Q1 2015 Results Explained

30th April 2015

Confidential – Internal Distribution Only 1 Q1 Highlights

1. We reported a bottom line (attributable) loss of £446m for Q1. This included restructuring costs of £453 million and £856 million of litigation and conduct charges1. Excluding restructuring, conduct and litigation costs, adjusted operating profit was £1,634 million, up 16% from Q1 2014.

2. There were encouraging signs of growth in our core businesses. We provided 8% of UK gross new mortgage lending, delivering £400 million net mortgage growth. Business and personal loans saw positive momentum in the quarter, while in Commercial Banking net new loan growth was £1.3 billion2.

3. We continued to make improvements for customers:

• First UK-based to enable customers to log in to their mobile banking app using only their fingerprint, recording over 22 million logins since launch. • In partnership with Entrepreneurial Spark RBS launched the first of eight entrepreneurial accelerator hubs in Birmingham, providing free space, financial support and mentoring to small businesses. • A pilot of a new online onboarding smart form in CPB saw a 75% reduction in pages that a customer received in order to fill out their application. 4. We made excellent progress on becoming a smaller, simpler bank:

• Successful sale of shares in Citizens Financial Group (CFG) reducing our holding to 40.8%. • Announced the sale of our International Private Banking Business. • Sale of our Kazakhstan subsidiary. • Risk-weighted asset reduction of £7 billion to £349 billion driven by RBS Capital Resolution (RCR) and Corporate & Institutional Banking (CIB).

1 Relating to foreign exchange and mortgage-backed securities litigation in the United States together together with other customer redress 2 Adjusting for the transfer of the Private banking RBS International business to Commercial Banking on 1st January 2015. Confidential – Internal Distribution Only 2 Our blueprint for success

(1) During the period of CIB restructuring. (2) Excludes restructuring, conduct, litigation and intangible write-off charges as well as the operating costs of Citizens Financial Group and Williams & Glyn. (3) Global (GFS) norm currently stands at 83%.

Confidential – Internal Distribution Only 3 2014 financial results

Q1’15 Q4’14 Q1’14 (£m) (£m) (£m) Operating profit: £325m This is our operating profit from Income 4,331 3,860 5,053 running the bank with the total income generated net of Operating expenses1 (2,788) (3,131) (3,279) operating costs and a gain from impairment recoveries or Restructuring costs (453) (563) (129) releases. Litigation & conduct costs (856) (1,164) -

Impairment releases / (losses) 91 623 (362) Profit before tax: £53m This is our profit after Operating profit / (loss) 325 (375) 1,283 accounting for certain items; own credit adjustments, gain Other items (272) (308) 207 on redemptions of own debt, strategic disposals, CFG Profit / (loss) before tax 53 (683) 1,490 discontinued operations & Tax, Profit/(loss) from discontinued RFS Holdings minority interest operations net of tax, non-controlling (499) (5,108) (295) interests and other owners’ dividends (Loss) / profit attributable to (446) (5,791) 1,195 ordinary and B shareholders Attributable loss: £446m Our final bottom line results 67% attributable to our Cost: income ratio 95% 126% shareholders Adjusted cost: income ratio1 64% 81% 65% Return on tangible equity2 (4.1%) (49.6%) 11.6%

1 Excluding litigation & conduct costs and restructuring costs; 2 Profit returned on capital employed by the business Confidential – Internal Distribution Only 4 Operating profit continued to benefit from benign credit conditions and operating cost reductions

Q1 2015 (£m)

4,331 (4,097)

Staff & non-staff expenses (2,788)

1,634

Restructuring, litigation & conduct costs (1,309)

91 325

Total income Operating expenses Impairment releases Operating Adjusted profit Operating profit1

1 Excluding litigation & conduct costs and restructuring costs Confidential – Internal Distribution Only 5 How our businesses performed

Analysis on Q1’15 vs Q1’14 £325m Commercial Banking1 UK Personal & Business UK Operating Profit: £412 million Banking (UK PBB) Operating Profit: £348 Operating profit improvement was driven by million PBB lower impairments, continued focus on Operating profit decreased by £162 million discretionary cost saving and lower reflecting higher conduct costs of £354 headcount. million. Partly offset by reduced operating expenses (ex. Conduct and litigation) and impairment losses. Private Banking1 Operating Profit: £28 million Commercial Operating profit decline driven by reduced Ulster Bank Banking income partly due to maturing investment Operating Profit: £51 million positions in December 2014. Assets under Weakening Euro relative to Sterling during Management increased £0.7 billion, Q1 2015 had material impact on Ulster Private Banking benefiting from positive market and compared with prior periods, however exchange rate movements. operating profit increased £42 million, benefiting from the absence of net CFG RBS Capital Resolution (RCR) operating impairment losses. profit: £181 million Operating profit of £181 million compared RCR with a loss of £114 million in Q1 2014, CFG Operating Profit: primarily reflecting asset disposal gains £257 million coupled with impairment provision Income rose £80 million with Impairment releases. losses down £35 million reflecting improved credit quality and effect of one large Corporate & Institutional Banking (CIB) commercial recovery. CIB Operating Loss: (£741 million) Operating loss of £741 million, compared Central items not allocated: (£211 with a profit of £333 million in Q1 2014 million) reflected lower income from the reduction Charge of £211 million in the quarter Central in resources deployed, most notably from compared with a gain of £5 million in Q1 Items the US Asset Backed Product Business. 2014. There were also higher restructuring, litigation and conduct costs. 1 Comparisons affected by the transfer of Private Banking RBS International business to Commercial Banking on 1st January 2015 Confidential – Internal Distribution Only 6 Continuing to build strength and stability

Risk-weighted asset (RWA)1 reduction Common equity tier 1 (CET1)2 ratio build continues apace driven by CIB and RCR through RWA reduction in CIB and RCR

-16% +210bps £414bn c13% £356bn £349bn 11.5% 11.2%

<£300bn 9.4%

Q1’14 Q4’14 Q1’15 2015 Q1’14 Q4’14 Q1’15 Target3 target

1 Risk-weighted assets reflect the risk an asset possesses; 2 Common equity tier 1 (CET1) ratio measures a bank’s core capital against RWAs; 3 During period of CIB restructure

Confidential – Internal Distribution Only 7 Appendix: Full Picture (£m)

Total Operating income expenses 4,331 (4,097)

Strategic disposals include a Citizens (CFG) discontinued net write-down of £122 million operations include the taken in relation to International operating results of CFG Private Banking, and £13 million in relation to Kazakhstan

Discontinued operations included a net loss of £320 million largely reflecting the fall in the market value of Citizens shares during the quarter Citizens Impairment Own credit discontinued releases adjustment operations 120 (135) 91 325 Loss attributable (257) to ordinary and Tax charge B shareholders 53

Operating Strategic Operating Non- profit disposals profit before (193) controlling tax interests

Operating profit/(loss) (316) 84 (74) (446) Factor decreasing profit Discontinued Other operations owners’ Factor increasing profit dividends

Confidential – Internal Distribution Only 8 Appendix: Definitions

PBB – Personal & Business Banking CPB – Commercial & Private Banking CIB – Corporate & Institutional Banking RCR – RBS Capital Resolution CFG – Citizens Financial Group RWA – Risk-Weighted Asset = inherent risk an asset possesses RoTE – Return on Tangible Equity = Profit returned on capital employed by the business CET1 – Common Equity Tier 1 ratio = Measures a bank’s core capital against RWAs

Confidential – Internal Distribution Only 9 Survey

If you would like to give feedback on Results Explained, or would like to see something new included, please fill in our short survey

Confidential – Internal Distribution Only 10