RBS.L Regulatory News (RBS)

Contents

Page

Introduction

1

Highlights

2

Summary consolidated results

7

Analysis of results

9

Segment performance

15

Selected statutory financial statements

25

Notes

29

Forward-looking statements

32

Appendix - Segmental income statement reconciliations

Analyst enquiries:

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Investor Relations

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Analyst and investor call

Web cast and dial in details

Date:

Friday 28 April 2017

www.rbs.com/results

Time:

12 pm UK time

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Conference ID:

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US Toll Free - 1 866 966 8024

●

Q1 2017 results and background slides.

●

A financial supplement containing income statement, balance sheet and segment performance information for the nine quarters ended 31 March 2017.

●

Pillar 3 supplement at 31 March 2017.

●

Globally Systemically Important Banks template as of and for the year ended 31 December 2016.

●

'Adjusted' measures of financial performance, principally operating performance before: own credit adjustments; gain or loss on redemption of own debt; strategic disposals; restructuring costs; litigation and conduct costs and write down of goodwill (refer to the Appendix for reconciliations of the statutory to adjusted basis);

●

Performance, funding and credit metrics such as 'return on tangible equity', 'adjusted return on tangible equity' and related RWA equivalents incorporating the effect of capital deductions (RWAes), total assets excluding derivatives (funded assets), net interest margin (NIM) adjusted for items designated at fair value through profit or loss (non-statutory NIM), cost:income ratio, loan:deposit ratio and REIL/impairment provision ratios. These are internal metrics used to measure business performance;

●

Personal & Business Banking (PBB) franchise, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI; and Commercial & Private Banking (CPB) franchise, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI); and

●

Cost savings progress and 2017 target calculated using operating expenses excluding litigation and conduct costs, restructuring costs, write down of goodwill and the VAT recoveries.

Quarter ended

31 March

31 December

31 March

Key metrics and ratios

2017

2016

2016

Attributable profit/(loss)

£259m

(£4,441m)

(£968m)

Operating profit/(loss)

£713m

(£4,063m)

£421m

Operating profit - adjusted (2)

£1,371m

£1,185m

£440m

Net interest margin

2.24%

2.19%

2.15%

Cost:income ratio (3)

76.1%

230.2%

78.7%

Cost:income ratio - adjusted (3,4,5)

55.8%

66.3%

76.1%

Earnings/(loss) per share from continuing operations

- basic

2.2p

(37.7p)

(8.3p)

- adjusted (4,5)

7.1p

7.0p

(8.1p)

Return on tangible equity (6,7)

3.1%

(48.2%)

(9.6%)

Return on tangible equity - adjusted (4,5,7)

9.7%

8.6%

(9.4%)

Average tangible equity (6)

£33,357m

£36,855m

£40,383m

Average number of ordinary shares

outstanding during the period (millions)

11,793 

11,766 

11,606 

PBB, CPB & NWM

Total income - adjusted (4)

£3,154m

£2,914m

£2,815m

Operating profit - adjusted (2)

£1,326m

£848m

£1,023m

Return on tangible equity - adjusted (4,5,6)

13.8%

8.5%

10.9%

31 March

31 December

Balance sheet related key metrics and ratios

2017 

2016 

Tangible net asset value (TNAV) per ordinary share (7)

297p

296p

Liquidity coverage ratio (LCR) (8)

129%

123%

Liquidity portfolio

£160bn

£164bn

Net stable funding ratio (NSFR) (9)

120%

121%

Loan:deposit ratio (10,11)

93%

91%

Short-term wholesale funding (10,12)

£16bn

£14bn

Wholesale funding (10,12)

£67bn

£59bn

Common Equity Tier 1 (CET1) ratio

14.1%

13.4%

Risk-weighted assets (RWAs)

£221.7bn

£228.2bn

CRR leverage ratio (13)

5.0%

5.1%

UK leverage ratio (14)

5.7%

5.6%

Tangible equity (7)

£35,186m

£34,982m

Number of ordinary shares in issue (millions) (15)

11,842 

11,823 

(1)

Attributable to ordinary shareholders.

(2)

Operating profit before tax excluding own credit adjustments, gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

(3)

Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).

(4)

Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.

(5)

Excluding restructuring costs and litigation and conduct costs.

(6)

Calculated using profit/(loss) for the period attributable to ordinary shareholders.

(7)

Tangible equity is equity attributable to ordinary shareholders less intangible assets. The dilutive impact was 2p (31 December 2016 - 2p).

(8)

On 1 October 2015 the LCR became the Prudential Regulation Authority's (PRA) primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 90% from 1 January 2017, rising to 100% by 1 January 2018. The published LCR excludes Pillar 2 add-ons. RBS calculates the LCR using its own interpretation of the EU LCR Delegated Act, which may change over time and may not be fully comparable with those of other institutions.

(9)

NSFR for all periods have been calculated using RBS's current interpretations of the revised BCBS guidance on NSFR issued in late 2014. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.

