REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 1

NatwestAnnouncement

26/02/2016 07:12

RNS Number : 2357Q
Royal Bank of Scotland Group PLC
26 February 2016
The Royal Bank of Scotland Group plc
Annual Results
for the year ended 31 December 2015

The Royal Bank of Scotland Group plc
Annual Results 2015
Contents
Page


Introduction
1
Highlights
3
Chief Executive's message
11
Analysis of results
14
Segment performance
25
Statutory results
39
Notes
46
Statement of directors' responsibilities
51
Forward-looking statements 
52


Appendix 1 - Williams & Glyn


Introduction
Presentation of information
In this document, 'RBSG plc' or the 'company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its subsidiaries. The results commentary in this document refers to measures of financial performance, principally operating performance before own credit adjustments, (loss)/gain on redemption of own debt, write down of goodwill, strategic disposals, restructuring costs and litigation and conduct costs, to exclude items which distort period-on-period comparison. These measures, derived from the reported results, are non-GAAP financial measures.
Restatements
Pension accounting policy
As set out in 'Basis of preparation', RBS has revised its accounting policy for determining whether or not it has an unconditional right to a refund of surpluses in its employee pension funds. The change has been applied retrospectively and comparatives restated.
RBS has made certain changes to its financial reporting which are effective for the 2015 Annual results.
 revised reportable segments;
 a change to the treatment of one-off and other items;
 allocation of central balance sheet items;
 revised treasury allocations; and
 revised segmental return on equity.
Comparatives have been restated accordingly for the changes outlined above.
For further information on these changes refer to the Restatement document issued on 4 February 2016, available on www.investors.rbs.com/restatement.
Citizens Financial Group 
On 31 December 2014, Citizens was classified as a discontinued operation and a disposal group: its aggregate assets were presented in Assets of disposal groups and its aggregate liabilities in Liabilities of disposal groups.
From 3 August 2015, when RBS's interest fell to 20.9%, Citizens was accounted for as an associate classified as held for sale. On 30 October 2015, RBS sold all of its remaining shareholding in Citizens. Citizens is no longer treated as a reportable segment.


Introduction 
Statutory results
The consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes presented on pages 46 to 50 inclusive are on a statutory basis. 
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2014 have been filed with the Registrar of Companies and those for the year ended 31 December 2015 will be filed with the Registrar of Companies following the company's Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
Analysts and investors conference call
RBS will be hosting a presentation for analysts and investors on the results for the year ended 31 December 2015. Details are as follows:
Date:

Friday 26 February 2016
Time:

9.30 am UK time 
Conference ID

46694275
Webcast:

www.rbs.com/results
Dial in details:

International - +44 (0) 1452 568 172
UK Free Call - 0800 694 8082
US Toll Free - 1 866 966 8024
There will also be a call for fixed income analysts and investors. Details are as follows:
Date:

Friday 26 February 2016
Time:

3.30 pm UK time 
Conference ID

47837905
Webcast:

www.rbs.com/results
Dial in details:

International - +44 (0) 1452 568 172
UK Free Call - 0800 694 8082
US Toll Free - 1 866 966 8024
Available on www.rbs.com/results
 announcement and slides
 2015 Annual Report and Accounts
 a financial supplement containing income statement and balance sheet information for the nine quarters ended 31 December 2015
 Pillar 3 Report 2015
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

Highlights
The Royal Bank of Scotland Group (RBS) continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders. RBS delivered against its 2015 targets. 
RBS reported a loss attributable to ordinary shareholders of 1,979 million, compared with a loss of 3,470 million in 2014. This included elevated restructuring costs (2,931 million), as the bank's repositioning accelerated, particularly in the Corporate & Institutional Banking (CIB) business.Litigation and conduct costs (3,568 million) increased as further steps were taken to clear legacy obstacles from RBS's path to normalisation. 
RBS continues to strengthen and reshape the balance sheet, building on a strong track record of delivery. Risk-weighted assets (RWAs) reduced 32%, or 113 billion, including 109 billion from the disposal of Citizens Financial Group and the accelerated run-down of Capital Resolution. 
RBS intends to pay a final dividend on the Dividend Access Share (DAS) during the first half of 2016 subject to final Board and PRA approval, further normalising the capital structure of the bank and removing a constraint on the resumption of capital distributions. 
2015 results included a charge for goodwill impairment of 498 million attributed to Private Banking; a loss on redemption of own debt of 263 million; and a gain of 1,147 million on loss of control of Citizens largely arising from the reclassification of foreign exchange reserves (962 million). 
Adjusted operating profit(1) totalled 4,405 million compared with an adjusted operating profit of 6,056 million in 2014, lower primarily due to income attrition and disposal losses in the Capital Resolution business.
UK Personal & Business Banking (UK PBB)(2) recorded an adjusted operating profit of 2,169 million, broadly stable compared with the prior year. There was a good performance in mortgages with net new lending totalling 9.3 billion, RBS's strongest performance since 2009, albeit at lower overall margins as customers shift from standard variable rate to fixed rate products. Adjusted operating costs(3) were 3% lower, while credit quality remained good, with modest net impairment releases. 
Commercial Banking(2) adjusted operating profit was down 6% at 1,384 million, driven by a marginal fall in income reflecting margin pressure and included a Q4 2015 loss of 34 million on the sale of non-strategic asset portfolios. Deposit and lending volumes (net new lending of 3.6 billion excluding business transfers, run-off and disposals), contributed to a 1% rise in net interest income.
Ulster Bank RoI(2) adjusted operating profit declined 45% to 264 million as net impairment releases, though still substantial, were lower than in 2014. Private Banking adjusted operating profit was 41% lower at 113 million, while RBS International (RBSI) recorded an adjusted operating profit of 211 million, down 14%. 
CIB(2) made an adjusted operating loss of 55 million, compared with an adjusted operating profit of 233 million in 2014, driven by lower income in line with the business's reduced scale and risk appetite. Adjusted expenses were down 15% as CIB continues to move towards a more sustainable cost base.
Capital Resolution(2) recorded an adjusted operating loss of 412 million, compared with a profit of 1,115 million in 2014, reflecting increased disposal losses as it accelerated the run-down of its portfolios, reducing RWAs by almost half to 49.0 billion. 
Adjusted bank return on equity was 11.0% in 2015, compared with (1.5%) in 2014. Franchise return on equity(4) was 11.2%.
Notes:
(1)
Operating profit/(loss) before tax, own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals and excluding restructuring costs, litigation and conduct costs and write down of goodwill. 
(2)
For unadjusted operating profit, see segment performance on pages 25 to 29.
(3)
Excluding restructuring costs, litigation and conduct costs and write down of goodwill.
(4)
Return on equity for Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and CIB combined.


Highlights
Common Equity Tier 1 (CET1) ratio improved 430 basis points to 15.5% in 2015, as RWAs declined by 113 billion, partially offset by the attributable loss and the accelerated recognition of previously committed contributions in relation to the The Royal Bank of Scotland Group Pension Fund following a change in accounting policy. 
Tangible net asset value was 352p per ordinary share at 31 December 2015, down from 374p at 31 December 2014 post restatement for the accounting policy change. This was largely driven by the attributable loss for the year less the impact of reclassified reserves on the deconsolidation of Citizens and cash flow hedging reclassifications from equity arising as the hedged transactions occurred.
Q4 2015 financial performance 
The loss attributable to ordinary shareholders amounted to 2,740 million, compared with a loss of 5,791 million in Q4 2014 and a profit of 940 million in Q3 2015. The loss was primarily driven by litigation and conduct costs of 2,124 million principallyrelating to additional provisions for mortgage-backed securities litigation in the US (1,500 million) and additional PPI provisions (500 million). Q4 2015 results were also impacted by certain significant items including the charge for goodwill impairment attributed to Private Banking (498 million) (Q4 2014 - nil) and the loss on redemption of own debt (263 million) (Q4 2014 - nil).
Adjusted operating profit for the quarter was 686 million, compared with 1,167 million in Q4 2014 and 826 million in Q3 2015. Lower income, primarily reflecting the planned run down of Capital Resolution which included 180 million of total disposal losses, weighed on Q4 2015 performance. The UK Bank Levy of 230 million increased operating expenses relative to Q3 2015. In addition, net impairment releases were 327 million, significantly lower than Q4 2014 (670 million) but higher than Q3 2015 (79 million).


Highlights
Delivery against our 2015 targets
In 2015, RBS set out targets across its five strategic priorities, and continued its track record of delivery.
Strategy goal
2015 targets 
2015 
Strength & sustainability
Reduce risk-weighted assets (RWAs) to <300 billion 
243 billion, a reduction of 113 billion.
RCR exit substantially completed 
Funded assets down 88% since initial pool of assets identified. Residual 4.6 billion of assets within Capital Resolution. 
Citizens deconsolidation
Sold full stake a year ahead of schedule, allowing full deconsolidation.
2 billion AT1 issuance 
Successfully issued US$3.15 billion AT1 capital notes (2 billion equivalent).
Customer experience
Improve NPS in every UK franchise
Year-on-year significant improvement in NatWest Business Banking, RBS Business Banking and Ulster Bank Personal Banking (NI).
Simplifying the bank 
Reduce costs by 800 million, target exceeded and increased to >900 million
Achieved 983(1) million of cost savings.
Supporting growth 
Lending growth in strategic segments  nominal UK GDP growth
4.8% growth achieved in UK PBB and Commercial Banking in 2015, exceeding nominal UK GDP growth(2).
Employee engagement
Raise employee engagement index to within 8% of GFS norm
Surpassed employee engagement goal, up six points to within three points of GFS. 
Notes: 
(1)
Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn.
(2)
Preliminary estimate for nominal UK GDP growth in 2015 is 2.6% year-on-year.
Building a strong, simple, fair bank
Balance sheet progress
RBS continued to improve its capital strength, with the CET1 ratio increasing to 15.5% at 31 December 2015, up 430 basis points from 11.2% at 31 December 2014 and up 690 basis points from 8.6% at 31 December 2013. CET1 ratio benefited from the disposal of Citizens and Capital Resolution's performance in running off and disposing of capital intensive assets, partly offset by the attributable loss and the pension accounting policy change.
The leverage ratio rose to 5.6% at 31 December 2015, an improvement of 140 basis points from 4.2% at 31 December 2014 and 220 basis points from 3.4% at 31 December 2013, assisted by the successful issuance of Additional Tier 1 (AT1) capital notes in August 2015 and a substantial reduction in leverage exposure to 702 billion, down 237 billion from 31 December 2014 and 380 billion from 31 December 2013. Planned 2016 issuance of 2 billion AT1 capital notes, subject to market conditions, will provide further balance sheet resilience. In addition, issuance of 3-5 billion of senior debt, eligible to meet RBS's Minimum Requirement for Own Funds and Eligible Liabilities (MREL), is targeted from the RBS Group plc holding company, again subject to market conditions.
Progress was made in de-risking the balance sheet as the bank continued the run-down or sale of certain businesses and higher risk or capital intensive assets. RWAs decreased from 356 billion at 31 December 2014 to 243 billion at 31 December 2015. 


Highlights
In 2015 RBS:
Completed the exit from Citizens a year ahead of schedule, reducing RWAs by 63 billion in the process and underlining our commitment to a UK market focus.
Delivered strong progress in the first year of CIB Capital Resolution, reducing RWAs by 32.6 billion to 40.5 billion, exceeding its target RWA reduction of 25 billion. The business substantially exited the North American and Asia-Pacific (APAC) portfolios, and a partnership for our international customers was agreed with BNP Paribas as an alternative to the Global Transaction Services business. Agreed the sale of our Russian subsidiary which is due to complete in Q2 2016.
Achieved the run-down target of RCR a year ahead of schedule, reducing funded assets by 88% since the original pool of assets was identified, exceeding the targeted 85%, to 4.6 billion at 31 December 2015. 
Completed the first tranche of the international private banking business sale, with the final tranche due to complete in the first half of 2016.
Improved the quality of its core loan books, primarily through the sale of commercial real estate and infrastructure portfolios in Commercial Banking and a buy-to-let portfolio in Ulster Bank RoI.
Continued to progress the Williams & Glyn (W&G) divestment, submitting a banking licence application to UK regulatory authorities in September 2015 and work continues on separation (although this will not now be achieved until after the previously announced Q1 2017). The Group remains committed to full divestment by the end of 2017. 
Credit quality remained stable, with risk elements in lending (REIL) decreasing to 12.2 billion (3.9% of gross customer loans) at 31 December 2015, from 28.2 billion (6.8%) at 31 December 2014 and 39.4 billion (9.4%) at 31 December 2013. This reduction was primarily driven by disposals in Capital Resolution coupled with the recovering Irish economy.
In line with the progress to de-risk the balance sheet, committed exposures to the natural resources sectors have more than halved, with oil and gas in particular substantially reducing by 70% during 2015 to 6.6 billion. The majority of our emerging market exposures have declined following action on non-strategic activities, reducing by 75% our exposure to China and Russia. Reductions primarily reflected corporate loan portfolio disposal activity and the strategic direction of CIB. 
Our funding and liquidity position remains strong, aided by the accelerated reduction of the Capital Resolution balance sheet. The liquidity coverage ratio was 136%, compared with 112% at 31 December 2014, whilst the net stable funding ratio was 121%, compared with 112% at 31 December 2014, both well above regulatory minima at the end of 2015.
The 2015 Bank of England stress test results concluded that RBS did not need to alter its capital plan, as sufficient steps had already been taken by RBS to strengthen its capital position. 
Delivering for our customers 
Product proposition enhanced:

Investing in building deeper customer engagement through the launch of a new current account, 'Reward', which enables customers to receive 3% cashback on household bills for a monthly account fee of 3. 

Launched an innovative new home insurance product offering customers a fixed premium for three years, which we believe is a positive departure from industry practice.

Committed to fair banking through making overdrafts more accessible to one million customers who are now eligible for overdrafts of 100 and 250.

One of the first UK banks to offer the Government-led Help to Buy: ISA as we continue to help first time buyers.


Highlights
Continue to lead on collaboration and innovation:

Launched Royal National Institute of Blind People (RNIB) approved cards, becoming the first bank to achieve RNIB accreditation.

Became the first UK bank to enable customers to use only their fingerprint to log into their phone banking app via Touch ID.

Real time registration of our mobile banking app enabling customers to log in as they open their current account.

One of the first UK banks to launch Apple Pay and subsequently created an Apple Watch app.
Supporting UK entrepreneurs and businesses:

Opened four Entrepreneur Hubs across the UK, increasing our involvement to seven, enabling entrepreneurs and small businesses to access free office space, mentoring and financial support, with a further five hubs to be opened in 2016. 

The Commercial Bank has issued 12,500 statements of appetite letters to our customers, offering up to 8 billion of new borrowing facilities.
Investing in our operational capabilities:

Enhanced our mortgage operations, including an online mortgage tracker application to improve customer experience, whilst increasing mortgage advisors by 21% from 803 to 974.

Employed a new automated account-opening system to improve our onboarding process, accelerating end-to-end account opening times by 50% for business customers and 30% for commercial customers.

Launched a new customer relationship management tool, enabling a single view of the customer.

Planned 3.5 billion IT investment spend committed from 2015 to 2017 to improve core infrastructure and resilience whilst addressing innovation capabilities.

Core technology platforms continued to be simplified with 370 applications and over 6,000 servers decommissioned. 
Upgrading our points of presence:

Upgraded 322 branches and replaced 922 ATMs as the bank enhances customers' experience.

Customers in Ireland are benefiting from a joint venture with 'An Post', accessing 1,140 new points of presence.

Continued to evolve the NatWest mobile app through Touch ID and the ability to apply for loans and savings products, whilst enhancing the PAYM feature and ability to use Apple Pay. Active mobile users have increased 27% to 3.7 million in 2015.

Broke with tradition to open 34 of the busiest branches in the UK during bank holidays.

Launched an 'online diary' where customers can book an appointment with an advisor from the comfort of their own home.
Investing in our people:

Delivered leadership training to over 13,000 leaders through a comprehensive 'Determined to Lead' training programme.

Around 5,500 front line staff completed certified banking skills programmes, with a further c.11,000 enrolled.

Announced a target of having 30% female leaders in every business unit by 2020 and a further goal of a 50/50 spilt by 2030 across all levels of the business.

Became the first bank to achieve Investing in Young People Accreditation.


Highlights
Government shareholding 
On 4 August 2015, HM Treasury (HMT) sold 630 million RBS ordinary shares, its first sale since its initial investment in 2008. 
On 8 October 2015, HMT converted the 51 billion B shares it held into 5.1 billion ordinary shares, further normalising the ownership structure of RBS. These new ordinary shares were admitted to the London Stock Exchange on 14 October 2015. HMT's economic interest was 72.6% at 31 December 2015.
Our current plan assumes that we will pay the final Dividend Access Share (DAS) dividend of 1,180 million, plus interest, during the first half of 2016, subject to final Board and PRA approval. This thereby effects the conversion of the DAS into a single ordinary share. This will further normalise the capital structure of the bank and remove a constraint on the resumption of capital distributions. The retirement of the DAS demonstrates the strategic progress of the bank and follows an initial payment of 320 million in 2014. The pro forma impact, at 31 December 2015, to TNAV from making the payment in 2016 is approximately 10p per share and approximately 50 basis points to the CET1 ratio. 
Pension Fund 
On 27 January 2016, the bank announced a change to its pensions accounting policy; in particular, the policy for determining whether or not it has an unconditional right to a refund of surpluses in its employee pension funds. As a result of this accounting change, a minimum funding requirement of 3.3 billion in respect of the Main scheme was recorded as a liability at 31 December 2015 representing the present value of deficit reduction contributions for 2016 to 2023 (3.7 billion) less an asset ceiling of 400 million. The net post tax impact of the policy change, together with updated IAS 19 year-end scheme valuations, is approximately 1.6 billion or approximately 13p per share reduction in TNAV and approximately 70 basis points on the CET1 ratio. 
Separately, RBS has signed a memorandum of understanding with the RBS Group Pension Fund trustee to make a payment of 4.2 billion into the scheme. The pro-forma 2016 impact on TNAV, at point of payment, is a further 400 million or approximately 3p per share and approximately30 basis points on the CET1 ratio. 
The accelerated payment improves capital planning and resilience, bringing forward the valuation date not later than 31 December 2015. The next valuation date will take place between 31 October 2018 and 31 December 2018, with any future funding arrangements needed to be agreed with the Trustee no later than Q1 2020. This provides increased certainty on contribution commitments and the pension balance sheet position. Subject to PRA approval, the bank expects the adverse core capital impact to be partially offset by a reduction in RBS's core capital requirements. Any such potential core capital offsets are likely to occur at the earliest 1 January 2017 and will depend on the PRA's assessment of RBS's core capital position at that time.
Current trading 
PBB and CPB franchises have traded in line with expectations in the first six weeks of 2016. CIB has had a difficult start to the year, given overall market conditions. 
The net impact of lower long term yields and year to date sterling weakness have contributed to earnings volatility, reflected in certain line items such as IFRS volatility, own credit adjustments and foreign exchange gains/losses. 


