16.4 
13.5 
291 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total RCR
25.5 
9.7 
17.2 
0.7 
1,645 
 
20.0 
19.2 
47.8 
46.0 
187 
 
45.5 
28.9 
65.0 
46.7 
1,832 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Notes:
(1)
Performing assets are those with an internal asset quality band of AQ1 - 9; and non-performing assets are in AQ10 with a probability of default being 100%.
(2)
The negative capital deductions are a result of the latent loss provisions held in respect of the performing portfolio.
(3)
Capital deductions relating to expected loss less impairment provisions were £823 million (31 March 2014 - £960 million; 1 January 2014 - £1,774 million).


RBS Capital Resolution

Funded assets
 
 
 
 
 
 
 
 
 
 
 
 
 
1 April
 
 
 
 
30 June
2014 
Net run-off 
Disposals (1)
Impairments 
Other
2014 
Quarter ended 30 June 2014
£bn 
£bn 
£bn 
£bn 
£bn
£bn 
 
 
 
 
 
 
 
Ulster Bank
4.4 
(0.1)
(0.8)
0.1 
(0.1)
3.5 
Real Estate Finance
7.7 
(0.4)
(0.6)
0.1 
(0.1)
6.7 
Corporate
8.6 
(0.8)
(0.2)
(0.1)
(0.1)
7.4 
Markets
3.6 
(0.1)
(0.2)
-
-
3.3 
 
 
 
 
 
 
 
Total
24.3 
(1.4)
(1.8)
0.1 
(0.3)
20.9 
 
 
 
 
 
 
 
 
1 January
 
 
 
 
31 March
2014 
Net run-off 
Disposals (1)
Impairments 
Other
2014 
Quarter ended 31 March 2014
£bn 
£bn 
£bn 
£bn 
£bn
£bn 
 
 
 
 
 
 
 
Ulster Bank
4.8 
(0.1)
(0.2)
(0.1)
-
4.4 
Real Estate Finance
9.5 
(1.2)
(0.5)
(0.1)
-
7.7 
Corporate
9.8 
(0.7)
(0.5)
-
-
8.6 
Markets
4.8 
(0.5)
(0.7)
-
-
3.6 
 
 
 
 
 
 
 
Total
28.9 
(2.5)
(1.9)
(0.2)
-
24.3 
 
 
 
 
 
 
 

Risk-weighted assets
 
 
 
 
 
 
1 April
 
 
Risk
 
Other (3)
30 June
2014 
Net run-off 
Disposals (1)
parameters (2)
Impairments
2014 
Quarter ended 30 June 2014
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
Ulster Bank
2.8 
-
(0.1)
(0.4)
-
-
2.3 
Real Estate Finance
11.5 
(0.2)
(0.6)
(4.2)
-
(0.1)
6.4 
Corporate
14.7 
(0.6)
(0.5)
2.2 
(0.4)
(0.3)
15.1 
Markets
11.5 
(1.6)
(0.7)
2.2 
-
(0.1)
11.3 
 
 
 
 
 
 
 
 
Total
40.5 
(2.4)
(1.9)
(0.2)
-
(0.5)
35.1 
 
 
 
 
 
 
 
 
 
1 January
 
 
Risk
 
Other (3)
31 March
2014 
Net run-off 
Disposals (1)
parameters (2)
Impairments
2014 
Quarter ended 31 March 2014
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
Ulster Bank
3.3 
(0.5)
-
-
-
- 
2.8 
Real Estate Finance
13.5 
(1.6)
(0.1)
(0.3)
-
- 
11.5 
Corporate
16.4 
(0.3)
(0.5)
(0.8)
-
(0.1)
14.7 
Markets
13.5 
(0.2)
(0.6)
(1.2)
-
-
11.5 
 
 
 
 
 
 
 
 
Total
46.7 
(2.6)
(1.2)
(2.3)
-
(0.1)
40.5 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 