(10)

Excludes repurchase agreements and stock lending.

(11)

Includes disposal groups.

(12)

Excludes derivative collateral.

(13)

Based on end-point Capital Requirements Regulation (CRR) Tier 1 capital and leverage exposure under the CRR Delegated Act.

(14)

Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.

(15)

Includes 28 million treasury shares (31 December 2016 - 39 million).

●

RBS reported an attributable profit of £259 million for Q1 2017 compared with a loss of £968 million in Q1 2016 which included payment of the final Dividend Access Share (DAS) dividend of £1,193 million.

●

Q1 2017 operating profit of £713 million compared with £421 million in Q1 2016. An adjusted operating profit of £1,371 million was £931 million higher than Q1 2016.

●

Adjusted income of £3,239 million was £425 million, or 15.1%, higher than Q1 2016. NatWest Markets adjusted income of £508 million was £231 million, or 83.4%, higher than Q1 2016 reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016. Across PBB and CPB, income was £108 million, or 4.3%, higher supported by asset growth.

●

Net interest margin (NIM) of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 principally driven by deposit re-pricing in UK PBB and Commercial Banking.

●

Excluding a £51 million VAT recovery, adjusted operating expenses have reduced by £278 million, or 12.9%, compared with Q1 2016. The adjusted cost:income ratio for Q1 2017 was 55.8% compared with 76.1% in Q1 2016. Across the core PBB, CPB and NatWest Markets businesses, adjusted cost:income ratio of 54.9% compared with 62.4% in Q1 2016.

●

Restructuring costs were £577 million in the quarter, an increase of £339 million compared with Q1 2016, and included a charge of £235 million relating to the reduction of our property portfolio.

●

Litigation and conduct costs of £54 million comprised a number of small charges.

●

A net impairment loss of £46 million, 6 basis points of gross customer loans, compared with a loss of £223 million in Q1 2016, with the reduction principally reflecting a £226 million shipping impairment in Q1 2016. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016.

●

PBB and CPB net loans and advances have increased by 5.6% on an annualised basis in Q1 2017 principally driven by mortgage growth within UK PBB.

●

Tangible net asset value (TNAV) (1) per share increased by 1p from Q4 2016 to 297p.

●

Across our three customer facing businesses, PBB, CPB and NatWest Markets, adjusted operating profit of £1,326 million was £303 million, or 29.6%, higher than Q1 2016.

○

UK PBB adjusted operating profit of £629 million was £98 million, or 18.5%, higher than Q1 2016. Total income of £1,377 million was £102 million, or 8.0%, higher than Q1 2016 driven by increased lending, with net loans and advances 11.5% higher at £135.8 billion.

○

Ulster Bank RoI adjusted operating profit of £62 million was £2 million, or 3.1%, lower than Q1 2016 reflecting an asset disposal gain in Q1 2016 and reduced income on free funds, partially offset by an increased net impairment release.

○

Commercial Banking adjusted operating profit of £356 million was £47 million, or 11.7%, lower than Q1 2016 primarily driven by an increased impairment charge. Income was £12 million, or 1.4%, higher at £865 million with the benefit of increased net loans and advances, up 3.4% to £99.7 billion, offset by margin pressure, down 12 basis points to 1.76%.

○

Private Banking(2) adjusted operating profit of £44 million was £18 million, or 69.2%, higher than Q1 2016 driven by a £24 million, or 17.5%, reduction in adjusted operating expenses, principally reflecting various management actions to improve operational efficiency.

○

RBS International adjusted operating profit of £48 million reduced by £5 million, or 9.4%, compared with Q1 2016 driven by an £8 million, or 22.9%, increase in adjusted operating expenses principally reflecting increased regulatory and remediation costs.

○

NatWest Markets adjusted income of £508 million was £231 million, or 83.4%, higher than Q1 2016 reflecting the benefit of consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, notably in the Rates business. An adjusted operating profit of £187 million compared with a loss of £54 million for Q1 2016.

(1)

Tangible equity is equity attributable to ordinary shareholders less intangible assets. The dilutive impact was 2p ( 31 December 2016 - 2p)

(2)

Private Banking serves high net worth individuals through Coutts and Adam & Co.

●

Capital Resolution adjusted operating loss of £76 million compared with a loss of £377 million in Q1 2016 reflecting modest disposal losses and impairments of £5 million and a 70.3% reduction in adjusted operating expenses to £69 million. RWAs reduced by a further £4.0 billion in the quarter to £30.5 billion.

●

Central items adjusted operating profit of £10 million compared with a loss of £307 million in Q1 2016 and included a £18 million loss in respect of IFRS volatility (Q1 2016 - £356 million loss). In addition, a VAT recovery of £51 million was recognised in the quarter.

●

CET1 remains ahead of our 13% target at 14.1%, a 70 basis point increase on Q4 2016 driven by a £6.5 billion reduction in RWAs and the £259 million attributable profit.

