REG - Royal Bk Scot.Grp.Royal Bk.of Scot.Nat.Westminster Bk - Interim Management Statement <Origin Href="QuoteRef">NWB_pa.L</Origin> <Origin Href="QuoteRef">RBS.L</Origin> - Part 1

NatwestAnnouncement

31/10/2014 08:11

RNS Number : 7759V
Royal Bank of Scotland Group PLC
31 October 2014

The Royal Bank of Scotland Group plc
Q3 2014 Results
Contents

Page


Introduction
1
Highlights
2
Analysis of results
10
Customer franchise and segment performance
18
Statutory results
34

Forward looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited to: The Royal Bank of Scotland Group's (RBS) restructuring and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios, liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, funding and risk profile; litigation, government and regulatory investigations including investigations relating to the setting of interest rates and foreign exchange trading and rate setting activities; costs or exposures borne by RBS arising out of the origination or sale of mortgages or mortgage-backed securities in the US; RBS's future financial performance; the level and extent of future impairments and write-downs; and RBS's exposure to political risks, credit rating risk and to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: global and UK economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on RBS in particular; the ability to implement strategic plans on a timely basis, or at all, including the on-going simplification of RBS's structure, rationalisation of and investment in its IT systems and the reliability and resilience of those systems, the divestment of Citizens Financial Group and the exiting of assets in RBS Capital Resolution as well as the disposal of certain other assets and businesses as announced or required as part of the State Aid restructuring plan; the achievement of capital and costs reduction targets; ineffective management of capital or changes to capital adequacy or liquidity requirements; organisational restructuring in response to legislation and regulation in the United Kingdom (UK), the European Union (EU) and the United States (US); the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by RBS; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of RBS; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of RBS to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of RBS's operations) in the UK, the US and other countries in which RBS operates or a change in UK Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of RBS; reputational risk; the conversion of the B Shares issued by RBS in accordance with their terms; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as of the date of this announcement, and RBS does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

Introduction
Presentation of information
The financial information on pages 4 to 33, prepared using RBS's accounting policies, shows the operating performance of The Royal Bank of Scotland Group (RBS) on a non-statutory basis which excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS Holdings minority interest (RFS MI). Such information is provided to give a better understanding of the results of RBS's operations.
Statutory results
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 2013 have been filed with the Registrar of Companies. 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.
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
Analysts and investors conference call
RBS will hold an audio Q&A session for analysts and investors on the results for the quarter ended 30 September 2014. Details are as follows:
Date:

Friday 31 October 2014
Time:

9.00 am UK time 
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
Announcement and slides
This announcement and the background slides are available on www.rbs.com/results
Financial supplement
A financial supplement containing income statement and balance sheet information for the nine quarters ending 30 September 2014 is available on www.rbs.com/results

Highlights
RBS reports a third successive quarterly profit, improved capital and further progress in de-risking. 
Q3 2014 attributable profit was 896 million, up from 230 million in Q2 2014 and a loss of 828 million in Q3 2013. Profit before tax was 1,270 million compared with 1,010 million in Q2 2014 and a loss of 634 million in Q3 2013.
The quarter included net impairment provision releases of 801 million, principally in Ulster Bank and RBS Capital Resolution, and litigation and conduct costs of 780 million.
RBS continues to make excellent progress in building its capital ratios. The Common Equity Tier 1 ratio has strengthened 220 basis points since the year end and 70 basis points in the quarter to 10.8%. 
Capital build was supported by further excellent progress in the nine months to 30 September in de-risking the balance sheet, including: 
 Further disposals and run-off in RCR, with funded assets down 11 billion.
 A 16% reduction in RWAs in Corporate & Institutional Banking, including running down our US-backed product franchise.
 The sale of 9 billion of securities in the RBS N.V. liquidity portfolio.
Personal & Business Banking continued to perform strongly with income growth of 3% in the quarter. Operating profit in Q3 2014 was 881 million, up 66% on Q2 2014.
Commercial & Private Banking had an improved performance with income up 1% compared with Q2 2014. Operating profit in Q3 2014 was 471 million, up 23% on Q2 2014.
Corporate & Institutional Banking had a weak quarter with an operating loss of 557 million which reflected litigation and conduct costs of 562 million, including 400 million relating to potential costs following investigations into the foreign exchange market, and significantly lower income. 
Further progress has been made on improving efficiency, with adjusted operating expenses down 5% over the quarter. RBS remains on track to deliver its 1 billion operating cost reduction target for 2014, at constant foreign exchange rates.
The quarter saw RBS achieve the largest ever IPO of a US bank, listing 28.75% of Citizens Financial Group. We continue to target an IPO of Williams & Glyn towards the end of 2016.
RBS confirms it will retain Ulster Bank following completion of the strategic review. Ulster Bank remains a core part of RBS, offering a good strategic fit with our focused retail and commercial banking strategy. We have a good market position and believe that Ulster Bank can deliver attractive returns, with appropriate investment.


Highlights
Ross McEwan, Chief Executive, said: 
"In February I placed trust at the heart of my new strategy for our bank. We have taken the first steps towards that goal, with early progress in making RBS simpler, clearer and fairer. 
We are reducing costs, and are on track to achieve our capital targets. 
UK and Ireland are showing signs of growth, and impairment trends are significantly better than we had anticipated at the start of the year. 
We have confirmed today that Ulster Bank remains a core part of our bank. We have a good market position and believe that, with investment, Ulster Bank can deliver attractive shareholder returns in the future.
But we know we still have a long list of conduct and litigation issues to deal with and much, much more to do to restore our customers' trust in us."

Highlights
Summary consolidated income statement 
for the period ended 30 September 2014








Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013*

2014
2013*

m
m
m

m
m







Net interest income
2,863
2,798
2,783

8,359
8,225
Non-interest income
1,496
2,127
2,111

5,978
7,277







Total income 
4,359
4,925
4,894

14,337
15,502







Staff and non-staff expenses
(2,923)
(3,065)
(3,325)

(9,267)
(10,184)
Restructuring costs
(180)
(385)
(205)

(694)
(476)
Litigation and conduct costs
(780)
(250)
(349)

(1,030)
(969)







Operating expenses 
(3,883)
(3,700)
(3,879)

(10,991)
(11,629)







Operating profit before impairment releases/(losses) 
476
1,225
1,015

3,346
3,873
Impairment releases/(losses)
801
93
(1,170)

532
(3,320)







Operating profit/(loss)
1,277
1,318
(155)

3,878
553
Own credit adjustments
49
(190)
(496)

(2)
(120)
Gain on redemption of own debt
-
-
13

20
204
Write down of goodwill
-
(130)
-

(130)
-
Strategic disposals 
-
-
(7)

191
(7)
RFS Holdings minority interest
(56)
12
11

(35)
110







Profit/(loss) before tax
1,270
1,010
(634)

3,922
740
Tax charge
(333)
(371)
(81)

(1,066)
(759)







Profit/(loss) from continuing operations
937
639
(715)

2,856
(19)
Profit/(loss) from discontinued operations, net of tax
3
26
(5)

38
133







Profit/(loss) for the period
940
665
(720)

2,894
114
Non-controlling interests
53
(23)
(6)

11
(123)
Other owners' dividends
(97)
(92)
(102)

(264)
(284)
Dividend access share dividend
-
(320)
-

(320)
-







Profit/(loss) attributable to ordinary and






 B shareholders
896
230
(828)

2,321
(293)







*Restated - see page 39.














Quarter ended

Nine months ended

30 September
30 June 
30 September

30 September
30 September
Key metrics and ratios
2014
2014
2013

2014
2013







Net interest margin
2.26%
2.22%
2.01%

2.20%
1.98%
Cost:income ratio
89%
75%
79%

77%
75%
Earnings/(loss) per share from continuing operations






 - basic
7.9p
1.9p
(7.4p)

20.4p
(3.6p)
 - adjusted (1)
7.5p
4.3p
(3.9p)

19.6p
(4.5p)
Return on tangible equity (2)
8.2%
2.2%
(6.9%)

7.3%
(0.8%)
Average tangible equity (2)
43,536m
42,122m
48,282m

42,231m
49,025m
Average number of ordinary shares and equivalent B 






 shares outstanding during the period (millions)
11,384
11,335
11,223

11,333
11,176
Notes:
(1)
Adjusted earnings excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS MI.
(2)
Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.
Details of other comprehensive income are provided on page 35.

Highlights
Summary consolidated balance sheet at 30 September 2014

30 September
30 June
31 December

2014
2014
2013

m
m
m




Cash and balances at central banks
67,900
68,670
82,659
Net loans and advances to banks (1,2)
29,090
28,904
27,555
Net loans and advances to customers (1,2)
392,969
385,554
390,825
Reverse repurchase agreements and stock borrowing
75,491
81,705
76,413
Debt securities and equity shares
115,078
120,628
122,410
Intangible assets
12,454
12,173
12,368
Other assets (3)
39,107
38,568
27,609




Funded assets
732,089
736,202
739,839
Derivatives
314,021
274,906
288,039




Total assets
1,046,110
1,011,108
1,027,878




Bank deposits (2,4)
38,986
39,179
35,329
Customer deposits (2,4)
405,367
401,226
414,396
Repurchase agreements and stock lending
75,101
83,262
85,134
Debt securities in issue
53,487
59,087
67,819
Subordinated liabilities
24,412
24,809
24,012
Derivatives
310,361
270,087
285,526
Other liabilities (3)
73,558
72,495
56,447




Total liabilities
981,272
950,145
968,663
Non-controlling interests
2,747
618
473
Owners' equity
62,091
60,345
58,742




Total liabilities and equity
1,046,110
1,011,108
1,027,878




Contingent liabilities and commitments
238,248
239,121
242,009





30 September
30 June
31 December
Key metrics and ratios
2014
2014
2013




Tangible net asset value per ordinary and B share (5)
388p
376p
363p
Loan:deposit ratio
97%
96%
94%
Short-term wholesale funding (6)
31bn
34bn
32bn
Wholesale funding (6)
94bn
102bn
108bn
Liquidity portfolio
143bn
138bn
146bn
Liquidity coverage ratio (7)
102%
104%
102%
Net stable funding ratio (8)
110%
111%
118%
Common Equity Tier 1 ratio
10.8%
10.1%
8.6%
Risk-weighted assets
381.7bn
392.1bn
429.1bn
Tangible equity (9)
44,345m
42,880m
41,082m
Number of ordinary shares and equivalent B shares in issue (millions) (10)
11,421
11,400
11,303
Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing.
(2)
Excludes disposal groups.
(3)
Includes disposal groups.
(4)
Excludes repurchase agreements and stock lending. 
(5)
Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares and equivalent B shares in issue.
(6)
Excludes derivative collateral.
(7)
In January 2013, the BCBS published its final guidance for calculating LCR currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors LCR based on its interpretation of current guidance available for EU LCR reporting. The reported LCR 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.
(8)
NSFR for all periods has been calculated using RBS's current interpretations of the existing rules relating to various BCBS guidance to date. BCBS is expected to issue revised guidance on NSFR towards the end of 2014 or early in 2015. 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 and B shareholders less intangible assets.
(10)
Includes 33 million Treasury shares (30 June 2014 - 33 million; 31 December 2013 - 34 million).


Highlights
Q3 2014 performance 
Operating profit(1) was 1,277 million compared with 1,318 million in Q2 2014 and a loss of 155 million in Q3 2013. Restructuring costs totalled 180 million, down from 385 million in the prior quarter, while litigation and conduct costs, including 400 million of potential conduct costs following investigations into the foreign exchange market and an additional 100 million provision for Payment Protection Insurance, were 780 million compared with 250 million in Q2 2014.


Operating profit(1) excluding restructuring costs and litigation and conduct costs (adjusted operating profit) improved to 2,237 million from 1,953 million in Q2 2014 and 399 million in Q3 2013.


Total income was 11% lower at 4,359 million, mostly driven by the scaling back of activity in CIB, the non-repeat of the 170 million gain on CFG's sale of the Illinois franchise in Q2 2014, and 104 million(2) losses recorded on the disposal of available-for-sale debt securities in the RBS N.V. liquidity portfolio. These were partly offset by a 65 million improvement in net interest income resulting from better deposit margins and a 121 million quarter on quarter improvement in RCR non-interest income principally driven by disposal gains. Income was up 3% in PBB and 1% in CPB.


Operating expenses were up 5% at 3,883 million. Excluding restructuring costs and litigation and conduct costs totalling 960 million (Q2 2014 - 635 million), operating expenses were down 5% compared with Q2 2014. RBS remains on track to deliver 1 billion of cost reductions in 2014.


A net release of impairment provisions of 801 million in the quarter compares with a net release of 93 million in Q2 2014. These were recorded primarily in RCR and Ulster Bank, reflecting the sustained improvements in economic and asset market conditions in the UK and especially Ireland. While net impairment charges increased in UK PBB and in CPB as a result of lower latent provision releases than in Q2 2014, underlying credit conditions remain benign. Risk elements in lending declined by 11% or 3.6 billion in the quarter; the reduction from the beginning of the year was 8.9 billion, or 23%.