RBS Capital Resolution

Capital deductions
 
 
 
 
 
1 April
Net run-off 
 
Risk
Impairments 
Other (3)
30 June
2014 
Disposals (1)
parameters (2)
2014 
Quarter ended 30 June 2014
£m
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
 
Ulster Bank
387 
(26)
(103)
17 
(46)
(12)
217 
Real Estate Finance
184 
(81)
(29)
242 
101 
(12)
405 
Corporate
237 
(23)
(62)
97 
(83)
(10)
156 
Markets
231 
(9)
(79)
(79)
-
-
64 
 
 
 
 
 
 
 
 
Total
1,039 
(139)
(273)
277 
(28)
(34)
842 
 
 
 
 
 
 
 
 
 
1 January
Net run-off 
 
Risk
Impairments 
Other (3)
31 March
2014 
Disposals (1)
parameters (2)
2014 
Quarter ended 31 March 2014
£m
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
 
Ulster Bank
559 
(2)
(14)
(135)
(17)
(4)
387 
Real Estate Finance
505 
(211)
(59)
31 
(78)
(4)
184 
Corporate
477 
(71)
17 
(159)
(27)
- 
237 
Markets
291 
-
-
(56)
-
(4)
231 
 
 
 
 
 
 
 
 
Total
1,832 
(284)
(56)
(319)
(122)
(12)
1,039 
 
 
 
 
 
 
 
 

RWA equivalent
 
 
 
 
 
1 April
Net run-off 
 
Risk
Impairments 
Other (3)
30 June
2014 
Disposals (1)
parameters (2)
2014 
Quarter ended 30 June 2014
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
Ulster Bank
6.7 
(0.3)
(1.1)
(0.2)
(0.5)
(0.1)
4.5 
Real Estate Finance
13.4 
(1.0)
(0.9)
(1.8)
1.0 
(0.2)
10.5 
Corporate
17.0 
(0.8)
(1.1)
3.2 
(1.2)
(0.5)
16.6 
Markets
13.8 
(1.7)
(1.5)
1.4 
-
(0.1)
11.9 
 
 
 
 
 
 
 
 
Total
50.9 
(3.8)
(4.6)
2.6 
(0.7)
(0.9)
43.5 
 
 
 
 
 
 
 
 
 
1 January
Net run-off 
 
Risk
Impairments 
Other (3)
31 March
2014 
Disposals (1)
parameters (2)
2014 
Quarter ended 31 March 2014
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
Ulster Bank
8.9 
(0.5)
(0.1)
(1.4)
(0.2)
- 
6.7 
Real Estate Finance
18.6 
(3.7)
(0.7)
- 
(0.8)
- 
13.4 
Corporate
21.1 
(1.0)
(0.3)
(2.4)
(0.3)
(0.1)
17.0 
Markets
16.4 
(0.2)
(0.6)
(1.7)
-
(0.1)
13.8 
 
 
 
 
 
 
 
 
Total
65.0 
(5.4)
(1.7)
(5.5)
(1.3)
(0.2)
50.9 
 
 
 
 
 
 
 
 
Notes:
(1)
Includes all aspects relating to disposals, including associated removal of deductions from regulatory capital.
(2)
Principally reflects credit migration and other technical adjustments.
(3)
Includes fair value adjustments and foreign exchange movements.