Highlights
Outlook
In our core PBB and CPB franchises we expect income to stabilise in 2016 as headwinds from low interest rates and the uncertain macroeconomic environment are balanced by strong planned volume growth, particularly in mortgages but also in core commercial lending. CIB may see some modest further income erosion. Cost savings of 800 million are planned in 2016 (in addition to the 2 billion achieved in 2014 and 2015). Our expectation is for cost reduction to exceed any income erosion across our combined core businesses.
Legacy credit portfolios have now been substantially disposed of, so we do not expect the considerable recoveries seen in 2014 and 2015 to be repeated and some portfolios may see net impairment charges. However, impairments on core portfolios are expected to remain low in 2016, with a modest overall net impairment charge for the year, though we recognise that the risk of larger single name events has increased, given the uncertain macroeconomic environment.
Previous guidance has indicated restructuring costs of approximately 5 billion and disposal losses of approximately 1.5 billion in the period 2015-19. Consistent with this, restructuring costs are expected to remain high in 2016, totalling over 1 billion. Most of the remaining signalled disposal losses are expected to be incurred in 2016 (2015 - 367 million). Capital Resolution is expected to reduce RWAs to around 30 billion by the end of 2016, ahead of our original plan, despite a more difficult economic environment for disposals, given the momentum we created in 2015, and continued substantial run-off activity. 
Based upon the currently expected timing of payments, the combined impact of the accelerated pension payment, as announced on 27 January 2016, and the final DAS dividend would be to reduce TNAV per share by 13p during Q1 2016.
We continue to deal with a range of uncertainties in the external environment, including those caused by the referendum on the UK's continuing membership of the European Union. We will also have to manage conduct-related investigations and litigation, including US RMBS, throughout 2016, and substantial incremental provisions may be recognised during the year.
Work continues on the separation of Williams & Glyn, but this will now not be achieved until after Q1 2017. The Group remains committed to full divestment by the end of 2017, although it continues to face significant challenges and risks in separating the Williams & Glyn business, some of which may only emerge as various separation process phases are progressed. The Williams & Glyn separation process is a high priority for the Group and involves the diversion of Group resources away from other key areas. The associated risks are discussed in more detail in the Risk Factors on pages 390 to 414 in the 2015 Annual Report and Accounts.
RBS plans to return excess capital to shareholders through dividends or buybacks, subject to Board and PRA approval at the time. Key milestones before seeking such approval for capital distributions would include, among other considerations: passing the 2016 Bank of England stress test (including our Individual Capital Guidance hurdle); operating within our capital risk appetite; passing the peak of litigation and conduct costs including US RMBS; confidence in sustainable profitability; and an assured exit of Williams & Glyn. Given the challenges in separating Williams & Glyn and the potentially elongated period to resolve US RMBS-related litigation claims and regulatory investigations, we now consider it more likely that capital distributions will resume later than Q1 2017.


Highlights
Customer
RBS remains committed to achieving its target of being number one bank for customer service, trust and advocacy by 2020. In recent years, RBS has launched a number of initiatives to make it a simple and fair bank to do business with, and it continues to deliver on the commitments that it made to its customers in 2014.
We use independent surveys to measure our customers' experience and track our progress against our goal in each of our markets.
Net promoter score (NPS)
Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. NPS is established by subtracting the proportion of detractors from the proportion of promoters.
The table below lists all of the businesses for which we have a NPS for Q4 2015. Year-on-year, NatWest Business Banking, RBS Business Banking and Ulster Bank Personal Banking (Northern Ireland) have seen significant improvements in NPS. 


Q4 2014
Q3 2015
Q4 2015
Year end 2015 target
Personal Banking
NatWest (England & Wales)(1)
6
8
9
9
Royal Bank of Scotland (Scotland)(1)
-13
-9
-9
-10
Ulster Bank (Northern Ireland)(2)
-24
-9
-9
-21
Ulster Bank (Republic of Ireland)(2)
-18
-15
-14
-15
Business Banking
NatWest (England & Wales)(3)
-11
6
9
-7
Royal Bank of Scotland (Scotland)(3)
-23
-12
-7
-21
Ulster Bank Corporate
Ulster Bank (Northern Ireland)(4)
-44
n/a
-45
-34
Ulster Bank (Republic of Ireland)(4)
-17
n/a
-21
-15
Commercial Banking(5)
12
9
9
15
Customer trust
We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat). Customer trust in RBS is at its highest in two years and NatWest has also improved.


Q4 2014
Q3 2015
Q4 2015
Year end 2015 target
Customer Trust(6)
NatWest (England & Wales)
41%
44%
48%
46%
Royal Bank of Scotland (Scotland)
2%
11%
14%
11%
Notes:
(1)
Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3509) Royal Bank of Scotland (Scotland) (623). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?"
(2)
Source: Coyne Research 12 MAT data. Latest base sizes: Ulster Bank NI (300) Ulster bank RoI (302) Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely". 
(3)
Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with an annual turnover up to 2 million. Quarterly rolling data. Latest base sizes: NatWest England & Wales (1352), RBS Scotland (432). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland.
(4)
Source: PWC Northern Ireland Business Banking Tracker and PWC Republic of Ireland Business Banking Tracker. Data collected annually. Latest base sizes: Ulster Bank NI (377), Ulster Bank RoI (222). Weighted by turnover to be representative of businesses in Northern Ireland and Republic of Ireland.
(5)
Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with annual turnover between 2 million and 1 billion. Latest base size: RBSG Great Britain (872). Weighted by region and turnover to be representative of businesses in Great Britain.
(6)
Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (974), RBS Scotland (187).

Chief Executive's message
RBS made progress again in 2015. We ended the year a simpler, stronger bank with a business anchored squarely in the UK and Ireland, focused on retail and commercial markets. 
Year one of our plan in 2014 was about getting cost out and improving our capital position. This gave us the platform to go further, faster in 2015 by exiting more businesses that didn't fit our strategy, and accelerating improvements in our core bank. We delivered on both. 
Simpler and stronger
Over the last few years, RBS has built a good track record in restructuring and we reinforced that record in 2015. The sale of Citizens was completed early following the largest US bank IPO ever. We are well through the sale of our international private banking business, and are winding down our non-UK transaction services business. Major loan portfolios have been divested, and the progress continues on the complex process to exit 25 of the 38 countries in our international network. We also marked the end of RBS Capital Resolution (RCR), having substantially completed its run-down one year ahead of schedule. 
Our progress on exits and disposals has supported a substantial uplift in capital strength, with our CET1 ratio up by 430 basis points over the year to 15.5%. 
Like other banks, we continue to look for opportunities to resolve legacy conduct issues on terms we believe to be acceptable. We have recently added to our provisions in relation to residential mortgage-backed securities in the US (RMBS) and Payment Protection Insurance (PPI). We hope to conclude many of the remaining substantial conduct and litigation issues over the coming year, but the timing of many of these matters is not in our hands.
An improving core bank
As well as exiting businesses that don't fit our strategy, we have made strong progress in improving our core retail and commercial franchises. Mortgage and commercial lending showed healthy growth over the year as we played a key role in supporting the UK economy.
Focus continues around simplifying processes as the scale and footprint of the bank is reshaped. At an operational level, we have reduced our London property footprint, further rationalised and simplified our systems, and increased stability across our core platforms. Simplification across the bank has helped reduce our cost base by 983 million this year.
We have also improved our products and service for customers. Our new current account proposition - Reward - is a further step forward in terms of our offering, with our customers receiving 3% cashback on their household bills. This product is geared toward building stronger and deeper customer relationships. 
Across our franchises we demonstrated further commitment to becoming a fair bank that earns the trust and loyalty of its customers. We launched a progressive three year fixed premium rate home insurance product, made 100 and 250 overdrafts automatically available to an additional one million customers, and launched new cards for visually impaired customers that secured approval from the Royal National Institute of Blind People (RNIB).
Our underlying performance over the year shows the strength - and further potential - of our core businesses, but the conduct and restructuring issues mentioned have taken their toll on our bottom line. While adjusted operating profit for the year totalled 4,405 million, we recorded a full year attributable loss of 1,979 million. 


Chief Executive's message
We went further, faster against our targets in 2015
We have consistently referred to five priorities, which have become a familiar framework for tracking performance. This management team is committed to a simple approach: we set out our priorities, we commit to targets against each of them, and then we deliver, as we have set out on page 5. 
2016 Targets
Each year, the bank moves toward delivering stronger returns from a lower risk profile; our strategic priorities are at the core of this. For 2016, we have a new set of targets which ultimately underpin achieving the long-term target of being number one for customer service, trust and advocacy: 
Strength & sustainability: maintain bank CET1 ratio of 13%.
Customer experience: narrow the gap to No.1 for NPS in every primary UK brand.
Simplifying the bank: reduce operating expenses by 800 million(1).
Supporting growth: net 4% growth in PBB and CPB customer loans.
Employee engagement: raise employee engagement to within two points of GFS norm.
Our long-term financial and customer targets remain unchanged, but we have stretched our employee engagement target further. The logic we are following is simple: more engaged employees have better customer conversations, which will drive better service and, as a result, higher returns. 
Focus for 2016 
We are looking to take another 800 million from our cost base. This is an area where we must continue to be disciplined given the uncertain macroeconomic and low interest rate environment our core businesses face. In two years, we have taken out 2 billion in costs and next year will see us move closer to a sustainable cost base that reflects the size and scale of this bank. 
Our 'Reward' current account proposition and increasing share of the mortgage market give us a platform to be the main bank provider to more valuable customers. 
In Commercial Banking, we will continue to shift capital toward business that delivers higher quality returns, and cement our position as the number one bank for UK business.
RBS International is another strong franchise. The solid returns in this business will become an increasing feature of our profit mix over the coming years.
We also have businesses that can and will do better. 
Corporate & Institutional Banking (CIB) has plans through to 2020 to deliver acceptable returns and will now be focused on serving our largest and most valuable corporate clients. 
We have repositioned Ulster Bank with Ulster Bank customers in Northern Ireland included in Personal & Business Banking and the Republic of Ireland (RoI) business separated into Ulster Bank RoI. The franchise is focused on improving returns by reducing its costs, given it is now a smaller but safer business.
The sale of our international private banking business in 2015 means we can accelerate the repositioning of our UK Private Banking business so it delivers sustainable returns.
The separation and eventual divestment of Williams & Glyn remains a top priority for us. We will not now achieve our planned separation until after the previously announced Q1 2017, but remain committed to full divestment by the end of 2017. Separation of this business is a complex process and we continue to invest sizeable resources.
Note: 
(1)
Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn.


Chief Executive's message
Delivering for customers and shareholders
The UK government's decision to start disposing of its majority stake in RBS during 2015 was a significant step forward, and underlined the progress we have made over the last two years.
We have previously said that we are in phase two of our plan, working through as many of the remaining conduct and restructuring issues as we can. This is a tough but important part of our plan and we are determined to get through it as quickly as possible.
We will then move to the third phase as a strong, simple and fair bank that delivers solidly on the needs of its customers and shareholders.
Ross McEwan 
Chief Executive

Analysis of results
Summary consolidated income statement for the period ended 31 December 2015

Year ended

Quarter ended 

31 December
31 December

31 December
30 September
31 December

2015
2014

2015
2015*
2014

m
m

m
m
m
Net interest income
8,767
9,258

2,162
2,187
2,382







Own credit adjustments
309
(146)

(115)
136
(144)
(Loss)/gain on redemption of own debt
(263)
20

(263)
-
-
Strategic disposals
(157)
191

(22)
-
-
Other operating income
4,267
5,827

722
860
727







Non-interest income
4,156
5,892

322
996
583







Total income 
12,923
15,150

2,484
3,183
2,965







Litigation and conduct costs 
(3,568)
(2,194)

(2,124)
(129)
(1,164)
Restructuring costs
(2,931)
(1,154)

(614)
(847)
(542)
Write down of goodwill
(498)
(130)

(498)
-
-
Other costs
(9,356)
(10,381)

(2,525)
(2,300)
(2,612)







Operating expenses
(16,353)
(13,859)

(5,761)
(3,276)
(4,318)







(Loss)/profit before impairment releases
(3,430)
1,291

(3,277)
(93)
(1,353)
Impairment releases
727
1,352

327
79
670







Operating (loss)/profit before tax
(2,703)
2,643

(2,950)
(14)
(683)
Tax (charge)/credit
(23)
(1,909)

261
3
(1,040)







(Loss)/profit from continuing operations
(2,726)
734

(2,689)
(11)
(1,723)
Profit/(loss) from discontinued operations, net of tax (1)
1,541
(3,445)

90
1,093
(3,882)







(Loss)/profit for the period
(1,185)
(2,711)

(2,599)
1,082
(5,605)
Non-controlling interests
(409)
(60)

(20)
(45)
(71)
Other owners
(385)
(379)

(121)
(97)
(115)
Dividend access share 
-
(320)

-
-
-







(Loss)/profit attributable to ordinary shareholders
(1,979)
(3,470)

(2,740)
940
(5,791)







Memo:













Total income - adjusted (2)
13,034
15,085

2,884
3,047
3,109
Operating expenses - adjusted (3)
(9,356)
(10,381)

(2,525)
(2,300)
(2,612)
Operating profit - adjusted (2,3)
4,405
6,056

686
826
1,167







Key metrics and ratios













Net interest margin 
2.12%
2.13%

2.10%
2.09%
2.23%
Cost:income ratio 
127%
91%

232%
103%
146%
Cost:income ratio - adjusted (2,3)
72%
69%

88%
75%
84%
(Loss)/earnings per ordinary share from






 continuing operations






 - basic
(27.7p)
0.5p

(24.5p)
(1.0p)
(16.2p)
 - adjusted (2,3,4)
29.2p
25.4p

5.1p
5.6p
(2.4p)
Return on tangible equity (5)
(4.7%)
(8.2%)

(26.5%)
9.0%
(51.1%)
Return on tangible equity - adjusted (2,3,5)
11.0%
(1.5%)

6.6%
16.3%
(37.4%)
Average tangible equity (5)
41,821m
42,464m

41,319m
41,911m
45,268m
Average number of ordinary shares outstanding during






 the period (millions)
11,516
11,356

11,554
11,546
11,422
*Restated, refer to page 46 for further details.
Notes:
(1)
Refer to Note 2 on page 46 for further details.
(2)
Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(3)
Excluding restructuring costs, litigation and conduct costs and write down of goodwill.
(4)
Adjusted earnings per share excludes the participation rights of the dividend access share (DAS). 
(5)
Tangible equity is equity attributable to ordinary shareholders less intangible assets.

Analysis of results
Summary consolidated balance sheet as at 31 December 2015

31 December
30 September
31 December

2015
2015*
2014*

m
m
m




Cash and balances at central banks
79,404
77,220
74,872
Net loans and advances to banks (1)
18,361
22,681
23,027
Net loans and advances to customers (1)
306,334
311,383
334,251
Reverse repurchase agreements and stock borrowing
39,843
51,800
64,695
Debt securities and equity shares
83,458
83,506
92,284
Assets of disposal groups (2)
3,486
6,300
82,011
Other assets 
22,008
27,775
26,289




Funded assets
552,894
580,665
697,429
Derivatives
262,514
296,019
353,590




Total assets
815,408
876,684
1,051,019




Bank deposits (3)
28,030
30,543
35,806
Customer deposits (3)
343,186
346,267
354,288
Repurchase agreements and stock lending
37,378
43,355
62,210
Debt securities in issue
31,150
37,360
50,280
Subordinated liabilities
19,847
20,184
22,905
Derivatives
254,705
288,905
349,805
Liabilities of disposal groups (2)
2,980
6,401
71,320
Other liabilities 
43,985
46,927
45,696




Total liabilities
761,261
819,942
992,310
Non-controlling interests
716
703
2,946
Owners' equity
53,431
56,039
55,763




Total liabilities and equity
815,408
876,684
1,051,019




Contingent liabilities and commitments
153,752
160,205
241,186
Balance sheet related key metrics and ratios







Tangible net asset value per ordinary share (4)
352p
371p
374p
Loan:deposit ratio (3,5)
89%
89%
95%
Short-term wholesale funding (3,6)
17bn
17bn
28bn
Wholesale funding (3,6)
59bn
66bn
90bn
Liquidity portfolio
156bn
164bn
151bn
Liquidity coverage ratio (LCR) (7)
136%
136%
112%
Net stable funding ratio (8)
121%
117%
112%
Tangible equity (9)
40,943m
42,937m
42,885m
Number of ordinary shares in issue (millions) (10)
11,625
11,574
11,466
Common Equity Tier 1 ratio
15.5%
12.7%
11.2%
Risk-weighted assets
242.6bn
316.0bn
355.9bn
Leverage ratio (11)
5.6%
5.0%
4.2%
*Restated, refer to page 46 for further details.
Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing.
(2)
Primarily international private banking business at 31 December 2015 and 30 September 2015. The interest in associate in relation to Citizens is also included at 30 September 2015. Primarily Citizens at 31 December 2014.
(3)
Excludes repurchase agreements and stock lending.
(4)
Tangible net asset value per ordinary share represents tangible equity divided by the number of ordinary shares in issue.
(5)
Includes disposal groups.
(6)
Excludes derivative collateral.
(7)
On 1 October 2015 the LCR became the PRA's primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 80% initially, rising to 100% by 1 January 2018. The published LCR excludes Pillar 2 add-ons. RBS calculates the LCR using its own interpretation of the EU LCR Delegated Act, which may change over time and may not be fully comparable with tax of other institutions.
(8)
NSFR for all periods have been calculated using RBS's current interpretations of the revised BCBS guidance on NSFR issued in late 2014. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.
(9)
Tangible equity is equity attributable to ordinary shareholders less intangible assets.
(10)
Includes 26 million Treasury shares (30 September 2015 - 26 million; 31 December 2014 - 28 million).
(11)
Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

Analysis of results

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014

2015
2015
2014
Net interest income
m
m

m
m
m







Net interest income (1)
8,767
9,258

2,162
2,187
2,382
RBS













 - UK Personal & Business Banking
4,152
4,221

1,030
1,055
1,086
 - Ulster Bank RoI
365
467

85
90
112
 - Commercial Banking
1,997
1,976

512
504
506
 - Private Banking
436
454

108
109
116
 - RBS International
303
323

78
73
83
 - Corporate & Institutional Banking
87
(11)

28
29
8
 - Capital Resolution
365
673

6
78
162
 - Williams & Glyn
658
664

165
167
167
 - Central items & other
404
491

150
82
142







Average interest-earning assets (IEA)






RBS
413,345
432,935

407,061
413,778
421,244







 - UK Personal & Business Banking
130,702
126,951

134,687
131,406
127,980
 - Ulster Bank RoI
23,232
24,344

23,195
23,456
23,372
 - Commercial Banking
106,429
103,248

111,600
105,905
102,324
 - Private Banking
15,835
15,687

16,025
15,878
15,789
 - RBS International
20,518
19,540

20,773
20,244
19,712
 - Corporate & Institutional Banking
16,552
14,917

10,190
18,686
14,940
 - Capital Resolution
60,656
100,716

39,875
51,786
90,538
 - Williams & Glyn
22,940
22,678

23,327
23,020
22,681
 - Central items & other
16,481
4,854

27,389
23,397
3,908














Yields, spreads and margins of the banking business













Gross yield on interest-earning assets of 






banking business (3)
2.88%
3.02%

2.78%
2.84%
3.05%
Cost of interest-bearing liabilities of banking business
(1.11%)
(1.24%)

(1.00%)
(1.09%)
(1.16%)







Interest spread of banking business (4)
1.77%
1.78%

1.78%
1.75%
1.89%
Benefit from interest-free funds
0.35%
0.35%

0.32%
0.34%
0.34%







Net interest margin (1,5)






RBS
2.12%
2.13%

2.10%
2.09%
2.23%







 - UK Personal & Business Banking (2)
3.18%
3.32%

3.03%
3.19%
3.37%
 - Ulster Bank RoI (2)
1.57%
1.92%

1.45%
1.52%
1.90%
 - Commercial Banking (2)
1.88%
1.91%

1.82%
1.89%
1.96%
 - Private Banking (2)
2.75%
2.89%

2.67%
2.72%
2.91%
 - RBS International (2)
1.48%
1.65%

1.49%
1.43%
1.67%
 - Corporate & Institutional Banking
0.53%
(0.07%)

1.09%
0.62%
0.21%
 - Capital Resolution
0.60%
0.67%

0.06%
0.60%
0.71%
 - Williams & Glyn
2.87%
2.93%

2.81%
2.88%
2.92%
Third party customer rates (6)






Third party customer asset rate






 - UK Personal & Business Banking
4.13%
4.30%

4.00%
4.15%
4.37%
 - Ulster Bank RoI (7)
2.27%
2.43%

2.19%
2.26%
2.28%
 - Commercial Banking
2.93%
3.03%

2.84%
2.93%
3.01%
 - Private Banking
3.13%
3.24%

3.06%
3.08%
3.22%
 - RBS International
3.10%
3.33%

3.09%
3.13%
3.39%
Third party customer funding rate






 - UK Personal & Business Banking
(0.66%)
(0.85%)

(0.63%)
(0.65%)
(0.73%)
 - Ulster Bank RoI (7)
(0.88%)
(1.36%)

(0.74%)
(0.82%)
(1.14%)
 - Commercial Banking
(0.38%)
(0.45%)

(0.36%)
(0.36%)
(0.41%)
 - Private Banking
(0.26%)
(0.34%)

(0.25%)
(0.25%)
(0.31%)
 - RBS International
(0.31%)
(0.36%)

(0.24%)
(0.23%)
(0.34%)
For the notes to this table refer to the next page.