●

RWAs decreased by £6.5 billion compared with Q4 2016 principally reflecting £4.0 billion of disposals and run-off in Capital Resolution and planned RWA reductions in the core businesses. Excluding volume growth, RWAs across PBB, CPB and NatWest Markets reduced by £3.2 billion (PBB £0.7 billion, CPB £1.4 billion and NatWest Markets £1.1 billion) during Q1 2017, and we remain committed to achieving at least a £20 billion gross reduction by the end of 2018.

●

On 1 March 2017, RBS issued €1.5 billion Senior holding company (RBSG) debt which it expects to be eligible to meet its 'Minimum Requirement for Own Funds and Eligible Liabilities' (MREL). Total MREL eligible securities are now £55.3 billion, or 24.9% of RWAs.

●

Leverage ratio reduced by 10 basis points to 5.0% driven by increased lending exposure.

●

Risk elements in lending (REIL) of £9.7 billion were £0.6 billion lower than 31 December 2016 and represented 2.9% of gross customer loans, compared with 3.1% at 31 December 2016 and 3.6% as at 31 March 2016. Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were £4.1 billion or 1.4% of the respective gross customer loans.

●

As at 31 March 2017, there has been no material change to the surplus ratio of assets to liabilities in the Main Scheme of The Royal Bank of Scotland Group Pension Fund which at 31 December was c.115% under IAS valuation principles.

●

RBS has continued to utilise the Bank of England's Term Funding Scheme. A further £9 billion has been drawn since 31 December 2016, taking total RBS participation to £14 billion as at 31 March 2017.

●

RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending of £7.8 billion was 10% higher than Q1 2016 with market share of new mortgages at approximately 13% supporting growth in stock share to approximately 9.0%, up from 8.8% at 31 December 2016 and 8.3% at 31 March 2016. Positive momentum continued across business banking lending with balances up 4.7%, excluding transfers of £0.9 billion as at 31 March 2017, compared with Q1 2016.

●

RBS continues to enhance the functionality of its mobile app. Customers can now view remaining ISA allowances, register their travel plans, and apply for loans and credit cards. There are also improved transaction descriptions to help customers manage their finances and spot transactions they do not recognise. We now have 4.3 million customers regularly using our mobile app in the UK, over 4% higher than Q4 2016. Nearly 80% of our commercial customers' interaction with us is via digital channels.

●

In February 2017, RBS launched a fully automated lending platform, ESME, to originate unsecured SME lending of up to £150,000. Where our credit risk appetite permits, these loans can be processed and funded within an hour, responding to our customers' desire for speed and simplicity.

●

RBS launched 'Royal Bank Assist', our artificial intelligence-based, 'always-on' online support on the Royal Bank of Scotland website, supported by IBM Watson and LivePerson, answering our top 80 customer questions and getting customers to the right place to meet their needs more quickly.

●

RBS has launched a dedicated team of 1,200 TechXperts, who are in our branches helping customers make the most of online and mobile banking, providing advice on how to stay safe and secure.

●

It is our intention to implement a capital reorganisation in 2017 in order to increase the distributable reserves of the parent company, RBSG plc, providing greater flexibility for future distributions and preference share redemptions. We intend to seek shareholder approval to reduce the share premium account by around £25 billion and to cancel the capital redemption reserve of around £5 billion. This will, subject to approval by shareholders and regulators, and confirmation by the Court of Session in Edinburgh, increase RBSG plc distributable reserves by around £30 billion. As at 31 March 2017, distributable reserves were £7.9 billion.

●

Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018, RBS has adopted the provisions in respect of the presentation of gains and losses on financial liabilities at fair value that are not held for trading from 1 January 2017. Accordingly, a loss of £20 million has been reported in the Consolidated Statement of Other Comprehensive Income instead of in the Consolidated Income Statement. Comparatives have not been restated, however, in Q1 2016 a gain of £108 million was included in the Consolidated Income Statement. Own credit adjustments on financial liabilities held for trading will continue to be recognised in the Consolidated Income Statement, a loss of £29 million was reported in Q1 2017 (Q1 2016 - gain of £148 million).

●

On 17 February 2017, RBS announced that it had been informed by HM Treasury (HMT) that the Commissioner responsible for EU competition policy planned to propose to the College of Commissioners to open proceedings to gather evidence on an alternative plan for RBS to meet its remaining state aid obligations. On 4 April 2017, the European Commission announced that it had opened an in-depth investigation into whether this alternative plan was an appropriate replacement for the existing requirement to achieve separation and divestment of Williams & Glyn by 31 December 2017.