Profit before tax, which includes a gain on own credit of 49 million, was 1,270 million, up 26% from Q2 2014. 


Profit attributable to ordinary and B shareholders was 896 million, up from 230 million in Q2 2014. 


Tangible net asset value per ordinary and B share was 388p at 30 September 2014, compared with 376p at 30 June 2014.
Balance sheet and capital
Funded assets fell by 4.1 billion to 732.1 billion at 30 September 2014. Growth in lending in the core business was more than offset by disposals and run-off in RCR, disposals of available-for-sale securities, and continuing risk reduction in CIB. These balance sheet reductions, partially offset by the impact of the strengthening US currency on dollar-denominated balances, resulted in a 3% reduction in risk-weighted assets (RWAs) to 381.7 billion.


Total assets increased by 35.0 billion, driven by increases in the market value of derivatives. The increase in derivative assets and liabilities mostly related to foreign exchange contracts: primarily due to the strengthening of the US dollar but also reflecting somewhat higher trading volumes following an upsurge in currency volatility. The value of interest rate derivatives also increased, driven largely by the downward shift in yields.
Notes:
(1)
Operating profit before tax, own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS Holdings minority interest ("operating profit"). Statutory operating profit before tax was 1,270 million for the quarter ended 30 September 2014 and 3,922 million for the nine months ended 30 September 2014.
(2)
An additional 73 million loss attributable to other shareholders is included within RFS Holdings minority interest.


Highlights
Balance sheet and capital (continued)
Loans and advances to customers grew by 7.4 billion, or 2%, to 393.0 billion. 

UK PBB loans and advances to customers grew by 0.6 billion, with net mortgage growth of 0.8 billion partially offset by declining card balances. 

Commercial Banking loans and advances grew by 1.1 billion, with demand strongest in the mid- and large corporate segments.

CIB's loans and advances increased by 4.1 billion driven by a combination of lending to large corporates, and collateral movements. 

By the end of September 2014, pro-active 'Statements of Appetite' had been issued to more than 300,000 SME customers, offering in excess of 12.2 billion of new or additional funding. Gross new lending to SMEs (including customers in both PBB and CPB) totalled 2.6 billion in Q3 2014, up 24% from Q3 2013.
Customer deposits grew by 4.1 billion, or 1%, to 405.4 billion, mostly reflecting CFG's growth in money markets and term deposits, amplified by the strengthening of the US dollar. 


CET1 ratio strengthened to 10.8%, compared with 10.1% at 30 June 2014 and 8.6% at 31 December 2013. The improvement reflects the attributable profit for the quarter together with favourable movements in cash flow and foreign currency reserves along with a 3% reduction in risk-weighted assets. The leverage ratio improved by 20 basis points to 3.9%.


RBS's results in the European Banking Authority's stress test, which was based on data from the end of 2013, were satisfactory. These results do not reflect the significant de-risking and good capital accretion that has taken place in the first three quarters of 2014 during which time the CET1 ratio has increased by 220 basis points to 10.8%.
Performance measures(1)

Measure
FY 2013
Q3 2014
Medium-term
Long-term
People
Great place to work
78%
72%

Engagement index  GFS norm(2)
Efficiency
Cost:income ratio
95%
89%
~55%
~50%

Adjusted cost:income ratio(3)
72%
67%


Returns
Return on tangible equity(4)
Negative
8%
~9-11%
~12%+
Capital strength(5)
Common Equity Tier 1 ratio 
8.6%
10.8%
12%
12%

Leverage ratio
3.4%
3.9%
3.5-4.0%
4.0%
Notes:
(1)
This table contains forecasts with significant contingencies. Please refer to 'Forward-looking statements'.
(2)
Global Financial Services (GFS) norm currently stands at 82%.
(3)
Excluding restructuring costs and litigation and conduct costs.
(4)
Calculated with tangible equity limited to a CET1 ratio of 12%.
(5)
Based on end-point CRR basis Tier 1 capital and revised 2014 Basel leverage framework.



Highlights
Building the number one bank for customer service, trust and advocacy in the UK



NatWest
RBS
Net Promoter Score (NPS)
Personal Banking
6 month rolling
Sept 2013
Sept 2014
Sept 2013
Sept 2014
Score
4
7
(17)
(4)
Current gap to be clear #1(1)

24pts

30pts
Business Banking
4 quarter rolling
Q3 2013
Q3 2014
Q3 2013
Q3 2014
Score
(12)
(13)
(35)
(27)
Current gap to be clear #1

37pts

59pts
Commercial Banking
4 quarter rolling
Q3 2013
Q3 2014
Q3 2013
Q3 2014
Score
(3)
15
(5)
0
Current gap to be clear #1

4pts

19pts
Note:
Personal: GfK FRS 6 month roll data. Latest base sizes NatWest England & Wales (3614) RBS Scotland (541)
Question: "How likely is it that you would to recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?"
(1)
Current gap to be clear #1 is defined as the improvement in NPS required from the current score to establish a statistically significant lead over the current number one in each market or the improvement needed to establish a clear lead in a situation where our score is too close to another bank's to claim sole position as number one in the market. The gap is based on sample numbers as at 6 months ending September 2014 (Market: Main Financial Institutions which are either, banks or building societies with a national network of branded outlets and providing all main categories of financial products).

Business Banking: Charterhouse Business Banking Survey. Latest Base: NatWest England & Wales 1356, RBS Scotland 441.
Commercial Banking: Charterhouse Research GB Business Banking Survey, based on interviews with businesses with annual turnover between 2 million and 25 million, 12 month roll data (524 NatWest main bank customers, 225 RBS), weighted by region and turnover to be representative of businesses in GB.
Our purpose is to serve customers well. Our actions are beginning to have an impact.


We are seeing early signs of results from becoming simpler and clearer. Our 'Instant Saver with Savings Goals' product is the first, and only, banking product to achieve the 5-star Fairbanking Mark and we intend to achieve Fairbanking Marks for our other products.


While NatWest's NPS is flat for Personal Banking, it has made strong progress in Commercial Banking where no other bank scored more highly in Q3 2014. For the RBS brand, NPS scores recovered from minus seventeen to minus four in Personal Banking and from minus five to zero in Commercial Banking. However, we have much more to do in order to reach our goal of being number one for service, trust and advocacy by 2020.


Highlights
Outlook
These results reflect improvements in economic activity and asset values in RBS's core UK and Irish markets so far in 2014. Economic growth in our core markets is expected to continue, although the pace looks likely to moderate into 2015.Against this backdrop, we anticipate further credit impairment releases in Q4 2014 offset by modest new impairments. The outlook for 2015 remains relatively benign, albeit with some risks to the downside. At such low levels of impairments there may be volatility in any quarter.
The net interest margin in Q4 2014 is expected to remain at around Q3 2014 levels, with modest asset margin pressure balanced by lower funding costs.
Income from the fixed income product suite is expected to remain weak during Q4, reflecting our ongoing balance sheet reduction programme, lower risk appetite, costs associated with exiting legacy portfolios and a weaker than anticipated trading performance during October.
RBS remains on track to deliver its targeted 1 billion of cost reductions in 2014 on a constant currency basis. Restructuring costs in Q4 2014 are expected to be higher, with some potential write-downs, as we reduce our footprint and simplify our systems and product set. Previous guidance on restructuring costs in the four year period to 2017 remains unchanged at 5 billion.
RCR guidance remains unchanged from the 30 September 2014 Trading Statement and, if market conditions remain favourable, we expect continuing strong progress in balance sheet and risk reductions and an accelerated timetable to achieve its wind-down goals.
Ongoing conduct and regulatory investigations and litigation continue to present challenges and are expected to be a material drag on both earnings and capital generation over the coming quarters. The timing and amounts of any further settlements or redress however remain uncertain and could be significant.

Analysis of results
Income







Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Net interest income
m
m
m

m
m







Net interest income 
2,863
2,798
2,783

8,359
8,225







Average interest-earning assets 






 - RBS
501,383
502,347
539,396

505,285
550,599
 - Personal & Business Banking
155,818
155,848
158,527

155,133
159,605
 - Commercial & Private Banking
93,021
93,669
92,551

93,280
93,402
 - Citizens Financial Group
69,520
68,234
65,065

68,409
65,137







Gross yield on interest-earning assets of banking 






 business
3.04%
3.05%
3.07%

3.03%
3.09%
Cost of interest-bearing liabilities of banking business
(1.10%)
(1.16%)
(1.38%)

(1.16%)
(1.43%)







Interest spread of banking business
1.94%
1.89%
1.69%

1.87%
1.66%
Benefit from interest free funds
0.32%
0.33%
0.32%

0.33%
0.32%







Net interest margin (1,2)






 - RBS
2.26%
2.22%
2.01%

2.20%
1.98%
 - Personal & Business Banking
3.47%
3.40%
3.24%

3.41%
3.18%
 - Commercial & Private Banking
2.96%
2.91%
2.91%

2.92%
2.77%
 - Citizens Financial Group
2.82%
2.93%
2.94%

2.89%
2.92%
Non-interest income













Net fees and commissions
1,094
1,063
1,144

3,212
3,392
Income from trading activities
235
626
599

1,717
2,489
Other operating income
167
438
368

1,049
1,396







Total non-interest income
1,496
2,127
2,111

5,978
7,277







Total income
4,359
4,925
4,894

14,337
15,502
Notes:
For the purposes of net interest margin calculations the following adjustments have been made. 
(1)
Net interest income has been reduced by 7 million in Q3 2014 (Q2 2014 - 14 million; Q3 2013 - 19 million) and by 35 million in the nine months ended 30 September 2014 (nine months ended 30 September 2013 - 57 million) in respect of interest on financial assets and liabilities designated as at fair value through profit or loss.
(2)
Net interest income has been reduced by 38 million in Q3 2013 and 7 million in the nine months ended 30 September 2013 in respect of non-recurring adjustments.
Q3 2014 compared with Q2 2014
 
Net interest income increased by 2% to 2,863 million with improvements in deposit margins in UK PBB and Commercial Banking, supported by the quarter's higher day count.


 
Net interest margin (NIM) increased by four basis points to 2.26% supported by deposit re-pricing initiatives in UK PBB and Commercial Banking. CFG's reduced NIM was driven by: lower commercial lending spreads; higher borrowing costs resulting from the growth in money market accounts, term deposits and the issue of subordinated debt; and the impact of the Illinois franchise sale in Q2 2014.


 
Non-interest income totalled 1,496 million, down 30% from 2,127 million in Q2 2014. Within this, income from trading activities declined by 391 million, reflecting the strategic decision to concentrate on core product areas in CIB. Other operating income reduced by 271 million compared with Q2 2014, reflecting a non-repeat of the 170 million gain in Q2 2014 on the sale of the Illinois franchise by CFG, and losses of 104 million(1) on the disposal of available-for-sale debt securities. 
Note:
(1)
An additional 73 million loss attributable to other shareholders is included within RFS Holdings minority interest.


Analysis of results
Operating expenses







Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Staff expenses
1,611
1,693
1,758

4,951
5,343
Premises and equipment
490
485
540

1,569
1,619
Other
516
605
683

1,808
2,162
Restructuring costs*
180
385
205

694
476
Litigation and conduct costs 
780
250
349

1,030
969







Administrative expenses
3,577
3,418
3,535

10,052
10,569
Depreciation and amortisation
306
282
344

857
1,060
Write down of other intangible assets
-
-
-

82
-







Operating expenses
3,883
3,700
3,879

10,991
11,629







Adjusted operating expenses (1)
2,923
3,065
3,325

9,267
10,184







*Restructuring costs comprise:






 - staff expenses
79
153
137

275
279
 - premises and equipment
53
137
4

249
29
 - other
48
95
64

170
168







Restructuring costs
180
385
205

694
476







Staff costs as a % of total income
37%
34%
36%

35%
34%
Cost:income ratio
89%
75%
79%

77%
75%
Cost:income ratio - adjusted (1)
67%
62%
68%

65%
66%
Employee numbers (FTEs - thousands)
110.8
113.6
120.3

110.8
120.3
Note:
(1)
Excluding restructuring costs and litigation and conduct costs.
Q3 2014 compared with Q2 2014
 
Operating expenses increased by 5% to 3,883 million, principally reflecting a 530 million increase in litigation and conduct costs to 780 million, which was partly offset by lower restructuring costs, down 205 million.


 
Litigation and conduct costs in Q3 2014 included 400 million of potential conduct costs following investigations into the foreign exchange market and an additional 100 million charge for PPI reflecting higher than expected reactive complaint volumes.


 
Adjusted operating expenses declined to 2,923 million, down 142 million or 5%. The fall was primarily attributable to tight control of discretionary expenditure, lower incentive accruals in CFG and CIB in particular, and the impact of the sale of the Illinois branches in Q2 2014. Adjusted operating expenses for the first nine months of the year were 9% lower than the comparable period in 2013.


