RBS.L Regulatory News (RBS)

Contents

Page

Introduction

1

Highlights

3

Letter from the Chairman

10

Summary consolidated results

11

Analysis of results

17

Segment performance

26

Statutory results

67

Condensed consolidated income statement

67

Condensed consolidated statement of comprehensive income

68

Condensed consolidated balance sheet

69

Average balance sheet

70

Condensed consolidated statement of changes in equity

72

Condensed consolidated cash flow statement

74

Notes

75

Independent review report to The Royal Bank of Scotland Group plc

123

Summary risk factors

125

Statement of directors' responsibilities

129

Additional information

130

Share information

130

Financial calendar

130

Exchange rates

130

Forward-looking statements

131

Appendix 1 - Capital and risk management

Appendix 2 - Income statement reconciliations and balance sheet pre and post disposal groups

Appendix 3 - Go-forward Bank profile

Appendix 4 - Williams & Glyn

Appendix 5 - Parent company financial statements

For analyst enquiries:

Richard O'Connor

Head of Investor Relations

+44 (0) 20 7672 1758

For media enquiries:

Group Media Centre

+44 (0) 131 523 4205

Date:

Thursday 30 July 2015

Time:

9.30 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

●

Q2 operating profit(1) was £304 million, in line with Q1 2015. Litigation and conduct costs were lower at £459 million compared with £856 million in Q1 2015, while restructuring costs rose to £1,050 million from £453 million in Q1 2015 as the pace of restructuring accelerated.

●

Adjusted operating profit(2) was £1,813 million, up 11% from Q1 2015 but down 7% from Q2 2014, principally driven by reduced income in Corporate & Institutional Banking (CIB) following the planned scaling back of the business. Q2 2015 income benefited from a £205 million credit for IFRS volatility(3), compared with a £123 million charge in Q1 2015. H1 2015 adjusted operating profit was £3,447 million, up 2% from H1 2014.

●

Discontinued operations included a fair value gain of £517 million, of which £211 million was attributable to RBS, reflecting the rise in market value of Citizens shares and broadly reversing the loss recorded in Q1 2015.

●

Tangible net asset value per ordinary and equivalent B share was 380p at 30 June 2015 compared with 384p at 31 March 2015.

●

Positive lending momentum across UK Personal & Business Banking (UK PBB) and Commercial Banking.

●

Statistically significant improvement in Net Promoter Scores (NPS) year-on-year in four of the seven businesses where it is measured.

●

Adjusted return on equity(4) in the Go-forward Bank is estimated at 14% for H1 2015.

●

Capital position strengthened further with Common Equity Tier 1 ratio up 80 basis points in Q2 2015 to 12.3%.

●

Exit Bank ahead of plan with continuing progress on sales and run-off.

●

On track to achieve £800 million cost reduction target(5).

(1)

Operating profit/(loss) before tax, own credit adjustments, gain on redemption of own debt and strategic disposals and includes the results of Citizens (excluding any fair value adjustment) which are classified as discontinued operations in the statutory results. The half year and quarter ended 30 June 2014 are stated before RFS minority interest.

(2)

Excluding restructuring, litigation and conduct costs.

(3)

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

(4)

Calculated using operating profit after tax on a non-statutory basis excluding restructuring and litigation and conduct costs adjusted for preference share dividends divided by average notional equity (based on 13% of average RWA equivalent (RWAe)).

(5)

Excluding restructuring, litigation and conduct costs, write-off of intangible assets, and operating expenses of Citizens and Williams & Glyn.

●

CIB is on course to reduce RWAs by £25 billion by the end of 2015, with substantial progress across exit portfolios.

●

Plans to complete the exit from Citizens remain on track.

●

RBS Capital Resolution (RCR) continued on its path to complete its targeted rundown before the end of 2015, one year ahead of schedule, as it continues to benefit from attractive exit values. Funded assets fell by 44% in the first half of 2015 taking the balance down to £8.4 billion. RWAs also decreased 35% to £14.4 billion in the same period.