Strategy goal

2017 target

Q1 2017 Progress

Strength and sustainability

Maintain bank CET1 ratio of 13%

CET1 ratio of 14.1%; up 70 basis points from Q4 2016

Customer experience

Significantly increase NPS or maintain No.1 in chosen customer segments

The March 2017 NatWest Personal NPS score was the highest seen since we started to track it in 2009

Commercial Banking is a market leader for customer advocacy, seeing a significant improvement in NPS since Q1 2013 and as of Q1 2017 we have more promoters of our brand than ever before

Simplifying the bank

Reduce operating expenses by at least £750 million (1)

Operating expenses down £278 million, or 12.9%, excluding the VAT recovery

Supporting growth

Net 3% growth on total PBB and CPB loans to customers

Net customer loans in PBB and CPB are up 5.6% on an annualised basis for the year to date; 47% of the total full year target

Employee engagement

Improve employee engagement

Reviewed bi-annually

(1)

Cost saving target and progress 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and VAT recoveries.

●

We retain the 2017 full year guidance and medium term outlook we provided in the 2016 Annual Results document. In addition, and subject to providing fully for remaining significant legacy issues in 2017, our expectation remains that we will be profitable in 2018.

●

We anticipate that adjusted operating profit will be lower in Q2 2017 compared with Q1 2017 reflecting expected reduced income in NatWest Markets, coupled with increased adjusted operating expenses, in part due to the absence of the Q1 2017 VAT recovery in Q2 2017. Separately, we expect to recognise a gain on the sale of RBS's stake in Vocalink of approximately £160 million during the quarter.

●

RBS N.V.'s associate Alawwal Bank announced on 25 April 2017 that it was starting merger discussions with Saudi British Bank (SABB). The 40% stake in Alawwal Bank is the remaining significant shared asset of the RFS Consortium.

Quarter ended

31 March

31 December

31 March

2017

2016

2016

£m

£m

£m

Net interest income

2,234 

2,208 

2,156 

Own credit adjustments

(29)

(114)

256 

Gain on redemption of own debt

2 

1 

- 

Strategic disposals

- 

- 

(6)

Other operating income

1,005 

1,121 

658 

Non-interest income

978 

1,008 

908 

Total income

3,212 

3,216 

3,064 

Restructuring costs

(577)

(1,007)

(238)

Litigation and conduct costs

(54)

(4,128)

(31)

Other costs

(1,822)

(2,219)

(2,151)

Operating expenses

(2,453)

(7,354)

(2,420)

Profit/(loss) before impairment (losses)/releases

759 

(4,138)

644 

Impairment (losses)/releases

(46)

75 

(223)

Operating profit/(loss) before tax

713 

(4,063)

421 

Tax charge

(327)

(244)

(80)

Profit/(loss) for the period

386 

(4,307)

341 

Attributable to:

Non-controlling interests

11 

(27)

22 

Other owners

116 

161 

94 

Dividend access share

- 

- 

1,193 

Ordinary shareholders

259 

(4,441)

(968)

Notable items memo

Adjusted basis

Total income - adjusted (1)

3,239 

3,329 

2,814 

Operating expenses - adjusted (2)

(1,822)

(2,219)

(2,151)

Operating profit - adjusted (1,2)

1,371 

1,185 

440 

Within adjusted total income

IFRS volatility in Central items (3)

(18)

308 

(356)

FX (losses)/gains in Central items

(52)

140 

52 

Capital Resolution disposal losses

(50)

(325)

4 

Unwind of securitisations in the property portfolio

(105)

- 

- 

Within adjusted operating expenses

VAT recovery in Central items

51 

- 

- 

Bank levy

- 

(190)

- 

Within restructuring costs

Property exit costs

(235)

- 

- 

Williams & Glyn restructuring costs

(12)

(810)

(158)

Within impairment (losses)/releases

Capital Resolution impairment releases/(losses)

45 

130 

(196)

Capital Resolution shipping portfolio impairment releases/(losses)

4 

30 

(226)

Ulster Bank RoI impairment releases

24 

47 

13 

Commercial Banking impairment losses

(61)

(83)

(14)

(1)

Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.

(2)

Excluding restructuring costs and litigation and conduct costs.

(3)

IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.

31 March

31 December

2017

2016

£m

£m

Cash and balances at central banks

83,160 

74,250 

Net loans and advances to banks (1)

20,513 

17,278 

Net loans and advances to customers (1)

326,733 

323,023 

Reverse repurchase agreements and stock borrowing

45,451 

41,787 

Debt securities and equity shares

77,347 

73,225 

Assets of disposal groups

92 

13 

Other assets

25,927 

22,099 

Funded assets

579,223 

551,675 

Derivatives

204,052 

246,981 

Total assets

783,275 

798,656 

Bank deposits (2)

40,276 

33,317 

Customer deposits (2)

351,498 

353,872 

Repurchase agreements and stock lending

44,966 

32,335 

Debt securities in issue

28,163 

27,245 

Subordinated liabilities

15,514 

19,419 

Derivatives

196,224 

236,475 

Provisions for liabilities and charges

11,619 

12,836 

Liabilities of disposal groups

14 

15 

Other liabilities

45,490 

33,738 

Total liabilities

733,764 

749,252 

Non-controlling interests

805 

795 

Owners' equity

48,706 

48,609 

Total liabilities and equity

783,275 

798,656 

Contingent liabilities and commitments

148,324 

150,691 

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Excludes repurchase agreements and stock lending.

