Natwest Group PLC

Earnings Release • May 6, 2011

The Royal Bank of Scotland Group (RBS) reports a first quarter operating profit(1) of £1,053 million, compared with a profit of £55 million in the fourth quarter of 2010

RBS Core operating profit of £2,093 million, up 25% from Q4 2010

Good momentum in UK businesses, strong results from Global Banking & Markets (GBM) and recovery in RBS Insurance

Q1 attributable loss of £528 million includes an APS charge of £469 million and a charge for movements in the fair value of own debt of £480 million

Core Tier 1 ratio of 11.2%, Core return on equity 15%, Group loan:deposit ratio 115%

Key highlights

RBS showed continued good progress during the first quarter of 2011, with operating profit increasing by almost £1 billion relative to Q4 2010 to £1,053 million. The Core business achieved a return on equity of 15% in Q1, in line with the Group's long term strategic targets. Core Retail & Commercial demonstrated continued momentum, reflecting both improving economic conditions and positive results from investment programmes, while GBM benefited from improved investor activity. As expected, RBS Insurance returned to profit.

RBS also made further progress in improving its risk profile, with the Non-Core division on track to reduce its funded assets to less than 10% of the Group total by the end of 2011 and the Group's Core Tier 1 capital ratio improving to 11.2%.

• Income Group income rose 8% compared with Q4 2010 to £8,033 million, with strong results in GBM and a consistent underlying result in Retail & Commercial following the disposal of Global Merchant Services (GMS) in Q4 2010. Group income was 12% lower than in Q1 2010, during which GBM experienced favourable market conditions. Group net interest margin (NIM) improved by 1 basis point to 2.03%, adjusted for the number of days in the quarter, with Core Retail & Commercial NIM up 6 basis points to 3.27%.
• Expenses Group expenses were £4,121 million, 1% higher than in Q4 2010 and down 7% on Q1 2010. The cost:income ratio, net of claims, improved to 58% (56% in Core businesses).
• Impairments Impairments continued on a downward trajectory, falling 9% compared with the prior quarter to £1,947 million and 27% compared with Q1 2010. Non-Core impairments were 11% lower, reflecting the improving corporate environment, but with continued high impairment levels in Ireland. Core impairments also fell, with improvements in UK Retail and UK Corporate more than offsetting higher Ulster Bank impairments.
• Balance sheet The Group balance sheet continued to strengthen in Q1 2011. Non-Core third party assets (excluding derivatives) declined by £13 billion during the quarter to £125 billion, and the division remains on track to hit year-end targets.
• Funding and liquidity The Group loan:deposit ratio improved to 115%, driven largely by the continued deleveraging of Non-Core. Long-term issuance was £10 billion in the quarter relative to a full year target of £20 billion. Liquidity portfolio of £151 billion remains in line with the Group's target level.
• Capital Group Core Tier 1 ratio strengthened by 50 basis points in Q1 2011 to 11.2%, positioning the Group well to meet future Basel capital requirements. Gross risk-weighted assets, excluding the relief provided by the Asset Protection Scheme (APS), fell by £33 billion to £538 billion.

Note:

⁽¹⁾ Operating profit/(loss) before tax, movements in the fair value of own debt (FVOD), Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest. Statutory operating loss before tax of £116 million for the quarter ended 31 March 2011.

Key financial data

	Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Core
Total income (1)	7,547	7,138	8,206
Operating expenses (2)	(3,798)	(3,600)	(3,791)
Insurance net claims	(784)	(937)	(1,003)
Operating profit before impairment losses (3)	2,965	2,601	3,412
Impairment losses	(872)	(930)	(971)
Core operating profit (3)	2,093	1,671	2,441
Non-Core operating loss (3)	(1,040)	(1,616)	(1,559)
Group operating profit (3)	1,053	55	882
Fair value of own debt	(480)	582	(169)
Asset Protection Scheme credit default swap - fair value changes	(469)	(725)	(500)
Other items (4)	(220)	80	(218)
Loss before tax	(116)	(8)	(5)
(Loss)/profit attributable to ordinary and B shareholders	(528)	12	(248)
Memo: APS after tax loss	(345)	(522)	(360)