 
The cost:income ratio was 89% compared with 75% in Q2 2014 reflecting higher litigation and conduct costs along with lower income. The adjusted cost:income ratio was 67%, up from 62% for Q2 2014, as lower income, primarily in CIB and Centre, outweighed the decline in operating expenses. 


Analysis of results 







Impairment (releases)/losses







Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Loans
(803)
(89)
1,120

(532)
3,281
Securities
2
(4)
50

-
39







Total impairment (releases)/losses
(801)
(93)
1,170

(532)
3,320







Loan impairment (releases)/losses






 - individually assessed
(410)
(42)
580

(297)
2,052
 - collectively assessed
52
221
287

400
1,021
 - latent
(445)
(258)
253

(625)
217







Customer loans
(803)
(79)
1,120

(522)
3,290
Bank loans
-
(10)
-

(10)
(9)







Loan impairment (releases)/losses
(803)
(89)
1,120

(532)
3,281







RBS excluding RCR/Non-Core
(193)
36
584

97
1,842
RCR
(610)
(125)
n/a

(629)
n/a
Non-Core
n/a
n/a
536

n/a
1,439







RBS loan impairment (releases)/losses
(803)
(89)
1,120

(532)
3,281







Customer loan impairment charge as a % of






 gross loans and advances (1)






RBS
(0.8%)
(0.1%)
1.0%

(0.2%)
1.0%
RBS excluding RCR/Non-Core
(0.2%)
-
0.6%

-
0.6%
RCR
(9.5%)
(1.7%)
n/a

(3.3%)
n/a
Non-Core
n/a
n/a
5.2%

n/a
4.7%

30 September
30 June
31 December

2014
2014
2013




Loan impairment provisions
20.0bn
22.4bn
25.2bn
Risk elements in lending 
30.5bn
34.1bn
39.4bn
Provisions as a % of REIL



 - RBS
66%
66%
64%
 - RBS excluding RCR/Non-Core
57%
59%
56%
 - RCR
72%
71%
n/a
 - Non-Core
n/a
n/a
73%
REIL as a % of gross customer loans



 - RBS
7.4%
8.3%
9.4%
 - RBS excluding RCR/Non-Core
3.4%
3.6%
5.3%
 - RCR
67.6%
68.1%
n/a
 - Non-Core
n/a
n/a
51.8%
Note:
(1)
Excludes reverse repurchase agreements and includes disposals groups.


Analysis of results 
Q3 2014 compared with Q2 2014
 
A net loan impairment release of 803 million was recorded in Q3 2014, 714 million higher than in Q2 2014. This included a 610 million release in RCR driven by the improved economic environment and rising asset values in the UK and especially Ireland, together with net provision releases in Ulster Bank supported by rising Irish residential property prices and proactive debt management. While UK PBB's net impairment charge increased as a result of lower latent releases, underlying credit conditions remain benign. 


 
REIL decreased by 3.6 billion to 30.5 billion during Q3 2014. Of the reduction, 3.0 billion was in RCR which continued its strategy of disposing of non-performing assets. Continued favourable market conditions resulted in some disposals being achieved at prices above net book value. The 0.6 billion reduction in non-RCR was primarily in Commercial Banking portfolios due to repayments and write-offs. 


 
REIL as a percentage of gross customer loans declined, both in RCR, to 67.6%, and in the rest of RBS to 3.4%.


Analysis of results 








Risk elements in lending (REIL) and loan impairment provisions










Quarter ended 30 September 2014

REIL

Impairment provisions (1)

RBS



RBS



excl. RCR
RCR
Total

excl. RCR
RCR
Total

m
m
m

m
m
m








At beginning of period 
13,653
20,428
34,081

8,041
14,405
22,446
Currency translation and other adjustments
(72)
(258)
(330)

(41)
(190)
(231)
Additions
808
445
1,253




Repayments and disposals and transfers to performing book
(840)
(2,187)
(3,027)

-
(6)
(6)
Transfers between REIL and potential problem loans
(91)
(18)
(109)




Amounts written-off
(403)
(962)
(1,365)

(403)
(962)
(1,365)
Recoveries of amounts previously written-off




43
3
46
Net release to the income statement - continuing operations




(193)
(610)
(803)
Unwind of discount(2)




(29)
(27)
(56)








At end of period
13,055
17,448
30,503

7,418
12,613
20,031









Nine months ended 30 September 2014

REIL

Impairment provisions (1)

RBS



RBS



excl. RCR
RCR
Total

excl. RCR
RCR
Total

m
m
m

m
m
m








At beginning of period
15,276
24,116
39,392

8,716
16,500
25,216
Currency translation and other adjustments
(239)
(916)
(1,155)

(159)
(585)
(744)
Additions
3,081
2,332
5,413




Repayments and disposals and transfers to performing book
(3,580)
(5,537)
(9,117)

-
(6)
(6)
Transfers between REIL and potential problem loans
(212)
34
(178)




Amounts written-off
(1,271)
(2,581)
(3,852)

(1,271)
(2,581)
(3,852)
Recoveries of amounts previously written-off




127
17
144
Net charge/(release) to the income statement - continuing operations




97
(629)
(532)
Unwind of discount(2)




(92)
(103)
(195)








At end of period
13,055
17,448
30,503

7,418
12,613
20,031
Notes:
(1)
Includes provisions relating to loans and advances to banks (refer to the following page).
(2)
Recognised in interest income.


Analysis of results
Loans and related credit metrics:Loans, REIL, provisions and impairments
The table below analyses gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).




Credit metrics

Quarter ended
30 September 2014 (1)



REIL as a
Provisions
Provisions

Impairment

Gross


% of gross
as a %
as a % of

charge/
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans

(releases)
written-off
m
m
m
%
%
%

m
m










Central and local government
8,490
1
1
-
100
-

(4)
-
Finance
37,552
454
280
1.2
62
0.7

(15)
2
Personal 
- mortgages
149,505
5,722
1,579
3.8
28
1.1

(61)
60

- unsecured
28,592
2,038
1,700
7.1
83
5.9

101
178
Property
54,236
14,582
10,261
26.9
70
18.9

(295)
708
Construction
6,178
1,146
722
18.5
63
11.7

3
48
Manufacturing 
22,854
526
378
2.3
72
1.7

16
109
Finance leases (2)
13,798
184
138
1.3
75
1.0

1
10
Retail, wholesale and repairs
18,430
1,010
698
5.5
69
3.8

(23)
27
Transport and storage
15,200
1,179
552
7.8
47
3.6

(31)
62
Health, education and leisure
15,404
775
422
5.0
54
2.7

24
80
Hotels and restaurants
8,099
1,265
712
15.6
56
8.8

(33)
19
Utilities 
5,429
123
56
2.3
46
1.0

(14)
2
Other
30,314
1,456
1,138
4.8
78
3.8

(27)
51
Latent
-
-
1,354
-
-
-

(445)
n/a











414,081
30,461
19,991
7.4
66
4.8

(803)
1,356










of which: 









UK









- residential mortgages
113,064
1,590
233
1.4
15
0.2

(22)
30
- personal lending
16,116
1,722
1,538
10.7
89
9.5

77
131
- property
38,740
6,219
3,573
16.1
57
9.2

(158)
566
- construction
4,569
832
466
18.2
56
10.2

(10)
46
- other
112,986
3,260
2,230
2.9
68
2.0

(122)
166
Europe









- residential mortgages
15,759
3,210
1,196
20.4
37
7.6

(54)
(5)
- personal lending
1,160
112
101
9.7
90
8.7

1
18
- property
9,732
8,278
6,642
85.1
80
68.2

(139)
139
- construction
1,107
304
247
27.5
81
22.3

12
3
- other
21,120
3,247
2,703
15.4
83
12.8

(425)
164
US









- residential mortgages
20,320
907
148
4.5
16
0.7

16
36
- personal lending
10,272
188
42
1.8
22
0.4

24
28
- property
4,991
60
21
1.2
35
0.4

2
3
- construction
465
2
1
0.4
50
0.2

-
1
- other
29,605
230
624
0.8
271
2.1

1
26











RoW
14,075
300
226
2.1
75
1.6

(6)
4













414,081
30,461
19,991
7.4
66
4.8

(803)
1,356











Banks
29,146
42
40
0.1
95
0.1

-
9
Notes:
(1)
Includes disposal groups.
(2)
Includes instalment credit.


Analysis of results
Capital and leverage ratios








End-point CRR basis (1)

PRA transitional basis

30 September
30 June
31 December

30 September
30 June
31 December

2014
2014
2013 (2)

2014
2014
2013 (2)
Risk asset ratios
%
%
%

%
%
%








CET1 (3)
10.8
10.1
8.6

10.8
10.1
8.6
Tier 1
10.8
10.1
8.6

12.7
12.1
10.3
Total
13.1
12.4
10.6

16.3
15.6
13.6








Capital
bn
bn
bn

bn
bn
bn








Tangible equity
44.3
42.9
41.1

44.1
42.9
41.1
Expected loss less impairment provisions
(1.6)
(1.3)
(1.7)

(1.6)
(1.3)
(1.7)
Prudential valuation adjustment (PVA)
(0.4)
(0.5)
(0.8)

(0.4)
(0.5)
(0.8)
Deferred tax assets
(1.6)
(1.7)
(2.3)

(1.6)
(1.7)
(2.3)
Own credit adjustments
0.6
0.6
0.6

0.6
0.6
0.6
Pension fund assets
(0.2)
(0.2)
(0.2)

(0.2)
(0.2)
(0.2)
Other deductions
0.1
(0.1)
0.1

0.2
(0.1)
0.1








Total deductions
(3.1)
(3.2)
(4.3)

(3.0)
(3.2)
(4.3)








CET1 capital
41.2
39.7
36.8

41.1
39.7
36.8
AT1 capital
-
-
-

7.5
7.6
7.5
Tier 1 capital
41.2
39.7
36.8

48.6
47.3
44.3
Tier 2 capital
8.8
9.0
8.7

13.6
13.9
13.8








Total regulatory capital
50.0
48.7
45.5

62.2
61.2
58.1








Risk-weighted assets
bn
bn
bn

bn
bn
bn








Credit risk







 - non-counterparty
277.0
283.3
317.9

277.0
283.3
317.9
 - counterparty
38.2
38.6
39.1

38.2
38.6
39.1
Market risk
29.7
33.4
30.3

29.7
33.4
30.3
Operational risk
36.8
36.8
41.8

36.8
36.8
41.8








Total RWAs
381.7
392.1
429.1

381.7
392.1
429.1








Leverage
bn
bn
bn












Derivatives
314.0
274.9
288.0




Loans and advances
422.1
414.5
418.4




Reverse repos
75.5
81.7
76.4




Other assets
234.5
240.0
245.1












Total assets
1,046.1
1,011.1
1,027.9




Derivatives







 - netting
(254.5)
(217.5)
(227.3)




 - potential future exposures
106.2
102.5
128.0




Securities financing transactions gross up
72.9
77.5
59.8




Undrawn commitments
98.7
98.0
100.2




Regulatory deductions and other







 adjustments
(1.4)
(1.4)
(6.6)












Leverage exposure 
1,068.0
1,070.2
1,082.0












Leverage ratio % (4)
3.9
3.7
3.4




Notes:
(1)
Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.
(2)
Estimated end-point CRR basis. 
(3)
Common Equity Tier 1 (CET1) ratio includes the benefit of the retained profit for the period.
(4)
Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.


Analysis of results
Q3 2014 compared with Q2 2014
The end-point CRR CET1 ratio improved to 10.8% from 10.1%, principally driven by retained earnings and favourable movements in cash flow and foreign currency reserves, and the continuing reduction in RWAs.


RWA reductions of 10.4 billion were achieved during the quarter, particularly in RCR (down 4.5 billion), CIB (down 4.6 billion) and Ulster Bank (down 3.8 billion). These were partially offset by an increase in CFG (up 3.7 billion) which was amplified by the strengthening of the US dollar. 


The leverage ratio improved by 20 basis points reflecting increased attributable profit as leverage exposure remained broadly stable.