RBS Capital Resolution
 
 
 
 
 
 
 
 
 
Gross loans and advances, REIL and related impairments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit metrics
YTD
 
 
 
 
 
REIL as a
Provisions
Provisions
Impairment
YTD
 
Gross
 
 
% of gross
as a %
as a % of
charge/
Amounts
 
loans (1)
REIL
Provisions
loans
of REIL
gross loans
(gain) (2)
written-off
30 June 2014
£bn
£bn
£bn
%
%
%
£m
£m
 
 
 
 
 
 
 
 
 
By sector:
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
  - investment
10.7 
8.2 
4.4 
77 
54 
41 
(35)
839 
  - development
7.6 
7.0 
6.1 
92 
87 
80 
(65)
222 
Asset finance
2.5 
0.9 
0.4 
36 
44 
16 
19 
21 
Other corporate
9.1 
4.3 
3.5 
47 
81 
38 
71 
532 
Other
0.1 
- 
- 
- 
- 
- 
- 
5 
 
 
 
 
 
 
 
 
 
 
30.0 
20.4 
14.4 
68 
71 
48 
(10)
1,619 
 
 
 
 
 
 
 
 
 
By donating segment
 
 
 
 
 
 
 
 
  and sector
 
 
 
 
 
 
 
 
Ulster Bank
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 - investment
4.5 
4.3 
2.7 
96 
63 
60 
(42)
126 
 - development
6.5 
6.4 
5.8 
98 
91 
89 
(79)
192 
Other corporate
2.9 
2.3 
2.1 
79 
91 
72 
106 
157 
 
 
 
 
 
 
 
 
 
Total Ulster Bank
13.9 
13.0 
10.6 
94 
82 
76 
(15)
475 
 
 
 
 
 
 
 
 
 
Commercial Banking
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
  - investment
2.2 
1.3 
0.5 
59 
38 
23 
33 
51 
  - development
0.8 
0.5 
0.2 
63 
40 
25 
15 
11 
Asset finance
- 
- 
- 
- 
- 
- 
- 
3 
Other corporate
1.2 
0.6 
0.4 
50 
67 
33 
30 
113 
Other
- 
- 
- 
- 
- 
- 
- 
4 
 
 
 
 
 
 
 
 
 
Total Commercial Banking
4.2 
2.4 
1.1 
57 
46 
26 
78 
182 
 
 
 
 
 
 
 
 
 
CIB
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
  - investment
4.0 
2.6 
1.2 
65 
46 
30 
(26)
662 
  - development
0.3 
0.1 
0.1 
33 
100 
33 
(1)
19 
Asset finance
2.5 
0.9 
0.4 
36 
44 
16 
19 
18 
Other corporate
5.0 
1.4 
1.0 
28 
71 
20 
(65)
262 
Other
0.1 
- 
- 
- 
- 
- 
- 
1 
 
 
 
 
 
 
 
 
 
Total CIB
11.9 
5.0 
2.7 
42 
54 
23 
(73)
962 
 
 
 
 
 
 
 
 
 
Total
30.0 
20.4 
14.4 
68 
71 
48 
(10)
1,619 
 
 
 
 
 
 
 
 
 
Of which:
 
 
 
 
 
 
 
 
UK
13.9 
8.0 
5.0 
58 
63 
36 
(71)
1,057 
Europe
15.0 
12.0 
9.2 
80 
77 
61 
78 
553 
US
0.3 
0.1 
- 
33 
- 
- 
(8)
2 
RoW
0.8 
0.3 
0.2 
38 
67 
25 
(9)
7 
 
 
 
 
 
 
 
 
 
 
30.0 
20.4 
14.4 
68 
71 
48 
(10)
1,619 
 
 
 
 
 
 
 
 
 
Banks
0.6 
- 
- 
- 
- 
- 
(10)
- 

Notes:
(1)
Includes disposal groups.
(2)
  
Impairment losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.
Impairment losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.