	31 March 2011	31 December 2010	31 March 2010(8)
Capital and balance sheet
Total assets	£1,413bn	£1,454bn	£1,583bn
Funded balance sheet (5)	£1,052bn	£1,026bn	£1,121bn
Loan:deposit ratio (Group) (6)	115%	117%	131%
Loan:deposit ratio (Core) (6)	96%	96%	102%
Core Tier 1 ratio	11.2%	10.7%	10.6%
Tangible equity per ordinary and B share (7)	50.1p	51.1p	51.5p

Notes:

• (1) Excluding movement in fair value of own debt, Asset Protection Scheme credit default swap fair value changes, strategic disposals and RFS Holdings minority interest.
• (2) Excluding amortisation of purchased intangible assets, integration and restructuring costs, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest.
• (3) Operating profit/(loss) before tax, movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest.
• (4) Other items comprise amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest. Refer to page 16 of the main announcement for further details.
• (5) Funded balance sheet is total assets less derivatives.
• (6) Net of provisions.
• (7) Tangible equity per ordinary and B share is total tangible equity divided by number of ordinary and B shares in issue.
• (8) Excluding RFS Holdings minority interest for comparability.

Comment

Stephen Hester, Group Chief Executive, commented:

"RBS first quarter results show progress continuing.

We are strongly focused on serving customers well while building capabilities to improve further. Financial strength and resilience continue to show sharp improvement as Core business profitability broadens and Non-Core risks are reduced. This recovery is also allowing us to absorb higher Irish impairments and substantially increased regulatory demands, and to self-fund other "bills from the past" such as restructuring, disposals and the cost of APS support. As we work through these items the Group's regained strength and Core profitability should be the enduring gain, becoming increasingly available to drive shareholder returns.

Looking ahead we see the macro environment in which we and our customers operate as constructive, despite the continuing challenges of economic recovery in core markets. The strategic goals we have set out for RBS remain our primary focus. There are some headwinds, challenging growth and increasing capital intensity for our industry, that have a shareholder and broader read across. But despite that context RBS expects continued progress."

Highlights

First quarter results summary

The Royal Bank of Scotland Group (RBS or the Group) reported an operating profit(1) of £1,053 million in the first quarter of 2011, compared with a profit of £55 million in the fourth quarter of 2010 and a profit of £882 million in the first quarter of 2010.

The improved result stemmed primarily from a strong performance in the Core business, where operating profit rose to £2,093 million, up 25% from Q4 2010. The Core Retail & Commercial divisions maintained good momentum, with income holding up well despite fewer days in Q1 compared with Q4 and the consequent impact on net interest income, and after adjusting for the disposal in Q4 2010 of Global Merchant Services (GMS). GBM took advantage of a rebound in investor activity during the quarter. RBS Insurance returned to profit, as the benefits of underwriting actions started to come through.

Return on equity (RoE) in the Core businesses improved to 15% in Q1 2011, in line with the Group's long term strategic targets. RoE in the Core Retail & Commercial businesses remained steady at 11%, despite continuing losses in Ulster Bank, while GBM and RBS Insurance showed marked improvements compared with the prior quarter.

The Non-Core division made further progress in reducing risk, with funded assets falling by £13 billion and impairments continuing to moderate. Non-Core operating loss was £1,040 million, down 36% from Q4 2010.

An improvement in the Group's credit spreads resulted in a charge of £480 million in relation to movements in FVOD, compared with a gain of £582 million in the previous quarter. Improving credit spreads on assets covered by the Asset Protection Scheme resulted in a further pre-tax charge of £469 million related to this protection, which is accounted for as a credit derivative with any movement in the fair value taken as an 'other' item. Note that cumulative APS charges are now £2 billion relative to the minimum fee required under the scheme of £2.5 billion. After these and other charges totalling £220 million, RBS recorded a pre-tax loss of £116 million. After a tax charge of £423 million and noncontrolling interests, there was a £528 million loss attributable to ordinary and B shareholders, compared with a small attributable profit in Q4 2010.

Income

Group income rose 8% compared with Q4 2010 to £8,033 million, with seasonally strong results in GBM more than offsetting a decline in Retail & Commercial following the disposal of GMS in Q4 2010.

Net interest income was 8% lower, reflecting the continued run-off of Non-Core assets, higher funding costs and the shorter calendar quarter. Group net interest margin, adjusted for the number of days in the quarter, improved by 1 basis point to 2.03% compared with Q4 2010, with Core Retail & Commercial NIM up 6 basis points to 3.27%.

Non-interest income rose by 22%, largely driven by strong trading activity in GBM following a seasonally subdued Q4 2010. Non-Core results also showed a strong improvement, with lower disposal losses and fair value write-downs.

(1) As defined on page i.

Compared with Q1 2010, during which GBM benefited from favourable market conditions, Group income was 12% lower. Core Retail & Commercial income, adjusting for the disposal of GMS, was up 6% on the same period.

Expenses

Group expenses were 1% higher than in Q4 2010. Continuing benefits from the cost reduction programmes undertaken across the divisions continue to drive good overall expense performance. Core Retail & Commercial expenses were down 2% from the fourth quarter, principally reflecting the GMS disposal, and were 6% lower than in Q1 2010.

GBM expenses rose by 23% from Q4 2010 (up 1% from Q1 2010), primarily due to variable compensation driven by the 50% increase in revenue, while Non-Core expenses were 33% lower (49% down from Q1 2010), benefiting from the reduction in its cost base following a number of disposals completed in Q4 2010 and Q1 2011.

As a result, the Group cost:income ratio, net of claims, improved to 58% while Core cost:income ratio also improved to 56%.

Impairments

Impairments continued on a downward trajectory, falling 9% during the quarter to £1,947 million, despite a charge of £1,300 million in relation to Ulster Bank Core and Non-Core portfolios.

Non-Core impairments were 11% lower, relative to Q4, reflecting the improving corporate environment, but with continued high impairment levels in Ulster Bank and in certain other commercial real estate books. Core impairments also fell, with improvements in UK Retail and in UK Corporate which benefited from a £108 million release of latent loss provisions, reflecting improving book quality and credit metrics. This more than offset higher Core Ulster Bank impairments.

Overall, customer loan impairments represented 1.5% of gross customer loans and advances, compared with 1.6% in Q4 2010 and 1.8% in Q1 2010.

Balance sheet

The Group balance sheet continued to strengthen in Q1 2011.

Non-Core third party assets (excluding derivatives) declined by £13 billion to £125 billion and the division is on track to reduce funded assets to below £100 billion by year-end. As at 31 March 2011, the division had a total of £7 billion of transactions agreed but not yet completed, with a strong pipeline of transactions under discussion.

Funding and liquidity

The Group loan:deposit ratio improved further to 115%, compared with 117% at 31 December 2010 and 131% at 31 March 2010, with deposit balances remaining steady while loans have declined, principally in GBM and Non-Core. The Core loan:deposit ratio remained at 96%.

Short-term wholesale funding excluding derivative collateral increased from £129 billion to £145 billion during the first quarter of 2011 due to the inclusion of £16 billion of medium-term notes issued under the Credit Guarantee Scheme which will mature in Q1 2012. Utilisation of central bank funding was reduced from £26 billion to £19 billion over the course of the quarter. The liquidity portfolio remained slightly above target at £151 billion at 31 March 2011.

The Group issued £10 billion of term funding in Q1 2011, £3 billion higher than was issued in Q4 2010.

Capital

The Group's Core Tier 1 ratio at 31 March 2011 strengthened to 11.2%, up 50 basis points on 31 December 2010 and 60 basis points higher than a year earlier. The increase largely reflected a £33 billion reduction in gross risk-weighted assets (RWAs), excluding the relief provided by the Asset Protection Scheme, to £538 billion, driven by asset run-off, disposals and restructurings and a reclassification of markets assets in Non-Core. The APS provides a benefit to the Core Tier 1 ratio of approximately 1.3% percentage points.