Customer franchise and segment performance

Quarter ended 30 September 2014

PBB

CPB 

CIB 






Ulster 


Commercial
Private



Central


Total

UK PBB
Bank 
Total

Banking
Banking
Total


items (1)
CFG
RCR
RBS

m
m 
m

m
m
m

m
m
m
m
m














Income statement 













Net interest income
1,198
163
1,361

521
172
693

230
109
493
(23)
2,863
Non-interest income
345
51
396

290
98
388

601
(249)
215
145
1,496














Total income
1,543
214
1,757

811
270
1,081

831
(140)
708
122
4,359














Direct expenses













 - staff costs
(223)
(57)
(280)

(124)
(79)
(203)

(179)
(657)
(255)
(37)
(1,611)
 - other costs
(78)
(20)
(98)

(54)
(19)
(73)

(50)
(836)
(231)
(24)
(1,312)
Indirect expenses
(481)
(61)
(542)

(196)
(105)
(301)

(593)
1,460
-
(24)
-
Restructuring costs













 - direct
(2)
-
(2)

-
-
-

(22)
(143)
(13)
-
(180)
 - indirect
(63)
(12)
(75)

(18)
(7)
(25)

6
98
-
(4)
-
Litigation and conduct costs
(118)
-
(118)

-
-
-

(562)
(100)
-
-
(780)














Operating expenses
(965)
(150)
(1,115)

(392)
(210)
(602)

(1,400)
(178)
(499)
(89)
(3,883)














Profit/(loss) before impairment losses
578
64
642

419
60
479

(569)
(318)
209
33
476
Impairment (losses)/releases
(79)
318
239

(12)
4
(8)

12
(1)
(46)
605
801














Operating profit/(loss)
499
382
881

407
64
471

(557)
(319)
163
638
1,277














Additional information













Operating expenses - adjusted (m) (2) 
(782)
(138)
(920)

(374)
(203)
(577)

(822)
(33)
(486)
(85)
(2,923)
Operating profit/(loss) - adjusted (m) (2)
682
394
1,076

425
71
496

21
(174)
176
642
2,237
Return on equity (3)
26.9%
42.2%
30.6%

16.0%
13.3%
15.5%

(11.0%)
nm
5.6%
nm
8.2%
Return on equity - adjusted (2,3)
36.8%
43.5%
37.4%

16.7%
14.8%
16.4%

0.4%
nm
6.1%
nm
16.0%
Cost:income ratio
63%
70%
63%

48%
78%
56%

168%
nm
71%
nm
89%
Cost:income ratio - adjusted (2)
51%
64%
52%

46%
75%
53%

99%
nm
69%
nm
67%
Funded assets (bn)
134.2
26.3
160.5

89.7
21.0
110.7

274.9
87.6
80.5
17.9
732.1
Total assets (bn)
134.2
26.5
160.7

89.7
21.1
110.8

572.9
89.5
80.9
31.3
1,046.1
Risk-weighted assets (bn)
44.7
23.9
68.6

64.9
12.2
77.1

123.2
17.8
64.4
30.6
381.7
Employee numbers (FTEs - thousands)
25.2
4.5
29.7

6.8
3.5
10.3

4.0
48.5
17.5
0.8
110.8














nm = not meaningful



























For the notes to this table refer to page 20. 














Customer franchise and segment performance

Quarter ended 30 June 2014

PBB

CPB 

CIB 






Ulster 


Commercial
Private



Central


Total

UK PBB
Bank 
Total

Banking
Banking
Total


items (1)
CFG
RCR
RBS

m
m 
m

m
m
m

m
m
m
m
m














Income statement 













Net interest income
1,152
169
1,321

511
174
685

186
100
499
7
2,798
Non-interest income
347
42
389

287
98
385

890
44
391
28
2,127














Total income
1,499
211
1,710

798
272
1,070

1,076
144
890
35
4,925














Direct expenses













 - staff costs
(225)
(62)
(287)

(133)
(80)
(213)

(217)
(664)
(261)
(51)
(1,693)
 - other costs
(93)
(18)
(111)

(60)
(14)
(74)

(140)
(781)
(252)
(14)
(1,372)
Indirect expenses
(458)
(63)
(521)

(189)
(104)
(293)

(587)
1,433
-
(32)
-
Restructuring costs













 - direct
(6)
8
2

(40)
(2)
(42)

(9)
(267)
(69)
-
(385)
 - indirect
(23)
(20)
(43)

(21)
(1)
(22)

(143)
208
-
-
-
Litigation and conduct costs
(150)
-
(150)

(50)
-
(50)

(50)
-
-
-
(250)














Operating expenses
(955)
(155)
(1,110)

(493)
(201)
(694)

(1,146)
(71)
(582)
(97)
(3,700)














Profit/(loss) before impairment losses
544
56
600

305
71
376

(70)
73
308
(62)
1,225
Impairment (losses)/releases
(60)
(10)
(70)

9
(1)
8

45
13
(31)
128
93














Operating profit/(loss)
484
46
530

314
70
384

(25)
86
277
66
1,318














Additional information













Operating expenses - adjusted (m) (2)
(776)
(143)
(919)

(382)
(198)
(580)

(944)
(12)
(513)
(97)
(3,065)
Operating profit/(loss) - adjusted (m) (2)
663
58
721

425
73
498

177
145
346
66
1,953
Return on equity (3)
25.3%
4.6%
17.4%

12.4%
14.5%
12.8%

(0.5%)
nm
9.8%
nm
2.2%
Return on equity - adjusted (2,3)
34.7%
5.8%
23.6%

16.8%
15.1%
16.5%

3.3%
nm
12.2%
nm
6.8%
Cost:income ratio
64%
73%
65%

62%
74%
65%

107%
nm
65%
nm
75%
Cost:income ratio - adjusted (2)
52%
68%
54%

48%
73%
54%

88%
nm
58%
nm
62%
Funded assets (bn)
133.6
26.6
160.2

88.6
20.8
109.4

278.7
91.3
75.7
20.9
736.2
Total assets (bn)
133.6
26.7
160.3

88.6
20.8
109.4

537.6
93.3
76.1
34.4
1,011.1
Risk-weighted assets (bn)
47.0
27.7
74.7

63.0
11.8
74.8

127.8
19.0
60.7
35.1
392.1
Employee numbers (FTEs - thousands)
25.7
4.5
30.2

7.1
3.5
10.6

4.3
49.9
17.7
0.9
113.6














RWAs - FLB3 basis at 1 January 2014 (bn)
49.7
28.2
77.9

61.5
12.0
73.5

147.1
23.3
60.6
46.7
429.1














For the notes to this table refer to the following page. 














Customer franchise and segment performance















Quarter ended 30 September 2013*

PBB

CPB 

CIB 






Ulster 


Commercial
Private



Central


Total

UK PBB
Bank 
Total

Banking
Banking
Total


items (1)
CFG
Non-Core
RBS

m
m 
m

m
m
m

m
m
m
m
m














Income statement 













Net interest income
1,141
153
1,294

511
168
679

162
205
485
(42)
2,783
Non-interest income
349
60
409

281
102
383

1,090
43
263
(77)
2,111














Total income
1,490
213
1,703

792
270
1,062

1,252
248
748
(119)
4,894














Direct expenses













 - staff costs
(232)
(64)
(296)

(129)
(81)
(210)

(262)
(674)
(270)
(46)
(1,758)
 - other costs
(121)
(15)
(136)

(57)
(22)
(79)

(138)
(915)
(253)
(46)
(1,567)
Indirect expenses
(485)
(63)
(548)

(206)
(112)
(318)

(614)
1,565
(32)
(53)
-
Restructuring costs













 - direct
(21)
(3)
(24)

(3)
(3)
(6)

(17)
(159)
(2)
3
(205)
 - indirect
(29)
(3)
(32)

(8)
(2)
(10)

(112)
156
-
(2)
-
Litigation and conduct costs
(250)
-
(250)

-
-
-

(99)
-
-
-
(349)














Operating expenses
(1,138)
(148)
(1,286)

(403)
(220)
(623)

(1,242)
(27)
(557)
(144)
(3,879)














Profit/(loss) before impairment losses
352
65
417

389
50
439

10
221
191
(263)
1,015
Impairment (losses)/releases
(138)
(204)
(342)

(93)
(1)
(94)

(28)
(66)
(59)
(581)
(1,170)














Operating profit/(loss)
214
(139)
75

296
49
345

(18)
155
132
(844)
(155)














Additional information













Operating expenses - adjusted (m) (2)
(838)
(142)
(980)

(392)
(215)
(607)

(1,014)
(24)
(555)
(145)
(3,325)
Operating profit/(loss) - adjusted (m) (2)
514
(133)
381

307
54
361

210
158
134
(845)
399
Return on equity (3)
10.2%
(11.8%)
2.2%

11.1%
9.9%
10.9%

(0.3%)
nm
4.9%
nm
(6.9%)
Return on equity - adjusted (2,3)
24.6%
(11.3%)
11.1%

11.5%
10.9%
11.4%

3.8%
nm
5.0%
nm
(3.4%)
Cost:income ratio
76%
69%
76%

51%
81%
59%

99%
nm
74%
nm
79%
Cost:income ratio - adjusted (2)
56%
67%
58%

49%
80%
57%

81%
nm
74%
nm
68%
Funded assets (bn)
131.9
29.2
161.1

88.9
21.0
109.9

309.6
116.4
71.5
37.3
805.8
Total assets (bn)
131.9
29.4
161.3

88.9
21.1
110.0

625.9
118.0
71.9
42.3
1,129.4
Risk-weighted assets (bn) (4)
52.2
31.8
84.0

66.4
12.1
78.5

129.0
21.5
56.1
40.9
410.0
Employee numbers (FTEs - thousands)
26.8
4.8
31.6

7.2
3.6
10.8

4.8
52.7
18.6
1.8
120.3
*Restated - refer to page 39.
Notes:
(1)
Central items include unallocated income and expenses which principally comprise profits/losses on the sale of the Treasury AFS portfolio (quarter ended 30 September 2014 - 72 million loss;
quarter ended 30 June 2014 - 13 million profit; quarter ended 30 September 2013 - 150 million profit) and profit and loss on hedges that do not qualify for hedge accounting.
(2)
Excluding restructuring costs and litigation and conduct costs.
(3) 
Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of divisional RWAs; 2013 RWAs are on a Basel 2.5 basis).
(4)
RWAs at 30 September 2013 are on a Basel 2.5 basis.

Segment performance
Q3 2014 compared with Q2 2014
UK Personal & Business Banking
Operating profit increased by 3% to 499 million primarily reflecting higher income. Adjusted operating profit increased by 3% to 682 million. 


Total income grew by 3% to 1,543 million, supported by improvements in deposit margins. Operating expenses remained broadly stable at 965 million.


Net impairment losses increased by 19 million primarily reflecting lower latent releases. However, underlying default charges continued to decrease, down 5% in the quarter with continued improvements in asset quality.


Gross new mortgage lending totalled 5.3 billion. Net mortgage growth was 0.8 billion with strong retention in fixed rate roll-offs and higher repayments.


Business Banking gross new lending increased by 44% in the year to date compared with the same period in 2013. The recent launch of the Small Business Fund demonstrates the business's continued commitment to this market sector.
Ulster Bank
Operating profit increased by 336 million to 382 million, primarily due to further net impairment releases supported by rising Irish residential property prices coupled with proactive debt management. The potential exists for further releases in the future if market conditions continue to improve. Restructuring costs were stable. Adjusted operating profit increased by 336 million to 394 million.


Total income grew by 1% to 214 million. Proactive re-pricing of deposits has contributed to the improvement in net interest margin since Q3 2013. In both Q2 2014 and Q3 2014 net interest margin benefited from the recognition of interest income on non-performing assets. Management continues to focus on implementing cost saving initiatives but expenses during 2014 have been adversely impacted by a number of additional regulatory charges and levies. 


Trading conditions improved further during Q3 2014 supported by GDP growth, lower unemployment and a recovery in property values but the business environment remains challenging. Ulster Bank has seen an increase in demand for new lending, from both personal and business customers throughout 2014. 
Commercial Banking
Commercial Banking continues to focus on simplifying the way customers do business with the bank. The business improved the online customer lending process, streamlined its product range, reduced the average account opening time by ten days and implemented a further 56 'simplifying customer life' ideas.


Progress has been made on integrating the Commercial and Private businesses resulting in an increase in referrals and helping to ensure that customers' broadest needs are met.


Operating profit grew by 30% to 407 million quarter on quarter, primarily reflecting the absence of litigation and conduct costs during the quarter and lower restructuring costs (down 70%). Adjusted operating profit remained stable with higher income and lower operating expenses offset by modest net impairment charges compared with net impairment release in Q2 2014. 


Total income grew by 2% to 811 million partly as a result of margin expansion, primarily from deposit re-pricing. Cost saving initiatives resulted in an 8% reduction in direct expenses.


Segment performance
Q3 2014 compared with Q2 2014 (continued)
Commercial Banking (continued)
Net impairment losses totalled 12 million compared with a 9 million net release in Q2 2014 as a result of lower releases of latent provisions.


Deposit balances decreased by 1.0 billion to 87.0 billion reflecting active management of the bank's funding surplus, while net loans and advances to customers grew by 1.1 billion across a number of sectors to 85.0 billion. RWAs increased by 1.9 billion primarily from a change in methodology. 
Private Banking
Following a review of the high net worth business, RBS has decided to exit the international business. This exit will be carried out with a focus on minimising client and business disruption while maximising value and certainty of execution. Private Banking UK remains a core business with a significant opportunity to integrate and leverage the franchise within Commercial & Private Banking.


Operating profit decreased by 9% to 64 million principally due to higher restructuring costs. Adjusted operating profit declined by 3% to 71 million.


Total income decreased by 1% to 270 million while operating expenses excluding restructuring costs increased by 3% to 203 million primarily due to remediation expenses.


Net impairment releases totalled 4 million compared with a 1 million net impairment charge in Q2 2014.