●

By 30 June 2015 considerable progress had been made toward the disposal of the North American corporate loan portfolio identified for exit, with a substantial proportion sold to Mizuho Bank through two separate transactions. Upon final settlement expected in Q3 2015, RWAs will have been reduced by approximately US$9 billion.

●

RBS has partnered with BNP Paribas to offer existing international customers an alternative to Global Transaction Services (GTS) as part of the decision to refocus the business. Businesses in the UK and Ireland, including those outwith the UK but with significant links to the UK, will continue to receive GTS capabilities from RBS.

●

The majority of the Australian and United Arab Emirates corporate loan books have been sold.

●

The sale of most of the RBS International Private Banking business to Union Bancaire Privée remains on track for Q4 2015.

●

RBS is continuing to work towards the separation of Williams & Glyn in the summer of 2016 and IPO by the end of 2016. In May 2015 the Competition & Markets Authority announced that it had been asked by the Chancellor to advise on the competition implications of the Williams & Glyn divestment. The review is expected to be completed later this year and at this stage its outcome cannot be predicted.

Strategy Goal

2015 Target

H1 2015 Progress

Strength and sustainability

Reduce RWAs to

£326 billion

RCR exit substantially completed

 Funded assets down 78% since initial pool of assets identified(1)

Citizens deconsolidation

40.8% holding

£2 billion AT1 issuance

Inaugural AT1 to be

launched shortly(2)

Customer experience

Improve NPS in every UK franchise(3)

 Year-on-year, statistically significant improvement in NPS in 4 of the 7 businesses where it is measured

Simplifying the bank

Reduce costs by £800 million(4)

Annualised cost savings of over £700 million achieved in H1

Supporting growth

Lending growth in strategic segments

≥ nominal UK GDP growth

2% annualised growth in UK PBB and Commercial Banking

Employee engagement

Raise employee engagement index to within 8% of Global Financial Services (GFS) norm

Annual metric

(1)

Funded assets are down 71% since 1 January 2014.

(2)

Issuance subject to market conditions.

(3)

Further details are available on page 7.

(4)

Excluding restructuring, litigation and conduct costs, write-off of intangible assets, and operating expenses of Citizens and Williams & Glyn.

●

Investment in new products - Reward, the new current account proposition, was launched in July to a small number of customers. Through the Reward account customers can receive 3% cashback on certain household bills paid by direct debit. Full launch is scheduled for later in the year.

●

Continued commitment to be fairer for customers - RBS is making overdrafts more accessible with 600,000 customers now newly eligible for a £100 overdraft. This is in addition to allowing a £250 limit to customers who have had positive behaviour with RBS but historical issues with other lenders.

●

Investment in service - The mortgage platform was upgraded and the number of mortgage advisors increased to 869 in UK PBB (up 8% compared with the start of 2015 or 28% compared with Q2 2014) which provides increased lending capacity. The NatWest mobile banking app customer NPS became joint number one in the market(1) during Q2 2015, with real time registration allowing customers to begin using the app as their account is opened. Around 2,800 staff registered for a bespoke lending skills training programme and RBS rolled out a customer relationship management (CRM) tool to around 3,000 staff, allowing them to have a single view of all customer needs and thus improve service.

●

Making RBS simpler to do business with - The time to open a personal current account has been halved to 30 minutes as the bank transforms its systems, becoming simpler and quicker. The Commercial Bank has delivered a 75% reduction in customer paperwork and a 25% reduction in the time to open an account.

●

Leading on innovation and collaboration - RBS is the first bank to launch TouchID login and adopt Apple Pay whilst launching the first Royal National Institute of Blind People (RNIB) approved cards.