Strategic plan

		Worst			2013
	Measure	point	2010	Q1 2011	Target
	Value drivers		Core	Core	Core
•	Return on equity (1)	(31%)(2)	13%	15%	>15%
•	Cost:income ratio (3)	97%(4)	56%	56%	<50%
	Risk measures		Group	Group	Group
•	Core Tier 1 ratio	4%(5)	10.7%	11.2%	>8%
•	Loan:deposit ratio	154%(6)	117%	115%	c.100%
•	Short-term wholesale funding (7)	£343bn(8)	£157bn	£168bn	<£150bn
•	Short-term wholesale funding
	(excluding derivatives collateral)	£297bn	£129bn	£145bn	<£125bn
•	Liquidity portfolio (9)	£90bn(8)	£155bn	£151bn	c.£150bn
•	Leverage ratio (10)	28.7x(11)	16.8x	17.4x	<20x

Notes:

(1) Based on indicative Core attributable profit taxed at 28% and Core average tangible equity per the average balance sheet (c. 70% of Group tangible equity based on RWAs).

(2) Group return on tangible equity for 2008.

(3) Cost:income ratio net of insurance claims.

(4) Year ended 31 December 2008.

(5) As at 1 January 2008.

(6) As at October 2008.

(7) Amount of unsecured wholesale funding under 1 year (£168 billion) of which bank deposits are currently £60 billion, target £65 billion, other unsecured wholesale funding currently £108 billion, target £85 billion.

(8) As at December 2008.

(9) Eligible assets held for contingent liquidity purposes including cash, Government issued securities and other eligible securities with central banks.

(10) Funded tangible assets divided by total Tier 1 capital.

(11) As at June 2008.

Regulation

RBS continues to embrace higher regulatory standards that will reinforce the higher benchmarks that banks themselves, and RBS specifically, are moving to worldwide. The impact of change will be substantial. Its direction is clear though important issues remain to be fully worked through. While the outcome will be a safer industry better serving society overall, the costs are also significant – these reduce bank returns for shareholders, increase bank costs and force savings elsewhere, and impact cost and availability of credit and other services to customers and the economy.

Regulatory change is marked in both areas of financial stability/safety and in conduct matters where modern regulatory requirements are driving increased exposures to fines and other conduct and customer sales costs. In the area of payment protection insurance (PPI), RBS continues to settle claims where we believe that the customer has not been treated fairly or has suffered some detriment. However, a decision on appeal of the court case, led by the BBA, has not yet been made as it relates to important other issues of retrospective regulation. The uncertainties around the outcome of the PPI action mean that, at this time, the Group is unable reliably to estimate any potential financial liability, although it could prove to be material.

The interim report of the UK Independent Commission on Banking (ICB), recently published, has thoughtful analysis and, in its passages supporting the global trends to greater capital, liquidity and resolution resilience, is in line with RBS thinking as well as with these global trends. The specific emerging recommendations will need much detailed work and discussion. Those around subsidiarisation, which are not in line with regulatory developments in other major economies, are likely to add to bank costs – impacting both customers and shareholders – without the safety gains that the broader global Basel process is delivering. The extent of the impact cannot be securely estimated until the ICB recommendations are finalised. RBS continues to engage constructively with those involved to find the best avenues to meet the ICB terms of reference.

Customer franchises

In 2010 the Group focus on serving our customers better began to gain momentum, with many tangible examples of our businesses introducing new and refreshed customer-centric initiatives and investment strategies. This effort continues.

During the quarter UK Retail published the first externally assessed, six-monthly review of its RBS and NatWest Customer Charters. The report highlighted that the division delivered on 80% of the 25 goals outlined and although recognising this as a positive start, UK Retail is not complacent.

Both UK Corporate and Global Transaction Services (GTS) focussed on adding value to their customer proposition through the provision of additional support and advice. For instance, UK Corporate increased lending under the UK Government's Enterprise Finance Guarantee (EFG) scheme and accounted for over 40% of these government-supported loans by the end of the quarter. Meanwhile, GTS maintained its commitment to helping UK businesses abroad, with the launch of an exporter hotline service providing customers with expert advice on the practicalities and opportunities of expanding in foreign markets.

Over the last year Wealth has invested in and developed technology solutions driven by a desire to improve customer service to its clients. The Q1 2011 launch of a new IT platform in Adam & Company was an important milestone in achieving this, and will be rolled out across the other Wealth businesses in the UK during the remainder of the year.