Analysis of results
Key points
2015 compared with 2014
 
Net interest income declined by 491 million, or 5% to 8,767 million compared with 9,258 million, driven principally by a 46% reduction in Capital Resolution, down from 673 million to 365 million, in line with the planned shrinkage of the balance sheet. 
 
Net interest margin (NIM) declined by 1 basis point to 2.12% reflecting strong new business volumes in core UK businesses, primarily mortgages, remaining under competitive margin pressures combined with an increased portion of the book shifting toward lower margin secured assets. This was partly offset by deposit repricing and the planned successful run down of low margin assets in Capital Resolution.
 
UK PBB net interest income fell by 69 million, 2% to 4,152 million, as competitive front book margin pressures impacted. In addition, customers continued to roll off standard variable rate products (17% of overall mortgage book at the end of 2015) and onto lower margin fixed rate products. As a result NIM fell by 14 basis points to 3.18% compared with 3.32% in 2014.
 
Ulster Bank RoI net interest income fell by 102 million, 22% to 365 million compared with 467 million primarily due to the weakening of the euro relative to sterling and a lower return on free funds. Ulster Bank RoI NIM continues to be impacted by the low yielding tracker mortgage book. 
Q4 2015 compared with Q4 2014
 
Net interest income declined by 220 million, or 9%, to 2,162 million compared with 2,382 million, principally due to the wind-down of Capital Resolution where net interest income fell to 6 million compared with 162 million in Q4 2014.
 
NIM fell by 13 basis points to 2.10%, compared with 2.23%, as competitive asset margin pressure, particularly in UK PBB, was partly offset by deposit re-pricing in UK PBB and Commercial Banking.


Q4 2015 compared with Q3 2015
 
Net interest income declined by 25 million, or 1% to 2,162 million compared with 2,187 million primarily due to margin pressure in UK PBB and the wind-down of Capital Resolution. NIM was broadly stable at 2.10%.
Notes: 
(1)
For the purpose of net interest margin (NIM) calculations a decrease of 15 million (year ended 31 December 2014 - 47 million; Q4 2015 - 3 million; Q3 2015 - 4 million; Q4 2014 - 12 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(2)
PBB NIM was 2.93% (2014 - 3.10%; Q4 2015 - 2.80%; Q3 2015 - 2.93%; Q4 2014 - 3.14%) CPB NIM was 1.92% (2014 - 1.99%; Q4 2015 - 1.87%; Q3 2015 - 1.92%; Q4 2014 - 2.03%).
(3)
Gross yield is the interest earned on average interest-earning assets of the banking book.
(4)
Interest spread is the difference between the gross yield and the interest rate paid on average interest-bearing liabilities of the banking business.
(5)
Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business.
(6)
Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(7)
Ulster Bank Ireland Limited manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.


Analysis of results

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014

2015
2015
2014
Non-interest income
m
m

m
m
m







Net fees and commissions
2,933
3,539

653
685
851
Income from trading activities
806
1,325

59
82
(319)
Own credit adjustments
309
(146)

(115)
136
(144)
(Loss)/gain on redemption of own debt
(263)
20

(263)
-
-
Strategic disposals
(157)
191

(22)
-
-
Other operating income
528
963

10
93
195







Total non-interest income
4,156
5,892

322
996
583
Key points
2015 compared with 2014
 
Non-interest income totalled 4,156 million, a decline of 1,736 million, or 29%, compared with 5,892 million in 2014, primarily driven by a reduction of 945 million in Capital Resolution as the business accelerated the planned shrinkage of the balance sheet, including disposal losses from the sale of several portfolios in the year. A movement of 530 million from volatile items under IFRS was recorded, which represented a gain of 29 million in 2015 compared with a charge of 501 million in 2014.
 
Net fees and commissions fell by 606 million, or 17%, to 2,933 million, compared with 3,539 million, principally from the reduced scale of activity in CIB, run down of Capital Resolution and lower card interchange fees in UK PBB, down 59 million. 
 
Income from trading activities declined by 519 million, or 39%, to 806 million compared with 1,325 million, due to the reduced scale and resources in CIB and the continued planned reduction of the Capital Resolution business and the impact of disposal losses. 
 
Own credit adjustments represented a gain of 309 million compared with a charge of 146 million in 2014. 
 
A loss of 263 million was recognised on the redemption of own debt, from a liability management exercise to repurchase certain US dollar, sterling and euro senior debt securities, compared with a gain of 20 million in 2014.
 
Total disposal losses in Capital Resolution were 367 million, including 38 million of strategic disposal losses. Total strategic disposal losses were 157 million, compared with a gain of 191 million in 2014, principally relating to the international private banking business. 
 
Other operating income reduced by 435 million, or 45%, to 528 million compared with 963 million, principally due to the reduced scale of CIB, together with the run down of Capital Resolution and the impact of disposal losses. A loss of 67 million on the disposal of available-for-sale securities in Treasury was recorded, compared with a gain of 149 million in 2014.
Q4 2015 compared with Q4 2014
 
Non-interest income was 322 million, a reduction of 45%, compared with 583 million in Q4 2014 primarily due to a loss of 268 million in Capital Resolution, including the impact of total disposal losses of 180 million (including 24 million of strategic disposals) together with the loss on redemption of own debt of 263 million and 30 million lower equity gains in Commercial Banking. This was partly offset by a gain of 113 million from volatile items under IFRS compared with a charge of 340 million Q4 2014. 
 
Net fees and commissions fell by 198 million, or 23%, to 653 million compared with 851 million due to planned Capital Resolution rundown, lower CIB income of 35 million and pressure on interchange fees in UK PBB, down 14 million. 
 
Income from trading activities totalled 59 million, up 378 million, compared with a loss of 319 million, reflecting improved trading activity in CIB, primarily from a stronger performance in Rates.


Analysis of results
Key points (continued)
Q4 2015 compared with Q3 2015
 
Non-interest income reduced by 674 million, or 68%, to 322 million compared with 996 million, principally due to the loss of 263 million on redemption of own debt. Own credit adjustments represented a charge of 115 million compared with a gain of 136 million in Q3 2015. This was mostly offset by a gain of 113 million from volatile items under IFRS compared with a charge of 126 million in Q3 2015. In Q4 2015, Capital Resolution continued its accelerated run down with total disposal losses of 180 million (including 24 million of strategic disposals) compared with 89 million in Q3 2015, whilst Commercial Banking recorded a loss of 34 million on the disposal of a non-strategic portfolio in Q4 2015. 
 
A loss of 24 million for strategic disposals was recorded in Capital Resolution in Q4 2015, primarily due to the transfer of the Russian subsidiary to disposal groups. The sale is due to complete in Q2 2016.

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014

2015
2015*
2014
Operating expenses
m
m

m
m
m







Staff costs 
4,896
5,376

1,072
1,281
1,192
Premises and equipment
1,483
1,812

422
352
452
Other administrative expenses
2,124
2,120

786
477
701
Restructuring costs (see below)
2,931
1,154

614
847
542
Litigation and conduct costs
3,568
2,194

2,124
129
1,164







Administrative expenses
15,002
12,656

5,018
3,086
4,051
Depreciation and amortisation
778
927

170
190
203
Write down of goodwill
498
130

498
-
-
Write down of other intangible assets
75
146

75
-
64







Operating expenses
16,353
13,859

5,761
3,276
4,318







Adjusted operating expenses (1)
9,356
10,381

2,525
2,300
2,612







Restructuring costs comprise:






 - staff expenses
830
381

205
281
133
 - premises, equipment, depreciation and amortisation 
746
272

41
375
28
 - other
1,355
501

368
191
381







Restructuring costs
2,931
1,154

614
847
542







Staff costs as a % of total income 
38%
35%

43%
40%
40%
Cost:income ratio
127%
91%

232%
103%
146%
Cost:income ratio - adjusted (2)
72%
69%

88%
75%
84%
Employee numbers (FTE - thousands)
91.5
91.3

91.5
92.4
91.3
*Restated, refer to page 46 for further details.
Notes:
(1)
Excluding restructuring costs, litigation and conduct costs, and write down of goodwill.
(2)
Excluding restructuring costs, litigation and conduct costs, write down of goodwill, own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.

Year ended

31 December
31 December

2015
2014
UK Bank levy segmental allocations
m
m



UK Personal & Business Banking
45
42
Ulster Bank RoI
9
10
Commercial Banking
103
82
Private Banking
22
11
RBS International Banking
18
17
Corporate & Institutional Banking
24
41
Capital Resolution
43
45
Central items
(34)
2



Total UK Bank levy
230
250


Analysis of results
Key points
2015 compared with 2014
 
Total operating expenses of 16,353 million included significantly higher litigation and conduct costs of 3,568 million (2014 - 2,194 million), restructuring costs of 2,931 million (2014 - 1,154 million) and a goodwill impairment of 498 million attributed to Private Banking (2014 - 130 million in Capital Resolution).
 
Adjusted operating expenses fell by 1,025 million, 10% to 9,356 million compared with 10,381 million. Excluding expenses associated with Williams & Glyn and the benefit of lower intangible asset write offs, adjusted operating expenses reduced by 983 million, exceeding the revised 2015 cost saving target of over 900 million.
 
Staff costs were 9% lower totalling 4,896 million compared with 5,376 million, reflecting reduced headcount in CIB and Capital Resolution.
 
Restructuring costs totalled 2,931 million compared with 1,154 million in 2014, as the transformation of the bank accelerated, particularly re-engineering the CIB business. This is in line with prior guidance for total restructuring costs of c.5 billion from 2015 to 2019. CIB restructuring costs totalled 524 million, including software and property write downs. Capital Resolution restructuring costs were much higher totalling 1,307 million as the business continues its planned rundown. Williams & Glyn separation costs totalled 630 million. Private Banking also recorded a 91 million asset write down related to software.
 
Litigation and conduct costs increased by 1,374 million, or 63% to 3,568 million, compared with 2,194 million in 2014. This includes: additional provisions for mortgage backed securities litigation in the US of 2,100 million; provisions for foreign exchange investigations in the US of 334 million; customer redress provisions primarily relating to PPI of 600 million; packaged accounts provisions of 157 million; and other conduct provisions of 377 million.
Q4 2015 compared with Q4 2014
 
Operating expenses increased by 1,443 million, or 33%, to 5,761 million, compared with 4,318 million, driven by the additional litigation and conduct costs primarily relating to mortgage-backed securities litigation in the US and PPI redress provisions totalling 2,124 million compared with 1,164 million in Q4 2014 and the write down of goodwill of 498 million attributed to Private Banking. 
 
Adjusted operating expenses were 87 million lower totalling 2,525 million including staff costs declining 10% to 1,072 million, and 190 million of accrual reversals in Q4 2014. The bank levy was 230 million, compared with 250 million in 2014. However, the charge allocated to some segments was higher in 2015 than in the prior year.
Q4 2015 compared with Q3 2015
 
Operating expenses increased by 2,485 million, or 76% to 5,761 million driven by additional charges for litigation and conduct costs of 2,124 million and the write down of goodwill of 498 million. This was party offset by lower restructuring costs of 614 million compared with 847 million in Q3 2015. Q4 2015 included 181 million related to Williams & Glyn.
 
Adjusted operating expenses were 10% higher at 2,525 million with lower staff costs, down 16% to 1,072 million offset by the impact of the UK bank levy (230 million).


Analysis of results

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014

2015
2015
2014
Impairment (releases)/losses
m
m

m
m
m







Loan impairment (releases)/losses






 - individually assessed
(406)
(835)

(271)
(15)
(514)
 - collectively assessed
(35)
173

(27)
(13)
(120)
 - latent
(408)
(692)

(28)
(64)
(50)







Customer loans
(849)
(1,354)

(326)
(92)
(684)
Bank loans
(4)
(10)

-
(4)
-







Total loan impairment releases
(853)
(1,364)

(326)
(96)
(684)
Securities
126
12

(1)
17
14







Total impairment releases
(727)
(1,352)

(327)
(79)
(670)

31 December
30 September
31 December
Credit metrics (1)
2015
2015
2014




Gross customer loans
315,111m
322,957m
412,801m
Loan impairment provisions
7,139m
9,277m
18,040m
Risk elements in lending (REIL)
12,157m
14,643m
28,219m
Provisions as a % of REIL
59%
63%
64%
REIL as a % of gross customer loans
3.9%
4.5%
6.8%
Note: 
(1)
Includes disposal groups. 
Key points 
2015 compared with 2014
 
Net impairment releases of 727 million were 46% lower compared with net impairment releases of 1,352 million in 2014. Although releases were at lower levels than in 2014, credit quality remained stable, reflecting supportive economic conditions in UK and Ireland with continued elevated recoveries in certain businesses.


 
Capital Resolution recorded net releases of 725 million, compared with 1,307 million in 2014, with disposal activity continuing. Ulster Bank RoI recorded net impairment releases of 141 million, down from 306 million in 2014, as economic conditions in Ireland continue to improve. UK PBB recorded a release of 7 million compared with a loss of 154 million, due to lower debt flows and increased releases and recoveries. Net impairment releases were also reported in CIB, although at more modest levels.
 
Securities losses rose to 126 million from 12 million in 2014, principally related to a small number of single name exposures, mainly in the RBS N.V. liquidity portfolio.
 
Risk elements in lending (REIL) declined from 28.2 billion to 12.2 billion, with REIL as a percentage of gross loans falling from 6.8% to 3.9%. The reduction was driven by the disposal of Citizens and the continued rundown of Capital Resolution.
Q4 2015 compared with Q4 2014
 
Net impairment releases of 327 million were recorded, compared with net impairment releases of 670 million in the previous year. Capital Resolution and Ulster Bank RoI continued to record net impairment releases, albeit at lower levels than in Q4 2014.
Q4 2015 compared with Q3 2015
 
An increase in net impairment releases from 79 million to 327 million was primarily due to a large single write-back from the disposal of an Irish Real Estate loan portfolio.


Analysis of results








Selected credit risk portfolios






31 December 2015

31 December 2014 (1)

CRA (2)
TCE (3)
EAD (4)

CRA (2)
TCE (3)
EAD (4)
Natural resources
m
m
m

m
m
m








Oil & Gas
3,533
6,609
5,606

9,421
22,014
15,877
Mining & Metals
1,134
2,105
1,555

2,660
4,696
3,817
Electricity
2,848
7,454
5,205

4,927
16,212
9,984
Water & Waste
4,835
5,948
5,873

5,281
6,718
6,466









12,350
22,116
18,239

22,289
49,640
36,144








Commodity traders (5)
749
1,117
1,350

1,968
2,790
3,063
Of which: natural resources
548
772
776

1,140
1,596
1,852








Shipping 
7,140
7,688
7,509

10,087
10,710
10,552
Notes:
(1)
Prior period data excludes Citizens for comparative purposes; Citizens totals for natural resources and transport at 31 December 2014 - CRA 2.6 billion, EAD 3.6 billion.
(2)
Credit risk assets (CRA) consist of lending gross of impairment provisions and derivative exposures after netting and contingent obligations.
(3)
Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt securities and committed undrawn facilities.
(4)
Exposure at default (EAD) reflects an estimate of the extent to which a bank will be exposed to under a specific facility on the default of a customer or counterparty. Uncommitted undrawn facilities are excluded from TCE but included within EAD; therefore EAD can exceed TCE.
(5)
Commodity traders represents customers in a number of industry sectors, predominantly natural resources above.
Key points
 Oil & Gas: exposure decreased significantly during 2015. This reflected proactive credit management, continued sales and run-off across the CIB portfolio in Asia-Pacific and the North America. There was an increase in forbearance, predominantly involving the relaxation of financial covenants to give customers more financial flexibility. Non-performing exposures at 31 December 2015 were 138 million on a CRA basis.
 Mining & Metals: the reduction in exposure during 2015 reflected proactive credit management of more vulnerable sub-sectors. The majority of the exposure is to large international customers and matures within five years. The asset quality remained strong and 63% (31 December 2014 - 60%) of the portfolio was investment grade at 31 December 2015 and non performing exposures at 31 December 2015 were 48 million on a CRA basis.
 Commodity traders: exposure more than halved during 2015. The remaining exposure is mainly to the largest and most dominant traders in physical commodities
 Shipping: the exposure decrease during 2015 reflected scheduled loan repayments, prepayments and secondary sales in Capital Resolution. Non-performing exposures at 31 December 2015 were 362 million (CRA) with an impairment provision of 135 million.

31 December 2015

31 December 2014

Balance 
Total 

Balance 
Total 

sheet
exposure

sheet
exposure
Emerging markets (1)
m
m

m
m






India
1,563
1,879

1,989
2,628
China
1,054
1,094

3,548
4,079
Russia
429
441

1,830
1,997
Note:
(1)
Balance sheet and total exposures include banking and trading book debt securities and are net of impairment provisions in respect of lending - refer to the Capital and risk management section of the 2015 Annual Report and Accounts for detailed definitions and additional disclosures.
Key points
 Exposure to most emerging markets decreased in 2015 as RBS continued to implement its strategy to withdraw from non-strategic countries. 
 Exposure to Russia declined significantly throughout the year to less than a quarter of the 2014 exposure.