Client assets and liabilities grew by 0.7 billion in Q3 2014 with increases across all categories. This includes growth of 0.2 billion in assets under management to 28.9 billion across the UK and international businesses.
Corporate & Institutional Banking
Corporate & Institutional Banking continued to make progress on reducing RWAs and controlling discretionary expenditure during Q3 2014, focusing on strengths in core product areas to serve its customers better whilst moving to a lower risk model.


Operating loss grew by 532 million to 557 million reflecting higher litigation and conduct charges partly offset by lower restructuring costs. Adjusted operating profit was subdued, declining by 156 million to 21 million, driven by lower income, partially offset by lower operating expenses as the business continued to manage down discretionary expenditure. Adjusted operating profit was 570 million in the year to date compared with 506 million in the same period in 2013.


Total income declined by 23% to 831 million in Q3 2014. Rates performance was relatively muted, falling 19% to 240 million. Credit fell by 111 million, primarily due to Asset Backed Products, where resources deployed by the business continued to reduce in line with the strategic decision to concentrate on core product areas. RWAs in Assets Backed Products have almost halved to 12 billion in 2014. 


RWAs were 123.2 billion, down 4.6 billion compared with end Q2 2014, reflecting both risk reduction and business mitigation actions, and despite adverse currency movements of 1.3 billion.


Segment performance
Q3 2014 compared with Q2 2014 (continued)
Citizens Financial Group
The initial public offering of Citizens Financial Group (CFG) was successfully completed with shares priced at $21.50 per share, and trading began on the New York Stock Exchange on 24 September. Given the trading strength of the stock, the underwriters also exercised their overallotment option, resulting in a total of $3.5 billion of common stock being sold. As a result, RBS's holding in CFG stood at 71.25% as of 30 September and was reduced to 70.5% of shares outstanding following a buyback by CFG on 8 October. 


Operating profit for Q3 2014 was $271 million. Excluding the $283 million net gain on the sale of the Illinois franchise in Q2 2014 and restructuring costs, operating profit was down $5 million or 2% from Q2 2014.


Total income was down 21% from Q2 2014, principally driven by the impact of the Illinois franchise sale.


Operating expenses, excluding restructuring costs, decreased by 6% largely due to the impact of the Illinois franchise sale as well as lower incentive accruals and higher consumer regulatory compliance costs in Q2 2014.


Loans and advances were up 2%, driven by higher commercial loans, auto loan organic growth and purchases and a strategic initiative to purchase residential mortgages. Customer deposits have also increased by 2% from the prior quarter maintaining a 98% loan:deposit ratio.
RBS Capital Resolution
RCR funded assets were 18 billion, down 11 billion or 38% since inception on 1 January 2014; with 3 billion of the reduction in the current quarter driven by disposals and run-off.


RWA equivalent (RWAe)(1) decreased to 38 billion, a reduction of 27 billion or 41% since 1 January 2014. The RWAe reduction of 5.2 billion in the quarter reflects a combination of disposals and run-off partially offset by the impact of impairment releases.


Operating profit for the quarter was 638 million, up 572 million compared with Q2 2014, including 605 million of net provision releases reflecting improving economic conditions.


RCR has been capital accretive since its formation on 1 January 2014.
Central items
Operating loss in Central items in Q3 2014 was 319 million compared with an 86 million operating profit in Q2 2014. In Q3 2014, RBS took advantage of improved market prices to dispose of 9 billion of available-for-sale debt securities at a loss of 104 million(2) and recognised a loss of 110 million primarily relating to IFRS volatility arising from interest rate movements. Q2 2014 benefited from a number of small gains on asset realisations.
Notes:
(1)
RWA equivalent (RWAe)is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAsand the regulatory capital deductions, the latter converted to RWAe by applying a multiplier of 10. 
(2)
An additional 73 million loss attributable to other shareholders is included within RFS Holdings minority interest.

UK Personal & Business Banking








Quarter ended

Nine months ended

30 September 
30 June 
30 September 

30 September 
30 September 

2014
2014
2013

2014
2013
Income statement
m
m
m

m
m







Net interest income
1,198
1,152
1,141

3,474
3,341







Net fees and commissions
335
304
344

972
968
Other non-interest income
10
43
5

59
10







Non-interest income
345
347
349

1,031
978







Total income
1,543
1,499
1,490

4,505
4,319







Direct expenses






 - staff costs
(223)
(225)
(232)

(672)
(698)
 - other costs
(78)
(93)
(121)

(298)
(321)
Indirect expenses
(481)
(458)
(485)

(1,463)
(1,435)
Restructuring costs






 - direct
(2)
(6)
(21)

(8)
(91)
 - indirect
(63)
(23)
(29)

(76)
(68)
Litigation and conduct costs
(118)
(150)
(250)

(268)
(410)







Operating expenses
(965)
(955)
(1,138)

(2,785)
(3,023)







Profit before impairment losses
578
544
352

1,720
1,296
Impairment losses
(79)
(60)
(138)

(227)
(394)







Operating profit
499
484
214

1,493
902







Operating profit - adjusted (1)
682
663
514

1,845
1,471







Analysis of income by product






Personal advances
231
232
233

698
676
Personal deposits
194
160
125

496
352
Mortgages
657
649
663

1,944
1,940
Cards
187
176
213

561
632
Business banking
261
245
245

751
726
Other
13
37
11

55
(7)







Total income
1,543
1,499
1,490

4,505
4,319







Analysis of impairments by sector






Personal advances
46
40
34

125
118
Mortgages
(8)
4
18

(3)
44
Business banking
20
1
56

50
143
Cards
21
15
30

55
89







Total impairment losses
79
60
138

227
394







Performance ratios






Return on equity (2)
26.9%
25.3%
10.2%

26.1%
14.3%
Return on equity - adjusted (1,2)
36.8%
34.7%
24.6%

32.2%
23.4%
Net interest margin
3.72%
3.64%
3.60%

3.65%
3.54%
Cost:income ratio
63%
64%
76%

62%
70%
Cost:income ratio - adjusted (1)
51%
52%
56%

54%
57%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
bn
bn
bn




Funded assets
134.2
133.6
132.2
Total assets
134.2
133.6
132.2
Net loans and advances to customers
127.0
126.4
124.8
Risk elements in lending
4.1
4.2
4.7
Impairment provisions
(2.7)
(2.8)
(3.0)
Customer deposits
146.0
146.0
144.9
Risk-weighted assets (3)
44.7
47.0
51.2
Notes:
(1)
Excluding restructuring costs and litigation and conduct costs.
(2)
Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs; 2013 RWAs are on a Basel 2.5 basis).
(3)
RWAs reported as at 31 December 2013 are on a Basel 2.5 basis. RWAs on an FLB3 basis as at 1 January 2014 are set out on page 20.


Ulster Bank

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Income statement
m
m
m

m
m







Net interest income
163
169
153

486
455







Net fees and commissions
35
34
35

101
104
Other non-interest income
16
8
25

39
98







Non-interest income
51
42
60

140
202







Total income
214
211
213

626
657







Direct expenses






 - staff costs
(57)
(62)
(64)

(182)
(188)
 - other costs
(20)
(18)
(15)

(55)
(42)
Indirect expenses
(61)
(63)
(63)

(187)
(188)
Restructuring costs






 - direct
-
8
(3)

8
(18)
 - indirect
(12)
(20)
(3)

(34)
(9)
Litigation and conduct costs
-
-
-

-
(25)







Operating expenses
(150)
(155)
(148)

(450)
(470)







Profit before impairment losses
64
56
65

176
187
Impairment releases/(losses)
318
(10)
(204)

261
(707)







Operating profit/(loss)
382
46
(139)

437
(520)







Operating profit/(loss) - adjusted (1)
394
58
(133)

463
(468)







Analysis of income by product






Corporate
65
65
76

199
246
Retail
111
100
101

301
310
Other
38
46
36

126
101







Total income
214
211
213

626
657







Analysis of impairments by sector






Mortgages
(168)
16
30

(133)
211
Commercial real estate






 - investment
(18)
1
104

(9)
201
 - development
(9)
(3)
12

(15)
38
Other corporate
(130)
(9)
51

(122)
237
Other lending
7
5
7

18
20







Total impairment (releases)/losses
(318)
10
204

(261)
707







Performance ratios






Return on equity (2)
42.2%
4.6%
(11.8%)

14.9%
(14.0%)
Return on equity - adjusted (1,2)
43.5%
5.8%
(11.3%)

15.8%
(12.6%)
Net interest margin
2.32%
2.35%
1.83%

2.32%
1.82%
Cost:income ratio
70%
73%
69%

72%
72%
Cost:income ratio - adjusted (1)
64%
68%
67%

68%
64%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
bn
bn
bn




Funded assets
26.3
26.6
28.0
Total assets
26.5
26.7
28.2
Net loans and advances to customers
22.0
22.4
26.0
Risk elements in lending
4.8
4.9
8.5
Impairment provisions
(2.9)
(3.3)
(5.4)
Customer deposits
19.7
20.7
21.7
Risk-weighted assets (3)
23.9
27.7
30.7




For the notes to this table refer to page 24. 




Commercial Banking

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Income statement
m
m
m

m
m







Net interest income
521
511
511

1,520
1,447







Net fees and commissions
220
227
232

668
709
Other non-interest income
70
60
49

191
185







Non-interest income
290
287
281

859
894







Total income
811
798
792

2,379
2,341







Direct expenses






 - staff costs
(124)
(133)
(129)

(390)
(381)
 - other costs
(54)
(60)
(57)

(176)
(201)
Indirect expenses
(196)
(189)
(206)

(598)
(610)
Restructuring costs






 - direct
-
(40)
(3)

(40)
(17)
 - indirect
(18)
(21)
(8)

(40)
(23)
Litigation and conduct costs
-
(50)
-

(50)
(25)







Operating expenses
(392)
(493)
(403)

(1,294)
(1,257)







Profit before impairment losses
419
305
389

1,085
1,084
Impairment (losses)/releases
(12)
9
(93)

(43)
(375)







Operating profit
407
314
296

1,042
709







Operating profit - adjusted (1)
425
425
307

1,172
774







Analysis of income by business






Commercial lending
459
448
468

1,353
1,430
Deposits
95
81
56

248
144
Asset and invoice finance
188
186
169

554
503
Other
69
83
99

224
264







Total income
811
798
792

2,379
2,341







Analysis of impairments by sector






Commercial real estate
(1)
(17)
36

(7)
198
Asset and invoice finance
2
-
5

4
11
Private sector services (education, health, etc)
2
-
34

(8)
97
Banks & financial institutions
(1)
(1)
4

-
6
Wholesale and retail trade repairs
2
2
3

16
6
Hotels and restaurants
2
(4)
(1)

1
18
Manufacturing
2
4
2

9
(2)
Construction
4
2
-

8
(1)
Other
-
5
10

20
42







Total impairment losses/(releases)
12
(9)
93

43
375







Performance ratios






Return on equity (2)
16.0%
12.4%
11.1%

13.7%
8.7%
Return on equity - adjusted (1,2)
16.7%
16.8%
11.5%

15.4%
9.6%
Net interest margin
2.78%
2.73%
2.75%

2.72%
2.60%
Cost:income ratio
48%
62%
51%

54%
54%
Cost:income ratio - adjusted (1)
46%
48%
49%

49%
51%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
bn
bn
bn




Funded assets
89.7
88.6
87.9
Total assets
89.7
88.6
87.9
Net loans and advances to customers
85.0
83.9
83.5
Risk elements in lending
2.6
2.9
4.3
Impairment provisions
(1.0)
(1.2)
(1.5)
Customer deposits
87.0
88.0
90.7
Risk-weighted assets (3) 
64.9
63.0
65.8
For the notes to this table refer to page 24.


Private Banking

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Income statement
m
m
m

m
m







Net interest income
172
174
168

516
485







Net fees and commissions
85
84
90

257
270
Other non-interest income
13
14
12

42
46







Non-interest income
98
98
102

299
316







Total income
270
272
270

815
801







Direct expenses






 - staff costs
(79)
(80)
(81)

(239)
(254)
 - other costs
(19)
(14)
(22)

(51)
(51)
Indirect expenses
(105)
(104)
(112)

(310)
(341)
Restructuring costs






 - direct
-
(2)
(3)

(2)
(4)
 - indirect
(7)
(1)
(2)

(8)
(6)







Operating expenses
(210)
(201)
(220)

(610)
(656)







Profit before impairment losses
60
71
50

205
145
Impairment releases/(losses)
4
(1)
(1)

4
(8)







Operating profit
64
70
49

209
137







Operating profit - adjusted (1)
71
73
54

219
147







Analysis of income by business






Investments
44
45
49

134
146
Banking
226
227
221

681
655







Total income
270
272
270

815
801







Performance ratios






Return on equity (2)
13.3%
14.5%
9.9%

14.5%
9.2%
Return on equity - adjusted (1,2)
14.8%
15.1%
10.9%

15.1%
9.9%
Net interest margin
3.65%
3.73%
3.54%

3.70%
3.40%
Cost:income ratio
78%
74%
81%

75%
82%
Cost:income ratio - adjusted (1)
75%
73%
80%

74%
81%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
bn
bn
bn




Funded assets
21.0
20.8
21.0
Total assets
21.1
20.8
21.2
Net loans and advances to customers
16.7
16.5
16.7
Risk elements in lending
0.2
0.2
0.3
Impairment provisions
(0.1)
(0.1)
(0.1)
Customer deposits 
36.2
35.9
37.2
Risk-weighted assets (3)
12.2
11.8
12.0




For the notes to this table refer to page 24.