●

Backing UK business - RBS launched a mid-market initiative to attract and support more businesses with a turnover of between £10 million and £50 million or borrowing in excess of £1 million. The aim is to achieve 300 new customer relationships, providing the means to grow and support UK business. In partnership with Entrepreneurial Spark, the first of eight business accelerator hubs was opened in Birmingham providing free space, mentoring and financial support to small businesses. A new £2.5 million Skills & Opportunities Fund to help people from disadvantaged communities learn new skills, get into the world of work or set up their own business was also launched.

●

Building a more capable and diverse workforce - RBS is raising professional standards by supporting staff to undertake the Chartered Banker foundation qualification. RBS is the first bank to achieve Investors in Young People Accreditation. In 2015 we will increase the number of apprentices from 50 to over 300. RBS has set a target of having 30% female leaders in every business by 2020.

(1)

Source: internal NPD Drivers study, June 15 based on 3 month roll with latest base size 2234.

Q2 2014

Q1 2015

Q2 2015

Year end 2015 target

Personal Banking

NatWest (England & Wales)(1)

4

5

8

9

RBS (Scotland)(1)

-10

-18

-10

-10

Ulster Bank (Northern Ireland)(2)

-34

-18

-11

-21

Ulster Bank (Republic of Ireland)(2)

-22

-16

-14

-15

Business Banking

NatWest (England & Wales)(3)

-15

-6

4

-7

RBS (Scotland)(3)

-30

-17

-17

-21

Commercial Banking(4)

9

12

10

15

Q2 2014

Q1 2015

Q2 2015

Year end 2015 target

Customer Trust(5)

NatWest (England & Wales)(1)

49%

44%

48%

46%

RBS (Scotland)

0%

10%

-2%

11%

(1)

Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest England & Wales (3,444) RBS Scotland (520). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?".

(2)

Source: Coyne Research 12 month rolling data. Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely".

(3)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with an annual turnover up to £2 million. 12 month rolling data. Latest base sizes: NatWest England & Wales (1,240), RBS Scotland (419). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland.

(4)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (965). Weighted by region and turnover to be representative of businesses in Great Britain.

(5)

Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (916), RBS Scotland (209).

●

Cuts in the rate of corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020. Existing temporary differences on which deferred tax has been provided may reverse at these reduced rates;

●

A corporation tax surcharge of 8% on UK banking entities from 1 January 2016. This is expected to increase RBS's corporation tax liabilities and vary the carrying value of its deferred tax balances;

●

A reduction in the bank levy rate from 0.21% to 0.18% from 1 January 2016 and subsequent annual reductions to 0.1% from 1 January 2021; and

●

Making compensation in relation to misconduct non-deductible for corporation tax.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2015

2014 

2015 

2015 

2014 

£m

£m

£m

£m

£m

Net interest income

5,522 

5,496 

2,766 

2,756 

2,798 

Non-interest income

3,178 

4,482 

1,603 

1,575 

2,127 

Total income

8,700 

9,978 

4,369 

4,331 

4,925 

Litigation and conduct costs

(1,315)

(250)

(459)

(856)

(250)

Restructuring costs

(1,503)

(514)

(1,050)

(453)

(385)

Other costs

(5,485)

(6,344)

(2,697)

(2,788)

(3,065)

Operating expenses

(8,303)

(7,108)

(4,206)

(4,097)

(3,700)

Profit before impairment releases/(losses)

397 

2,870 

163 

234 

1,225 

Impairment releases/(losses)

232 

(269)

141 

91 

93 

Operating profit (1)

629 

2,601 

304 

325 

1,318 

Own credit adjustments

288 

(51)

168 

120 

(190)

Gain on redemption of own debt

- 

20 

- 

- 

- 

Write down of goodwill

- 

(130)

- 

- 

(130)

Strategic disposals

(135)

191 

- 

(135)

- 

Citizens discontinued operations

(489)

(426)

(232)

(257)

(274)

RFS Holdings minority interest

- 

21 

- 

- 

12 

Operating profit before tax

293 

2,226 

240 

53 

736 

Tax charge

(293)

(592)

(100)

(193)

(278)

