FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For July 30, 2015
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

 
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F X
 
Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________


Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes
  ___
No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 

 
The following information was issued as a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 

 

 
The Royal Bank of Scotland Group plc
Interim Results 2015
                                                                                                                                             
 
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
 
 
 
 
 
 
Introduction

Presentation of information
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2014 have been filed with the Registrar of Companies. 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.
 
In this document, 'RBSG plc' or the 'company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its subsidiaries. Some of the financial information contained in this document, prepared using Group accounting policies, shows the operating performance of RBS on a non-statutory basis which excludes own credit adjustments, gain on redemption of own debt, write down of goodwill and strategic disposals and includes the results of Citizens which is classified as a discontinued operation in the statutory results. RFS Holdings minority interest (RFS MI) was also excluded in the periods ended 30 June 2014. Such information is provided to give a better understanding of the results of RBS's operations.
 
RBS is committed to a leaner, less volatile business based around its core franchises of Personal & Business Banking (PBB) and Commercial & Private Banking (CPB). To achieve this goal a number of initiatives have been announced which include, but are not limited to, the restructuring of Corporate & Institutional Banking (CIB) into CIB Go-forward and CIB Capital Resolution, the divestment of the remaining stake in Citizens, the sale of the International Private Banking business (the remaining Private Banking UK business is within the Go-forward Bank (Private Banking Go-forward)), the exit of Williams & Glyn (mainly within UK Personal & Business Banking (UK PBB)) and the continued run down of RBS Capital Resolution (RCR). Significant progress towards these exits is expected in 2015. This document contains some information to illustrate the impact on certain key performance measures of these initiatives by showing the future profile of the bank (the 'Go-forward Bank') and the segments, businesses and portfolios which it intends to exit (the 'Exit Bank'). This information is presented to illustrate the strategy and its impact on the business and is on a non-statutory basis and should be read in conjunction with the notes attached as well as the section titled Forward-looking Statements. There has been no change to the reportable segments in the period.
 
Statutory results
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related Notes presented on pages 67 to 122 inclusive are on a statutory basis. Reconciliations between the non-statutory basis and statutory basis are included in Appendix 2.
 
Contacts
 
 
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

Introduction
 
Analysts and investors presentation
RBS will be hosting a presentation for analysts and investors which will also be available via live webcast and audio call. The details are as follows:
 
 
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
 
Slides
This announcement and 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 June 2015 is available on www.rbs.com/results 
 

Highlights
 
The Royal Bank of Scotland Group (RBS) continues to deliver on its plan to build a stronger, simpler and fairer bank for both customers and shareholders.
 
A strong operating performance from Personal & Business Banking (PBB) and Commercial & Private Banking (CPB) contributed to an attributable profit of £293 million for Q2 2015 (loss of £153 million for H1 2015):
 
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.
 
RBS is making good progress against its 2015 targets, moving faster in delivering its plan:
 
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).
 
Creating a strong Go-forward Bank
RBS continues to target lending growth in strategic segments, UK PBB and Commercial Banking, in line with or above nominal UK GDP growth. Annualised growth across these segments was 2% in H1 2015. Investment in these businesses is paying dividends through improving returns.
 
Following a slow start to 2015, the updated mortgage platform enabled RBS to meet increased demand for mortgage products through Q2 2015, with applications up 43% year-on-year and gross new lending up 43% to £5.4 billion relative to the previous quarter. Market share of new mortgages reached 9.7% for Q2 2015, well in excess of RBS's current stock share of 8.3%. Commercial Banking increased loans and advances by £1.4 billion year-on-year, excluding transfers, while continuing to run down non-strategic books. 
 
Notes:
 
(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.

Highlights
 
RBS's ambition is to be the number one bank for customer service, trust and advocacy. Customer NPS across our businesses have seen statistically significant improvement year-on-year, specifically NatWest Personal Banking, NatWest Business Banking, RBS Business Banking and Ulster Bank (Northern Ireland) Personal Banking reflecting recent initiatives to make the bank fairer and simpler to do business with.
 
RBS is focused on improving performance and returns in the remaining Go-forward Bank (Ulster Bank, Private Banking and CIB) by improving service and reducing operating costs and risk where appropriate.
 