Corporate & Institutional Banking








Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Income statement
m
m
m

m
m







Net interest income from banking activities
230
186
162

595
476







Net fees and commissions
263
247
288

753
844
Income from trading activities
329
597
772

1,811
2,525
Other operating income
9
46
30

99
115







Non-interest income
601
890
1,090

2,663
3,484







Total income
831
1,076
1,252

3,258
3,960







Direct expenses






 - staff costs
(179)
(217)
(262)

(666)
(841)
 - other costs
(50)
(140)
(138)

(300)
(421)
Indirect expenses
(593)
(587)
(614)

(1,773)
(1,941)
Restructuring costs






 - direct
(22)
(9)
(17)

(44)
(51)
 - indirect
6
(143)
(112)

(163)
(161)
Litigation and conduct costs
(562)
(50)
(99)

(612)
(509)







Operating expenses
(1,400)
(1,146)
(1,242)

(3,558)
(3,924)







(Loss)/profit before impairment losses
(569)
(70)
10

(300)
36
Impairment releases/(losses)
12
45
(28)

51
(251)







Operating loss
(557)
(25)
(18)

(249)
(215)







Operating profit - adjusted (1)
21
177
210

570
506







Analysis of income by product






Rates
240
297
406

896
873
Currencies
193
159
232

544
711
Credit
198
309
304

972
1,296
Global Transaction Services
207
214
229

628
654
Portfolio
164
156
144

482
467







Total (excluding revenue share and run-off 






 businesses)
1,002
1,135
1,315

3,522
4,001
Inter-segment revenue share
(58)
(59)
(63)

(177)
(204)
Run-off businesses
(113)
-
-

(87)
163







Total income
831
1,076
1,252

3,258
3,960







Performance ratios






Return on equity (2)
(11.0%)
(0.5%)
(0.3%)

(1.5%)
(1.2%)
Return on equity - adjusted (1,2)
0.4%
3.3%
3.8%

3.5%
2.9%
Net interest margin
1.08%
0.90%
0.79%

0.95%
0.74%
Cost:income ratio
168%
107%
99%

109%
99%
Cost:income ratio - adjusted (1)
99%
88%
81%

84%
81%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
bn
bn
bn




Funded assets
274.9
278.7
268.6
Total assets
572.9
537.6
551.2
Reverse repos
72.9
78.8
76.2
Net loans and advances to customers
73.1
69.0
68.2
Net loans and advances to banks
19.5
19.4
20.5
Securities
65.6
67.9
72.1
Risk-weighted assets (3)
123.2
127.8
120.4*
 - credit risk



 - non-counterparty
48.5
58.4
61.8
 - counterparty
37.2
28.9
17.5
 - market risk
25.7
28.7
26.4
 - operational risk
11.8
11.8
14.7
*On a fully loaded Basel 3 basis risk-weighted assets at 1 January were 147.1 billion.
For the notes to this table refer to page 24.

Citizens Financial Group (US dollar)

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013
Income statement
$m
$m
$m

$m
$m







Net interest income
824
838
748

2,471
2,197







Net fees and commissions
291
305
302

875
892
Other non-interest income
68
353
101

520
392







Non-interest income
359
658
403

1,395
1,284







Total income
1,183
1,496
1,151

3,866
3,481







Direct expenses






 - staff costs
(425)
(439)
(415)

(1,280)
(1,298)
 - other costs
(388)
(423)
(388)

(1,223)
(1,132)
Indirect expenses
-
-
(49)

-
(123)
Restructuring costs
(22)
(115)
(3)

(137)
(8)







Operating expenses
(835)
(977)
(855)

(2,640)
(2,561)







Profit before impairment losses
348
519
296

1,226
920
Impairment losses
(77)
(53)
(91)

(251)
(169)







Operating profit
271
466
205

975
751







Operating profit - adjusted (1)
293
581
208

1,112
759







Average exchange rate - US$/
1.669
1.683
1.551

1.669
1.543







Analysis of impairments by sector






Residential mortgages
2
10
24

3
43
Home equity
6
25
43

63
99
SBO home equity
(9)
(28)
-

(3)
-
Corporate and commercial
28
(2)
(21)

41
(74)
Other consumer
50
45
38

144
94
Securities
-
3
7

3
7







Total impairment losses
77
53
91

251
169







Performance ratios






Return on equity (2)
5.6%
9.8%
4.9%

6.9%
6.1%
Return on equity - adjusted (1,2)
6.1%
12.2%
5.0%

7.8%
6.1%
Net interest margin
2.82%
2.93%
2.94%

2.89%
2.92%
Cost:income ratio
71%
65%
74%

68%
74%
Cost:income ratio - adjusted (1)
69%
58%
74%

65%
73%





30 September
30 June
31 December

2014
2014
2013
Capital and balance sheet
$bn
$bn
$bn




Funded assets
130.7
129.5
117.9
Total assets
131.2
130.1
118.6
Net loans and advances to customers
90.4
88.4
83.2
Risk elements in lending
2.0
2.2
1.7
Impairment provisions
(0.8)
(0.9)
(0.4)
Customer deposits (excluding repos)
92.4
90.5
91.1
Risk-weighted assets (3)
104.5
103.8
92.8




Spot exchange rate
1.622
1.711
1.654
For the notes to this table refer to page 24.

RBS Capital Resolution
RCR is managed and analysed by four asset management groups - Ulster Bank (RCR Ireland), Real Estate Finance, Corporate and Markets. Real Estate Finance excludes commercial real estate lending in Ulster Bank.




Nine months

Quarter ended
ended
30 September
30 June 
31 March
30 September

2014
2014
2014
2014

m
m
m
m





Income statement




Net interest (expense)/income
(18)
16
(5)
(7)





Net fees and commissions
12
17
14
43
Income from trading activities (1)
42
(69)
16
(11)
Other operating income (1)
86
71
48
205





Non-interest income
140
19
78
237





Total income
122
35
73
230





Direct expenses




- staff costs
(37)
(51)
(38)
(126)
- other costs
(24)
(14)
(18)
(56)
Indirect expenses
(24)
(32)
(23)
(79)
Restructuring costs
(4)
-
-
(4)





Operating expenses
(89)
(97)
(79)
(265)





Profit/(loss) before impairment losses
33
(62)
(6)
(35)
Impairment releases/(losses) (1)
605
128
(108)
625





Operating profit/(loss)
638
66
(114)
590





Operating profit/(loss) - adjusted (2)
642
66
(114)
594





Total income 




Ulster Bank
(29)
14
(13)
(28)
Real Estate Finance
67
13
83
163
Corporate
72
(12)
(2)
58
Markets 
12
20
5
37





Total income
122
35
73
230





Impairment (releases)/losses




Ulster Bank
(379)
(67)
52
(394)
Real Estate Finance
(159)
(123)
89
(193)
Corporate
(70)
73
(34)
(31)
Markets 
3
(11)
1
(7)





Total impairment (releases)/losses
(605)
(128)
108
(625)





Loan impairment charge as % of gross loans and advances (3)




Ulster Bank
(12.0%)
(1.9%)
1.3%
(4.2%)
Real Estate Finance
(11.6%)
(6.6%)
4.1%
(4.7%)
Corporate
(4.0%)
3.7%
(1.5%)
(0.6%)
Markets 
(0.6%)
(3.6%)
-
(1.9%)





Total
(9.5%)
(1.7%)
1.2%
(3.3%)
Notes:
(1)
Q3 2014 results include 332 million (Q2 2014 - 225 million; Q1 2014 - 56 million) of net gains from the disposal of assets, comprising 97 million gain (Q2 2014 - 6 million gain; Q1 2014 - 5 million loss) in income from trading activities, 3 million gain (Q2 2014 - 38 million; Q1 2014 - 3 million) in other operating income and 232 million (Q2 2014 - 257 million; Q1 2014 - 64 million) release of impairment provisions. 
(2)
Excluding restructuring costs.
(3)
Includes disposal groups.


RBS Capital Resolution

30 September
30 June
31 March
2014
2014
2014

bn
bn
bn




Capital and balance sheet



Loans and advances to customers (gross) (1)
25.8
30.0
34.0
Loan impairment provisions
(12.6)
(14.4)
(15.7)




Net loans and advances to customers
13.2
15.6
18.3




Debt securities
1.7
1.9
2.2
Funded assets
17.9
20.9
24.3
Total assets
31.3
34.4
38.8




Risk elements in lending (1)
17.4
20.4
23.0
Provision coverage (2)
72%
71%
68%
Risk-weighted assets 



- Credit risk



- non-counterparty
18.7
22.6
29.6
- counterparty
8.2
8.2
5.7
- Market risk
3.7
4.3
5.2





30.6
35.1
40.5




Gross loans and advances to customers (1)



Ulster Bank
12.6
13.9
15.5
Real Estate Finance 
5.5
7.4
8.6
Corporate 
7.0
7.8
9.1
Markets
0.7
0.9
0.8





25.8
30.0
34.0




Funded assets - Ulster Bank



Commercial real estate - investment
1.5
1.9
2.4
Commercial real estate - development
0.7
0.7
0.8
Other corporate
0.7
0.9
1.2





2.9
3.5
4.4




Funded assets - Real Estate Finance



UK
3.2
4.4
4.7
Germany
0.8
1.0
1.4
Spain
0.5
0.5
0.6
Other 
0.9
0.8
1.0





5.4
6.7
7.7




Funded assets - Corporate



Structured finance
1.7
2.0
2.2
Shipping
1.9
1.9
2.0
Other 
3.1
3.5
4.4





6.7
7.4
8.6




Funded assets - Markets



Securitised products
2.3
2.7
3.0
Emerging markets
0.6
0.6
0.6





2.9
3.3
3.6
Notes:
(1)
Includes disposal groups. 
(2)
Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

RBS Capital Resolution
Funded assets






1 July




30 September
2014
Net run-off
Disposals (1)
Impairments
Other 
2014
Quarter ended 30 September 2014
bn
bn
bn
bn
bn
bn







Ulster Bank
3.5
-
(0.8)
0.4
(0.2)
2.9
Real Estate Finance
6.7
(0.5)
(0.8)
0.1
(0.1)
5.4
Corporate
7.4
(0.6)
(0.4)
0.1
0.2
6.7
Markets
3.3
(0.4)
(0.1)
-
0.1
2.9







Total 
20.9
(1.5)
(2.1)
0.6
-
17.9
Risk-weighted assets






1 July


Risk

Other (3) 
30 September
2014
Net run-off
Disposals (1)
parameters (2)
Impairments
2014
Quarter ended 30 September 2014
bn
bn
bn
bn
bn
bn
bn








Ulster Bank
2.3
-
-
(0.1)
-
(0.1)
2.1
Real Estate Finance
6.4
(0.3)
-
(0.5)
-
-
5.6
Corporate
15.1
(0.9)
(0.8)
(0.1)
-
0.7
14.0
Markets
11.3
(0.7)
(0.9)
(0.8)
-
-
8.9








Total
35.1
(1.9)
(1.7)
(1.5)
-
0.6
30.6
Capital deductions





1 July
Net run-off

Risk
Impairments
Other (3) 
30 September
2014
Disposals (1)
parameters (2)
2014
Quarter ended 30 September 2014
m
m
m
m
m
m
m








Ulster Bank
217
-
(47)
(18)
120
-
272
Real Estate Finance
405
(68)
(382)
299
112
(1)
365
Corporate
156
(56)
(26)
(69)
64
12
81
Markets
64
(1)
(1)
(7)
1
-
56








Total
842
(125)
(456)
205
297
11
774
RWA equivalent (4)





1 July
Net run-off

Risk
Impairments
Other (3) 
30 September
2014
Disposals (1)
parameters (2)
2014
Quarter ended 30 September 2014
bn
bn
bn
bn
bn
bn
bn








Ulster Bank
4.5
-
(0.5)
(0.3)
1.2
(0.1)
4.8
Real Estate Finance
10.5
(1.0)
(3.8)
2.4
1.1
-
9.2
Corporate
16.6
(1.4)
(1.0)
(0.8)
0.6
0.8
14.8
Markets
11.9
(0.7)
(0.9)
(0.8)
-
-
9.5








Total
43.5
(3.1)
(6.2)
0.5
2.9
0.7
38.3
Notes:
(1)
Includes all effects relating to disposals, including associated removal of deductions from regulatory capital.
(2)
Principally reflects credit migration and other technical adjustments.
(3)
Includes fair value adjustments and foreign exchange movements. 
(4)
RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10%; this results in an end point CRR RWAe conversion multiplier of 10.