Analysis of results
Capital and leverage ratios








End-point CRR basis (1)

PRA transitional basis

31 December
30 September
31 December

31 December
30 September
31 December

2015
2015*
2014*

2015
2015*
2014*
Risk asset ratios
%
%
%

%
%
%








CET1 
15.5
12.7
11.2

15.5
12.7
11.1
Tier 1
16.3
13.3
11.2

19.1
15.5
13.2
Total
19.6
16.0
13.7

24.7
19.8
17.1








Capital
m
m
m

m
m
m








Tangible equity
40,943
42,937
42,885

40,943
42,937
42,885
Expected loss less impairment provisions
(1,035)
(1,185)
(1,491)

(1,035)
(1,185)
(1,491)
Prudential valuation adjustment
(381)
(392)
(384)

(381)
(392)
(384)
Deferred tax assets
(1,110)
(1,159)
(1,222)

(1,110)
(1,159)
(1,222)
Own credit adjustments
(104)
208
500

(104)
208
500
Pension fund assets
(161)
(256)
(238)

(161)
(256)
(238)
Other deductions
(544)
27
(131)

(522)
49
(401)








Total deductions
(3,335)
(2,757)
(2,966)

(3,313)
(2,735)
(3,236)








CET1 capital
37,608
40,180
39,919

37,630
40,202
39,649
AT1 capital
1,997
1,997
-

8,716
8,716
7,468
Tier 1 capital
39,605
42,177
39,919

46,346
48,918
47,117
Tier 2 capital
8,002
8,331
8,717

13,619
13,742
13,626








Total regulatory capital
47,607
50,508
48,636

59,965
62,660
60,743








Risk-weighted assets















Credit risk







 - non-counterparty
166,400
237,800
264,700




 - counterparty
23,400
26,900
30,400




Market risk
21,200
19,700
24,000




Operational risk
31,600
31,600
36,800












Total RWAs
242,600
316,000
355,900












Leverage (2)















Derivatives
262,500
296,500
354,000




Loans and advances
327,000
402,300
419,600




Reverse repos
39,900
52,100
64,700




Other assets
186,000
208,000
212,700












Total assets
815,400
958,900
1,051,000




Derivatives







 - netting
(258,600)
(280,300)
(330,900)




 - potential future exposures
75,600
82,200
98,800




Securities financing transactions gross up
5,100
6,600
25,000




Undrawn commitments
63,500
78,900
96,400




Regulatory deductions and other







 adjustments
1,500
200
(800)












Leverage exposure 
702,500
846,500
939,500












Tier 1 capital
39,605
42,177
39,919












Leverage ratio % 
5.6%
5.0%
4.2%




*Capital and leverage ratios have not been restated following the pension accounting policy change. Components within CET1 capital have however been re-presented to reflect revisions to accounting tangible equity, with corresponding adjustments to other deductions above - refer to page 46 for further details. 
Notes:
(1)
Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on AFS securities which has been included from 2015 under the PRA transitional basis.
(2)
Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.


Analysis of results
Key points
31 December 2015 compared with 31 December 2014
The CET1 ratio increased from 11.2% to 15.5% driven by the disposal of Citizens and continued de-risking of the balance sheet, primarily in Capital Resolution which accelerated its exit from several portfolios. The pension accounting policy change lowered the CET1 ratio by approximately 70 basis points at 2015 year end and by approximately 40 basis points on a pro forma basis at 31 December 2014.


RWAs fell by 113 billion, from 356 billion to 243 billion, driven by the disposal of Citizens accounting for 63.3 billion and the continued progress of Capital Resolution (down 46 billion). There were further small reductions across most core businesses.


The leverage ratio improved from 4.2% to 5.6%, primarily due to the successful issuance of 2 billion ($3.15 billion) AT1 capital notes and a reduction in leverage exposure as funded assets fell 145 billion to 553 billion, including the disposal of Citizens. The pension accounting policy change lowered the leverage ratio on a proforma basis by approximately 20 basis points both at 2015 year end and at 31 December 2014.


Q4 2015 compared with Q3 2015
The CET1 ratio increased from 12.7% to 15.5% driven by RWA reduction of 73 billion following the disposal of Citizens (67.3 billion) in Q3 2015 and further reduction in Capital Resolution (11 billion), partially offset by the impact of the pension accounting policy change.


The leverage ratio improved from 5.0% to 5.6% due to the disposal of Citizens, partially offset by the impact of the pension accounting policy change.


RWAs were 73 billion lower due to the Citizens disposal and Capital Resolution disposals and run-off. The increase in market risk RWAs in Q4 2015 reflected US dollar proceeds from the Citizens disposal.

Segment performance

Year ended 31 December 2015

PBB

CPB 




Central



Ulster

Commercial
Private
RBS


Capital
Williams
items &
Total
UK PBB
BankRoI

Banking
Banking
International

CIB 
Resolution
& Glyn
other(1)
RBS
m
m 
m
m
m
m
m
m
m
m













Income statement 












Net interest income
4,152
365

1,997
436
303

87
365
658
404
8,767
Other non-interest income
1,048
185

1,257
208
64

1,320
37
175
(27)
4,267
Total income - adjusted (2)
5,200
550

3,254
644
367

1,407
402
833
377
13,034













Own credit adjustments
-
-

-
-
-

120
175
-
14
309
Loss on redemption of own debt 
-
-

-
-
-

-
-
-
(263)
(263)
Strategic disposals
-
-

-
-
-

-
(38)
-
(119)
(157)
Total income 
5,200
550

3,254
644
367

1,527
539
833
9
12,923
Direct expenses - staff costs
(801)
(160)

(483)
(176)
(42)

(348)
(296)
(209)
(2,381)
(4,896)
 - other costs
(272)
(85)

(238)
(35)
(16)

(122)
(202)
(52)
(3,438)
(4,460)
Indirect expenses
(1,965)
(182)

(1,080)
(307)
(98)

(997)
(1,041)
(98)
5,768
-
Operating expenses - adjusted (3) 
(3,038)
(427)

(1,801)
(518)
(156)

(1,467)
(1,539)
(359)
(51)
(9,356)













Restructuring costs - direct
(38)
(12)

(52)
(7)
-

(44)
(380)
(28)
(2,370)
(2,931)
 - indirect
(129)
(3)

(17)
(66)
(4)

(480)
(927)
-
1,626
-
Litigation and conduct costs
(972)
13

(51)
(12)
-

(378)
(2,105)
-
(63)
(3,568)
Write down of goodwill
-
-

-
(498)
-

-
-
-
-
(498)













Operating expenses
(4,177)
(429)

(1,921)
(1,101)
(160)

(2,369)
(4,951)
(387)
(858)
(16,353)













Profit/(loss) before impairment losses
1,023
121

1,333
(457)
207

(842)
(4,412)
446
(849)
(3,430)
Impairment releases/(losses)
7
141

(69)
(13)
-

5
725
(15)
(54)
727













Operating profit/(loss)
1,030
262

1,264
(470)
207

(837)
(3,687)
431
(903)
(2,703)













Operating profit/(loss) - adjusted (2,3)
2,169
264

1,384
113
211

(55)
(412)
459
272
4,405
Additional information












Return on equity (4)
11.7%
10.6%

9.8%
(27.7%)
18.5%

(11.1%)
nm
nm
nm
(4.7%)
Return on equity - adjusted (2,3,4)
26.2%
10.6%

10.9%
4.9%
18.9%

(2.0%)
nm
nm
nm
11.0%
Cost:income ratio
80%
78%

59%
171%
44%

155%
nm
46%
nm
127%
Cost:income ratio - adjusted (2,3)
58%
78%

55%
80%
43%

104%
nm
43%
nm
72%
Total assets (bn)
143.9
21.3

133.5
17.0
23.1

215.3
201.5
24.1
35.7
815.4
Funded assets (bn)
143.9
21.2

133.5
17.0
23.1

103.3
53.4
24.1
33.4
552.9
Net loans and advances to customers (bn)
119.8
16.7

91.3
11.2
7.3

16.1
23.6
20.0
2.0
308.0
Risk elements in lending (bn)
2.7
3.5

1.9
0.1
0.1

-
3.4
0.5
-
12.2
Impairment provisions (bn)
(1.8)
(1.9)

(0.7)
-
(0.1)

-
(2.3)
(0.3)
-
(7.1)
Customer deposits (bn)
137.8
13.1

88.9
23.1
21.3

5.7
26.0
24.1
6.0
346.0
Risk-weighted assets (RWAs) (bn)
33.3
19.4

72.3
8.7
8.3

33.1
49.0
9.9
8.6
242.6
RWA equivalent (bn) 
35.5
20.4

77.6
8.7
8.3

33.4
50.3
10.4
8.8
253.4
Employee numbers (FTEs - thousands)
22.4
2.5

5.8
1.9
0.7

1.3
1.4
4.6
50.9
91.5













For the notes to this table refer to page 29. nm = not meaningful













Segment performance

Quarter ended 31 December 2015

PBB

CPB 




Central



Ulster

Commercial
Private
RBS


Capital
Williams
items &
Total
UK PBB
BankRoI

Banking
Banking
International

CIB 
Resolution
& Glyn
other(1)
RBS
m
m 
m
m
m
m
m
m
m
m













Income statement 












Net interest income
1,030
85

512
108
78

28
6
165
150
2,162
Other non-interest income
224
31

285
50
17

224
(239)
43
87
722













Total income adjusted (2)
1,254
116

797
158
95

252
(233)
208
237
2,884
Own credit adjustments
-
-

-
-
-

(66)
(5)
-
(44)
(115)
Loss on redemption of own debt
-
-

-
-
-

-
-
-
(263)
(263)
Strategic disposals
-
-

-
-
-

-
(24)
-
2
(22)













Total income
1,254
116

797
158
95

186
(262)
208
(68)
2,484
Direct expenses - staff costs
(199)
(40)

(124)
(43)
(12)

(63)
(54)
(58)
(479)
(1,072)
 - other costs
(82)
(28)

(80)
(7)
(5)

(50)
(54)
(24)
(1,123)
(1,453)
Indirect expenses
(596)
(49)

(380)
(109)
(24)

(251)
(286)
(25)
1,720
-













Operating expenses - adjusted (3) 
(877)
(117)

(584)
(159)
(41)

(364)
(394)
(107)
118
(2,525)
Restructuring costs - direct
(31)
7

(40)
(7)
-

-
(21)
(28)
(494)
(614)
 - indirect
(56)
(1)

(14)
12
1

(62)
(83)
-
203
-
Litigation and conduct costs
(607)
4

8
(10)
-

(5)
(1,498)
-
(16)
(2,124)
Write down of goodwill 
-
-

-
(498)
-

-
-
-
-
(498)













Operating expenses
(1,571)
(107)

(630)
(662)
(40)

(431)
(1,996)
(135)
(189)
(5,761)













(Loss)/profit before impairment losses
(317)
9

167
(504)
55

(245)
(2,258)
73
(257)
(3,277)
Impairment releases/(losses)
27
10

(27)
(12)
-

-
356
(20)
(7)
327













Operating (loss)/profit
(290)
19

140
(516)
55

(245)
(1,902)
53
(264)
(2,950)













Operating profit/(loss) - adjusted (2,3)
404
9

186
(13)
54

(112)
(271)
81
348
686
Additional information












Return on equity (4)
(16.8%)
3.0%

3.1%
(118.9%)
19.1%

(15.1%)
nm
nm
nm
(26.5%)
Return on equity - adjusted (2,3,4)
19.8%
1.4%

4.6%
(4.4%)
18.7%

(7.6%)
nm
nm
nm
6.6%
Cost:income ratio
125%
92%

79%
419%
42%

232%
nm
65%
nm
232%
Cost:income ratio - adjusted (2,3)
70%
101%

73%
101%
43%

144%
nm
51%
nm
88%
Total assets (bn)
143.9
21.3

133.5
17.0
23.1

215.3
201.5
24.1
35.7
815.4
Funded assets (bn)
143.9
21.2

133.5
17.0
23.1

103.3
53.4
24.1
33.4
552.9
Net loans and advances to customers (bn)
119.8
16.7

91.3
11.2
7.3

16.1
23.6
20.0
2.0
308.0
Risk elements in lending (bn)
2.7
3.5

1.9
0.1
0.1

-
3.4
0.5
-
12.2
Impairment provisions (bn)
(1.8)
(1.9)

(0.7)
-
(0.1)

-
(2.3)
(0.3)
-
(7.1)
Customer deposits (bn)
137.8
13.1

88.9
23.1
21.3

5.7
26.0
24.1
6.0
346.0
Risk-weighted assets (RWAs) (bn) 
33.3
19.4

72.3
8.7
8.3

33.1
49.0
9.9
8.6
242.6
RWA equivalent (bn) 
35.5
20.4

77.6
8.7
8.3

33.4
50.3
10.4
8.8
253.4
Employee numbers (FTEs - thousands)
22.4
2.5

5.8
1.9
0.7

1.3
1.4
4.6
50.9
91.5













For the notes to this table refer to page 29. nm = not meaningful













Segment performance

Year ended 31 December 2014

PBB

CPB 




Central



Ulster

Commercial
Private
RBS


Capital
Williams
items &
Total

UK PBB
Bank RoI

Banking
Banking
International

CIB 
Resolution
& Glyn
other (1)
RBS

m
m 

m
m
m

m
m
m
m
m













Income statement 












Net interest income
4,221
467

1,976
454
323

(11)
673
664
491
9,258
Other non-interest income
1,223
137

1,329
235
68

1,951
1,155
188
(459)
5,827













Total income - adjusted (2)
5,444
604

3,305
689
391

1,940
1,828
852
32
15,085
Own credit adjustments 
-
-

-
-
-

(9)
(36)
-
(101)
(146)
Gain on redemption of own debt
-
-

-
-
-

-
-
-
20
20
Strategic disposals
-
-

-
-
-

-
-
-
191
191













Total income
5,444
604

3,305
689
391

1,931
1,792
852
142
15,150













Direct expenses - staff costs
(824)
(164)

(495)
(178)
(44)

(446)
(444)
(196)
(2,585)
(5,376)
 - other costs
(346)
(83)

(241)
(37)
(15)

(190)
(293)
(36)
(3,764)
(5,005)
Indirect expenses
(1,958)
(180)

(1,008)
(289)
(94)

(1,080)
(1,283)
(98)
5,990
-













Operating expenses - adjusted (3) 
(3,128)
(427)

(1,744)
(504)
(153)

(1,716)
(2,020)
(330)
(359)
(10,381)
Restructuring costs - direct
(10)
8

(41)
(1)
(2)

(13)
(80)
-
(1,015)
(1,154)
 - indirect
(101)
(21)

(67)
-
(5)

(89)
(105)
-
388
-
Litigation and conduct costs
(918)
19

(112)
(90)
-

(832)
(162)
-
(99)
(2,194)
Write down of goodwill
-
-

-
-
-

-
(130)
-
-
(130)













Operating expenses
(4,157)
(421)

(1,964)
(595)
(160)

(2,650)
(2,497)
(330)
(1,085)
(13,859)













Profit/(loss) before impairment losses
1,287
183

1,341
94
231

(719)
(705)
522
(943)
1,291
Impairment (losses)/releases
(154)
306

(85)
5
7

9
1,307
(55)
12
1,352













Operating profit/(loss)
1,133
489

1,256
99
238

(710)
602
467
(931)
2,643













Operating profit/(loss) - adjusted (2,3)
2,162
483

1,476
190
245

233
1,115
467
(315)
6,056













Additional information *












Return on equity (4)
11.9% 
18.6% 

10.2% 
4.1% 
24.2% 

(7.9%)
nm
nm
nm
(8.2%)
Return on equity - adjusted (2,3,4)
23.7% 
18.4% 

12.2% 
9.1% 
24.9% 

1.3% 
nm
nm
nm
(1.5%)
Cost:income ratio
76% 
70% 

59% 
86% 
41% 

137% 
nm
39% 
nm
91% 
Cost:income ratio - adjusted (2,3)
57% 
71% 

53% 
73% 
39% 

88% 
nm
39% 
nm
69% 
Total assets (bn)
137.8
22.5

127.9
17.7
23.4

276.2
327.3
23.6
94.6
1,051.0
Funded assets (bn)
137.8
22.4

127.9
17.7
23.4

137.7
115.6
23.6
90.9
697.0
Net loans and advances to customers (bn)
111.6
18.1

84.9
11.0
7.2

26.5
52.9
19.5
63.1
394.8
Risk elements in lending (bn)
3.6
4.4

2.4
0.1
0.2

-
15.6
0.6
1.3
28.2
Impairment provisions (bn)
(2.5)
(2.4)

(0.9)
-
(0.1)

-
(11.1)
(0.4)
(0.6)
(18.0)
Customer deposits (bn)
132.6
14.7

84.9
22.3
20.8

11.8
36.4
22.0
69.4
414.9
Risk-weighted assets (RWAs) (bn)
36.6
21.8

63.2
8.7
7.5

41.9
95.1
10.1
71.0
355.9
RWA equivalent (bn) 
39.2
20.0

70.1
8.7
7.5

42.6
101.3
10.8
71.4
371.6
Employee numbers (FTEs - thousands)
22.4
2.5

6.2
2.0
0.6

1.7
2.6
4.2
49.1
91.3













For the notes to this table refer to page 29. nm = not meaningful. *Restated - refer to page 46 for further details.