RBS Capital Resolution

Gross loans and advances, REIL and related impairments (continued)

 
 
 
 
 
 
 
 
Impairment
 
 
Gross
 
charge/
Amounts
 
loans (1)
Provisions
(gain) (2)
written-off
31 March 2014
£bn
£bn
£m
£m
 
 
 
 
 
By donating segment and sector
 
 
 
 
 
 
 
 
 
Ulster Bank
 
 
 
 
Commercial real estate
 
 
 
 
 - investment
5.4 
3.1 
47 
3 
 - development
7.1 
6.2 
(29)
31 
Other corporate
3.0 
2.0 
34 
25 
 
 
 
 
 
Total Ulster Bank
15.5 
11.3 
52 
59 
 
 
 
 
 
Commercial Banking
 
 
 
 
Commercial real estate
 
 
 
 
  - investment
2.4 
0.5 
52 
1 
  - development
0.7 
0.3 
13 
1 
Other corporate
1.7 
0.5 
16 
25 
Other
-
-
-
5 
 
 
 
 
 
Total Commercial Banking
4.8 
1.3 
81 
32 
 
 
 
 
 
CIB
 
 
 
 
Commercial real estate
 
 
 
 
  - investment
5.1 
1.4 
34 
370 
  - development
0.3 
0.1 
10 
3 
Asset finance
2.5 
0.4 
8 
-
Other corporate
5.6 
1.2 
(47)
326 
Other
0.2 
-
(30)
-
 
 
 
 
 
Total CIB
13.7 
3.1 
(25)
699 
 
 
 
 
 
Total
34.0 
15.7 
108 
790 
 
 
 
 
 
Banks
0.7 
- 
- 
- 

Notes:
(1)Includes disposal groups.
 
(2)Impairment losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.
  
 



RBS Capital Resolution

Key points

H1 2014
·
Funded assets have reduced by £8 billion, or 28%, to £21 billion since inception on 1 January 2014, driven by disposals and run-off.
   
·
RWA equivalent decreased by £21 billion, or 33%, to £44 billion during H1 2014. This primarily reflects disposals and run-off, supplemented by methodology changes and lower operational and market risk RWAs.
   
·
The operating loss of £48 million benefited from £281 million of disposal gains and recoveries in H1 2014 with underlying impairments of £301 million.
   
·
The net effect of the operating loss and RWA equivalent (RWAe) reduction resulted in net CET1 accretion of £2 billion.

Q2 2014 compared with Q1 2014
Capital
·
RWAe reduction of £7 billion, to £44 billion, reflects a combination of disposals, run-off and lower market risk RWAs.
   
·
The operating focus in the quarter was on capital intensive positions to maximise the capital accretion benefit. Reductions in these positions were achieved in a capital accretive manner and consistent with our asset management principles. Disposal activity was spread across all sectors, with the most notable reductions in the Ulster Bank and Real Estate business pillars.

Funded assets
·
Funded assets fell to £21 billion, a reduction of £3 billion, or 14%, during the quarter.
   
·
The reduction was achieved by a mixture of run-off and disposals, and continued to benefit from a combination of strong liquidity in the market and asset demand in specific sectors. The first major disposal in Ireland was completed in Q2 2014 which reduced funded assets by £0.5 billion.
   
·
The percentage mix of assets across each of the business pillars remained broadly stable.

Operating performance
·
Operating profit for the second quarter was £66 million, a £180 million improvement compared with Q1 2014 and included a £36 million latent provision release reflecting improving credit conditions. The operating performance also benefited from a number of disposal gains and recoveries with good pricing in the market and efficient execution.
   
·
The favourable market conditions were reflected in higher than anticipated sale prices for assets disposed of in the quarter, resulting in disposal gains of £225 million, primarily through the write back of impairment provisions, compared with £56 million in Q1 2014.
   
·
The net effect of the operating profit of £66 million and RWAe reduction of £7 billion(1) resulted in net CET1 accretion of £0.8 billion in the quarter.

Funding employed
·
RCR continues to be funded primarily by RBS Treasury and has no material third party deposits.
     
·
A run off profile of 85% over three years has been assumed for RCR’s asset base with the associated funding cost being calculated from Treasury issuance maturing in line with the run down of the RCR balance sheet.

Note
(1)
Capital equivalent - £0.7 billion at an internal CET1 ratio of 10%.

 
 
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: 1 August 2014
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary