H1 2016 Results Howard Davies Chairman Ross McEwan Chief - PowerPoint PPT Presentation

H1 2016 Results

Howard Davies Chairman

Ross McEwan Chief Executive Officer

Key messages We maintain strong positions in our target markets, supported by product and service improvements The fundamentals of our Plan remain unchanged. However, we are now operating in a more uncertain environment Progress against our Plan has made us more resilient to deal with this uncertainty Our capital, liquidity and funding positions give us capacity to lend Our core bank continued to deliver solid results in Q2 Addressing conduct and litigation issues as quickly and prudently as we can 4

Financial results highlights Adjusted ROTE across our core PBB, CPB and CIB franchises of 11% in Q2 2016 and H1 2016. Q2 2016 core franchise adjusted operating profit of £1bn (1) Attributable loss of £1,077m driven by £1,284m of provisions relating to conduct and litigation issues PBB and CPB net loans up 7% in six months, surpassing our 4% full year target Underlying income across PBB and CPB stable on H1 2015 Positive adjusted (1) operating JAWS across the core franchises of 2.7% Q2 vs. Q1 On course to reduce costs by £800m in 2016 despite FX headwinds (2) CET1 ratio of 14.5%, down 10 bps on Q1 2016 (1) Excluding own credit adjustments, loss on redemption of own debt, strategic disposals, restructuring costs, litigation and conduct costs. (2) Excluding any write down of intangible assets and the operating 5 costs of Williams & Glyn.

Business activity since the EU Referendum New Mortgage Applications Debit card spending per day EU Referendum EU Referendum Average Average Week ending 10-Jun 17-Jun 24-Jun 1-Jul 8-Jul 15-Jul 22-Jul 04-Jun 11-Jun 18-Jun 25-Jun 02-Jul 09-Jul Commercial Banking volumes – Business CIB deal count for FX products by day submitted by the Relationship Managers EU Referendum Average Average EU Referendum Week ending 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 6

Our blueprint for success Committed to being #1 bank for customers 7 (1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn.

Outstanding issues FCA SME treatment review RMBS UK 2008 rights issue shareholder litigation Williams & Glyn 8

Simplified and streamlined We are becoming a leaner, smaller bank Property Structure Products Countries # CPB and CIB countries of # London properties # subsidiaries # front book active operation 2013 416 (2) 11 1,107 38 36% 40% 19% 66% H1 2016 7 (1) 666 339 13 13 Target 5 ~500 <300 (1) Excluding property occupied by Williams & Glyn. (2) FY 2014 9

Customers are doing more business with us We are committed to investing in our core bank Improving Customer Service Supporting UK Business Award winning DigiDocs loan application 50% increase in gross lending to small process for business customers reduced businesses since H1 2015 from 11 days to within 24 hours Launched £1bn NatWest lending fund to Electronic signatures reduced mortgage support small businesses switching documentation process from 7 days to <2 days £7.9bn Commercial net new lending growth in H1 2016 73 Business Growth Enablers introduced, linking SMEs, experts, and helping local 9 Business Accelerator hubs, 3 more opening business networks in H2 2016 Improving Products / Technology Support Digital Transformation Customers are changing the way they do business with us: 4.1 million active personal mobile users, Leading mobile app, and first UK bank up 25% in one year accredited by RNIB 37% of logins to our app are now biometric 815,000 Reward customer accounts, up 276,000 on Q1 Customers transferred money using our app six times per second during H1 2016 National roll-out of new Commercial Banking account opening platform 69,000 unsecured products applied for via mobile app in H1 2016 10

Strong franchises with clear strategies Majority generating good returns, with actions to improve performance UK PBB Commercial Banking RBS International Invest to 20% RWAs 41% RWAs 5% RWAs Grow Adj. ROE: 24% Adj. ROE: 7% Adj. ROE: 16%  Clear customer segment  Accelerate simplification and  Grow domestic market share strategies, leveraging product rationalisation (e.g. Jersey, Guernsey, Isle products, e.g. Reward of Man & Gibraltar)  Strong digital investment Actions  Digital transformation,  Open Luxembourg & London  Enhance CIB connectivity improving customer branch to broaden customer experience offering Ulster Bank RoI Private Banking CIB Reposition 11% RWAs 4% RWAs 19% RWAs for Returns Adj. ROE: 9% Adj. ROE: 10% Adj. ROE: 4%  New CEO to drive strong  New CEO to drive strong  Continue cost reduction and profitable franchise and profitable franchise  Stabilisation of income  Cost reduction  Cost reduction  Deepen relationships with  Increase mortgage market  Develop referrals with Actions Commercial penetration Commercial  Increase capital efficiency  Focus on balance sheet and AUM growth 11 Note: Adjusted return on equity for the quarter ending 30 June 2016