Profit/(loss) from continuing operations

- 

1,634 

140 

(140)

458 

Profit/(loss) from discontinued operations, net of tax

- Citizens (2)

354 

285 

674 

(320)

181 

- Other

4 

35 

- 

4 

26 

Profit/(loss) from discontinued operations net of tax

358 

320 

674 

(316)

207 

Profit/(loss) for the period

358 

1,954 

814 

(456)

665 

Non-controlling interests

(344)

(42)

(428)

84 

(23)

Other owners' dividends

(167)

(167)

(93)

(74)

(92)

Dividend access share

- 

(320)

- 

- 

(320)

(Loss)/profit attributable to ordinary and B shareholders

(153)

1,425 

293 

(446)

230 

Memo:

Operating expenses - adjusted (3)

(5,485)

(6,344)

(2,697)

(2,788)

(3,065)

Operating profit - adjusted (3)

3,447 

3,365 

1,813 

1,634 

1,953 

Half year ended

Quarter ended

30 June 

30 June 

30 June 

31 March 

30 June 

Key metrics and ratios

2015 

2014 

2015 

2015 

2014 

Net interest margin

2.24%

2.17%

2.23%

2.26%

2.22%

Cost:income ratio

95%

71%

96%

95%

75%

(Loss)/earnings per share from continuing operations (4)

- basic

(1.9p)

9.9p

0.2p

(2.1p)

0.3p

- adjusted (5)

(2.7p)

9.5p

(0.9p)

(1.7p)

2.7p

Return on tangible equity (6)

(0.7%)

6.9%

2.7%

(4.1%)

2.2%

Average tangible equity (6)

£43,524m

£41,579m

£43,062m

£43,879m

£42,122m

Average number of ordinary shares and equivalent B

shares outstanding during the period (millions)

11,481 

11,308 

11,511 

11,451 

11,335 

Key metrics and ratios - excluding Citizens (7)

Net interest margin

2.14%

2.06%

2.13%

2.15%

2.11%

Cost:income ratio

103%

72%

103%

102%

77%

(1)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write down of goodwill and strategic disposals and includes the results of Citizens (prior to any fair value adjustment) which are classified as discontinued operations in the statutory results. The half year and quarter ended 30 June 2014 are stated before RFS minority interest.

(2)

Included within Citizens discontinued operations are the results of the reportable operating segment Citizens Financial Group (CFG), the fair value remeasurement of the loss on transfer to disposal groups, and certain Citizens related activities in Central items and related one-off and other items.

(3)

Excluding restructuring costs and litigation and conduct costs.

(4)

Refer to Note 11 on page 84 for further details.

(5)

Adjusted earnings excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS MI.

(6)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

(7)

Assuming Citizens was fully divested of at its carrying value on 30 June 2015.

30 June 

31 March 

31 December 

2015 

2015 

2014 

£m 

£m 

£m 

Cash and balances at central banks

81,900 

75,521 

74,872 

Net loans and advances to banks (1,2)

20,714 

25,002 

23,027 

Net loans and advances to customers (1,2)

314,993 

333,173 

334,251 

Reverse repurchase agreements and stock borrowing

67,606 

69,400 

64,695 

Debt securities and equity shares

80,550 

85,557 

92,284 

Assets of disposal groups (3)

89,071 

93,673 

82,011 

Other assets

28,010 

31,721 

26,033 

Funded assets

682,844 

714,047 

697,173 

Derivatives

281,857 

390,565 

353,590 

Total assets

964,701 

1,104,612 

1,050,763 

Bank deposits (2,4)

30,978 

37,235 

35,806 

Customer deposits (2,4)

342,023 

349,289 

354,288 

Repurchase agreements and stock lending

66,362 

69,383 

62,210 

Debt securities in issue

41,819 

45,855 

50,280 

Subordinated liabilities

19,683 

22,004 

22,905 

Derivatives

273,589 

386,056 

349,805 

Liabilities of disposal groups (3)

80,388 

85,244 

71,320 

Other liabilities

48,090 

47,265 

43,957 

Total liabilities

902,932 

1,042,331 

990,571 

Non-controlling interests

5,705 

5,473 

2,946 

Owners' equity

56,064 

56,808 

57,246 

Total liabilities and equity

964,701 

1,104,612 

1,050,763 

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Excludes disposal groups.