Segment performance

Quarter ended 30 September 2015*

PBB

CPB 




Central



Ulster

Commercial
Private
RBS


Capital
Williams
items &
Total

UK PBB
Bank RoI

Banking
Banking
International

CIB 
Resolution
& Glyn
other (1)
RBS

m
m 

m
m
m

m
m
m
m
m













Income statement 












Net interest income
1,055
90

504
109
73

29
78
167
82
2,187
Other non-interest income
258
74

296
51
14

299
(27)
44
(149)
860
Total income - adjusted (2)
1,313
164

800
160
87

328
51
211
(67)
3,047
Own credit adjustments
-
-

-
-
-

78
38
-
20
136
Total income
1,313
164

800
160
87

406
89
211
(47)
3,183













Direct expenses - staff costs
(202)
(40)

(117)
(43)
(9)

(97)
(60)
(55)
(658)
(1,281)
 - other costs
(68)
(22)

(54)
(11)
(3)

(19)
(41)
(12)
(789)
(1,019)
Indirect expenses
(464)
(48)

(238)
(65)
(24)

(242)
(245)
(24)
1,350
-













Operating expenses - adjusted (3)
(734)
(110)

(409)
(119)
(36)

(358)
(346)
(91)
(97)
(2,300)
Restructuring costs - direct
(5)
(3)

(1)
2
-

(3)
(190)
-
(647)
(847)
 - indirect
(23)
(2)

2
(1)
(2)

(148)
(300)
-
474
-
Litigation and conduct costs
-
-

-
-
-

(6)
(101)
-
(22)
(129)













Operating expenses
(762)
(115)

(408)
(118)
(38)

(515)
(937)
(91)
(292)
(3,276)













Profit/(loss) before impairment losses
551
49

392
42
49

(109)
(848)
120
(339)
(93)
Impairment (losses)/releases
(2)
54

(16)
(4)
1

-
50
(5)
1
79













Operating profit/(loss)
549
103

376
38
50

(109)
(798)
115
(338)
(14)













Operating profit/(loss) - adjusted (2,3)
577
108

375
37
52

(30)
(245)
115
(163)
826
Additional information












Return on equity (4)
27.2%
16.7%

12.3%
7.4%
18.0%

(6.4%)
nm
nm
nm
9.0%
Return on equity - adjusted (2,3,4)
28.7%
17.5%

12.3%
7.1%
18.8%

(2.7%)
nm
nm
nm
16.3%
Cost:income ratio
58%
70%

51%
74%
44%

127%
nm
43%
nm
103%
Cost:income ratio - adjusted (2,3)
56%
67%

51%
74%
41%

109%
nm
43%
nm
75%
Total assets (bn)
140.7
23.0

129.6
17.4
22.9

250.0
234.9
24.0
34.2
876.7
Funded assets (bn)
140.7
22.9

129.6
17.4
22.9

125.9
66.0
24.0
31.3
580.7
Net loans and advances to customers (bn)
116.3
16.8

89.1
11.1
7.0

19.8
30.8
20.0
2.8
313.7
Risk elements in lending (bn)
2.9
3.6

2.1
0.1
0.1

-
5.3
0.5
-
14.6
Impairment provisions (bn)
(2.0)
(2.0)

(0.7)
-
(0.1)

-
(4.0)
(0.3)
(0.2)
(9.3)
Customer deposits (bn)
134.9
13.6

89.4
22.7
22.3

5.9
30.0
23.6
10.1
352.5
Risk-weighted assets (RWAs) (bn)
33.3
19.6

64.2
8.4
8.1

38.8
59.7
10.1
73.8
316.0
RWA equivalent (bn)
36.0
19.8

70.1
8.4
8.1

39.5
62.0
10.7
74.1
328.7
Employee numbers (FTEs - thousands)
22.9
2.4

5.6
2.0
0.6

1.4
1.7
4.5
51.3
92.4













For the notes to this table refer to page 29. nm = not meaningful. *Restated - refer to page 46 for further details.






















Segment performance

Quarter ended 31 December 2014

PBB

CPB 




Central



Ulster

Commercial
Private
RBS


Capital
Williams
items &
Total

UK PBB
Bank RoI

Banking
Banking
International

CIB 
Resolution
& Glyn
other (1)
RBS

m
m 

m
m
m

m
m
m
m
m













Income statement 












Net interest income
1,086
112

506
116
83

8
162
167
142
2,382
Other non-interest income
288
40

343
54
18

248
37
49
(350)
727













Total income - adjusted (2)
1,374
152

849
170
101

256
199
216
(208)
3,109
Own credit adjustments 
-
-

-
-
-

(33)
(50)
-
(61)
(144)













Total income
1,374
152

849
170
101

223
149
216
(269)
2,965













Direct expenses - staff costs
(205)
(43)

(115)
(44)
(11)

(36)
(66)
(49)
(623)
(1,192)
 - other costs
(72)
(23)

(73)
(12)
(2)

(47)
(80)
(10)
(1,101)
(1,420)
Indirect expenses
(548)
(53)

(319)
(90)
(23)

(293)
(344)
(25)
1,695
-













Operating expenses - adjusted (3)
(825)
(119)

(507)
(146)
(36)

(376)
(490)
(84)
(29)
(2,612)
Restructuring costs - direct
(2)
-

(1)
(1)
-

(3)
(46)
-
(489)
(542)
 - indirect
(14)
2

(16)
-
(2)

(16)
(22)
-
68
-
Litigation and conduct costs
(650)
19

(62)
(90)
-

(370)
(12)
-
1
(1,164)













Operating expenses
(1,491)
(98)

(586)
(237)
(38)

(765)
(570)
(84)
(449)
(4,318)













(Loss)/profit before impairment losses
(117)
54

263
(67)
63

(542)
(421)
132
(718)
(1,353)
Impairment releases/(losses)
2
70

(32)
1
(3)

6
634
(9)
1
670













Operating (loss)/profit
(115)
124

231
(66)
60

(536)
213
123
(717)
(683)













Operating profit/(loss) - adjusted (2,3)
551
103

310
25
62

(114)
343
123
(236)
1,167













Additional information*












Return on equity (4)
(7.0%)
19.8%

7.0%
(15.8%)
24.7%

(23.3%)
nm
nm
nm
(51.1%)
Return on equity - adjusted (2,3,4)
25.5%
16.4%

9.9%
3.7%
25.6%

(5.9%)
nm
nm
nm
(37.4%)
Cost:income ratio
109%
64%

69%
139%
38%

343%
nm
39%
nm
146%
Cost:income ratio - adjusted (2,3)
60%
78%

60%
86%
36%

147%
nm
39%
nm
84%
Total assets (bn)
137.8
22.5

127.9
17.7
23.4

276.2
327.3
23.6
94.6
1,051.0
Funded assets (bn)
137.8
22.4

127.9
17.7
23.4

137.7
115.6
23.6
90.9
697.0
Net loans and advances to customers (bn)
111.6
18.1

84.9
11.0
7.2

26.5
52.9
19.5
63.1
394.8
Risk elements in lending (bn)
3.6
4.4

2.4
0.1
0.2

-
15.6
0.6
1.3
28.2
Impairment provisions (bn)
(2.5)
(2.4)

(0.9)
-
(0.1)

-
(11.1)
(0.4)
(0.6)
(18.0)
Customer deposits (bn)
132.6
14.7

84.9
22.3
20.8

11.8
36.4
22.0
69.4
414.9
Risk-weighted assets (RWAs) (bn)
36.6
21.8

63.2
8.7
7.5

41.9
95.1
10.1
71.0
355.9
RWA equivalent (bn) 
39.2
20.0

70.1
8.7
7.5

42.6
101.3
10.8
71.4
371.6
Employee numbers (FTEs - thousands)
22.4
2.5

6.2
2.0
0.6

1.7
2.6
4.2
49.1
91.3
nm = not meaningful. *Restated - refer to page 46 for further details. 










Notes:
(1)
Central items includes unallocated costs and assets which principally comprise volatile items under IFRS and balances in relation to Citizens and international private banking.
(2)
Excluding own credit adjustments, gains/(losses) on redemption of own debt and strategic disposals. Tax on these items was a 15 million charge in FY 2015 (FY 2014 - 29 million credit; Q4 2015 - 72 million credit; Q3 2015 - 25 million charge; Q4 2014 - 26 million credit).
(3) 
Excluding restructuring costs, litigation and conduct costs and write down of goodwill. Tax on these items was 563 million in FY 2015 (FY 2014 - 551 million; Q4 2015 - 141 million; Q3 2015 - 95 million; Q4 2014 - 262 million).
(4)
RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets after capital deductions (RWAes). This notional equity was previously 13% for all segments. In addition, due to changes in UK tax rules enacted in the Finance Act 2015, RBS has increased its longer-term effective 31 December tax rate. The notional tax rate used in the segmental ROE has been revised from 25% to 28% (Ulster Bank RoI - 15%; RBS International - 10%). RBS's forward planning tax rate is 26%.

Segment performance
2015 compared to 2014
UK Personal & Business Banking
UK PBB now includes Ulster Bank Northern Ireland and excludes Williams & Glyn, which is reported as a separate segment.
UK PBB recorded an operating profit of 1,030 million in 2015, a reduction of 9% or 103 million from 2014. This was primarily driven by lower non-interest income combined with increased restructuring costs and litigation and conduct costs. This was partially offset by a small net impairment release compared with a prior year charge. Adjusted operating profit (2,169 million) and return on equity (11.7%) were broadly stable compared with the prior year.
Total income was 5,200 million, a reduction of 4% from 5,444 million. Net interest income declined 2% to 4,152 million primarily as a result of continued margin pressure in the mortgage market as customers move to lower margin fixed rate products together with higher internal funding costs. The decline was partly offset by improved deposit margins. Reflecting strong mortgage balance growth, net interest margin (NIM) declined 14 basis points from 2014 to 3.18% as the overall portfolio mix continues to be increasingly weighted toward secured lending, together with the decline in unsecured balances. The decline was slightly offset by improved deposit margins.
Non-interest income was 1,048 million, a reduction of 14% compared with the prior year as interchange fees on credit and debit cards declined 59 million, combined with reduced advice income.
Operating expenses were 4,177 million, remaining broadly stable against 2014. Litigation and conduct costs increased 6% due to customer redress provisions, primarily relating to PPI, to 972 million, whilst higher restructuring costs were up 56 million, to 167 million. This was principally offset by a reduction in staff and other costs. Adjusted operating expenses totalled 3,038 million, 3% lower than 2014.
Net impairment releases totalled 7 million, compared with a net charge of 154 million in 2014, driven by decreased charges from bad debt flows and benefit of provision releases and recoveries. 
2015 was a strong year for the mortgage business with applications increasing 48% from 21.7 billion to 32.0 billion as gross new lending rose 29% to 23 billion. Market share of new mortgages was 10.5% versus a stock share of 8.2%. This led to net mortgage balances growing by 9.3 billion or 10% to 104.8 billion.
Mortgage growth was the principal driver of an 8.2 billion increase in net loans and advances to customers. Unsecured balances continued to decline gradually, albeit at a much slower rate.
Customer deposit balances increased 5.2 billion to 137.8 billion due to growth in personal savings, current accounts and business banking.
RWAs fell 3.3 billion to 33.3 billion due to the improved quality of portfolio.
Ulster Bank RoI
Following the strategic review of Ulster Bank in 2014, it was confirmed that the Northern Ireland and Republic of Ireland businesses were to be separated. The change of management controls and governance was completed in October 2015 with the Northern Irish business included in UK Personal & Business Banking (UK PBB) and the reportable segment of Ulster Bank RoI now comprising the core Republic of Ireland business only. 
A significant weakening of the euro relative to sterling during 2015 had a material impact on Ulster Bank RoI's financial comparison with 2014 and the income trend in particular. 
Ulster Bank RoI recorded an operating profit of 262 million compared with an operating profit of 489 million in 2014, the decline was primarily due to considerably lower net impairment releases in 2015. Adjusted operating profit was 264 million, a decrease of 219 million from 2014. Return on equity was 10.6%, down from 18.6% in 2014.


Segment performance
Ulster Bank RoI (continued)
Total income was 550 million, a decrease of 9% from the prior year reflecting the weakening of the euro during 2015. Excluding the impact of the euro exchange rate movement, total income increased 1% due to a continued improvement in deposit pricing in line with market trends, combined with non-recurring benefits, including a gain on the sale of a buy-to-let portfolio of 12 million and the closure of a foreign exchange exposure of 24 million. These benefits were largely offset by reduced income on free funds. 
Net interest margin (NIM) was 1.57%, a decrease of 35 basis points from 2014, primarily driven by reduced income on free funds and an increased drag from liquidity management requirements. NIM continues to reflect a sizeable drag from the low yielding tracker mortgage book.
Operating expenses increased by 2% from 421 million to 429 million, reflecting an increase in pension servicing costs, totalling 22 million, largely offset by the benefit of a weakening euro. Cost savings delivered through a further reduction in both employee numbers and the property footprint were somewhat offset by further investment in the business and operational infrastructure.
Net impairment releases reduced by 165 million to 141 million, and although at lower levels, continued to reflect the improving economic conditions and the benefits of proactive debt management.
Gross new mortgage lending increased 53% to 0.5 billion whilst gross new lending to commercial customers increased 65% to 1.1 billion. Strong new lending volumes across the business in 2015 were offset by high levels of customer repayments and the sale of a 0.3 billion buy-to-let mortgage portfolio. Net loans and advances to customers decreased 1.4 billion to 16.7 billion, 1 billion of which related to exchange rate movements. The low yielding tracker mortgage portfolio balances reduced from 10.6 billion in 2014 to 9.2 billion, but continues to make up a significant part of the overall mortgage book. 
RWAs reduced 11% from 21.8 billion to 19.4 billion due to improved credit metrics and the impact of a weakening euro while RWA intensity reduced by 2 percentage points to 104%. RWAs on the tracker mortgage portfolio reduced from 9.3 billion in 2014 to 7.8 billion.
Commercial Banking
Comparisons with prior periods are affected by a number of internal business transfers. In line with changes to the business model, the UK and Western European corporate loan portfolios transferred to Commercial Banking on 1 May 2015 and 1 October 2015 respectively. The prior period financials were adjusted for the UK Transaction Services business transfer, which does not affect comparisons. The results exclude RBS International which is reported as a separate segment for the first time.
Commercial Banking recorded an operating profit of 1,264 million, broadly in line with the prior year. Adjusted operating profit was 1,384 million, a decrease of 92 million from 2014 due to a marginal fall in income reflecting margin pressure. Return on equity was broadly stable year on year.
Total income was 3,254 million, compared with 3,305 million in 2014. Net interest income was 1,997 million, a 1% increase from 2014, driven largely by higher asset and deposit volumes. Net interest margin decreased three basis points to 1.88% with improved deposit margins partly offsetting competitive pressures on new business asset margins. Non-interest income fell by 5% to 1,257 million driven by a loss of 34 million from the sale of non-strategic asset portfolios and the transfer of the commercial cards business to UK PBB in 2014.


Segment performance
Commercial Banking (continued)
Operating expenses totalled 1,921 million, a reduction of 2% from 2014, principally driven by tight control on discretionary costs and lower litigation and conduct costs, down 54% to 51 million, combined with restructuring costs falling 36% to 69 million. Adjusted operating expenses were 1,801 million, an increase of 57 million, primarily as a result of a higher UK bank levy charge.
Net impairment losses decreased 16 million to 69 million due to lower individual charges, offsetting lower net provision releases.
Commercial Banking recorded volume growth across segments, resulting in net loans and advances to customers increasing by 6.4 billion to 91.3 billion. This included 5.0 billion from the transferred businesses, offset by strategic run-off and sale of selected assets totalling 2.2 billion. Excluding the transferred businesses and strategic run-off and disposals, net new lending was 3.6 billion.
Customer deposits totalled 88.9 billion, an increase of 4.0 billion reflecting high levels of liquidity in the market. 
RWAs increased 9.1 billion to 72.3 billion in 2015, of which 8.4 billion relates to 5 billion of assets transferred in. The higher capital intensity reflects increased level of undrawn commitments in these transferred businesses. 
The Commercial Banking run-off portfolio includes funded assets of 12.5 billion and RWAs of 8.5 billion.
Private Banking
Private Banking results exclude the international private banking business.
Private Banking recorded an adjusted operating profit of 113 million, a fall of 77 million reflecting lower income and higher impairment losses. A charge for goodwill impairment of 498 million attributed to the business drove an operating loss of 470 million, compared with an operating profit of 99 million in 2014. 
Total income was 644 million, a reduction of 45 million from 2014. Net interest income was 436 million, down 4% primarily due to lower net interest margin. Non-interest income totalled 208 million, a decrease of 11% driven by lower investment and transactional income as the business adjusted pricing to reflect a more competitive market. 
Adjusted operating expenses were 518 million, up 3%, with reductions in the direct cost base offset by a higher UK bank levy charge. Operating expenses totalled 1,101 million, an increase of 506 million, driven by a goodwill impairment charge of 498 million, and considerably higher restructuring costs of 73 million which included a share of an asset write down related to software of 91 million, and lower litigation and conduct costs of 12 million. 
Net impairment losses totalled 13 million, compared with a release of 5 million, due to higher individual and latent charges.
Despite challenging market conditions, assets under management and net loans and advances to customers were broadly stable compared with the prior year.
RBS International
RBS International (RBSI) operates under the CPB franchise, serving retail, commercial, corporate and financial institution customers in Jersey, Guernsey, Isle of Man and Gibraltar. RBSI is reported as a separate segment for the first time.
RBSI reported an operating profit of 207 million, 31 million lower than 2014, largely due to lower income from deposits which in turn drove return on equity down to 18.5%, from 24.2%. 
Total income decreased 6% to 367 million, mainly due to reductions in net interest income, falling 20 million to 303 million, principally reflecting lower deposit margins and lower return on free funds partly offset by higher asset volumes. Non-interest income declined 4 million to 64 million as a result of a lower CIB revenue share and lower net lending fees.


Segment performance
RBS International (continued)
There were no impairments in 2015 compared with modest impairment releases of 7 million in the prior year.
Operating expenses remained stable at 160 million due to control of direct expenditure offset by a slightly higher UK bank levy charge.
Net loans and advances to customers increased by 0.1 billion to 7.3 billion. Customer deposit balances grew 0.5 billion to 21.3 billion. The business is a liability heavy business with a loan-to-deposit ratio of 35%.
RWAs increased by 0.8 billion to 8.3 billion as a result of a change in business mix and foreign exchange movements.
Corporate & Institutional Banking
Comparisons with prior periods are affected by a number of internal business transfers. In line with changes to the business model, the UK and Western European corporate loan portfolios transferred to Commercial Banking on 1 May 2015 and 1 October 2015 respectively; the Short Term Money markets business was transferred to Treasury on 1 August 2015. The prior period financials were adjusted for the UK Transaction Services business transfer to Commercial Banking which does not affect prior period comparisons.
CIB reported an operating loss of 837 million in 2015, compared with an operating loss of 710 million in 2014. This included restructuring costs of 524 million and litigation and conduct costs of 378 million. The adjusted operating loss was 55 million, compared with a profit of 233 million in 2014. The reduction was driven by lower income partially offset by the continued reduction in adjusted expenses, down 249 million, or 15%, to 1,467 million as the business continues to take costs out and move towards a more sustainable cost base.
Total income declined by 404 million, or 21%, to 1,527 million in 2015. This includes 120 million relating to own credit adjustments and 98 million relating to the transfer of portfolio businesses to Commercial Banking. Excluding this, CIB income was 1,309 million, in line with previous guidance. Rates income declined, reflecting the reduced scale and risk appetite of the business. Currencies incurred losses when the Swiss Central Bank unexpectedly removed the Swiss Franc's peg to the Euro. Financing was impacted by the strategically reduced corporate footprint especially in the US and by lower levels of EMEA investment grade issuance. 
Operating expenses fell by 281 million, or 11%, to 2,369 million in 2015. This includes 35 million relating to the transfer of portfolio businesses to Commercial Banking. Expenses remaining in CIB were 2,334 million. Adjusted operating expenses fell by 249 million or 15% to 1,467 million as the business reshaped, including a considerable reduction in headcount. Litigation and conduct costs fell by 454 million, or 55%, to 378 million, primarily relating to foreign exchange settlements in the US. This reduction was offset by an increase in restructuring costs of 422 million to 524 million, primarily relating to property and intangible asset write downs. 
Funded assets fell by 34.4 billion to 103.3 billion as the business continues to work through re-shaping, and included 17 billion (2014 - 20 billion) relating to the transfer to Treasury of the Short Term Markets business and 5 billion from the transfer of the UK and Western European corporate loan portfolios to Commercial Banking. 
RWAs reduced by 8.8 billion to 33.1 billion compared with 41.9 billion, nearing the end-state target of c.30 billion. The reduction was primarily driven by the transfer of the UK and Western European portfolio businesses to Commercial Banking.