The Go-forward Bank is estimated to have generated an adjusted operating profit of £1.4 billion in the quarter, up 17% from Q1 2015, with adjusted return on equity estimated at 16%, up from 12% in Q1 2015 (see appendix 3).
 
Accelerated run-down of the Exit Bank
RBS remains ahead of plans to exit a number of businesses through sale or run-off, with good execution to date. Good momentum has been maintained with risk-weighted assets (RWAs) down by an estimated £24 billion since the start of 2015 to £148 billion.
 
 
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.
 
Highlights
 
Making RBS safer and dealing with ongoing issues
Balance sheet and capital strength and resilience continue to build. RWAs decreased to £326 billion, down from £356 billion at the start of the year and £392 billion from 30 June 2014, driven by RCR and CIB. A Common Equity Tier 1 (CET1) ratio of 12.3% at 30 June 2015 was up 80 basis points from 31 March 2015 and 110 basis points from 31 December 2014. Citizens Financial Group's RWAs (£70 billion) remain for the time being fully consolidated for regulatory purposes, although RBS's holding has been reduced to 40.8% as at 30 June 2015.
 
Risk elements in lending (REIL) fell to £18.7 billion, representing 4.8% of gross customers loans, down from 5.4% at 31 March 2015. REIL for RBS excluding RCR were £11.3 billion, down from £12.1 billion at 31 March 2015.
 
 
RBS plans to return excess capital to shareholders through dividends or buybacks, subject to regulatory approval. This is dependent on the achievement of certain strategic objectives, including sustained profitability, improved stress test results and resolving our major conduct and litigation issues. As a result we do not expect to be in a position to return capital before Q1 2017 at the earliest.
 
 
RBS continues to be party to legal proceedings and regulatory and governmental investigations, including with respect to US mortgage-backed securities, foreign exchange trading and its treatment of UK SME customers and continues to incur conduct related costs, including in relation to payment protection insurance and interest rate hedging products. While addressing these ongoing issues, RBS is continuing its endeavours to embed a strong and comprehensive risk and compliance culture throughout the organisation.
 
In June 2015 RBS experienced an issue with its secure connection used to process BACS payments resulting in a one or two day delay to payments being applied to some customer accounts. RBS has agreed to reimburse customers for any loss suffered as a result. A comprehensive root cause analysis is ongoing and correspondence with our regulators continues.
 
Making good progress on 2015 targets
 
Strategy Goal
2015 Target
H1 2015 Progress
Strength and sustainability
Reduce RWAs to <£300 billion
£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
 
Notes:
 
(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.


Highlights
 
Building the number one bank for customer service, trust and advocacy in the UK
 
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.
 
RBS remains committed to achieving its target of being number one bank for customer service, trust and advocacy by 2020.
 
We use independent surveys to measure our customers' experience and track our progress against our goal in each of our markets.
 
Net Promoter Score (NPS)
Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'.  Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. NPS is established by subtracting the proportion of detractors from the proportion of promoters.
 
 
 
 
Note:
 
(1)
Source: internal NPD Drivers study, June 15 based on 3 month roll with latest base size 2234.

Highlights
 
The table below lists all of the businesses for which we have an NPS for Q2 2015.  Year-on-year, NatWest Personal Banking, NatWest Business Banking, RBS Business Banking and Ulster Bank (Northern Ireland) Personal Banking have all seen statistically significant improvements in NPS. 
 
In recent years, the bank has launched a number of initiatives to make it simpler, fairer and easier to do business, and it continues to deliver on the commitments that it made to its customers in 2014.
 
 
   
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
 
Customer Trust
We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).
 
Trust in the RBS brand was impacted by the IT incident on 17 June 2015.
 
      
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%
 
Notes:
Suitable measures for Private Banking and for Corporate & Institutional Banking are in development.  NPS for Ulster Bank Business Banking is measured at Q4.
 
(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).
 