Quarter ended

31 March

31 December

31 March

2017

2016

2016

Net interest income

£m

£m

£m

Net interest income

RBS

2,234 

2,208 

2,156 

- UK Personal & Business Banking

1,111 

1,093 

1,019 

- Ulster Bank RoI

105 

105 

105 

- Commercial Banking

567 

542 

536 

- Private Banking

112 

111 

113 

- RBS International

80 

77 

75 

- NatWest Markets

29 

29 

19 

- Capital Resolution

33 

44 

86 

- Williams & Glyn

165 

170 

162 

- Central items & other

32 

37 

41 

Average interest-earning assets (IEA)

RBS

405,122 

401,548 

403,384 

- UK Personal & Business Banking

149,581 

147,703 

135,793 

- Ulster Bank RoI

24,424 

26,259 

24,178 

- Commercial Banking

130,885 

128,174 

114,855 

- Private Banking

17,597 

17,679 

16,259 

- RBS International

22,949 

22,793 

21,075 

- NatWest Markets

17,192 

14,085 

11,568 

- Capital Resolution

16,771 

19,696 

30,767 

- Williams & Glyn

25,170 

25,145 

23,356 

- Central items & other

553 

14 

25,533 

Yields, spreads and margins of the banking business

Gross yield on interest-earning assets

of the banking business (1,2)

2.70%

2.72%

2.82%

Cost of interest-bearing liabilities of banking business (1)

(0.69%)

(0.82%)

(1.01%)

Interest spread of the banking business (1,3)

2.01%

1.90%

1.81%

Benefit from interest-free funds

0.23%

0.29%

0.34%

Net interest margin (4)

RBS

2.24%

2.19%

2.15%

- UK Personal & Business Banking

3.01%

2.94%

3.02%

- Ulster Bank RoI

1.74%

1.59%

1.75%

- Commercial Banking

1.76%

1.68%

1.88%

- Private Banking

2.58%

2.50%

2.80%

- RBS International

1.41%

1.34%

1.43%

- NatWest Markets

0.68%

0.82%

0.66%

- Capital Resolution

0.80%

0.89%

1.12%

- Williams & Glyn

2.66%

2.69%

2.79%

Third party customer rates (5)

Third party customer asset rate

- UK Personal & Business Banking

3.57%

3.64%

3.95%

- Ulster Bank RoI (6)

2.47%

2.20%

2.33%

- Commercial Banking

2.67%

2.65%

2.87%

- Private Banking

2.71%

2.76%

3.01%

- RBS International

2.75%

2.93%

3.29%

Third party customer funding rate

- UK Personal & Business Banking

(0.17%)

(0.28%)

(0.62%)

- Ulster Bank RoI (6)

(0.40%)

(0.42%)

(0.59%)

- Commercial Banking

(0.14%)

(0.27%)

(0.35%)

- Private Banking

(0.07%)

(0.12%)

(0.23%)

- RBS International

(0.03%)

(0.08%)

(0.24%)

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

(1)

For the purpose of calculating gross yields and interest spread, interest receivable has been decreased by £18 million and interest payable has been decreased by £18 million in respect of negative interest relating to both financial assets and financial liabilities that attracted negative interest.

(2)

Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.

(3)

Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.

(4)

Net interest margin is net interest income as a percentage of average interest-earning assets.

(5)

Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.

(6)

Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.

·

Net interest income of £2,234 million was £78 million, or 3.6%, higher than Q1 2016 principally reflecting higher volumes in UK PBB, up £92 million or 9.0%, and Commercial Banking, up £31 million or 5.8%. Partially offsetting, Capital Resolution reduced by £53 million in line with the planned shrinkage of the balance sheet.

·

NIM of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 largely driven by increases in UK PBB and Commercial Banking associated with deposit book re-pricing.

·

Across PBB and CPB, NIM reduced by 6 basis points to 2.32% compared with Q1 2016, but increased by 8 basis points compared with Q4 2016.

·

UK PBB NIM decreased by 1 basis point compared with Q1 2016 to 3.01% principally reflecting a decline in current account hedge returns and reduced mortgage margins, partially offset by savings re-pricing benefits. Compared with Q4 2016, NIM increased by 7 basis points driven by the full effect of savings re-pricing in November 2016.

·

Ulster Bank RoI NIM of 1.74% increased by 15 basis points compared with Q4 2016 principally reflecting income recognised on a cohort of non performing loans in Q1 2017.

·

Commercial Banking NIM fell by 12 basis points from Q1 2016 to 1.76% driven by asset margin pressure in a competitive market and lower rate environment. Compared with Q4 2016, NIM increased by 8 basis points due to the active re-pricing of the deposit book and asset pricing actions on new lending.

·

Private Banking NIM of 2.58% reduced by 22 basis points compared with Q1 2016 reflecting the competitive market and low rate environment.