Segment performance
Capital Resolution 
Capital Resolution consists of CIB Capital Resolution and RBS Capital Resolution (RCR). CIB Capital Resolution was created from non-strategic portfolios from CIB to enable the build of a strong go-forward CIB business. The perimeter was 101 billion of funded assets on 1 January 2015. RCR was created on 1 January 2014 to de-risk the balance sheet; its original perimeter was 47 billion of funded assets.
Capital Resolution RWAs reduced from 95.1 billion to 49.0 billion driven by significant reductions across CIB Capital Resolution and RCR, which primarily reflected disposals and repayments activity.
CIB Capital Resolution reduced RWAs by 32.6 billion to 40.5 billion, achieving its target RWA reduction of 25 billion. 
Capital Resolution made an operating loss of 3,687 million, including income related disposal losses of 367 million, restructuring costs of 1,307 million, together with litigation and conduct costs of 2,105 million primarily relating to additional provisions for mortgage-backed securities litigation in the US. Adjusted expenses were reduced by 481 million, or 24% to 1,539 million, principally reflecting a fall in headcount of approximately 1,100. Net impairment releases of 725 million were recorded, primarily in RCR driven by the disposal strategy and favourable market and economic conditions.
Capital Resolution funded assets fell 62.2 billion to 53.4 billion. CIB Capital Resolution funded assets fell 51.9 billion to 48.8 billion in 2015, primarily due to loan portfolio disposals. RCR funded assets fell 10.3 billion to 4.6 billion, driven by extensive disposal activity across all asset groups with 533 deals completed in 2015 at an average price of 109% of book value.
RCR has achieved its asset reduction objective a year ahead of schedule by reducing funded assets by 88% since its formation to 4.6 billion; exceeding the targeted reduction of 85%.
Williams & Glyn
W&G is in the process of being established as a fully licensed, independent, full-service retail and commercial bank, with its own operating infrastructure and platform. RBS continues to work towards the separation of W&G and to meeting its EC commitments to fully divest the business by the end of 2017. W&Gs reported segmental results reflect the contribution made by W&G's ongoing business to RBS, as distinct to the financial effects of any disposal transaction. These figures do not reflect the cost base, funding, liquidity and capital profile of W&G as a standalone bank and does not include certain customer portfolios which are currently reported through other segments within RBS.
Operating profit was 431 million, compared with a profit of 467 million in 2014. The reduction was principally driven by lower non-interest income and restructuring costs attributed to Commercial Banking, partly offset by a lower net impairment charge. Adjusted operating profit was down 8 million to 459 million.
Total income was 833 million, compared with 852 million in 2014. Net interest income reduced 6 million to 658 million due to mortgage margin pressure from the impact of market competition on new business pricing. Net interest margin declined 6 basis points to 2.87%, due to the aforementioned margin pressure on new mortgage volumes and a reduction in the number of customers on the standard variable rate. Non-interest income fell by 7%, primarily due to lower fee income from credit and debit cards as well as lower overdraft usage and tariffs.
Operating expenses totalled 387 million, an increase of 57 million, including a restructuring charge of 28 million in Commercial Banking. Adjusted expenses increased 9% to 359 million as the business continued to stand up the central functions and operations areas resulting in an increase in staff costs of 7% or 13 million. 


Segment performance
Williams & Glyn (continued)
Net impairment losses were 15 million, lower than the 55 million loss incurred in 2014 due to portfolio provision releases and reduced levels of defaults in portfolios reflecting a benign UK economy.
Loans and advances grew by 0.4 billion, or 2%, to 20.3 billion. Excluding the transfer of 0.3 billion of commercial lending back to CPB, lending grew 0.7 billion, or 4%, driven by good growth in both mortgage lending and commercial loans. Customer deposits rose 2.1 billion, or 10%, to 24.1 billion with growth in both transactional accounts and savings accounts.
RWAs fell 0.2 billion to 9.9 billion due to the better credit quality of the overall portfolio.
Central items & other
Central items not allocated represented a charge of 903 million compared with a charge of 931 million in 2014. This includes restructuring costs relating to Williams & Glyn of 630 million, a write-off of intangible assets of 59 million, a loss of 263 million on the repurchase of certain US dollar, Sterling and Euro senior debt securities and a loss of 67 million on the disposal of available-for-sale securities. These were partially offset by Treasury funding costs, including volatile items under IFRS, a gain of 169 million. Also included are 56 million of income, 109 million of direct operating expenses and 122 million of indirect operating expenses in relation to the international private banking business. Adjusted operating expenses totalled 231 million, 6% lower than 2014.
  
Q4 2015
UK Personal & Business Banking
UK PBB reported an operating loss of 290 million, compared with an operating loss of 115 million in Q4 2014. This was driven by higher restructuring costs of 87 million, an increase of 71 million and lower income. Adjusted operating profit was 404 million, a reduction of 147 million from a year earlier.
Total income was 9% lower at 1,254 million compared with Q4 2014 as the increasingly competitive mortgage market weighed on net interest income. New business margins were lower coupled with customers rolling off standard variable rate balances and onto lower margin fixed rate products. Deposit re-pricing slightly offset this. NIM decreased to 3.03%, down 34 basis points from Q4 2014 and 16 basis points from Q3 2015. Standard variable rate balances continued to decline and represented 17% of the mortgage book at 31 December 2015. 
Non-interest income declined 22% to 224 million compared to Q4 2014 primarily due to decline in debit and credit card interchange fees, reward cashback payable (not in prior year) and lower advice income.
Operating expenses increased 5% to 1,571 million compared to Q4 2014 due to higher restructuring costs of 87 million. Adjusted costs were 877 million, a small increase from Q4 2014. Staff costs fell 3% compared to Q4 2014; however, this was offset by higher bank levy and other costs. 
Total loans and advances to customers increased 3.3 billion from Q3 2015. Mortgage balances recorded a net increase of 3.6 billion from Q3 2015, totalling 104.8 billion. Gross lending in the quarter totalled 7.5 billion, up 8% on Q3 2015. Flow market share in Q4 was 12.1% compared with our stock share of 8.2%. 
Customer deposit balances increased 2.9 billion compared with Q3 2015 due to significant growth in instant access savings and balance growth in both business and personal current accounts.
RWAs fell 3.3 billion to 33.3 billion compared with Q4 2014 due to lower unsecured balances, improved underlying quality across all products and recalibration benefits.


Segment performance
Ulster Bank RoI
Ulster Bank RoI operating profit was 19 million, compared with 124 million in Q4 2014, principally due to considerably lower net impairment releases. Adjusted operating profit totalled 9 million, a decrease of 94 million from Q4 2014. 
Total income was 36 million lower than in Q4 2014 at 116 million. This reflected the impact of euro exchange rate movements and reduced income on free funds, somewhat offset by deposit pricing improvement and the benefit of new business lending. Compared with Q3 2015, income was down 48 million largely due to the non-recurring gains in Q3 2015 from the sale of a buy-to-let portfolio of 12 million and the closure of a foreign exchange exposure of 24 million.
Operating expenses increased 9 million to 107 million compared with Q4 2014 largely due to the benefit of releases on conduct and litigation costs in Q4 2014 partly offset by a benefit from the weakening euro. 
Net impairment releases of 10 million were 60 million lower than the prior year and 44 million lower than Q3 2015. A continued benefit from collections activity was partly offset by the impact of revised assumptions on the residential mortgage portfolio in Q4 2015.
The low yielding tracker mortgage portfolio reduced from 9.4 billion to 9.2 billion compared with Q3 2015 with RWAs falling 0.1 billion to 7.8 billion.
Commercial Banking 
Commercial Banking recorded an operating profit of 140 million, compared with an operating profit of 231 million in Q4 2014. This was principally driven by a higher charge for UK bank levy and increased restructuring costs. 
Total income was 797 million, a decrease of 6% from Q4 2014. Net interest income increased 1% to 512 million, primarily due to higher asset and deposit volumes combined with higher deposit margins, partially offset by lower asset margins. Non-interest income fell 17% from Q4 2014, driven by reduced equity gains of 7 million, down 30 million, and a loss of 34 million on the sale of non-strategic asset portfolios.
Operating expenses were 630 million, 8% higher than in Q4 2014, mainly due to increased restructuring costs of 54 million as the pace of business initiatives accelerated and a higher UK bank levy charge. There was a litigation and conduct costs write-back of 8 million compared with a charge of 62 million in Q4 2014. Compared with Q3 2015, operating expenses increased 54% due to the UK bank levy charge.
Net impairment losses decreased 5 million to 27 million primarily due to lower individual charges. 
Net loans and advances to customers totalled 91.3 billion at the end of 2015, including 3.1 billion from the businesses transferred in Q4 2015. Excluding the transferred businesses, net lending increased 0.4 billion compared with Q3 2015.
RWAs increased 8.1 billion to 72.3 billion from Q3 2015, including 6.0 billion from the businesses transferred in Q4 2015. Excluding the transferred businesses, RWAs increased 2.1 billion in the quarter, driven by new business and foreign exchange movements.
Private Banking
Private Banking reported an adjusted operating loss of 13 million, compared with a 25 million profit in Q4 2014 principally due to a higher UK bank levy charge and lower income. A goodwill impairment charge of 498 million attributed to the business led to an operating loss of 516 million, compared with an operating loss of 66 million in Q4 2014. 


Segment performance
Private Banking (continued)
Total income was 158 million, down 7% from Q4 2014, due mainly to lower new business asset margins, lower investment income and reduced deposit income. 
Operating expenses totalled 662 million, an increase from 237 million in Q4 2014. The increase was due to the goodwill impairment charge of 498 million, offset by reductions in litigation and conduct costs. Adjusted operating expenses increased 34% from Q3 2015 due to the UK bank levy.
Assets under management increased in the quarter from 13.5 billion to 13.9 billion due to market movements. 
RBS International
RBS International reported an operating profit of 55 million, compared with an operating profit of 60 million in Q4 2014.
Total income fell 6 million against Q4 2014 to 95 million due primarily to lower new business asset margins. Compared with the previous quarter, income increased 8 million due to higher new lending volumes and increased fee income.
Operating expenses were 40 million, 2 million higher than Q4 2014 due to the increased charge for the UK bank levy.
Net loans and advances to customers rose 0.3 billion to 7.3 billion in the quarter, mainly from volume growth in the funds sector, partly offset by repayments in local government lending. 
Customer deposits decreased 1.0 billion to 21.3 billion in the quarter as clients looked to manage their cash positions over year end.
Corporate & Institutional Banking 
CIB reported an operating loss of 245 million, compared with an operating loss of 536 million in Q4 2014, reflecting the 365 million reduction in litigation and conduct costs to 5 million. Adjusted operating loss was 112 million compared with 114 million in Q4 2014. 
Total income declined by 37 million to 186 million compared with 223 million in Q4 2014, primarily due to increased losses on own credit adjustments of 66 million compared with 33 million in Q4 2014. Excluding this, total income was 252 million compared with 256 million in Q4 2014. This reflects a significant increase in Rates income offset by a reduction in Currencies and the absence in Q4 2015 of income from the businesses transferred to Commercial Banking. 
Operating expenses reduced by 334 million to 431 million compared with 765 million in Q4 2014, primarily reflecting lower litigation and conduct costs of 5 million, compared with 370 million in Q4 2014, partially offset by an increase in restructuring costs of 43 million to 62 million compared with 19 million in Q4 2014. Adjusted expenses decreased by 12 million to 364 million, reflecting lower back office costs, partially offset by the impact of a one-off staff cost credit in Q4 2014.
RWAs reduced by 5.7 billion in the quarter to 33.1 billion, driven by the transfer to Commercial Banking of the Western European loan portfolio.
Capital Resolution
During Q4 2015, Capital Resolution reduced RWAs by 10.7 billion to 49.0 billion, due primarily to the sales of several portfolios in CIB Capital Resolution and disposals and repayments within RCR.
Capital Resolution funded assets fell 12.6 billion to 53.4 billion. CIB Capital Resolution funded assets fell 10.7 billion, primarily due to the loan portfolio disposals with RCR funded assets reducing 1.9 billion driven by disposal activity across all asset groups.


Segment performance
Capital Resolution (continued)
Capital Resolution Q4 2015 operating loss of 1,902 million reflected disposal losses within income of 180 million, an increase from 89 million in Q3 2015, and 1,498 million of litigation and conduct costs from provisions for mortgage-backed securities litigation in the United States. Adjusted operating expenses fell by 20% compared with Q4 2014 to 394 million driven by a reduction in staff costs. Restructuring costs reduced to 104 million in the quarter. Net impairment releases of 356 million were recorded in Q4 2015 primarily in RCR Ireland driven by a significant disposal of commercial real estate assets.
Williams & Glyn
Operating profit was 53 million, against a profit of 123 million in Q4 2014 and a profit of 115 million in Q3 2015. This was primarily due to increased operating costs as the business continued to stand up the central functions and operations, in addition to incurring 28 million of costs in relation to the restructuring of Commercial Banking.
Total income reduced by 4% compared to Q4 2014 due primarily to lower non-interest income, reflecting lower interchange fee income from credit and debit cards. Income was broadly flat compared to Q3 2015.
Operating expenses were 135 million, an increase of 51 million from Q4 2014 due largely to 28 million of restructuring costs and 9 million higher staff costs as headcount increased. Compared to Q3 2015, costs increased 44 million due to restructuring costs and costs associated with the standing up of central and operations.
Net impairment losses totalled 20 million, an uplift of 11 million from Q4 2014 and 15 million from Q3 2015 due to a large single corporate charge.
Loans and advances were flat against Q3 2015. Excluding the transfer of 0.2bn of Commercial lending back to CPB in Q4, lending grew 0.2 billion driven by good growth in mortgage lending. Customer deposits grew 0.5 billion against Q3 2015.
Central items & other
Central items not allocated represented a charge of 264 million for the quarter compared with a charge of 717 million for Q4 2014. This includes a 263 million loss on the repurchase of certain US dollar, Sterling and Euro senior debt securities and a 44 million adverse own credit adjustment (Q4 2014 - 61 million charge). Restructuring costs included a charge relating to Williams & Glyn of 181 million and a write-off of intangible assets of 59 million (Q4 2014 - 247 million). Treasury funding costs, including volatile items under IFRS, recorded a gain of 193 million (Q4 2014 - 323 million).
  
 

Statutory results
Consolidated income statement for the period ended 31 December 2015

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014

2015
2015*
2014

m
m

m
m
m







Interest receivable
11,925
13,079

2,855
2,963
3,238
Interest payable
(3,158)
(3,821)

(693)
(776)
(856)







Net interest income
8,767
9,258

2,162
2,187
2,382







Fees and commissions receivable
3,742
4,414

904
880
1,055
Fees and commissions payable
(809)
(875)

(251)
(195)
(204)
Income from trading activities
1,060
1,285

15
170
(403)
(Loss)/gain on redemption of own debt
(263)
20

(263)
-
-
Other operating income
426
1,048

(83)
141
135







Non-interest income
4,156
5,892

322
996
583







Total income
12,923
15,150

2,484
3,183
2,965







Staff costs
(5,726)
(5,757)

(1,277)
(1,562)
(1,325)
Premises and equipment
(1,827)
(2,081)

(447)
(635)
(480)
Other administrative expenses
(6,288)
(4,568)

(3,192)
(730)
(1,999)
Depreciation and amortisation
(1,180)
(930)

(186)
(282)
(203)
Write down of goodwill and other intangible assets
(1,332)
(523)

(659)
(67)
(311)







Operating expenses
(16,353)
(13,859)

(5,761)
(3,276)
(4,318)







(Loss)/profit before impairment releases
(3,430)
1,291

(3,277)
(93)
(1,353)
Impairment releases
727
1,352

327
79
670







Operating (loss)/profit before tax
(2,703)
2,643

(2,950)
(14)
(683)
Tax (charge)/credit
(23)
(1,909)

261
3
(1,040)







(Loss)/profit from continuing operations
(2,726)
734

(2,689)
(11)
(1,723)
Profit/(loss) from discontinued operations,






 net of tax (1)
1,541
(3,445)

90
1,093
(3,882)







(Loss)/profit for the period
(1,185)
(2,711)

(2,599)
1,082
(5,605)
Non-controlling interests
(409)
(60)

(20)
(45)
(71)
Preference shares
(297)
(330)

(74)
(80)
(99)
Other owners 
(88)
(49)

(47)
(17)
(16)
Dividend access share 
-
(320)

-
-
-







(Loss)/profit attributable to ordinary shareholders
(1,979)
(3,470)

(2,740)
940
(5,791)







(Loss)/earnings per ordinary share (EPS) (2)






Basic EPS from continuing and discontinued operations
(17.2p)
(30.6p)

(23.6p)
8.1p
(50.7p)
Basic EPS from continuing operations
(27.7p)
0.5p

(24.5p)
(1.0p)
(16.2p)
* Restated, refer to Note 1 on page 46 for further details.
Notes:
(1)
Refer to Note 2 on page 46 for further details.
(2)
Diluted EPS from discontinued operations was 0.1p less than basic EPS in the year ended 31 December 2015. There was no dilution in any other period.

Statutory results
Consolidated statement of comprehensive income for the period ended 31 December 2015

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014*

2015
2015*
2014*

m
m

m
m
m







(Loss)/profit for the period
(1,185)
(2,711)

(2,599)
1,082
(5,605)







Items that do not qualify for reclassification






(Loss)/gain on remeasurement of retirement benefit schemes
(73)
(1,857)

(93)
3
(186)
Tax
306
314

310
(1)
(20)








233
(1,543)

217
2
(206)







Items that do qualify for reclassification






Available-for-sale financial assets
44
807

139
(50)
199
Cash flow hedges
(700)
1,413

(398)
408
958
Currency translation
(1,181)
307

(4)
(604)
424
Tax
108
(455)

2
(38)
(264)








(1,729)
2,072

(261)
(284)
1,317







Other comprehensive (loss)/income after tax
(1,496)
529

(44)
(282)
1,111







Total comprehensive (loss)/income for the period
(2,681)
(2,182)

(2,643)
800
(4,494)







Total comprehensive (loss)/income is attributable to:






Non-controlling interests
370
246

13
58
204
Preference shareholders
297
330

74
80
99
Paid-in equity holders
88
49

47
17
16
Dividend access share
-
320

-
-
-
Ordinary shareholders
(3,436)
(3,127)

(2,777)
645
(4,813)








(2,681)
(2,182)

(2,643)
800
(4,494)
* Restated, refer to Note 1 on page 46 for further details.
Key points
The loss on remeasurement of retirement benefit schemes reflects the change of accounting policy for pensions. For further details, refer to Note 1 on page 46.


Cash flow hedging losses in both the year and quarter principally result from transfers from equity as hedged transactions occurred. In the year, this is partially offset by cash flow hedging gains deferred in equity.


Currency translation losses for the year predominantly relates to the recycling of foreign exchange reserves upon ceding control of Citizens and the strengthening of sterling against the euro, partially offset by the weakening of sterling against the US dollar.


The movement in available-for-sale financial assets in both the year and quarter reflects significant unrealised gains on a holding of euro equity securities. In the year, this is partially offset by unrealised losses on available-for-sale debt securities.