Highlights
 
Recent developments
 
Citizens
On 29 July 2015, RBS announced the final pricing for a further offering of 86 million shares in Citizens and the grant of a 15% over-allotment option to underwriters giving them a 30-day option to purchase an additional 12.9 million shares. Gross proceeds will be US$2.2 billion (£1.4 billion), ($2.6 billion (£1.6 billion) assuming exercise in full of the over-allotment option). Concurrently, Citizens intends to repurchase 9.6 million shares (US$250 million) from RBS. Once these transactions have completed and assuming the over-allotment option is exercised in full, RBS will own 110.5 million shares - 20.9% of Citizens' common stock and will record an estimated £1.1 billion profit (including £0.9 billion reclassified from equity).
 
Following this significant reduction in its voting interest, RBS will no longer control Citizens for accounting purposes and will cease to consolidate it; reducing total assets by approximately £78 billion. RBS's remaining investment in Citizens will be an associate classified as held for sale.
 
Citizens will however continue to be consolidated for the purposes of regulatory capital as RBS will retain certain veto rights notwithstanding the reduction in its interest in CFG.
 
Capital
AT1 securities
As part of our commitment to continue building our capital ratios, we plan to launch our inaugural Additional Tier 1 securities offering over the next few days, subject to market conditions.
 
Preference shares
RBS intends to redeem US$1.9 billion of its outstanding Series M, N, P and Q non-cumulative dollar preference shares, represented by American depositary shares, on 1 September 2015.
 
July Budget
On 8 July 2015 a number of proposed changes to the UK corporate tax system were announced. In accordance with IFRS these changes will be accounted for when they are substantively enacted which is expected to be in October 2015.
 
The most relevant proposed measures include:
 
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.
 
It is expected that these measures will increase the normalised tax rate to around 27% in the medium term and trending lower thereafter. The bank levy for 2015 is expected to be £280 million and is projected to fall progressively to £150 million by 2019. 

Highlights
 
Outlook
Following the sale of a further tranche of shares, RBS now plans to complete the exit from Citizens by the end of 2015, subject to market conditions.
 
The divestment, together with the strong progress being made in CIB and RCR, will enable RBS to meet its target of reducing RWAs to below £300 billion in 2015.
 
The restructuring of CIB is planned to accelerate during the second half of 2015.  This is expected to result in lower revenues, partially due to higher disposal losses, and elevated restructuring costs.
 
Targeted cost savings of £800 million in 2015 are expected to be delivered, notwithstanding the adverse impact of the increased UK bank levy.
 
RBS expects to meet its objective of lending growth in strategic segments, UK PBB and Commercial Banking, in line with or above nominal UK GDP growth.
 
Investments to make the bank simpler and fairer for customers are having a positive impact on NPS. The target to improve NPS in all customer franchises is stretching but achievable.
 
Whilst legacy issues continue to be addressed, material further and incremental costs and provisions related to historical conduct are expected. The timing and quantum of any future costs, provisions and settlements, however, remain uncertain.

Letter from the Chairman
 
These results demonstrate the strength of our underlying customer businesses with operating profit - excluding restructuring and conduct charges - of £1.8 billion for the quarter, up 11% on Q1. We have reported an attributable profit for the quarter, albeit a loss for the half year, which reflects the restructuring and conduct costs we are continuing to work through.  
 
We are seeing progress in our UK retail and commercial businesses. More customers are choosing us to help them buy their homes than ever before, while the commercial business grew its loan book by £1.4 billion since 30 June 2014.
 
RBS is closely involved in the UK's improving economic performance.  In partnership with Entrepreneurial Spark, RBS is opening business accelerator hubs in Birmingham, Brighton, Bristol and Leeds, with plans to open further hubs in major cities across the UK as we continue to support UK entrepreneurs and businesses providing free space, mentoring and financial support. The latest data from UK Export Finance shows that we are currently the biggest backer (by volume and value) of export contracts for 2015/16 and we are well on track to exceed our business for the previous financial year.
 
In the first six months of the year we have increased our UK focus by further reducing our stake in Citizens in the US and by agreeing to sell our International Private Bank. We have made excellent progress running down the parts of the business that no longer fit with our strategy.
 
We have also once again improved our core capital position, and have had six consecutive quarters of capital growth.  RBS is now a much better capitalised bank. 
 