(3)

Primarily Citizens and International Private Banking in 2015 and Citizens at 31 December 2014 - refer to Note 13 on page 91.

(4)

Excludes repurchase agreements and stock lending.

30 June 

31 March 

31 December 

Balance sheet related key metrics and ratios

2015 

2015 

2014 

Tangible net asset value per ordinary and equivalent B share (1)

380p

384p

387p

Loan:deposit ratio (2,3)

92%

95%

95%

Short-term wholesale funding (2,4)

£25bn

£27bn

£28bn

Wholesale funding (2,4)

£76bn

£84bn

£90bn

Liquidity portfolio

£161bn

£157bn

£151bn

Liquidity coverage ratio (5)

117%

112%

112%

Net stable funding ratio (6)

115%

110%

112%

Common Equity Tier 1 ratio

12.3%

11.5%

11.2%

Risk-weighted assets

£326.4bn

£348.6bn

£355.9bn

Leverage ratio (7)

4.6%

4.3%

4.2%

Tangible equity (8)

£43,919m

£44,242m

£44,368m

Number of ordinary shares and equivalent B shares in issue (millions) (9)

11,570 

11,514 

11,466 

30 June 

Key metrics and ratios - excluding Citizens (10)

2015 

Tangible net asset value per ordinary and equivalent B share (1)

380p

Loan:deposit ratio (2,3)

91%

Short-term wholesale funding (2,4)

£21bn

Wholesale funding (2,4)

£71bn

Liquidity portfolio

£148bn

Liquidity coverage ratio (5)

118%

Net stable funding ratio (6)

112%

Common Equity Tier 1 ratio

15.3%

Risk-weighted assets

£261.5bn

Leverage ratio (7)

5.1%

Tangible equity (8)

£43,919m

Return on tangible equity (8)

(1.0%)

Average tangible equity (8)

£43,524m

(1)

Tangible net asset value per ordinary and equivalent B share represents total tangible equity divided by the number of ordinary and equivalent B shares in issue.

(2)

Includes disposal groups.

(3)

Excludes repurchase agreements and stock lending.

(4)

Excludes derivative collateral.

(5)

In January 2013, the BCBS published its final guidance for calculating LCR currently expected to come into effect from October 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.

(6)

NSFR for both periods has 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.

(7)

Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.

(8)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

(9)

Includes 26 million Treasury shares (31 March 2015 - 27 million; 31 December 2014 - 28 million).

(10)

Assuming Citizens was fully divested of at carrying value on 30 June 2015 and excluding only credit risk and counterparty risk RWA.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2015

2014

2015

2015

2014

Net interest income

£m

£m

£m

£m

£m

Net interest income

RBS

5,522 

5,496 

2,766 

2,756 

2,798 

- UK Personal & Business Banking

2,290 

2,276 

1,147 

1,143 

1,152 

- Ulster Bank

265 

323 

132 

133 

169 

- Commercial Banking

1,108 

999 

562 

546 

511 

- Private Banking

254 

344 

126 

128 

174 

- Corporate & Institutional Banking

376 

365 

174 

202 

186 

- Central items

150 

203 

88 

62 

100 

- RCR

(25)

(1)

(14)

(11)