Statutory results
Consolidated balance sheet as at 31 December 2015

31 December
30 September
31 December
2015
2015*
2014*

m
m
m




Assets



Cash and balances at central banks
79,404
77,220
74,872
Net loans and advances to banks
18,361
22,681
23,027
Reverse repurchase agreements and stock borrowing
12,285
15,255
20,708
Loans and advances to banks
30,646
37,936
43,735
Net loans and advances to customers
306,334
311,383
334,251
Reverse repurchase agreements and stock borrowing
27,558
36,545
43,987
Loans and advances to customers
333,892
347,928
378,238
Debt securities
82,097
81,307
86,649
Equity shares
1,361
2,199
5,635
Settlement balances
4,116
9,397
4,667
Derivatives
262,514
296,019
353,590
Intangible assets
6,537
7,151
7,781
Property, plant and equipment
4,482
4,607
6,167
Deferred tax
2,631
1,811
1,911
Prepayments, accrued income and other assets
4,242
4,809
5,763
Assets of disposal groups
3,486
6,300
82,011




Total assets
815,408
876,684
1,051,019




Liabilities



Bank deposits
28,030
30,543
35,806
Repurchase agreements and stock lending
10,266
12,800
24,859
Deposits by banks
38,296
43,343
60,665
Customer deposits
343,186
346,267
354,288
Repurchase agreements and stock lending
27,112
30,555
37,351
Customer accounts
370,298
376,822
391,639
Debt securities in issue
31,150
37,360
50,280
Settlement balances
3,390
8,401
4,503
Short positions
20,809
20,108
23,029
Derivatives
254,705
288,905
349,805
Accruals, deferred income and other liabilities
15,115
14,324
13,346
Retirement benefit liabilities
3,789
3,718
4,318
Deferred tax
882
376
500
Subordinated liabilities
19,847
20,184
22,905
Liabilities of disposal groups
2,980
6,401
71,320




Total liabilities
761,261
819,942
992,310




Equity



Non-controlling interests
716
703
2,946
Owners' equity



Called up share capital
11,625
6,984
6,877
Reserves
41,806
49,055
48,886




Total equity
54,147
56,742
58,709




Total liabilities and equity
815,408
876,684
1,051,019




Owners' equity attributable to:



Ordinary shareholders
47,480
50,088
50,666
Other equity owners
5,951
5,951
5,097





53,431
56,039
55,763
*Restated, refer to Note 1 on page 46 for further details.
The parent company's distributable reserves at 31 December 2015 were 16.3 billion (31 December 2014 - 17.5 billion).

Statutory results
Consolidated statement of changes in equity for the period ended 31 December 2015

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014*

2015
2015*
2014*
m
m

m
m
m







Called-up share capital






At beginning of period
6,877
6,714

6,984
6,981
6,832
Ordinary shares issued
159
163

51
4
45
Conversion of B shares (1)
4,590
-

4,590
-
-
Preference shares redeemed (2)
(1)
-

-
(1)
-







At end of period
11,625
6,877

11,625
6,984
6,877







Paid-in equity






At beginning of period
784
979

2,646
634
979
Redeemed/reclassified
(150)
(195)

-
-
(195)
Additional Tier 1 capital notes issued
2,012
-

-
2,012
-







At end of period
2,646
784

2,646
2,646
784







Share premium account






At beginning of period
25,052
24,667

25,315
25,306
24,934
Ordinary shares issued
373
385

110
9
118







At end of period
25,425
25,052

25,425
25,315
25,052







Merger reserve






At beginning of period
13,222
13,222

13,222
13,222
13,222
Transfer to retained earnings
(2,341)
-

(2,341)
-
-
At end of period

10,881
13,222

10,881
13,222
13,222







Available-for-sale reserve






At beginning of period
299
(308)

210
244
172
Unrealised gains
31
980

139
6
173
Realised losses/(gains)
27
(333)

2
(38)
(19)
Tax
(16)
(67)

(44)
(11)
(27)
Recycled to profit or loss on disposal of businesses (3)
-
36

-
-
-
Recycled to profit or loss on ceding control of Citizens (4)
9
-

-
9
-
Transfer to retained earnings
(43)
(9)

-
-
-







At end of period
307
299

307
210
299







Cash flow hedging reserve






At beginning of period
1,029
(84)

810
435
291
Amount recognised in equity
712
2,871

(65)
803
1,328
Amount transferred from equity to earnings
(1,354)
(1,458)

(333)
(316)
(370)
Tax
98
(334)

46
(76)
(220)
Recycled to profit or loss on ceding control of Citizens (5)
(36)
-

-
(36)
-
Transfer to retained earnings
9
34

-
-
-







At end of period
458
1,029

458
810
1,029








Foreign exchange reserve






At beginning of period
3,483
3,691

1,679
2,317
3,173
Retranslation of net assets
(22)
113

17
509
209
Foreign currency (losses)/gains on hedges of net assets
(176)
108

(26)
(188)
114
Tax
(11)
(30)

-
3
(4)
Recycled to profit or loss on disposal of businesses
4
-

4
-
-
Recycled to profit or loss on ceding control of Citizens
(962)
-

-
(962)
-
Transfer to retained earnings
(642)
(399)

-
-
(9)







At end of period
1,674
3,483

1,674
1,679
3,483








Capital redemption reserve






At beginning of period
9,131
9,131

9,132
9,131
9,131
Conversion of B shares (1)
(4,590)
-

(4,590)
-
-
Preference shares redeemed (2)
1
-

-
1
-








At end of period
4,542
9,131

4,542
9,132
9,131
*Restated, refer to Note 1 on page 46 for further details.
Notes:
(1)
In October 2015, all B shares were converted into ordinary shares of 1 each.
(2)
Non-cumulative dollar preference shares totalling $1.9 billion were redeemed in September 2015. 
(3)
Net of tax - 11 million charge in year ended December 2014.
(4)
Net of tax - 6 million charge.
(5)
Net of tax - 16 million credit.
(6)
See Basis of preparation in Note 1.
(7)
Includes 2,491 million relating to the secondary offering of Citizens in March 2015 (2014 - 2,117 million relating to IPO of Citizens).


Statutory results
Consolidated statement of changes in equity for the period ended 31 December 2015

Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December
2015
2014*

2015
2015*
2014*

m
m

m
m
m







Retained earnings






At beginning of period
(4,001)
783

(3,851)
(3,593)
2,072
(Loss)/profit attributable to ordinary shareholders






 and other equity owners






- continuing operations
(2,801)
756

(2,709)
(16)
(1,741)
- discontinued operations
1,207
(3,527)

90
1,053
(3,935)
Equity preference dividends paid
(297)
(330)

(74)
(80)
(99)
Paid-in equity dividends paid, net of tax
(88)
(49)

(47)
(17)
(16)
Dividend access share dividend
-
(320)

-
-
-
Transfer from available-for-sale reserve
43
9

-
-
-
Transfer from cash flow hedging reserve
(9)
(34)

-
-
-
Transfer from foreign exchange reserve
642
399

-
-
9
Transfer from merger reserve
2,341
-

2,341
-
-
Costs of placing Citizens equity
(29)
(45)

-
-
-
Redemption of equity preference shares (2)
(1,214)
-

-
(1,214)
-
(Loss)/gain on remeasurement of






retirement benefit schemes (6)






- gross
(67)
(1,857)

(87)
3
(186)
- tax
306
314

310
(1)
(20)
Loss on disposal of own shares held
-
(8)

-
-
(8)
Shares issued under employee share schemes
(58)
(91)

(1)
-
(50)
Share-based payments
-
-

-
-
-
- gross
36
29

12
14
3
- tax
(4)
3

(4)
-
3
Reclassification of paid-in equity
(27)
(33)

-
-
(33)







At end of period
(4,020)
(4,001)

(4,020)
(3,851)
(4,001)







Own shares held






At beginning of period
(113)
(137)

(108)
(108)
(136)
Disposal of own shares
6
1

1
-
-
Shares issued under employee share schemes
-
23

-
-
23







At end of period
(107)
(113)

(107)
(108)
(113)







Owners' equity at end of period
53,431
55,763

53,431
56,039
55,763







*Restated, refer to Note 1 of page 46 for further details. 







For notes to this table refer to page 42.








Statutory results
Consolidated statement of changes in equity for the period ended 31 December 2015
Year ended

Quarter ended

31 December
31 December

31 December
30 September
31 December

2015
2014*

2015
2015*
2014*
Non-controlling interests 






At beginning of period
2,946
473

703
5,705
2,747
Currency translation adjustments and other movements
3
86

1
65
101
Profit/(loss) attributable to non-controlling interests






- continuing operations
75
(22)

20
5
18
- discontinued operations
334
82

-
40
53
Dividends paid
(31)
(4)

-
-
(4)
Movements in available-for-sale securities






- unrealised gains/(losses)
22
36

(2)
12
42
- realised (gains)/losses
(6)
77

-
-
3
- tax
(5)
(13)

-
-
(13)
Movements in cash flow hedging reserve






- amount recognised in equity
32
18

-
11
18
- tax
(4)
-

-
-
-
 - amounts transferred from equity to earnings
-
(18)

-
-
(18)
Actuarial losses recognised in retirement benefit schemes






- gross
(6)
-

(6)
-
-
Equity raised (7)
2,537
2,232

-
46
-
Equity withdrawn and disposals
(24)
(1)

-
(24)
(1)
Loss of control of Citizens 
(5,157)
-

-
(5,157)
-







At end of period
716
2,946

716
703
2,946







Total equity at end of period
54,147
58,709

54,147
56,742
58,709







Total equity is attributable to:






Non-controlling interests
716
2,946

716
703
2,946
Preference shareholders
3,305
4,313

3,305
3,305
4,313
Paid-in equity holders
2,646
784

2,646
2,646
784
Ordinary shareholders
47,480
50,666

47,480
50,088
50,666








54,147
58,709

54,147
56,742
58,709
*Restated, refer to Note 1 on page 46 for further details. 
For the notes to this table refer to page 42.

Statutory results
Consolidated cash flow statement for the period ended 31 December 2015

Year ended

31 December
31 December

2015
2014*

m
m



Operating activities


Operating (loss)/profit before tax on continuing operations
(2,703)
2,643
Operating profit/(loss) before tax on discontinued operations
1,766
(3,207)
Adjustments for non-cash items 
(6,661)
(1,149)



Net cash outflow from trading activities
(7,598)
(1,713)
Changes in operating assets and liabilities
8,589
(18,260)



Net cash flows from operating activities before tax
991
(19,973)
Income taxes paid
(73)
(414)



Net cash flows from operating activities
918
(20,387)



Net cash flows from investing activities
(4,866)
6,609



Net cash flows from financing activities
(940)
(404)



Effects of exchange rate changes on cash and cash equivalents
576
909



Net decrease in cash and cash equivalents
(4,312)
(13,273)
Cash and cash equivalents at beginning of year
107,904
121,177



Cash and cash equivalents at end of year
103,592
107,904



*Restated, refer to Note 1 on page 46 for further details.



Notes
1. Basis of preparation 
The condensed consolidated financial statements should be read in conjunction with RBS's 2015 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS). 
Accounting policies 
RBS's principal accounting policies are set out on pages 267 to 276 of the 2015 Annual Report and Accounts. Amendments to IFRSs effective for 2015 have not had a material effect on RBS's 2015 results.
Pensions
In the fourth quarter of 2015, the Group changed its accounting policy for the recognition of surpluses in its defined benefit pension schemes: in particular, the policy for determining whether or not it has an unconditional right to a refund of surpluses in its employee pension funds. Where the Group has a right to a refund, this is not deemed unconditional if pension fund trustees can enhance benefits for plan members. The amended policy has been applied retrospectively and prior periods restated.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on pages 276 to 279 of RBS's 2015 Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 31 December 2015 have been prepared on a going concern basis.

2. Citizens Financial Group
On 3 August 2015, RBS's shareholding in Citizens fell to 20.9% and RBS ceased to consolidate it for accounting purposes recording a gain (in discontinued operations) of 1.1 billion. On 30 October 2015, RBS sold all of its remaining shareholding in Citizens. Citizens was classified as a disposal group on 31 December 2014; it was also reclassified as a discontinued operation and comparatives re-presented accordingly.

Notes
3. Provisions for liabilities and charges












Regulatory and legal actions





Other
FX
Other






customer
investigations/
regulatory

Property


PPI
IRHP
redress (1)
litigation
provisions
Litigation
and other
Total

m
m
m
m
m
m
m
m









At 1 January 2015
799
424
580
320
183
1,805
663
4,774
Transfer 
-
-
-
(15)
(50)
65
-
-
Currency translation and other movements
-
-
-
8
2
57
140
207
Charge to income statement (2)
100
81
292
334
27
642
901
2,377
Releases to income statement (2)
-
(12)
(18)
-
-
(11)
(215)
(256)
Provisions utilised
(286)
(296)
(216)
(178)
(1)
(152)
(312)
(1,441)









At 30 September 2015
613
197
638
469
161
2,406
1,177
5,661
Transfer 
-
-
-
-
(31)
31
-
-
Currency translation and other movements
-
-
-
8
(1)
48
(34)
21
Charge to income statement (2)
500
-
127
-
-
1,537
523
2,687
Releases to income statement (2)
(1)
(1)
(16)
-
(7)
(15)
(202)
(242)
Provisions utilised
(116)
(47)
(77)
(171)
(81)
(63)
(206)
(761)









At 31 December 2015
996
149
672
306
41
3,944
1,258
7,366
Notes:
(1)
Closing provision primarily relates to investment advice and packaged accounts. 
(2)
Relates to continuing operations. 
Payment Protection Insurance (PPI) 
A charge for PPI of 500 million has been recognised in Q4 2015 as a result of the developments detailed in Note 4, bringing the charge for the year to 600 million. The cumulative charge in respect of PPI is 4.3 billion, of which 3.3 billion (77%) in redress and expenses had been utilised by 31 December 2015. Of the 4.3 billion cumulative charge, 3.9 billion relates to redress and 0.4 billion to administrative expenses.
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions remaining the same).



Sensitivity

Actual to date
Current
assumption
Change in
assumption
Consequential
change in 
provision
Assumption
%
m





Single premium book past business review take-up rate
55%
56%
+/-5
+/-55
Uphold rate (1)
91%
89%
+/-5
+/-35
Average redress
1,677
1,638
+/-5
+/-36
Note:
(1)
Uphold rate excludes claims where no PPI policy was held.
Interest payable on successful complaints has been included in the provision as has the estimated cost of administration. There are uncertainties as to the eventual cost of redress which will depend on actual complaint volumes, take-up and uphold rates and average redress costs. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided. We continue to monitor the position closely and refresh the underlying assumptions. Background information in relation to PPI claims is given in Note 4.


Notes
3. Provisions for liabilities and charges (continued)
Interest Rate Hedging Products (IRHP) redress and related costs
Following an industry-wide review conducted in conjunction with the Financial Services Authority (now being dealt with by the Financial Conduct Authority (FCA)), RBS agreed to provide redress to customers in relation to certain interest rate hedging products sold to small and medium-sized businesses classified as retail clients under FSA rules. A net charge of 68 million for 2015 principally reflects a marginal increase in our redress experience compared to expectations and the cost of a small number of consequential loss claims over and above interest offered as part of basic redress. We have now agreed outcomes with the independent reviewer on all cases. A cumulative charge of 1.5 billion has been recognised of which 1.1 billion relates to redress and 0.4 billion relates to administrative expenses. We continue to monitor the level of provision given the remaining uncertainties over the eventual cost of redress, including the cost of consequential loss claims.
Regulatory and legal actions
RBS is party to certain legal proceedings and regulatory and governmental investigations and continues to co-operate with a number of regulators. All such matters are periodically reassessed with the assistance of external professional advisers, where appropriate, to determine the likelihood of RBS incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made. Additional charges of 2.9 billion in the year ended 31 December 2015 include actual and anticipated costs following investigations into the foreign exchange market (334 million), provisions in respect of mortgage-backed securities related litigation (2.1 billion), provisions relating to packaged accounts (157 million) and other conduct provisions (377 million).

4. Litigation, investigations and reviews 
RBS and certain members of the Group are party to legal proceedings and the subject of investigation and other regulatory and governmental action ("Matters") in the United Kingdom (UK), the United States (US), the European Union (EU) and other jurisdictions. Note 30 of RBS's 2015 Annual Report & Accounts, issued on 26 February 2016 and available at www.rbs.com/results("Note 30"), discusses the Matters in which RBS is currently involved and developments to those matters. Other than the Matters discussed in Note 30, no member of the Group is or has been involved in governmental, legal, or regulatory proceedings (including those which are pending or threatened) that are expected to be material, individually or in aggregate. Recent developments in the Matters identified in Note 30 which have occurred since the Q3 2015 results were issued on 30 October 2015, include, but are not limited to, those set out below. 
Litigation
Other securitisation and securities related litigation in the US
Outstanding MBS litigation is described in Note 30 of RBS's 2015 Annual Report & Accounts. RBS has 3.8 billion in cumulative provisions relating to that litigation, including 1.5 billion added in the fourth quarter of 2015. Additional settlement costs or provisions related to the MBS litigation, as well as the ongoing civil and criminal investigations into MBS-related conduct involving RBS set out under 'Investigations and reviews' in Note 30 (for which no provisions have been made), may be necessary in future periods for amounts that could be substantial in some instances and in aggregate could be substantially in excess of the 3.8 billion in existing provisions.
RBS has settled the previously-disclosed MBS lawsuits filed by the Federal Home Loan Bank of San Francisco and the Commonwealth of Virginia on behalf of the Virginia Retirement System for amounts that have now been provided for or paid to the plaintiffs.


Notes
4. Litigation, investigations and reviews (continued)
ISDAFIX antitrust litigation
Beginning in September 2014, RBS plc and a number of other financial institutions were named as defendants in several purported class actions (now consolidated into one complaint) pending in the United States District Court for the Southern District of New York) alleging manipulation of USD ISDAFIX rates. RBS has reached an agreement to settle this matter, subject to final settlement documentation and court approval. The settlement amount is covered by an existing provision.
Interest rate swaps antitrust litigation
On 25 November 2015, RBS plc and other members of the Group, as well as a number of other interest rate swap dealers, were named as defendants in a class action antitrust complaint filed in the United States District Court for the Southern District of New York. A similar complaint was filed in the United States District Court for the Northern District of Illinois on 18 February 2016. The complaints allege that the defendants violated the US antitrust laws by restraining competition in the market for interest rate swaps through various means and thereby caused inflated bid-ask spreads for interest rate swaps, to the alleged detriment of the plaintiff class. RBS anticipates moving to dismiss the claims asserted in these matters.
Investigations and reviews 
Payment Protection Insurance
As previously disclosed, RBS is monitoring developments following the UK Supreme Court's decision in the case of Plevin v Paragon Personal Finance Ltd in November 2014. That decision was that the sale of a single premium PPI policy could create an 'unfair relationship' under s.140A of the Consumer Credit Act 1974 (the 'Consumer Credit Act') because the premium contained a particularly high level of undisclosed commission. The Financial Ombudsman Service (FOS) has confirmed on its website that unfair relationship provisions in the Consumer Credit Act and the Plevin judgment are 'potentially relevant considerations' in some of the PPI complaints referred to FOS. On 27 May 2015, the FCA announced that it was considering whether additional rules and/or guidance are required to deal with the impact of the Plevin decision on complaints about PPI generally. 
On 26 November 2015, the FCA issued Consultation Paper 15/39, in which it sets out proposed rules and guidance for how firms should handle PPI complaints fairly in light of the Plevin decision and how the FOS should consider relevant PPI complaints. The Consultation Paper also contains proposals for the introduction in 2018 on a date to be confirmed of a deadline for submission of PPI complaints. The deadline for submitting a response to the Consultation Paper is 26 February 2016. RBS intends to respond.
The proposals in the Consultation Paper include an FCA-led communications campaign to raise awareness of the deadline and to prompt those who intend to complain to act ahead of the deadline. If the proposals are agreed and implemented, RBS expects higher claims volumes, persisting longer than previously modelled, and additional compensation payments in relation to PPI claims made as a result of the Plevin judgment.
Complaints made after the proposed 2018 deadline would lose the right to be assessed by firms or by the Financial Ombudsman Service, bringing an end to new PPI cases in 2018.
PPI complaint volumes during Q4 2015 were in line with previous trends. Actual payments made to settle PPI claims during Q4 covered the four month period from 1 September until 31 December 2015. This is in contrast to payments made during Q3, which covered the period from 1 June until 31 August 2015. This change was due to enhanced operating processes introduced in Q4 2015.