The RBS of today is of course very different from the bank of 2009.  It has a greater focus on the quality of earnings and the control of risks.
 
There have naturally been ups and downs along the way, which have required the strategy to change, but the focus on making this a stronger, simpler and fairer organisation has been the right one.  The decisions to sell or run-off significant parts of the business while investing in our core customer franchises has meant we are better positioned to deal with the constraints of structural regulatory reform, notably ring-fencing.
 
Of course there are still some obstacles to overcome especially the resolution of outstanding conduct issues, including the investigations into our sale of residential mortgage-backed securities in the US between 2005-07, and the investigation by UK authorities into the bank's approach to distressed businesses. 
 
Past experience at RBS and many other banks has demonstrated the readiness of regulators to impose substantial fines and costly redress schemes.  These conduct and litigation costs have greatly exceeded the expectations of banks and their investors.  Judging the ultimate scale of conduct costs remains extremely challenging.
 
Looking forward, however, making customer service, trust and advocacy the focus of our strategy is starting to deliver results and by the end of this year I am confident that shareholders will see a clearer picture of the bank that RBS will become. 
 
This is an appropriate backdrop to the sale of shares by the UK government, which will be a significant moment for this bank.
 
Philip Hampton
Chairman
 

Summary consolidated income statement for the period ended 30 June 2015
 
 
 
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
35 
 
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 
 
For the notes to this table refer to the following page.

Summary consolidated income statement for the period ended 30 June 2015
 
 
             
 
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%
 
Notes:
 
(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.
 
Details of other comprehensive income are provided on page 68.
 

Summary consolidated balance sheet as at 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 
 
Notes:
 
(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.
 
 
Summary consolidated balance sheet as at 30 June 2015
 
 
 
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
 
Notes:
 
(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 a
vailable 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.
 
 
Highlights
 
Q2 2015 performance
Attributable profit of £293 million was reported in Q2 2015 including £1,050 million of restructuring costs as the pace of restructuring accelerated and £459 million of litigation and conduct costs. The attributable profit for Q2 2015 was up from a loss of £446 million in Q1 2015 and a profit of £230 million in Q2 2014.
 
Total income was £4,369 million, with net interest income broadly stable, but non-interest income down 25% from Q2 2014, reflecting the reduction in the scale of CIB.  
 
Operating expenses totalled £4,206 million, with other costs at £2,697 million, down 3% from Q1 2015 and 12% from Q2 2014. Restructuring costs were significantly higher at £1,050 million, principally relating to CIB (£734 million) and to Williams & Glyn separation (£126 million). Litigation and conduct costs in Q2 2015 amounted to £459 million, principally related to mortgage-backed securities litigation in the United States.
 
Credit conditions remained generally benign, with net impairment releases of £141 million, up from £91 million in Q1 2015 and from £93 million in Q2 2014, principally reflecting releases on disposals within RCR.
 
Operating profit was £304 million, down slightly from £325 million in Q1 2015 and more markedly from £1,318 million in Q2 2014. Excluding restructuring, litigation and conduct costs, operating profit was £1,813 million, up 11% from Q1 2015 but down 7% from Q2 2014.
 
Statutory operating profit before tax, including £168 million of own credit adjustments, was £240 million. After a tax charge of £100 million, the profit from continuing operations was £140 million, compared with a loss of £140 million in Q1 2015 and a profit of £458 million in Q2 2014.
 
Profit from discontinued operations of £674 million reflected the rise in the market value of Citizens shares during the quarter.
 
Tangible net asset value per ordinary and equivalent B share was 380p at 30 June 2015 compared with 384p at 31 March 2015, reflecting cash flow hedging and currency translation losses recognised in other comprehensive income, partly offset by the second quarter attributable profit.
 
Highlights
 
H1 2015 performance
An attributable loss of £153 million was reported for the first half of 2015, including £1,503 million of restructuring costs and £1,315 million of litigation and conduct costs. The attributable loss for H1 2015 was down from a profit of £1,425 million in H1 2014 as income attrition in the Exit Bank businesses preceded the delivery of cost reductions and higher restructuring, litigation, and conduct costs were incurred.
 