Ulster Bank's support of customers who found themselves facing financial difficulty continued – with over 4,000 mortgage arrangements put in place through it's 'Flex' initiative which offers customers practical solutions to their money problems and in some cases can include temporary reductions to repayments or loan extensions if appropriate.

In the US, Citizens enhanced its commitment to providing banking services suited to its customers' needs by offering free internet security software to online bank users, providing peace of mind to customers who value the convenience of banking from home or office.

GBM continues to invest to improve the customer experience. Q1 2011 saw the completion of GBM's programme to refresh RBSMarketplace, delivering a globally standardised, next generation internet and eCommerce platform, the foundation of a re-vitalised electronic trading and eCommerce proposition for its clients. In addition, GBM launched its research platform on both iPad and playbook allowing clients to access high-quality analysis, commentary and strategic trade ideas on the move.

UK Lending

RBS exceeded all its lending targets for the March 2010 to February 2011 Lending Commitments period, with gross new facilities totalling £56.9 billion extended to UK businesses during the 12 month period, £6.9 billion above target. Net mortgage lending was £1.4 billion above target at £9.4 billion.

RBS will maintain its efforts to support UK customers and, along with four other banks, has agreed to seek to foster additional credit demand and to make available the capital and resources to support additional lending capacity in 2011, if demand should materialise beyond current expectations.

During Q1 2011, RBS extended £15.0 billion of gross new facilities to UK businesses. Although January and February saw comparatively weak volumes, with many companies in closed periods, larger corporates increased their borrowing activity in March, taking advantage of attractive rates available in the market to refinance existing loan facilities.

SME credit demand remained more muted, with £6.7 billion of gross new facilities extended during the quarter, down 7% from Q4 2010.

Repayments remain high, with many companies continuing to deleverage. However, drawn business lending balances at 31 March 2011 totalled £120.9 billion overall, compared with £118.8 billion at 31 December 2010. In the SME segment, drawn balances in RBS's Core Business & Commercial operation were £1.5 billion higher at £51.3 billion, though this benefited from a transfer of portfolios from Non-Core in preparation for the sale of the RBS England & Wales branch-based business to Santander.

Applications for credit have continued to decline, with 72,000 applications received during Q1, down 18% from Q1 2010 and 27% below the levels recorded in Q1 2009. Survey evidence indicates that uncertainty about customer demand remains by far the most significant constraint to growth among SMEs, with 69% of SMEs citing orders or sales as the factor most likely to limit output over the next three months, according to the Confederation of British Industry SME Trends Report, compared with only 8% citing credit or finance.

Outlook

We expect continued progress in our Retail & Commercial businesses during the balance of 2011 through modest NIM expansion, positive operating leverage and gradual normalisation of impairments.

In Ireland, we expect total Ulster Bank Core and Non-Core impairments to remain elevated in the second quarter of 2011 before gradually declining in the second half.

GBM is off to a good start, although markets remain unpredictable.

Our Non-Core division continues to perform in line with its accelerated run-down objectives, while balancing the need to preserve shareholder capital.

Contacts

Group Media Centre		+44 (0) 131 523 4205
For media enquiries:
Richard O'Connor	Head of Investor Relations	+44 (0) 20 7672 1758
For analyst enquiries:

Analysts' conference call

The Royal Bank of Scotland Group will be hosting a conference call and live audio webcast following the release of the results for the quarter ended 31 March 2011. The details are as follows:

Date:	Friday 6 May 2011
Time:	9.00 am UK time
Webcast:	www.rbs.com/ir
Dial in details:	International – +44 (0) 1452 568 172 UK Free Call – 0800 694 8082 US Toll Free – 1 866 966 8024

Slides

Slides accompanying this document, which will not be formally presented to on the analysts' conference call, will be available on www.rbs.com/ir.

Financial supplement

A financial supplement will be available on www.rbs.com/ir. This supplement shows published income and balance sheet financial information by quarter for the last nine quarters to assist analysts for modelling purposes.