7 

RBS excluding Citizens Financial Group

4,418 

4,509 

2,215 

2,203 

2,299 

- Citizens Financial Group

1,104 

987 

551 

553 

499 

Average interest-earning assets

RBS

495,726 

507,268 

496,835 

494,605 

502,347 

- UK Personal & Business Banking

128,468 

126,696 

128,569 

128,366 

126,964 

- Ulster Bank

27,518 

28,089 

27,404 

27,633 

28,884 

- Commercial Banking

77,985 

74,749 

78,880 

77,079 

74,971 

- Private Banking

15,850 

18,663 

15,729 

15,973 

18,698 

- Corporate & Institutional Banking

71,269 

83,778 

69,437 

73,114 

83,477 

- Central items

77,793 

71,071 

82,471 

73,071 

66,586 

- RCR

17,436 

36,383 

14,758 

20,144 

34,533 

RBS excluding Citizens Financial Group

416,319 

439,429 

417,248 

415,380 

434,113 

- Citizens Financial Group

79,407 

67,839 

79,587 

79,225 

68,234 

Gross yield on interest-earning assets of banking business

2.98%

3.03%

2.94%

3.02%

3.05%

Cost of interest-bearing liabilities of banking business

(1.06%)

(1.18%)

(1.03%)

(1.09%)

(1.16%)

Interest spread of banking business

1.92%

1.85%

1.91%

1.93%

1.89%

Benefit from interest free funds

0.32%

0.32%

0.32%

0.33%

0.33%

Net interest margin (1)

RBS

2.24%

2.17%

2.23%

2.26%

2.22%

- UK Personal & Business Banking

3.59%

3.62%

3.58%

3.61%

3.64%

- Ulster Bank

1.94%

2.32%

1.93%

1.95%

2.35%

- Commercial Banking

2.87%

2.70%

2.86%

2.87%

2.73%

- Private Banking

3.23%

3.72%

3.21%

3.25%

3.73%

- Corporate & Institutional Banking

1.06%

0.88%

1.00%

1.12%

0.90%

- Central items

0.37%

0.50%

0.41%

0.32%

0.52%

- RCR

(0.29%)

(0.01%)

(0.38%)

(0.22%)

0.08%

RBS excluding Citizens Financial Group

2.14%

2.06%

2.13%

2.15%

2.11%

- Citizens Financial Group

2.80%

2.94%

2.78%

2.83%

2.93%

(1)

For the purposes of net interest margin calculations, a decrease of £8 million arising in Central Items (H1 2014 - £28 million; Q2 2015 - £3 million; Q1 2015 - £5 million; Q2 2014 - £14 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.

·

Net interest income was stable, with asset growth in UK PBB and Commercial Banking. Segmental splits are affected by the transfer of a number of portfolios between businesses, including the transfer to Commercial Banking of the UK corporate coverage business from CIB and of the RBS International business from Private Banking.

·

Net interest margin (NIM) rose 7 basis points, with progressive repricing of deposits helping to offset continuing competitive pressures on asset margins.

·

Asset growth was driven by rising mortgage volumes, supported by increased mortgage adviser capacity and increasingly competitive pricing.

·

Modest downward pressure on NIM reflected competitive conditions in domestic markets and a further slight decline in the standard variable rate mortgage book, partially offset by some further small adjustments to deposit pricing.

·

Net interest income was down 1%, with good asset growth in UK mortgages and Commercial Banking partially offsetting declines in other portfolios.

·

NIM was 1 basis point higher, with deposit repricing offsetting continuing pressure on asset margins.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2015

2014

2015

2015

2014

Non-interest income

£m

£m

£m

£m

£m

Net fees and commissions

1,966 

2,118 

974 

992 

1,063 

Income from trading activities

734 

1,482 

464 

270 

626 

Other operating income

478 

882 

165 

313 

438 

Total non-interest income

3,178 

4,482 

1,603 

1,575 

2,127 

·

Non-interest income was down 29%, principally reflecting reduced trading income, in line with CIB's risk and resource reduction.

·

Losses of £69 million were recorded on the disposal of available-for-sale securities, compared with gains of £215 million in H1 2014.

·

Non-interest income was up 2%, reflecting seasonal movements offset by volatile items under IFRS.

·

Non-interest income was 25% lower, principally reflecting the reduction in CIB's scale.