Total income was £8,700 million, 13% lower than in H1 2014, with net interest income up slightly but non-interest income down 29%, reflecting the reduction in scale of CIB. 
 
Cost reductions of £859 million were achieved relative to H1 2014, leaving operating expenses excluding restructuring, litigation and conducts costs down 14% at £5,485 million and putting RBS on track to deliver its targeted £800 million of cost savings in 2015.
 
Net impairment releases of £232 million were reported in H1 2015, compared with net impairment losses of £269 million in H1 2014. Net releases were recorded in all segments except Commercial Banking and CFG, where impairments nevertheless remained low at 0.1% and 0.3% respectively of loans and advances.
 
Operating profit in H1 2015 was £629 million down from £2,601 million in H1 2014. Excluding restructuring, litigation and conduct costs, operating profit was £3,447 million, up 2% from H1 2014. After a tax charge of £293 million, net profit from continuing operations was nil, while results from discontinued operations included a net profit of £354 million reflecting the rise in the market value of Citizens shares.
 
Balance sheet and capital
Net loans and advances to customers at 30 June 2015 were £315 billion, down 5% from 31 March 2015 and 6% from 31 December 2014. This was driven by run-off in CIB and RCR, partially offset by strong UK mortgage growth.
 
Funded assets at 30 June 2015 were £683 billion, down 4% from 31 March 2015 and 2% from 31 December 2014, principally reflecting run-off in CIB and RCR.
 
Customer deposits of £342 billion at 30 June 2015 were down 2% from 31 March 2015 and 3% from 31 December 2014, with good growth in UK personal current and savings accounts more than offset by the reduction in scale of CIB and by the impact of the weakening euro on balances in Ulster Bank.
 
CET1 and leverage ratios improved from 11.5% and 4.3% at 31 March 2015 to 12.3% and 4.6% respectively at 30 June 2015, principally driven by asset reduction in CIB and RCR.
 

 
 Analysis of results
 
 
          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)
             
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%
 
Note:
 
(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.
 

Analysis of results
 
Key points
 
H1 2015 compared with H1 2014
 
·
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.
 
Q2 2015 compared with Q1 2015
 
·
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.
 
Q2 2015 compared with Q2 2014
 
·
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.


Analysis of results
 
 
 
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 
 
Key points
 
H1 2015 compared with H1 2014
 
·
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.
 
Q2 2015 compared with Q1 2015
 
·
Non-interest income was up 2%, reflecting seasonal movements offset by volatile items under IFRS.
 
Q2 2015 compared with Q2 2014
 
·
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.


Analysis of results
 
 
 
                                         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 
 
Note:
 
(1)
Excluding restructuring costs and litigation and conduct costs.
 
Key points
 
H1 2015 compared with H1 2014
 
·
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.
 
Q2 2015 compared with Q1 2015
 
·
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.
 
Q2 2015 compared with Q2 2014
 
·
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.

Analysis of results
 
Restructuring costs
 
·
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.
 
Litigation and conduct costs
 
·
£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.
 
Analysis of results
 
 
 
                                                                                                                    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%
 
Note:
 
(1)
Excludes reverse repurchase agreements and includes disposals groups.
 
 
Analysis of results
 
Key points 
 
H1 2015 compared with H1 2014
 

·
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.
·
RCR saw loan impairment releases of £355 million, largely arising from disposals.
·
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.

Q2 2015 compared with Q1 2015
 
·
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.
 
Q2 2015 compared with Q2 2014
 
·
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.