RBS Capital Resolution










Gross loans and advances, REIL and impairments

















Credit metrics

Quarter ended




REIL as a
Provisions
Provisions

Impairment


Gross


% of gross
as a %
as a % of

(releases)/
Amounts

loans
REIL
Provisions
loans
of REIL
gross loans

charge (2)
written-off
30 September 2014 (1)
bn
bn
bn
%
%
%

m
m










By sector:









Commercial real estate









 - investment
8.4
6.0
3.5
71
58
42

(299)
572
 - development
7.1
6.7
5.9
94
88
83

(127)
105
Asset finance
2.4
0.8
0.4
33
50
17

7
21
Other corporate
7.8
3.9
2.8
50
72
36

(165)
255
Other
0.1
-
-
-
-
-

(21)
-











25.8
17.4
12.6
67
72
49

(605)
953










By donating segment









 and sector









Ulster Bank









Commercial real estate









- investment
3.8
3.5
2.5
92
71
66

(168)
86
- development
6.4
6.2
5.6
97
90
88

(116)
77
Other corporate
2.4
2.2
1.7
92
77
71

(95)
11










Total Ulster Bank 
12.6
11.9
9.8
94
82
78

(379)
174










Commercial Banking









Commercial real estate









 - investment
1.6
0.8
0.3
50
38
19

(44)
62
 - development
0.5
0.4
0.2
80
50
40

(16)
20
Asset finance
-
-
-
-
-
-

-
1
Other corporate
1.2
0.6
0.4
50
67
33

(38)
36
Other 
-
-
-
-
-
-

(3)
-










Total Commercial Banking
3.3
1.8
0.9
55
50
27

(101)
119










CIB









Commercial real estate









 - investment
3.0
1.7
0.7
57
41
23

(87)
424
 - development
0.2
0.1
0.1
50
100
50

5
8
Asset finance
2.4
0.8
0.4
33
50
17

7
20
Other corporate
4.2
1.1
0.7
26
64
17

(32)
208
Other
0.1
-
-
-
-
-

(18)
-










Total CIB
9.9
3.7
1.9
37
51
19

(125)
660










Total
25.8
17.4
12.6
67
72
49

(605)
953










Of which:









UK
11.3
6.3
4.1
56
65
36

(245)
630
Europe
13.4
10.7
8.3
80
78
62

(357)
302
US
0.3
0.1
-
33
-
-

(1)
18
RoW
0.8
0.3
0.2
38
67
25

(2)
3










Customers
25.8
17.4
12.6
67
72
49

(605)
953
Banks
0.6
-
-
-
-
-

-
9










Total
26.4
17.4
12.6
66
72
48

(605)
962
Notes:
(1)
Includes disposal groups.
(2)
Impairment losses/(releases) include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.

Selected condensed statutory financial statements 
Condensed consolidated income statement for the period ended 30 September 2014








Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September
2014
2014
2013

2014
2013

m
m
m

m
m







Interest receivable
3,839
3,821
4,207

11,460
12,767
Interest payable
(976)
(1,023)
(1,427)

(3,104)
(4,550)







Net interest income
2,863
2,798
2,780

8,356
8,217







Fees and commissions receivable
1,296
1,314
1,382

3,901
4,090
Fees and commissions payable
(202)
(251)
(238)

(689)
(698)
Income from trading activities
268
541
444

1,761
2,508
Gain on redemption of own debt
-
-
13

20
204
Other operating income
127
345
35

1,163
1,367







Non-interest income
1,489
1,949
1,636

6,156
7,471







Total income
4,352
4,747
4,416

14,512
15,688







Staff costs
(1,690)
(1,845)
(1,895)

(5,226)
(5,622)
Premises and equipment
(543)
(622)
(544)

(1,818)
(1,648)
Other administrative expenses
(1,344)
(951)
(1,103)

(3,006)
(3,284)
Depreciation and amortisation
(306)
(282)
(338)

(860)
(1,074)
Write down of goodwill and other intangible assets
-
(130)
-

(212)
-







Operating expenses
(3,883)
(3,830)
(3,880)

(11,122)
(11,628)







Profit before impairment releases/(losses)
469
917
536

3,390
4,060
Impairment releases/(losses)
801
93
(1,170)

532
(3,320)







Operating profit/(loss) before tax
1,270
1,010
(634)

3,922
740
Tax charge
(333)
(371)
(81)

(1,066)
(759)







Profit/(loss) from continuing operations
937
639
(715)

2,856
(19)
Profit/(loss) from discontinued operations, net of tax
3
26
(5)

38
133







Profit/(loss) for the period
940
665
(720)

2,894
114
Non-controlling interests
53
(23)
(6)

11
(123)
Preference share and other dividends
(97)
(412)
(102)

(584)
(284)







Profit/(loss) attributable to ordinary and






 B shareholders
896
230
(828)

2,321
(293)







Earnings/(loss) per ordinary and equivalent 






B share (EPS) (1)






Basic EPS from continuing and discontinued operations
7.9p
2.0p
(7.4p)

20.5p
(2.6p)
Basic EPS from continuing operations 
7.9p
1.9p
(7.4p)

20.4p
(3.6p)
Note:
(1)
Diluted EPS for the quarter ended 30 September 2014 was 0.1p lower (quarter ended 30 June 2014 - 0.1p lower) and for the nine months ended 30 September 2014 was 0.2p lower than basic EPS. There was no dilutive impact on all other comparative periods.
Items excluded from the operating performance of reportable segments are recorded in the condensed consolidated income statement as follows:

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Own credit adjustments






 - income from trading activities
33
(84)
(155)

44
20
 - other operating income
16
(106)
(341)

(46)
(140)
Gain on redemption of own debt






 - non-interest income
-
-
13

20
204
Write down of goodwill






 - write down of goodwill and other intangible assets
-
(130)
-

(130)
-
Strategic disposals






 - other operating income
-
-
(7)

191
(7)
RFS Holdings minority interest
(56)
12
11

(35)
110

Selected condensed statutory financial statements 
Consolidated statement of comprehensive income
for the period ended 30 September 2014

Quarter ended

Nine months ended

30 September
30 June 
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Profit/(loss) for the period
940
665
(720)

2,894
114







Items that do not qualify for reclassification






Tax
-
-
(163)

-
(163)







Items that qualify for reclassification






Available-for-sale financial assets
79
265
430

608
(303)
Cash flow hedges
207
(47)
(88)

455
(1,624)
Currency translation
616
(598)
(1,211)

(117)
99
Tax 
(31)
(72)
85

(191)
811







Other comprehensive income/(loss) after tax
871
(452)
(947)

755
(1,180)







Total comprehensive income/(loss) for the period
1,811
213
(1,667)

3,649
(1,066)







Total comprehensive income/(loss) is 






 attributable to:






Non-controlling interests
12
6
(13)

42
121
Preference shareholders
91
75
98

231
250
Paid-in equity holders
6
17
4

33
34
Dividend access share
-
320
-

320
-
Ordinary and B shareholders
1,702
(205)
(1,756)

3,023
(1,471)








1,811
213
(1,667)

3,649
(1,066)
The movement in available-for-sale financial assets during the quarter predominantly reflects realised losses arising on the disposal of securities in the liquidity portfolio. In the nine months ended 30 September 2014, the movement primarily arises on unrealised gains on Spanish and US bonds.


Cash flow hedging gains in both the quarter and nine months largely result from decreases in the Sterling and Euro swap rates.


Currency translation gains in the quarter are principally due to the weakening of Sterling against the US dollar. The losses in the nine months are driven by the strengthening of Sterling against the Euro, partly offset by the weakening against the US dollar.

Selected condensed statutory financial statements 
Condensed consolidated balance sheet at 30 September 2014

30 September
30 June
31 December
2014
2014
2013

m
m
m




Assets



Cash and balances at central banks
67,900
68,670
82,659
Net loans and advances to banks
29,090
28,904
27,555
Reverse repurchase agreements and stock borrowing
24,860
28,163
26,516
Loans and advances to banks
53,950
57,067
54,071
Net loans and advances to customers
392,969
385,554
390,825
Reverse repurchase agreements and stock borrowing
50,631
53,542
49,897
Loans and advances to customers
443,600
439,096
440,722
Debt securities
106,769
112,794
113,599
Equity shares
8,309
7,834
8,811
Settlement balances
20,941
19,682
5,591
Derivatives
314,021
274,906
288,039
Intangible assets
12,454
12,173
12,368
Property, plant and equipment
6,985
7,115
7,909
Deferred tax
2,843
3,107
3,478
Prepayments, accrued income and other assets
7,185
7,418
7,614
Assets of disposal groups
1,153
1,246
3,017




Total assets
1,046,110
1,011,108
1,027,878




Liabilities



Bank deposits
38,986
39,179
35,329
Repurchase agreements and stock lending
30,799
31,722
28,650
Deposits by banks
69,785
70,901
63,979
Customer deposits
405,367
401,226
414,396
Repurchase agreements and stock lending
44,302
51,540
56,484
Customer accounts
449,669
452,766
470,880
Debt securities in issue
53,487
59,087
67,819
Settlement balances
21,049
15,128
5,313
Short positions
34,499
39,019
28,022
Derivatives
310,361
270,087
285,526
Accruals, deferred income and other liabilities
14,618
14,876
16,017
Retirement benefit liabilities
2,629
2,742
3,210
Deferred tax
491
605
507
Subordinated liabilities
24,412
24,809
24,012
Liabilities of disposal groups
272
125
3,378




Total liabilities
981,272
950,145
968,663
Equity



Non-controlling interests
2,747
618
473
Owners' equity* - called up share capital
6,832
6,811
6,714
 - reserves
55,259
53,534
52,028




Total equity
64,838
60,963
59,215




Total liabilities and equity
1,046,110
1,011,108
1,027,878




* Owners' equity attributable to: 



Ordinary and B shareholders
56,799
55,053
53,450
Other equity owners
5,292
5,292
5,292





62,091
60,345
58,742




Contingent liabilities and commitments
238,248
239,121
242,009

Selected condensed statutory financial statements 
Condensed consolidated statement of changes in equity
for the period ended 30 September 2014

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Called-up share capital






At beginning of period
6,811
6,752
6,632

6,714
6,582
Ordinary shares issued
21
59
65

118
115







At end of period
6,832
6,811
6,697

6,832
6,697







Paid-in equity






At beginning and end of period
979
979
979

979
979







Share premium account






At beginning of period
24,885
24,760
24,483

24,667
24,361
Ordinary shares issued
49
125
145

267
267







At end of period
24,934
24,885
24,628

24,934
24,628







Merger reserve






At beginning and end of period
13,222
13,222
13,222

13,222
13,222







Available-for-sale reserve






At beginning of period
138
(62)
(714)

(308)
(346)
Unrealised (losses)/gains
(37)
411
592

807
606
Realised losses/(gains)
52
(148)
(164)

(314)
(769)
Tax
28
(63)
34

(40)
367
Transfer to retained earnings
(9)
-
-

(9)
-
Recycled to profit or loss on disposal of businesses (1)
-
-
-

36
(110)







At end of period
172
138
(252)

172
(252)







Cash flow hedging reserve






At beginning of period
94
141
491

(84)
1,666
Amount recognised in equity
575
315
163

1,543
(696)
Amount transferred from equity to earnings
(368)
(362)
(251)

(1,088)
(928)
Tax
(44)
-
44

(114)
405
Transfer to retained earnings
34
-
-

34
-







At end of period
291
94
447

291
447







Foreign exchange reserve






At beginning of period
2,963
3,551
5,201

3,691
3,908
Retranslation of net assets
776
(702)
(1,338)

(96)
92
Foreign currency gains on hedges of net assets
(161)
123
148

(6)
17
Tax
(15)
(9)
7

(26)
4
Transfer to retained earnings
(390)
-
-

(390)
-
Recycled to profit or loss on disposal of businesses
-
-
-

-
(3)







At end of period
3,173
2,963
4,018

3,173
4,018







Capital redemption reserve






At beginning and end of period
9,131
9,131
9,131

9,131
9,131







Contingent capital reserve






At beginning and end of period
-
-
(1,208)

-
(1,208)
For the notes to this table refer the following page.