·

Structural hedges of £126 billion generated a benefit of £0.3 billion through net interest income for Q1 2017.

Quarter ended

31 March

31 December

31 March

2017

2016 

2016

Non-interest income

£m

£m

£m

Net fees and commissions

605 

608 

654 

Income/(loss) from trading activities

428 

622 

(110)

Own credit adjustments (OCA)

(29)

(114)

256 

Gain on redemption of own debt

2 

1 

- 

Strategic disposals

- 

- 

(6)

Other operating income

(28)

(109)

114 

Total non-interest income

978 

1,008 

908 

·

Non-interest income was £978 million, an increase of £70 million, or 7.7%, compared with Q1 2016. NatWest Markets non-interest income increased by £137 million, or 42.5%, to £459 million reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, partially offset by an £84 million adverse movement in OCA. Central items non-interest income improved by £117 million principally reflecting a reduction in IFRS volatility losses, £18 million compared with £356 million in Q1 2016, partially offset by a £52 million FX loss (compared with a £52 million gain in Q1 2016) and a £105 million charge in respect of the unwind of securitisations relating to our property portfolio. Partially offsetting, Capital Resolution non-interest income was a loss of £92 million compared with a gain of £67 million in Q1 2016 reflecting a £115 million adverse movement in OCA and increased disposal losses, £50 million compared with £2 million in Q1 2016.

·

Income from trading activities increased by £538 million compared with Q1 2016 largely reflecting reduced IFRS volatility losses and increased NatWest Markets income.

·

Other operating income decreased by £142 million compared with Q1 2016 largely reflecting a £105 million charge in respect of the unwind of securitisations relating to our property portfolio.

Quarter ended

31 March

31 December

31 March

2017

2016

2016

Operating expenses

£m

£m

£m

Staff costs

1,024 

1,025 

1,202 

Premises and equipment

310 

346 

315 

Other administrative expenses

320 

601 

446 

Restructuring costs (see below)

577 

1,007 

238 

Litigation and conduct costs

54 

4,128 

31 

Administrative expenses

2,285 

7,107 

2,232 

Depreciation and amortisation

168 

178 

178 

Write down of intangible assets

- 

69 

10 

Operating expenses

2,453 

7,354 

2,420 

Adjusted operating expenses (1)

1,822 

2,219 

2,151 

Restructuring costs comprise:

- staff expenses

291 

117 

121 

- premises, equipment, depreciation and amortisation

241 

107 

9 

- other

45 

783 

108 

577 

1,007 

238 

Staff costs as a % of total income

31.9%

31.9%

39.2%

Cost:income ratio (2)

76.1%

230.2%

78.7%

Cost:income ratio - adjusted (2,3)

55.8%

66.3%

76.1%

Employee numbers (FTE - thousands)

76.2 

77.8 

92.4 

(1)

Excluding restructuring costs and litigation and conduct costs.

(2)

Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).

(3)

Excluding restructuring costs, litigation and conduct costs, own credit adjustments, gain on redemption of own debt and strategic disposals.

·

Total operating expenses of £2,453 million were £33 million, or 1.4%, higher than Q1 2016 reflecting a £339 million increase in restructuring costs and a £23 million increase in litigation and conduct costs, partially offset by a £329 million, or 15.3%, reduction in adjusted operating expenses.

·

Excluding a £51 million VAT recovery, adjusted operating expenses reduced by £278 million, or 12.9%, compared with Q1 2016 and we remain on target to achieve a £750 million reduction for the full year. The cost reduction was principally driven by Capital Resolution, down £163 million or 70.3%, and Central items, down £79 million, excluding the VAT recovery. Across PBB, CPB and NatWest Markets, adjusted operating expenses reduced by £22 million, or 1.2%.

·

Staff costs of £1,024 million, were £178 million, or 14.8%, lower than Q1 2016 underpinned by a 16,200, or 17.5%, reduction in FTEs.

·

Restructuring costs of £577 million included a £235 million charge associated with the planned reduction of our property portfolio, a £73 million net settlement relating to the RBS Netherlands pension scheme and a £70 million charge in Capital Resolution, primarily in respect of Asia-Pacific restructuring.

·

Litigation and conduct costs of £54 million were £23 million higher than Q1 2016 and reflected a number of small items.

·

Compared with Q4 2016, adjusted operating expenses reduced by £397 million principally reflecting the £190 million UK bank levy charge and a £69 million write down of intangible assets in Q4 2016 and a £51 million VAT recovery in Q1 2017.