Analysis of results
 
 
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)
(384)
Deferred tax assets
(1,206)
(1,140)
(1,222)
 
(1,206)
(1,140)
(1,222)
Own credit adjustments
345 
609 
500 
 
345 
609 
500 
Pension fund assets
(250)
(245)
(238)
 
(250)
(245)
(238)
Other deductions
(1,070)
(1,436)
(1,614)
 
(1,047)
(1,414)
(1,884)
               
Total deductions
(3,866)
(4,117)
(4,449)
 
(3,843)
(4,095)
(4,719)
               
CET1 capital
40,053 
40,125 
39,919 
 
40,076 
40,147 
39,649 
AT1 capital
 
6,709 
6,206 
7,468 
Tier 1 capital
40,053 
40,125 
39,919 
 
46,785 
46,353 
47,117 
Tier 2 capital
8,181 
8,689 
8,717 
 
13,573 
12,970 
13,626 
               
Total regulatory capital
48,234 
48,814 
48,636 
 
60,358 
59,323 
60,743 
               
Risk-weighted assets
             
               
Credit risk
             
  - non-counterparty
245,000 
263,000 
264,700 
 
245,000 
263,000 
264,700 
  - counterparty
27,500 
31,200 
30,400 
 
27,500 
31,200 
30,400 
Market risk
22,300 
22,800 
24,000 
 
22,300 
22,800 
24,000 
Operational risk
31,600 
31,600 
36,800 
 
31,600 
31,600 
36,800 
               
Total RWAs
326,400 
348,600 
355,900 
 
326,400 
348,600 
355,900 
               
Leverage (2)
             
               
Derivatives
282,300 
391,100 
354,000 
       
Loans and advances
402,800 
429,400 
419,600 
       
Reverse repos
67,800 
69,900 
64,700 
       
Other assets
211,800 
214,200 
212,500 
       
               
Total assets
964,700 
1,104,600 
1,050,800 
       
Derivatives
             
  - netting
(266,600)
(379,200)
(330,900)
       
  - potential future exposures
83,500 
96,000 
98,800 
       
Securities financing transactions gross up
6,200 
20,200 
25,000 
       
Undrawn commitments
84,700 
94,900 
96,400 
       
Regulatory deductions and other
             
  adjustments (3)
2,000 
900 
(600)
       
               
Leverage exposure
874,500 
937,400 
939,500 
       
               
CET1 capital
40,053 
40,125 
39,919 
       
               
Leverage ratio %
4.6 
4.3 
4.2 
       
 
Notes:
 
(1)
Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory
 adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on AFS securities
which has been included from 2015 for the PRA transitional basis.
(2)
Based on end-point CRR Tier 1 capital and leverage exposure under the revised 2014 Basel III leverage ratio framework and the CRR Delegated Act.
(3)
The increase in regulatory adjustments in Q2 2015 was driven by higher disallowable settlement balances.

Analysis of results
 
Key points
 
30 June 2015 compared with 31 March 2015
 
·
RBS's CET1 ratio improved by 80 basis points to 12.3%, driven by good progress in RWA reduction in RCR and CIB.
   
·
Citizens, in which RBS had a 40.8% stake at 30 June 2015, remains fully consolidated for regulatory capital purposes. On a pro forma basis, assuming the full deconsolidation of all Citizens credit and counterparty risk RWAs at 30 June 2015, the CET1 ratio would have been 300 basis points higher.
   
·
RBS's leverage ratio improved by 30 basis points to 4.6% at 30 June 2015, with leverage exposures down 7% to £875 billion.
   
·
On 29 July 2015, RBS approved plans for an issue of AT1 instruments.
 
 
30 June 2015 compared with 31 December 2014
 
·
The CET1 ratio was 110 basis points higher at 12.3%, while the leverage ratio improved by 40 basis points to 4.6%. The improvement was principally driven by continued good progress on run-off and disposals in RCR and CIB.
 
 
Segment performance

 
 
Half year ended 30 June 2015
 
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
2,290 
265 
2,555 
 
1,108 
254 
1,362 
 
376 
150 
1,104 
(25)
5,522 
Non-interest income
631 
103 
734 
 
606 
167 
773 
 
948 
43 
490 
190 
3,178 
                           
Total income
2,921 
368 
3,289 
 
1,714 
421 
2,135 
 
1,324 
193 
1,594 
165 
8,700 
                           
Direct expenses
                         
  - staff costs
(456)
(120)
(576)
 
(255)
(143)
(398)
 
(322)
(1,159)
(564)
(56)
(3,075)
  - other costs
(140)
(33)
(173)
 
(110)
(26)
(136)
 