Selected condensed statutory financial statements
Condensed consolidated statement of changes in equity
for the period ended 30 September 2014

Quarter ended

Nine months ended

30 September 
30 June 
30 September 

30 September 
30 September 

2014
2014
2013

2014
2013

m 
m 
m 

m 
m 







Retained earnings






At beginning of period
2,258
1,986
11,105

867
10,596
Profit/(loss) attributable to ordinary and B 






 shareholders and other equity owners






 - continuing operations
999
627
(723)

2,894
(116)
 - discontinued operations
(6)
15
(3)

11
107
Equity preference dividends paid
(91)
(75)
(98)

(231)
(250)
Dividend access share dividend
-
(320)
-

(320)
-
Paid-in equity dividends paid, net of tax
(6)
(17)
(4)

(33)
(34)
Transfer from available-for-sale reserve
9
-
-

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

(34)
-
Transfer from foreign exchange reserve
390
-
-

390
-
Costs relating to CFG IPO
(45)
-
-

(45)
-
Actuarial losses recognised in retirement 






 benefit schemes






 - tax
-
-
(163)

-
(163)
Loss on disposal of own shares held
-
-
-

-
(18)
Shares released for employee benefits
-
(5)
-

(41)
(1)
Share-based payments






 - gross
18
47
26

26
22
 - tax
1
-
4

-
1







At end of period
3,493
2,258
10,144

3,493
10,144







Own shares held






At beginning of period
(136)
(136)
(139)

(137)
(213)
Disposal of own shares
-
-
1

1
74
Shares released for employee benefits
-
-
-

-
1







At end of period
(136)
(136)
(138)

(136)
(138)







Owners' equity at end of period
62,091
60,345
67,668

62,091
67,668







Non-controlling interests 






At beginning of period
618
612
475

473
1,770
Currency translation adjustments and other movements
1
(19)
(21)

(15)
(7)
(Loss)/profit attributable to non-controlling interests






 - continuing operations
(62)
12
8

(38)
97
 - discontinued operations
9
11
(2)

27
26
Movements in available-for-sale securities






 - unrealised (losses)/gains
(4)
(1)
2

(6)
11
 - realised losses
68
3
-

74
-
 - tax
-
-
-

-
(1)
 - recycled to profit or loss on disposal of discontinued 






 operations (2)
-
-
-

-
(5)
Equity raised (3)
2,117
-
-

2,232
-
Equity withdrawn and disposals
-
-
-

-
(1,429)







At end of period
2,747
618
462

2,747
462







Total equity at end of period
64,838
60,963
68,130

64,838
68,130
Notes:
(1)
Net of tax - 11 million in the nine months ended 30 September 2014 (nine months ended 30 September 2013 - 35 million).
(2)
Net of tax - 1 million in the nine months ended 30 September 2013.
(3)
Includes 2,117 million relating to the initial public offering of Citizens Financial Group.

Notes
1. Basis of preparation 
The condensed consolidated financial statements should be read in conjunction with RBS's 2013 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 
There have been no significant changes to RBS's principal accounting policies as set out on pages 377 to 386 of the 2013 Annual Report and Accounts. The adoption of a number of amendments to IFRSs effective for 2014 has not had a material effect on RBS's results. 
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgments are described on pages 386 to 389 of RBS's 2013 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 Interim Management Statement for the period ended 30 September 2014 has been prepared on a going concern basis.
Restatements
On 27 February 2014, RBS announced the reorganisation of the previously reported operating divisions into
three franchises. In addition, in order to present a more complete picture of funding, operational and business costs of the franchises and operating segments, certain reporting changes were implemented.
For further information on these changes refer to the Q2 2014 Restatement Document dated 21 July 2014, available on www.investors.rbs.com/restatement

Notes
2. Income

Quarter ended

Nine months ended

30 September
30 June
30 September

30 September
30 September

2014
2014
2013

2014
2013

m
m
m

m
m







Loans and advances to customers
3,571
3,543
3,829

10,632
11,469
Loans and advances to banks
94
89
106

272
328
Debt securities
174
189
272

556
970







Interest receivable
3,839
3,821
4,207

11,460
12,767







Customer accounts
467
471
692

1,454
2,269
Deposits by banks
24
41
95

119
318
Debt securities in issue
237
270
315

794
1,013
Subordinated liabilities
226
220
223

658
670
Internal funding of trading businesses
22
21
102

79
280







Interest payable
976
1,023
1,427

3,104
4,550







Net interest income
2,863
2,798
2,780

8,356
8,217







Fees and commissions receivable






 - payment services
316
325
375

963
1,064
 - credit and debit card fees
237
245
284

737
813
 - lending (credit facilities)
345
371
335

1,048
1,033
 - brokerage
97
102
117

304
369
 - investment management
100
100
109

306
319
 - trade finance
87
71
73

225
226
 - other
114
100
89

318
266







Fees and commissions receivable
1,296
1,314
1,382

3,901
4,090
Fees and commissions payable 
(202)
(251)
(238)

(689)
(698)







Net fees and commissions
1,094
1,063
1,144

3,212
3,392







Foreign exchange
171
202
198

591
648
Interest rate
17
424
248

689
650
Credit
136
41
116

533
996
Own credit adjustments
33
(84)
(155)

44
20
Other
(89)
(42)
37

(96)
194







Income from trading activities (1)
268
541
444

1,761
2,508







Gain on redemption of own debt
-
-
13

20
204







Operating lease and other rental income
98
87
125

276
381
Own credit adjustments
16
(106)
(341)

(46)
(140)
Changes in the fair value of FVTPL financial assets






 and liabilities and related derivatives
41
9
36

70
65
Changes in the fair value of investment properties
6
(31)
(7)

(37)
(23)
(Loss)/profit on sale of:






 - securities
(114)
132
167

229
739
 - property, plant and equipment
23
16
10

63
33
 - subsidiaries, networks and associates
1
171
(21)

364
(3)
Dividend income
6
17
6

36
41
Share of results of associates
31
28
73

86
277
Other income
19
22
(13)

122
(3)







Other operating income
127
345
35

1,163
1,367







Total non-interest income
1,489
1,949
1,636

6,156
7,471







Total income
4,352
4,747
4,416

14,512
15,688
Note:
(1)
The analysis of income from trading activities is based on how the business is organised and the underlying risks managed. Income from trading activities comprises gains and losses on financial instruments held for trading, both realised and unrealised, interest income, dividends and the related hedging and funding costs in the trading book.

Notes
3. Earnings per ordinary and equivalent B share
Following agreement between RBS and Her Majesty's Treasury for the retirement of the Dividend Access Share (DAS), earnings per share for periods ended after 25 June 2014 only reflect DAS dividends recognised before the end of a reporting period: 320 million was recognised in the quarter ended 30 June 2014. For periods ending on or before 31 March 2014 earnings are allocated solely to the DAS and earnings per ordinary and equivalent B share for such periods are therefore nil. The DAS does not share in losses. For periods prior to 25 June 2014, adjusted earnings per ordinary and equivalent B share excludes the rights of the dividend access share.

4. Provisions for liabilities and charges



Other

Other







customer

regulatory





PPI
IRHP
redress
LIBOR
provisions
Litigation
Property
Other
Total

m
m
m
m
m
m
m
m
m










At 1 January 2014
926
1,077
337
416
150
2,018
379
186
5,489
Currency translation and other 









 movements
-
-
-
(2)
(2)
(61)
(2)
-
(67)
Charge to income statement 









 - continuing operations
150
100
51
-
-
68
151
174
694
Releases to income statement 









 - continuing operations
-
-
(8)
-
-
(35)
(15)
-
(58)
Provisions utilised
(490)
(417)
(79)
(414)
(5)
(80)
(129)
(71)
(1,685)










At 30 June 2014
586
760
301
-
143
1,910
384
289
4,373
Currency translation and other 









 movements
-
-
-
-
-
102
(1)
-
101
Charge to income statement 









 - continuing operations
100
-
19
-
500
135
28
95
877
Releases to income statement 









 - continuing operations
-
-
(4)
-
-
(4)
-
-
(8)
Provisions utilised
(143)
(207)
(50)
-
(4)
(335)
(14)
(31)
(784)










At 30 September 2014
543
553
266
-
639
1,808
397
353
4,559

5. Litigation, investigations and reviews
Except for the developments noted below, there have been no material changes to litigation, investigations and reviews as disclosed in the Interim Results for the six months ended 30 June 2014. Other regulatory provisions increased by 500 million (see Note 4) during the three month period ended 30 September 2014, 400 million of which was in connection with the investigations and reviews around foreign exchange trading. Although RBS has established a provision with respect to these investigations, the effect of the outcome of these investigations, any regulatory findings and any related developments, including the timing and amount of fines or settlements, could result in the future outflow of resources in respect of these investigations ultimately proving to be substantially greater than or less than the aggregate provision RBS has recognised.
Litigation
ISDAFIX antitrust litigation
In September and October 2014, The Royal Bank of Scotland plc (RBS plc) and a number of other financial institutions were named as defendants in three purported class action complaints alleging manipulation of USD ISDAFIX rates, to the detriment of persons who entered into transactions that referenced those rates. The complaints were filed in the United States District Court for the Southern District of New York and contain claims for unjust enrichment and violations of the U.S. antitrust laws and the Commodities Exchange Act.


Notes
5. Litigation, investigations and reviews (continued)
Complex Systems
As previously disclosed, The Royal Bank of Scotland N.V. (RBS N.V.) was a defendant in an action heard in the United States District Court for the Southern District of New York filed by Complex Systems, Inc (CSI). The plaintiff alleged that RBS N.V. had since late 2007 been using the plaintiff's back-office trade finance processing software without a valid licence, in violation of the US Copyright Act. RBS N.V. and CSI have now reached a settlement of the action, and RBS N.V. has paid the agreed settlement sum to CSI. This brings an end to the proceedings and provides RBS companies with an on-going, perpetual licence to use the software at issue.
Investigations and reviews
LIBOR and other trading rates 
On 21 October 2014, the European Commission (EC)announced its findings that RBS and one other financial institution had participated in a bilateral cartel aimed at influencing the Swiss franc Libor benchmark interest rate between March 2008 and July 2009. RBS agreed to settle the case with the EC and received full immunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation.Also on 21 October 2014, the EC announced its findings that RBS and three other financial institutions had participated in a related cartel on bid-ask spreads of Swiss franc interest rate derivatives in the European Economic Area (EEA). Again, RBS received fullimmunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation.
Foreign exchange trading
Various governmental and regulatory authorities in different countries have been conducting investigations into foreign exchange trading and sales activities apparently involving multiple financial institutions. RBS is under investigation by, has received enquiries from and/or is in discussion with certain of these authorities including, among others, the FCA and Serious Fraud Office in the UK, and the Department of Justice and certain other financial regulatory authorities in the United States. RBS is reviewing communications and procedures relating to certain currency exchange benchmark rates as well as foreign exchange trading and sales activity. 
Technology incident in June 2012
As previously disclosed, on 19 June 2012, RBS was affected by a technology incident, as a result of which the processing of certain customer accounts and payments were subject to considerable delay. RBS agreed to reimburse customers for any loss suffered as a result of the incident and RBS made a provision of 175 million in 2012.
On 9 April 2013, the UK Financial Conduct Authority (FCA) announced that it had commenced an enforcement investigation into the incident. This was a joint investigation conducted by the FCA together with the UK Prudential Regulation Authority (PRA) and enforcement proceedings have since commenced. Separately the Central Bank of Ireland (CBI) initiated an investigation and has issued enforcement proceedings against Ulster Bank Ireland Limited, an RBS company. Ulster Bank Ireland Limited anticipates entering into settlement discussions with the CBI before the end of the year. 


Notes
5. Litigation, investigations and reviews (continued)
Multilateral interchange fees
As previously disclosed, in 2007, the EC issued a decision that, while interchange is not illegal per se, MasterCard's multilateral interchange fee (MIF) arrangements for cross border payment card transactions with MasterCard and Maestro branded consumer credit and debit cards in the EEA were in breach of competition law. MasterCard appealed against the decision to the General Court, which upheld the EC's original decision. MasterCard appealed further to the Court of Justice and RBS intervened in those appeal proceedings. On 11 September 2014, the Court rejected MasterCard's appeal and confirmed the EC's original decision. MasterCard had negotiated interim cross border MIF levels to apply for the duration of the General Court and Court of Justice proceedings and further negotiation is expected in light of the Court's decision.
Investigation into advised mortgage sales
On 27 August 2014 the FCA announced that it had fined RBS 14.47 million in relation to an investigation into advised mortgage sales made by RBS plc and NatWest in the period June 2011 to March 2013 inclusive.

6. Risk factors
A summary of the principal risks which could adversely affect RBS are included on pages 135 to 137 of the Interim Results 2014.

7. Recent developments
CFG 
On 8 October 2014, in a US$334 million capital exchange transaction, CFG repurchased 14.3 million common shares from RBSG International Holdings Limited and issued US$334 million of subordinated debt to The Royal Bank of Scotland Group plc. As a result, RBS's holding in CFG declined from 71.25% as at 30 September 2014 to 70.5% of shares outstanding.
On 24 October 2014, CFG declared a quarterly common stock dividend of US$0.10 per share. This dividend will be paid on 20 November 2014 and will amount to US$55 million in aggregate. 
2014 EBA EU-wide stress test
On 26 October, 2014, the European Banking authority (EBA) announced the results of the 2014 EBA EU-wide stress test. RBSG plc and its subsidiaries Ulster Bank Ireland Limited and RBS N.V. all reported capital ratios above the respective post-stress minimum requirements.

8. Post balance sheet events
There have been no significant events between 30 September 2014 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.

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