·

A loss of £42 million on the disposal of available-for-sale securities compared with a gain of £13 million in Q2 2014.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2015

2014 

2015

2015 

2014 

Operating expenses

£m

£m

£m

£m

£m

Staff expenses

3,075 

3,340 

1,517 

1,558 

1,693 

Premises and equipment

859 

1,079 

372 

487 

485 

Other

1,133 

1,292 

622 

511 

605 

Restructuring costs*

1,503 

514 

1,050 

453 

385 

Litigation and conduct costs

1,315 

250 

459 

856 

250 

Administrative expenses

7,885 

6,475 

4,020 

3,865 

3,418 

Depreciation and amortisation

418 

551 

186 

232 

282 

Write down of intangible assets

- 

82 

- 

- 

- 

Operating expenses

8,303 

7,108 

4,206 

4,097 

3,700 

Adjusted operating expenses (1)

5,485 

6,344 

2,697 

2,788 

3,065 

*Restructuring costs comprise:

- staff expenses

348 

196 

293 

55 

153 

- premises, equipment, depreciation and amortisation

341 

199 

51 

290 

138 

- other

814 

119 

706 

108 

94 

Restructuring costs

1,503 

514 

1,050 

453 

385 

Staff costs as a % of total income

35%

33%

35%

36%

34%

Cost:income ratio

95%

71%

96%

95%

75%

Cost:income ratio - adjusted (1)

63%

64%

62%

64%

62%

Employee numbers (FTE - thousands)

109.2 

113.6 

109.2 

109.2 

113.6 

(1)

Excluding restructuring costs and litigation and conduct costs.

·

Operating expenses rose as a result of higher restructuring and litigation and conduct costs.

·

Adjusted operating expenses were 14% lower, reflecting the benefits of the bank's cost reduction programme. This included an 8% reduction in staff expenses, driven by a 4,400 reduction in headcount, principally in higher cost businesses.

·

Operating expenses were 3% higher, with an increase in restructuring costs (up £597 million) partially offset by lower litigation and conduct charges (down £397 million).

·

Adjusted operating expenses fell by 3%, including an 8% reduction within CIB.

·

Operating expenses were 14% higher reflecting increased restructuring and litigation and conduct costs.

·

Adjusted operating expenses fell by 12%, driven by a reduction in staff expenses.

·

Restructuring costs totalled £1,050 million for Q2 2015 and £1,503 million for H1 2015, principally relating to CIB (Q2 2015 - £734 million) and to Williams & Glyn separation (Q2 2015 - £126 million). Restructuring costs included intangible software write-offs in CIB and Private Banking totalling £606 million, which have no impact on CET1 capital or tangible net asset value.

·

Total restructuring charges are still expected to total c.£5 billion over the five year period 2015-2019 including:

○

Williams & Glyn separation c.£1.1 billion of which £259 million was taken in H1 2015. The remainder is expected to be incurred over the period to Q4 2016;

○

Independent Commission on Banking (ICB) preparation c.£800 million. The bulk is expected to be incurred in 2016-2018; and

○

Restructuring of CIB and Go-forward Bank transformation just over c.£3 billion, of which £1,244 million was taken in H1 2015, with the majority relating to CIB. Most of the CIB restructuring is expected to be incurred in 2015.

·

£459 million of additional litigation and conduct costs taken in Q2 2015 related principally to mortgage-backed securities litigation in the United States. An additional £69 million provision was taken in relation to interest rate hedging products redress.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2015 

2014 

2015 

2015 

2014 

Impairment (releases)/losses

£m

£m

£m

£m

£m

Loans

(342)

271 

(152)

(190)

(89)

Securities

110 

(2)

11 

99 

(4)

Total impairment (releases)/losses

(232)

269 

(141)

(91)

(93)

Loan impairment (releases)/losses

- individually assessed

(102)

113 

(96)

(6)

(42)

- collectively assessed

90 

348 

21 

69 

221 

- latent

(330)