Continued growth in our core businesses Strong H1 2016 growth in net customer loans UK PBB Commercial Banking (£bn) (£bn) +5% +9% 126.0 99.2 119.8 91.3 FY 2015 H1 2016 FY 2015 H1 2016 Private Banking RBS International (£bn) +5% (£bn) +16% 11.8 8.5 11.2 7.3 FY 2015 H1 2016 FY 2015 H1 2016 12

Summary Strong and growing core bank – delivered again in Q2 Legacy continues to be cleaned up and reduced EU Referendum outcome creates new uncertainty Positioned to deal with potential challenges ahead 13

Ewen Stevenson Chief Financial Officer

Q2 2016 results by franchise Core Franchises Total Other Total RBS Central Ulster Commercial Private RBS Total Core Capital Total (£bn) UK PBB CIB W&G items & Bank RoI Banking Banking International Franchises Resolution Other other (1) Adj. Income (2) 1.3 0.1 0.8 0.2 0.1 0.4 3.0* (0.4) 0.2 (0.1) (0.3) 2.7* Adj. Operating (0.8) (0.1) (0.5) (0.1) (0.0) (0.3) (1.8) (0.2) (0.1) 0.3 (0.0) (1.8) expenses (3) Impairment (0.0) 0.0 (0.1) - (0.0) - (0.1) (0.1) (0.0) - (0.1) (0.2) (losses) / releases Adj. operating 0.5 0.1 0.3 0.0 0.1 0.1 1.0* (0.6) 0.1 0.2 (0.3) 0.7* profit (2,3) Funded Assets 151.2 24.1 146.3 17.7 24.6 125.6 489.5 44.7 24.9 16.5 86.1 575.6 Net L&A to 126.0 18.9 99.2 11.8 8.5 21.6 286.0 19.9 20.3 0.4 40.6 326.6 Customers Customer Deposits 140.4 14.7 96.7 25.4 24.1 8.3 309.6 18.8 23.9 3.5 46.2 355.8 RWAs 37.0 20.9 77.5 8.1 9.6 36.7 189.8 42.3 9.9 3.2 55.4 245.2 Loan: Deposit 90% 129% 103% 46% 35% 260% 92% 106% 85% 11% 88% 92% Ratio Adj. RoE (%) (2,4) 24.2% 9.0% 6.6% 9.9% 15.7% 3.5% 11.0% n.m. n.m. n.m. n.m. 3.2% Adj. Cost : Income 58% 67% 59% 72% 35% 76% 61% n.m. 48% n.m. n.m. 67% ratio (%) (2,3) (1) Central items include unallocated costs and assets which principally comprise volatile items under IFRS. (2) Excluding own credit adjustments, gains/(losses) on redemption of own debt and strategic disposals. (3) Excluding restructuring costs 15 and litigation and conduct costs and goodwill. (4) RBS’s CET1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk- weighted assets after capital deductions (RWAes) *Totals may not cast due to rounding

NIM analysis Q2 2016 vs. Q2 2015 Interest earning Assets NIM (£bn) Core Bank (2bps) (5%) 2.32% 417 2.30% 396 +8bps 101 61 2.21% Core 2.13% +6% 335 316 Q2 2015 Q2 2016 Q2 2015 Q2 2016 Q2 2015 Q2 2016 16

Lowered costs by >£2.5bn over the last 2.5 years Reduction in Adjusted Operating Costs from 2013 - H1 2016 (£bn) Other reduction Target to reduce adjusted operating costs by 11.9 £800m in 2016; £404m achieved in H1 2016 (0.4) (1) (1.1) (1.0) (2) 10.4 9.4 (0.8) (3) Organic 0.4 reduction 8.6 W&G 1.5 Capital 0.2 Resolution VAT 1.5 recovery Int’l Private CIB Banking (7%) 4.53 4.21 Total 0.23 Core Bank ex.CIB 5.8 2014 (2) 2013 2015 2016 H1 2015 H1 2016 Target 17 (1) £0.4bn is made up of the benefit of lower intangible asset write-offs of 2013-£344m, 2014-£146m as well as the year on year benefit of FX. (2) This includes £71m lower intangible write offs offset by £29m growth in W&G. (3) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn

Reduction of legacy businesses & portfolios Legacy business & portfolios (RWAs) (£bn) Citizens (69%) W&G 176 IPB Capital Resolution 68 Residual central items and other 10 2 65 (15%) 4 55 10 1 10 95 10 48 42 ~30-35 2 3 0 FY 2014 Q1 2016 Q2 2016 FY 2016 revised Target (1) 18 (1) Capital Resolution expected to reduce RWAs to around £30-35bn by the end of 2016, W&G RWAs expected to be broadly stable.