(149)
(1,517)
(422)
(13)
(2,410)
Indirect expenses
(913)
(126)
(1,039)
 
(433)
(194)
(627)
 
(1,061)
2,759 
(32)
Restructuring costs
                         
  - direct
(18)
(18)
 
(10)
(3)
(13)
 
(211)
(1,228)
(33)
(1,503)
  - indirect
(50)
(50)
 
(8)
(80)
(88)
 
(814)
952 
Litigation and conduct costs
(364)
(356)
 
(59)
(28)
(87)
 
(873)
(1,315)
                           
Operating expenses
(1,923)
(289)
(2,212)
 
(875)
(474)
(1,349)
 
(3,430)
(192)
(1,019)
(101)
(8,303)
                           
Profit/(loss) before impairment losses
998 
79 
1,077 
 
839 
(53)
786 
 
(2,106)
575 
64 
397 
Impairment releases/(losses)
17 
52 
69 
 
(27)
(24)
 
31 
(48)
(89)
293 
232 
                           
Operating profit/(loss)
1,015 
131 
1,146 
 
812 
(50)
762 
 
(2,075)
(47)
486 
357 
629 
                           
Additional information
                         
Operating expenses - adjusted (£m) (2)
(1,509)
(279)
(1,788)
 
(798)
(363)
(1,161)
 
(1,532)
83 
(986)
(101)
(5,485)
Operating profit/(loss) - adjusted (£m) (2)
1,429 
141 
1,570 
 
889 
61 
950 
 
(177)
228 
519 
357 
3,447 
Return on equity (3)
23.6%
8.0%
18.4%
 
11.6%
(7.5%)
9.2%
 
(24.6%)
nm
6.8%
nm
(0.7%)
Return on equity - adjusted (2,3)
34.0%
8.7%
25.7%
 
12.8%
5.1%
11.9%
 
(3.5%)
nm
7.3%
nm
9.8%
Cost:income ratio
66%
79%
67%
 
51%
113%
63%
 
259%
nm
64%
nm
95%
Cost:income ratio - adjusted (2)
52%
76%
54%
 
47%
86%
54%
 
116%
nm
62%
nm
63%
Total assets  (£bn)
135.4 
26.5 
161.9 
 
94.5 
17.0 
111.5 
 
482.4 
105.2 
87.2 
16.5 
964.7 
Funded assets (£bn)
135.4 
26.4 
161.8 
 
94.5 
16.9 
111.4 
 
211.1 
102.9 
86.8 
8.4 
682.4 
Risk-weighted assets (RWAs) (£bn)
41.0 
21.2 
62.2 
 
66.9 
9.8 
76.7 
 
88.0 
15.3 
69.8 
14.4 
326.4 
RWA equivalent (£bn) (4)
44.6 
20.7 
65.3 
 
72.0 
9.8 
81.8 
 
89.7 
15.4 
70.0 
17.9 
340.1 
Employee numbers (FTEs - thousands)
25.4 
4.2 
29.6 
 
6.2 
2.7 
8.9 
 
3.1 
49.5 
17.6 
0.5 
109.2 
                           
nm = not meaningful
                     
                           
For the notes to this table refer to page 30.
                       

 
Segment performance

 
                           
 
Quarter ended 30 June 2015
 
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
1,147 
132 
1,279 
 
562 
126 
688 
 
174 
88 
551 
(14)
2,766 
Non-interest income
322 
46 
368 
 
330 
81 
411 
 
346 
173 
246 
59 
1,603 
                           
Total income
1,469 
178 
1,647 
 
892 
207 
1,099 
 
520 
261 
797 
45 
4,369 
                           
Direct expenses
                         
  - staff costs
(231)
(60)
(291)
 
(126)
(67)
(193)
 
(142)
(585)
(275)
(31)
(1,517)
  - other costs
(69)
(16)
(85)
 
(56)
(14)
(70)
 
(71)
(732)
(215)
(7)
(1,180)
Indirect expenses
(463)
(63)
(526)
 
(208)
(96)
(304)
 
(521)
1,366 
(15)
Restructuring costs
                         
  - direct
(18)
(18)
 
(10)
(3)
(13)
 