(180)

(77)

(253)

(258)

Customer loans

(342)

281 

(152)

(190)

(79)

Bank loans

- 

(10)

- 

- 

(10)

Loan impairment (releases)/losses

(342)

271 

(152)

(190)

(89)

RBS excluding RCR

13 

290 

43 

(30)

36 

RCR

(355)

(19)

(195)

(160)

(125)

Loan impairment (releases)/losses

(342)

271 

(152)

(190)

(89)

Customer loan impairment (releases)/losses

as a % of gross loans and advances (1)

RBS

(0.2%)

0.1%

(0.2%)

(0.2%)

(0.1%)

RBS excluding RCR

- 

0.2%

- 

- 

- 

RCR

(6.5%)

(0.1%)

(7.1%)

(4.2%)

(1.7%)

30 June 

31 March 

31 December 

2015 

2015 

2014 

Loan impairment provisions

- RBS

£11.3bn

£13.8bn

£18.0bn

- RBS excluding RCR

£6.2bn

£6.6bn

£7.1bn

- RCR

£5.1bn

£7.2bn

£10.9bn

Risk elements in lending (REIL)

- RBS

£18.7bn

£22.3bn

£28.2bn

- RBS excluding RCR

£11.3bn

£12.1bn

£12.8bn

- RCR

£7.4bn

£10.2bn

£15.4bn

Provisions as a % of REIL

- RBS

60%

62%

64%

- RBS excluding RCR

54%

55%

55%

- RCR

69%

70%

71%

REIL as a % of gross customer loans

- RBS

4.8%

5.4%

6.8%

- RBS excluding RCR

3.0%

3.0%

3.3%

- RCR

67%

68%

70%

(1)

Excludes reverse repurchase agreements and includes disposals groups.

·

Net impairment releases of £232 million were recorded in H1 2015, compared with net impairment losses of £269 million in H1 2014. Net loan impairment releases were recorded in all operating segments except Commercial Banking and CFG, where impairments nevertheless remained low at 0.1% and 0.3% respectively of gross loans and advances.

·

·

REIL totalled £18.7 billion at 30 June 2015, and represented 4.8% of gross customer loans, down £9.5 billion from 31 December 2014, when they represented 6.8% of gross customer loans.

·

The £112 million increase in securities impairments related to a small number of single name exposures, predominantly an exposure in the RBS N.V. liquidity portfolio.

·

Net impairment releases of £141 million were up from net releases of £91 million in Q1 2015. Loan impairment releases were lower, reflecting reduced latent releases, but securities impairments recorded in Q1 2015 were not repeated on the same scale.

·

REIL were £3.6 billion lower, representing 4.8% of gross customer loans, with the bulk of the reduction in RCR.

·

Provision coverage of REIL was 60%, compared with 62% at 31 March 2015, reflecting the continuing reduction in the more heavily provisioned portfolios of RCR.

·

Net impairment releases of £141 million were up from Q2 2014, during which higher latent releases were partially offset by greater collectively assessed impairment charges.

Capital and leverage ratios

End-point CRR basis (1)

PRA transitional basis

30 June 

31 March 

31 December 

30 June 

31 March 

31 December 

2015 

2015 

2014 

2015 

2015 

2014 

Risk asset ratios

% 

% 

% 

% 

% 

% 

CET1

12.3 

11.5 

11.2 

12.3 

11.5 

11.1 

Tier 1

12.3 

11.5 

11.2 

14.3 

13.3 

13.2 

Total

14.8 

14.0 

13.7 

18.5 

17.0 

17.1 

Capital

£m

£m

£m

£m

£m

£m

Tangible equity

43,919 

44,242 

44,368 

43,919 

44,242 

44,368 

Expected loss less impairment provisions

(1,319)

(1,512)

(1,491)

(1,319)

(1,512)

(1,491)

Prudential valuation adjustment

(366)

(393)

(384)

(366)

(393)