Notes
4. Litigation, investigations and reviews (continued)
RBS has made provisions totalling 4.3 billion to date for PPI claims, including 0.5 billion in Q4 2015, of which 3.3 billion had been utilised by 31 December 2015. 
Credit default swaps (CDS) investigation
As previously disclosed, in April 2011 the EC opened an antitrust investigation into the CDS information market to which RBS was a party. In general terms, the EC raised concerns that a number of banks, Markit and ISDA may have jointly prevented exchanges from entering the CDS market. On 4 December 2015 the EC decided to close the case against RBS and the other bank parties to the investigation. Markit and ISDA remain party to the investigation. 
US/Swiss tax programme
As previously disclosed, in August 2013 the Department of Justice (DOJ) announced a programme for Swiss banks (the Programme) which provides Swiss banks with an opportunity to obtain resolution, through non-prosecution agreements or non-target letters, of the DOJ's investigations of the role that Swiss banks played in concealing the assets of US tax payers in offshore accounts (US related accounts).In December 2013, Coutts & Co Ltd., a member of the Group incorporated in Switzerland, notified the DOJ that it intended to participate in the Programme. As required by the Programme, Coutts & Co Ltd. subsequently conducted a review of its US related accounts and presented the results of the review to the DOJ. On 23 December 2015, Coutts & Co Ltd. entered into a non-prosecution agreement (the NPA) in which Coutts & Co Ltd. paid a US$78.5 million penalty and acknowledged responsibility for certain conduct set forth in a statement of facts accompanying the agreement. Under the NPA, which has a term of four years, Coutts & Co Ltd. is required, among other things, to provide certain information, cooperate with DOJ's investigations, and commit no US federal offenses. If Coutts & Co Ltd. abides by the NPA, the DOJ will not prosecute it for certain tax-related and monetary transaction offenses in connection with US related accounts. 
German prosecutor investigation into Coutts & Co Ltd.
A prosecuting authority in Germany undertook an investigation into Coutts & Co Ltd. in Switzerland, and current and former employees, for alleged aiding and abetting of tax evasion by certain Coutts & Co Ltd. clients. Coutts & Co Ltd. cooperated with the relevant authorities and on 4 December 2015 paid EUR 23.8 million to settle the investigation against it. The settlement amount was covered by an existing provision. 

5. Recent developments 
Preference share dividends
The Group has resumed payments on all discretionary non-equity capital instruments following the end of the European Commission ban in 2012 for RBS and 2013 for RBS N.V. Future coupons and dividends on hybrid capital instruments will only be paid subject to, and in accordance with, the terms of the relevant instruments.
In the context of macro-prudential policy discussions, the Board decided to partially neutralise any impact on
CET1 capital of coupon and dividend payments for 2013, 2014 and 2015. 300 million of new equity was issued during the course of 2015 and the Board has decided a further 300 million of new equity will be issued during the course of 2016 to again partially neutralise the CET1 impact of coupon and dividend payments.

Statement of directors' responsibilities
The responsibility statement below has been prepared in connection with the Group's full Annual Report and Accounts for the year ended 31 December 2015. 
We, the directors listed below, confirm that to the best of our knowledge:
 the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and 
 the Strategic Report and Directors' report (incorporating the Business review) include a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 
By order of the Board
Howard Davies
Ross McEwan
Ewen Stevenson
Chairman
Chief Executive
Chief Financial Officer
25 February 2016
Board of directors
Chairman
Executive directors
Non-executive directors
Howard Davies
Ross McEwan
Ewen Stevenson
Sandy Crombie
Alison Davis
Morten Friis
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
Mike Rogers

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', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions.
In particular, this document includes forward-looking statements relating, but not limited to: The Royal Bank of Scotland Group's (RBS) restructuring which includes the separation and divestment of Williams & Glyn, the proposed restructuring of RBS's CIB business, the implementation of the UK ring-fencing regime, the implementation of a major development program to update RBS's IT infrastructure and the continuation of its balance sheet reduction programme, as well as capital and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios and requirements liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), Pillar 2A, return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, AT1 and other funding plans, funding and credit risk profile; litigation, government and regulatory investigations RBS's future financial performance; the level and extent of future impairments and write-downs; including with respect to Goodwill; future pension contributions and RBS's exposure to political risks, operational risk, conduct risk and 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, targets 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 relying on 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 adversely affect our results and the accuracy of forward-looking statements in the Annual Report and Accounts 2015 include the risk factors and other uncertainties discussed in to this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes (including where resolved by settlement); the uncertainty relating to the referendum on the UK's membership of the European Union and the consequences of it; the separation and divestment of Williams & Glyn; RBS's ability to successfully implement the various initiatives that are comprised in its restructuring plan, particularly the proposed restructuring of its CIB business and the balance sheet reduction programme as well as the significant restructuring required to be undertaken by RBS in order to implement the UK ring fencing regime; the significant changes, complexity and costs relating to the implementation of its restructuring, the separation and divestment of Williams & Glyn and the UK ring-fencing regime; whether RBS will emerge from its restructuring and the UK ring-fencing regime as a viable, competitive, customer focused and profitable bank; RBS's ability to achieve its capital and leverage requirements or targets which will depend on RBS's success in reducing the size of its business and future profitability; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; the ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS's strategic refocus on the UK the impact of global economic and financial market conditions (including low or negative interest rates) as well as increasing competition. In addition, there are other risks and uncertainties. These include operational risks that are inherent to RBS's business and will increase as a result of RBS's significant restructuring; the potential negative impact on RBS's business of actual or perceived global economic and financial market conditions and other global risks; the impact of unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates; the risk of failure to realise the benefit of RBS's substantial investments in its information technology and systems, the risk of failing to preventing a failure of RBS's IT systems or to protect itself and its customers against cyber threats, reputational risks; risks relating to the failure to embed and maintain a robust conduct and risk culture across the organisation or if its risk management framework is ineffective; risks relating to increased pension liabilities and the impact of pension risk on RBS's capital position; increased competitive pressures resulting from new incumbents and disruptive technologies; RBS's ability to attract and retain qualified personnel; HM Treasury exercising influence over the operations of RBS; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting policies or rules which may impact the preparation of RBS's financial statements; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject the recoverability of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or undertake any obligation or responsibility to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicit of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

Appendix 1
Williams & Glyn

Appendix 1 Williams & Glyn
Williams & Glyn overview and update
Williams & Glyn (W&G) has c.1.6 million retail banking customers with an estimated market share of 2% in Personal Current Accounts (PCA) in the UK. The bank has c.240,000 commercial customers served through either the retail bank or a national network of relationship managers.
W&G is in the process of being established as a fully licensed, independent, full-service retail and commercial bank, with its own operating infrastructure and platform.
Williams & Glyn separation
Progress continues to be made in establishing a standalone W&G business with a number of notable developments in 2015. A new management team has been appointed, with Jim Brown becoming CEO and Leigh Bartlett CFO in September 2015. W&G has continued to recruit into the business, strengthening a number of customer-facing and central functions.
Work continues on the separation of W&G, but this will now not be achieved until after Q1 2017. The Group remains committed to full divestment by the end of 2017, although it continues to face significant challenges and risks in separating the W&G business, some of which may only emerge as various separation process phases are progressed. The W&G separation process is a high priority for the Group and involves the diversion of Group resources away from other key areas. The associated risks are discussed in more detail in the Risk Factors on pages 390 to 414 in the 2015 Annual Report and Accounts.
Williams & Glyn financial information
In the main body of this results document, W&G is presented as a segment within RBS, reflecting the contribution made by W&G's ongoing business to RBS which was previously reported in UK PBB. This does not reflect the allocation of separation costs or the financial impact of any disposal transaction. The segmental performance of W&G has been extracted from the 2015 Annual Report and Accounts, including the audited financial statements.
In this appendix, W&G's financial information is shown on two different bases:
 
A non-statutory 'carve out' internally managed basis for the years ended 31 December, 2015, 2014 and 2013 which reflects the adjustments to the W&G segmental information, relating to a) the full allocation of additional costs for the services W&G received from RBS during these periods and b) the inclusion of certain customer portfolios that are currently reported through other segments in RBS. 
 
An illustrative standalonebasis of presentation which provides an indicativeview of W&G's standalone profile for 2015.
During the periods presented, W&G has been an integral part of RBS and has not operated as a separate legal entity. As such, the non-statutory carve out basis of presentation does not fully reflect the actual cost base, funding, liquidity and capital profile of a standalone bank. 


Appendix 1 Williams & Glyn
In respect of the illustrative standalone basis, W&G's actual cost base, funding, liquidity and capital requirements as a separated bank may ultimately differ materially from those implied by this illustrative financial information. The illustrative financial information presented herein is based on certain assumptions, which may prove to be incorrect. As such, this illustrative financial information should be treated as solely indicative of currently modelled parameters and should not be construed as an indication or projection of W&G's actual or future results or financial position on a standalone basis. When considering this information, readers should take this and the risks inherent in preparing such financial information into consideration. For a description of the risks and uncertainties relating to the W&G separation and divestment see the risk factors on page 391 in the RBS 2015 Annual Report and Accounts. 
The illustrative standalone financial information presented in this appendix does not comply with the UK rules relating to the preparation of proforma financial information under the Prospectus Directive rules or Regulation S-X in the United States, and if presented in accordance with these rules, such presentation would be different than that presented herein. 
The illustrative standalone financial information presented in this appendix has not been audited or reviewed by the Group's auditors. 


Appendix 1 Williams & Glyn
Non-statutory carve out financial statements








Year ended

31 December
31 December
31 December

2015
2014
2013
Income statement
m
m
m
Net interest income
679
687
670




Net fees and commissions
173
184
199
Other operating income
16
18
19




Non-interest income
189
202
218




Total income
868
889
888




Administrative expenses
(522)
(502)
(449)
Restructuring costs
(28)
-
-
Depreciation
(11)
(14)
(14)




Operating expenses
(561)
(516)
(463)
Operating profit before impairment losses
307
373
425
Impairment losses
(15)
(63)
(85)




Operating profit before taxation
292
310
340
Tax charge
(60)
(68)
(81)




Profit for the year 
232
242
259




Performance ratios







Loan impairment charge as a % of gross customer loans and advances by sector
0.1%
0.3%
0.4%
Net interest margin excluding central IEAs
3.42%
3.47%
3.40%
Cost:income ratio
65%
58%
52%
Cost:income ratio - adjusted (1)
61%
58%
52%
Balance sheet 



Assets



Cash
94 
88 
87
Loans and advances to customers
20,325 
19,939 
20,163 
Derivative financial assets
102 
242 
350
Derivative financial assets - intra-group



Property, plant and equipment
90 
95 
104
Prepayments, accrued income and other assets
11 
13 
11




Total assets
20,622 
20,377 
20,715 




Liabilities



Deposits by banks
14 
23 
117 
Customer accounts 
25,209 
23,159 
22,824 
Derivative financial liabilities
17 
32 
98 
Derivative financial liabilities - intra-group
- 
- 
- 
Debt securities in issue
-
-
-
Amounts due to related undertakings
3,174 
3,763 
3,807 
Provisions
28 
-
-
Other liabilities
50 
30 
20 




Total liabilities
28,492 
27,007 
26,866 
Net investment from RBS Group
(7,870)
(6,630)
(6,151)




Net investment from RBS Group and liabilities
20,622 
20,377 
20,715 




Balance sheet metrics







Loan:deposit ratio (excluding repos)
81%
86%
88%
Risk-weighted assets bn 
10.0 
10.2 
11.9 
Note:
(1) Excluding restructuring costs.


Appendix 1 Williams & Glyn
Income statement on a non-statutory carve out basis
W&G's net interest margin declined from 3.47% in 2014 to 3.42% in 2015. This decline was primarily due to margin pressure on new mortgage volumes and a reduction in the number of customers on the standard variable rate. In Commercial, W&G has widened margins by improving front book pricing while also re-pricing deposits. Fee income has reduced in the year due to lower fee income from credit and debit cards, as well as lower overdraft usage and tariffs in 2015.
Operating expenses increased by 45 million in the year as W&G continued to develop its capability to operate as a standalone bank, while also investing 28 million in the restructuring of its Commercial Banking business.
Net impairment losses were 15 million in 2015, lower than the 63 million loss incurred in 2014 due to portfolio provision releases and reduced levels of defaults in portfolios reflecting a benign UK economy.
The W&G business has continued to perform in line with management's expectations since 31 December 2015, the last financial year end of the business, to the date of this announcement.
Balance sheet on a non-statutory carve out basis
Customer lending grew by 0.4 billion, or 2%, to 20.3 billion in 2015 driven by good growth in mortgage lending and Commercial loans. During 2015, 0.3 billion of Commercial lending was transferred to Commercial Banking. Adjusting for this transfer, customer lending grew by 4%.
Supported by investment in both W&G's mortgage intermediary platform and direct mortgage advisers, Retail's growth was generated by almost 2 billion of gross new mortgage lending in the year which drove a 5% increase in mortgage lending balances.
W&G also saw deposit balances grow in the year, increasing by 2.1 billion, with Retail rising by 10% and Commercial by 8%. At the end of the year, almost 30% of deposits placed with W&G were held in personal and business current accounts.
Williams & Glyn illustrative standalone results 
An illustration of W&G's standalone income statement and balance sheet for 2015 prepared as though it operated independently of the RBS Group is presented below based on certain assumptions.
The major adjustments made in preparing this illustrative standalone information compared to W&G's financial information presented on a "carve out" basis are in respect of:
 
Costs - W&G is assumed to have a fully developed cost base, reflecting the people and infrastructure required to operate on a standalone basis
 
Capital - Illustrative levels of equity and capital securities have been included on the balance sheet 
 
Liquidity - W&G is assumed to manage its own funding and liquidity position which, combined with the assumed addition of capital, drives a high level of liquid assets
See page 2 above with respect to important disclosures relating to the preparation of this information. 


Appendix 1 Williams & Glyn
Williams and Glyn Standalone Financial information





Non-statutory

Illustrative



carve 
Illustrative
Williams & Glyn
Segmental
Adjustments
out financial
adjustments
standalone financial
performance
(1)
statements
(2)
statements
2015
m
m
m
m
m
Income statement





Net interest income
658 
21 
679 
(24)
655 






Net fee and commission income
160 
13 
173 
-
173 
Other operating income
15 
1 
16 
-
16 
Non interest income
175 
14 
189 
-
189 






Total income
833 
35 
868 
(24)
844 






Administrative expenses
(359)
(163)
(522)
(51)
(573)
Restructuring expenses
(28)
-
(28)
-
(28)
Depreciation
-
(11)
(11)
-
(11)






Total operating expenses
(387)
(174)
(561)
(51)
(612)






Operating profit before impairment losses
446 
(139)
307 
(75)
232 
Impairment losses
(15)
-
(15)
-
(15)
Operating profit before taxation
431 
(139)
292 
(75)
217 






Tax charge (3)
-
(60)
(60)
21 
(39)






Profit for the year
431 
(199)
232 
(54)
178 






Performance ratios





Loan impairment charge as a % gross 





 customer loans and advances 
0.1%

0.1%

0.1%
Net interest margin excluding central IEAs
3.38%

3.42%

3.30%
Cost:income ratio
46%

65%

73%
Cost:income ratio - adjusted (4)
43%

61%

69%






Assets





Cash and balances at central banks
91 
3 
94 
3,594 
3,688 
Loans and advances to customers
20,016 
309 
20,325 
-
20,325 
Available-for-sale financial assets
-
-
-
3,594 
3,594 
Derivative financial assets
2 
100 
102 
-
102 
Property, plant and equipment
-
90 
90 
-
90 
Prepayments and other assets
10 
1 
11 
24 
35 






Total assets
20,119 
503 
20,622 
7,212 
27,834 






Liabilities





Customer deposits
24,085 
1,124 
25,209 
-
25,209 
Deposits by banks
9 
5 
14 
-
14 
Derivative financial liabilities 
29 
(12)
17 
-
17 
Debt securities in issue
-
-
-
415 
415 
Amounts due to related undertakings
-
3,174 
3,174 
(3,174)
-
Provisions
28 
-
28 
-
28 
Other liabilities
49 
1 
50 
73 
123 






Total liabilities
24,200 
4,292 
28,492 
(2,686)
25,806 






Net Investment





Net investment from RBS Group (5)
(4,081)
(3,789)
(7,870)
9,623 
1,753 
AT1 Instruments
-
-
-
275 
275 






Net investment from RBS Group
(4,081)
(3,789)
(7,870)
9,898 
2,028 






Total equity and liabilities
20,119 
503 
20,622 
7,212 
27,834 






Balance sheet metrics





Loan:deposit ratio (excluding repos)
83%

81%

81%
Risk-weighted assets bn (6)
9.9

10.0

14.0
otes:
(1) Adjustments made in respect of RBS recharges and perimeter (e.g. inclusion of customers currently within the NatWest brand) as set out on page 1 of this appendix.
(2) The illustrative adjustments include assumptions with respect to W&G's fully developed cost base, and capitalisation and liquidity adjustments illustrative of a standalone entity. These are management estimates based on a number of assumptions and as a result should not be considered as an indication of W&G's actual or future results as a standalone bank which may be materially different.
(3) Indicative tax charge at 21%.
(4) Excluding restructuring costs.
(5) W&G is not a separate legal entity and a number of items on the balance sheet are presented as allocations of transactions of the wider RBS Group. The net funding/capital position with RBS Group represents a combination of the overall receivables and payables with W&G and the funding balances with RBS Group, which cannot be separately identified or allocated.
(6) The segmental performance and non-statutory carve out financial information RWAs have been presented on an Advanced Internal Rating Basis (AIRB), while the "illustrative standalone" Williams & Glyn financial information RWAs have been presented on a standardised basis.

This information is provided by RNS
The company news service from the London Stock Exchange
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