(195)
(797)
(27)
(1,050)
  - indirect
(20)
(1)
(21)
 
(7)
(81)
(88)
 
(539)
648 
Litigation and conduct costs
(10)
(2)
 
(59)
(26)
(85)
 
(373)
(459)
                           
Operating expenses
(793)
(150)
(943)
 
(466)
(287)
(753)
 
(1,841)
(99)
(517)
(53)
(4,206)
                           
Profit/(loss) before impairment losses
676 
28 
704 
 
426 
(80)
346 
 
(1,321)
162 
280 
(8)
163 
Impairment (losses)/releases
(9)
52 
43 
 
(26)
(24)
 
(13)
(51)
184 
141 
                           
Operating profit/(loss)
667 
80 
747 
 
400 
(78)
322 
 
(1,334)
164 
229 
176 
304 
                           
Additional information
                         
Operating expenses - adjusted (£m) (2)
(763)
(139)
(902)
 
(390)
(177)
(567)
 
(734)
49 
(490)
(53)
(2,697)
Operating profit/(loss) - adjusted (£m) (2)
697 
91 
788 
 
476 
32 
508 
 
(227)
312 
256 
176 
1,813 
Return on equity (3)
32.1%
9.9%
24.7%
 
11.3%
(20.1%)
7.5%
 
(33.0%)
nm
6.5%
nm
2.7%
Return on equity - adjusted (2,3)
33.6%
11.3%
26.1%
 
13.7%
5.6%
12.7%
 
(6.9%)
nm
7.2%
nm
14.1%
Cost:income ratio
54%
84%
57%
 
52%
139%
69%
 
354%
nm
65%
nm
96%
Cost:income ratio - adjusted (2)
52%
78%
55%
 
44%
86%
52%
 
141%
nm
62%
nm
62%
Total assets  (£bn)
135.4 
26.5 
161.9 
 
94.5 
17.0 
111.5 
 
482.4 
105.2 
87.2 
16.5 
964.7 
Funded assets (£bn)
135.4 
26.4 
161.8 
 
94.5 
16.9 
111.4 
 
211.1 
102.9 
86.8 
8.4 
682.4 
Risk-weighted assets (RWAs) (£bn)
41.0 
21.2 
62.2 
 
66.9 
9.8 
76.7 
 
88.0 
15.3 
69.8 
14.4 
326.4 
RWA equivalent (£bn) (4)
44.6 
20.7 
65.3 
 
72.0 
9.8 
81.8 
 
89.7 
15.4 
70.0 
17.9 
340.1 
Employee numbers (FTEs - thousands)
25.4 
4.2 
29.6 
 
6.2 
2.7 
8.9 
 
3.1 
49.5 
17.6 
0.5 
109.2 
                           
nm = not meaningful
                         
                           
For the notes to this table refer to page 30.
                       
 
Segment performance

 
                           
 
Half year 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
2,276 
323 
2,599 
 
999 
344 
1,343 
 
365 
203 
987 
(1)
5,496 
Non-interest income
686 
89 
775 
 
569 
201 
770 
 
2,062 
146 
620 
109 
4,482 
                           
Total income
2,962 
412 
3,374 
 
1,568 
545 
2,113 
 
2,427 
349 
1,607 
108 
9,978 
                           
Direct expenses
                         
  - staff costs
(469)
(125)
(594)
 
(266)
(151)
(417)
 
(487)
(1,241)
(512)
(89)
(3,340)
  - other costs
(224)
(35)
(259)
 
(122)
(29)
(151)
 
(250)
(1,811)
(501)
(32)
(3,004)
Indirect expenses
(958)
(126)
(1,084)
 
(402)
(217)
(619)
 
(1,180)
2,938 
(55)
Restructuring costs
                         
  - direct
(6)
 
(40)
(2)
(42)
 
(22)
(383)
(69)
(514)
  - indirect
(13)
(22)
(35)
 
(22)
(1)
(23)
 
(169)
227 
Litigation and conduct costs
(150)
(150)
 
(50)
(50)
 
(50)
(250)
                           
Operating expenses
(1,820)
(300)
(2,120)
 
(902)