Quarter ended

31 March

31 December

31 March

2017

2016

2016

Impairment losses/(releases)

£m

£m

£m

Loan impairment losses/(releases)

- individually assessed

42 

(40)

186 

- collectively assessed

38 

(1)

16 

- latent

4 

(25)

21 

Total loan impairment losses/(releases)

84 

(66)

223 

Securities

(38)

(9)

- 

Total impairment losses/(releases)

46 

(75)

223 

31 March 

31 December 

31 March 

Credit metrics (1)

2017 

2016 

2016 

Gross customer loans

£330,843m

£327,478m

£325,339m

Loan impairment provisions

£4,110m

£4,455m

£6,701m

Risk elements in lending (REIL)

£9,726m

£10,310m

£11,867m

Provisions as a % of REIL

42%

43%

57%

REIL as a % of gross customer loans

2.9%

3.1%

3.6%

Provisions as a % of gross customer loans

1.2%

1.4%

2.1%

(1)

Includes disposal groups and excludes reverse repos.

·

A net impairment loss of £46 million, 6 basis points of gross customer loans, compared with a loss of £223 million in Q1 2016.

·

Capital Resolution reported a net impairment release of £45 million in Q1 2017 compared with a loss of £196 million in Q1 2016 which included a £226 million charge in respect of the shipping portfolio.

·

Commercial Banking reported a net impairment loss of £61 million in Q1 2017, £47 million higher than Q1 2016 with four specific impairment charges totalling £47 million in the quarter.

·

REIL reduced by £2,141 million, compared with Q1 2016, to £9,726 million reflecting Capital Resolution run-down and a portfolio sale in Ulster Bank RoI partially offset by an increase in the shipping portfolio, foreign exchange movements and the implementation of a revised mortgage methodology in Ulster Bank RoI. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016. Provision coverage was 42% compared with 57% at 31 March 2016 and 43% at 31 December 2016.

·

Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were £4.1 billion or 1.4% of the respective gross customer loans.

·

CET1 has increased by 70 basis points to 14.1% as a result of the attributable profit and the reduction in RWAs in the period.

·

RWAs have decreased by £6.5 billion to £221.7 billion primarily driven by a £4.0 billion reduction in Capital Resolution reflecting disposal and run offs in line with exit strategy and a £1.1 billion reduction in NatWest Markets principally due to business movements. Excluding volume growth, RWAs across PBB, CPB and NatWest Markets reduced by £3.2 billion during Q1 2017.

·

Operational risk RWAs have decreased by £1.9 billion as a result of the annual recalculation.

·

Leverage ratio decreased marginally to 5.0% as increased lending exposure was offset by movements in capital.

End-point CRR basis (1)

31 March 

31 December 

2017 

2016 

Risk asset ratios

% 

% 

CET1

14.1 

13.4 

Tier 1

15.9 

15.2 

Total

19.2 

19.2 

Capital

£m

£m

Tangible equity

35,186 

34,982 

Expected loss less impairment provisions

(1,396)

(1,371)

Prudential valuation adjustment

(377)

(532)

Deferred tax assets

(887)

(906)

Own credit adjustments

(245)

(304)

Pension fund assets

(186)

(208)

Cash flow hedging reserve

(888)

(1,030)

Other deductions

45 

(8)

Total deductions

(3,934)

(4,359)

CET1 capital

31,252 

30,623 

AT1 capital

4,041 

4,041 

Tier 1 capital

35,293 

34,664 

Tier 2 capital

7,370 

9,161 

Total regulatory capital

42,663 

43,825 

Risk-weighted assets

Credit risk

- non-counterparty

160,100 

162,200 

- counterparty

20,800 

22,900 

Market risk

17,000 

17,400 

Operational risk

23,800 

25,700 

Total RWAs

221,700 

228,200 

Leverage (2)

Derivatives

204,100 

247,000 

Loans and advances

347,200 

340,300 

Reverse repos

45,500 

41,800 

Other assets

186,500 

169,600 

Total assets

783,300 

798,700 

Derivatives

- netting and variation margin

(204,200)

(241,700)

- potential future exposures

63,400 

65,300 

Securities financing transactions gross up

2,800 

2,300 

Undrawn commitments

55,100 

58,600 

Regulatory deductions and other adjustments

300 

100 

CRR leverage exposure

700,700 

683,300 

Tier 1 capital

35,293 

34,664 

CRR leverage ratio %

5.0 

5.1 

UK leverage exposure (3)

622,200 

614,600 

UK leverage ratio % (3)

5.7 

5.6 

(1)

CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.

(2)

Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(3)

Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.

Quarter ended 31 March 2017

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

Capital

Williams

 items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

Resolution

& Glyn (1)

other (2)

RBS

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Net interest income

1,111 

105 

567 

112 

80 

29 

33 

165 

32 

2,234 

Other non-interest income

266 

41 

298 

48 

18 

479 

(85)

41 

(101)

1,005 

Total income - adjusted (3)

1,377 

146 

865 

160 

98 

508 

(52)

206 

(69)

3,239 

Own credit adjustments

- 

(1)

- 

- 

- 

(20)

(7)

- 

(1)

(29)

Gain on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

2 

2 

Total income

1,377 

145 

865 

160 

98 

488 

(59)

206 

(68)

3,212 

Direct expenses - staff costs

(163)

(49)

(125)

(38)

(12)

(71)

(16)

(53)

(497)

(1,024)

- other costs

(64)

(12)

(55)

(7)

(3)

(17)

(9)

(11)

(620)

(798)

Indirect expenses

(489)

(47)

(268)

(68)

(28)

(233)

(44)

(20)

1,197 

- 

Operating expenses - adjusted (4)

(716)

(108)

(448)

(113)

(43)

(321)

(69)

(84)

80 

(1,822)

Restructuring costs - direct

(20)

(19)

(39)

- 

- 

- 

(70)

- 

(429)

(577)

- indirect

(111)

(15)

(60)

(11)

(3)

(68)

(16)

- 

284 

- 

Litigation and conduct costs

(4)

- 

(3)

- 

- 

(31)

(6)

- 

(10)

(54)

Operating expenses

(851)

(142)

(550)

(124)

(46)

(420)

(161)

(84)

(75)

(2,453)

Operating profit/(loss) before impairment (losses)/releases

526 

3 

315 

36 

52 

68 

(220)

122 

(143)

759 

Impairment (losses)/releases

(32)

24 

(61)

(3)

(7)

- 

45 

(11)

(1)

(46)

Operating profit/(loss)

494 

27 

254 

33 

45 

68 

(175)

111 

(144)

713 

Operating profit/(loss) - adjusted (3,4)

629 

62 

356 

44 

48 

187 

(76)

111 

10 

1,371 

Additional information

Return on equity (5)

24.8%

4.0%

5.7%

6.0%

12.0%

1.7%

nm

nm

nm

3.1%

Return on equity - adjusted (3,4,5)

32.0%

9.3%

8.9%

8.6%

13.0%

7.9%

nm

nm

nm

9.7%

Cost:income ratio (6)

61.8%

97.9%

62.0%

77.5%

46.9%

86.1%

nm

40.8%

nm

76.1%

Cost:income ratio - adjusted (3,4,6)

52.0%

74.0%

49.7%

70.6%

43.9%

63.2%

nm

40.8%

nm

55.8%

Total assets (£bn)

159.1 

24.7 

153.3 

18.1 

25.1 

225.3 

119.2 

25.8 

32.7 

783.3 

Funded assets (£bn) (7)

159.1 

24.6 

153.3 

18.1 

25.1 

113.9 

29.2 

25.8 

30.1 

579.2 

Net loans and advances to customers (£bn)

135.8 

19.0 

99.7 

12.5 

8.9 

17.9 

12.3 

20.6 

-

326.7 

Risk elements in lending (£bn)

1.9 

3.5 

1.7 

0.1 

0.1 

-

2.1 

0.3 

-

9.7 

Impairment provisions (£bn)

(1.2)

(1.1)

(0.8)

-

-

-

(0.7)

(0.2)

(0.1)

(4.1)

Customer deposits (£bn)

146.3 

16.6 

97.2 

25.7 

25.3 

8.0 

7.6 

24.0 

0.8 

351.5 

Risk-weighted assets (RWAs) (£bn)

32.7 

17.7 

77.8 

8.7 

9.5 

34.1 

30.5 

9.7 

1.0 

221.7 

RWA equivalent (£bn) (5)

35.7 

18.9 

81.8 

8.7 

9.5 

36.0 

32.7 

10.2 

1.2 

234.7 

Employee numbers (FTEs - thousands)

18.2 

3.1 

5.4 

1.7 

0.8 

1.2 

0.3 

4.3 

41.2 

76.2 

For the notes to this table refer to page 17. nm = not meaningful

Quarter ended 31 December 2016

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

Capital

Williams

 items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

Resolution

& Glyn (1)

other (2)

RBS

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Net interest income

1,093 

105 

542 

111 

77 

29 

44 

170 

37 

2,208 

Other non-interest income

246 

32 

325 

50 

19 

285 

(329)

47 

446 

1,121 

Total income adjusted (3)

1,339 

137 

867 

161 

96 

314 

(285)

217 

483 

3,329 

Own credit adjustments

- 

- 

- 

- 

- 

(29)

(8)

- 

(77)

(114)

Gain on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

1 

1 

Total income

1,339 

137 

867 

161 

96 

285 

(293)

217 

407 

3,216 

Direct expenses - staff costs

(161)

(57)

(130)

(39)

(12)

(64)

(23)

(60)

(479)

(1,025)

- other costs

(72)

(23)

(69)

(12)

(4)

(7)

(3)

(13)

(991)

(1,194)

Indirect expenses

(544)

(65)

(357)

(95)

(45)

(267)

(150)

(24)

1,547 

- 

Operating expenses - adjusted (4)

(777)

(145)

(556)

(146)

(61)

(338)

(176)

(97)

77 

(2,219)

Restructuring costs - direct

(1)

(6)

(12)

(6)

(1)

(3)

(21)

- 

(957)

(1,007)

- indirect

(50)

2 

(34)

(8)

(1)

(43)

13 

- 

121 

-