First Quarter 2011 Results

Contents

	Page
Forward-looking statements	3
Presentation of information	4
Results summary	5
Results summary - statutory	8
Summary consolidated income statement	9
Summary consolidated balance sheet	11
Analysis of results	12
Divisional performance UK Retail UK Corporate Wealth Global Transaction Services Ulster Bank US Retail & Commercial Global Banking & Markets RBS Insurance Central items Non-Core	19 22 26 29 31 33 36 41 44 48 49
Condensed consolidated income statement	57
Condensed consolidated statement of comprehensive income	58
Condensed consolidated balance sheet	59
Commentary on condensed consolidated balance sheet	60
Average balance sheet	62
Condensed consolidated statement of changes in equity	64
Notes	67

Contents (continued)

	Page
Risk and balance sheet management	88
Capital	88
Funding and liquidity risk	91
Credit risk	97
Market risk	119
Additional information	124

			Appendix 1 Income statement reconciliations
--	--	--	---------------------------------------------

Appendix 2 Asset Protection Scheme

Appendix 3 Businesses outlined for disposal

Forward-looking statements

Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'believes', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited to: the Group's restructuring plans, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets, return on equity (ROE), cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; the Group's future financial performance; the level and extent of future impairments and write-downs; the protection provided by the Asset Protection Scheme (APS); and the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the global economy and instability in the global financial markets, and their impact on the financial industry in general and on the Group in particular; the financial stability of other financial institutions, and the Group's counterparties and borrowers; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the EC State Aid restructuring plan; organisational restructuring; the ability to access sufficient funding to meet liquidity needs; the extent of future write-downs and impairment charges caused by depressed asset valuations; the inability to hedge certain risks economically; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; HM Treasury exercising influence over the operations of the Group; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group's operations) in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G7 central banks; impairments of goodwill; pension fund shortfalls; litigation and government and regulatory investigations; general operational risks; insurance claims; reputational risk; general geopolitical and economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the ability to achieve revenue benefits and cost savings from the integration of certain of RBS Holdings N.V.'s (formerly ABN AMRO Holding N.V.) businesses and assets; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the recommendations made by the UK Independent Commission on Banking and their potential implications; the participation of the Group in the APS and the effect of the APS on the Group's financial and capital position; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group's activities as a result of HM Treasury's investment in the Group; and the success of the Group in managing the risks involved in the foregoing.

The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

Presentation of information

The financial information on pages 5 to 56, prepared using the Group's accounting policies, shows the underlying performance of the Group on a managed basis which excludes certain one-off and other items. This information is provided to give a better understanding of the results of the Group's operations. Group operating profit on this basis excludes:

• movements in the fair value of own debt;
• Asset Protection Scheme credit default swap fair value changes;
• amortisation of purchased intangible assets;
• integration and restructuring costs;
• strategic disposals;
• bonus tax;
• write-down of goodwill and other intangible assets; and
• RFS Holdings minority interest (RFS MI).

Net interest margin

The basis of calculating the net interest margin (NIM) has been refined and now reflects the actual number of days in each quarter. Group and divisional NIMs for prior periods have been re-computed on the new basis.

Results summary

		Quarter ended
	31 March	31 December	31 March
	2011 £m	2010 £m	2010 £m
Core
Total income (1)	7,547	7,138	8,206
Operating expenses (2)	(3,798)	(3,600)	(3,791)
Insurance net claims	(784)	(937)	(1,003)
Operating profit before impairment losses (3)	2,965	2,601	3,412
Impairment losses	(872)	(930)	(971)
Operating profit (3)	2,093	1,671	2,441
Non-Core
Total income (1)	486	321	917
Operating expenses (2)	(323)	(481)	(639)
Insurance net claims	(128)	(245)	(133)
Operating profit/(loss) before impairment losses (3)	35	(405)	145
Impairment losses	(1,075)	(1,211)	(1,704)
Operating loss (3)	(1,040)	(1,616)	(1,559)
Total
Total income (1)	8,033	7,459	9,123
Operating expenses (2)	(4,121)	(4,081)	(4,430)
Insurance net claims	(912)	(1,182)	(1,136)
Operating profit before impairment losses (3)	3,000	2,196	3,557
Impairment losses	(1,947)	(2,141)	(2,675)
Operating profit (3)	1,053	55	882
Fair value of own debt	(480)	582	(169)
Asset Protection Scheme credit default swap - fair value changes	(469)	(725)	(500)
Other items	(220)	80	(218)
Loss before tax	(116)	(8)	(5)
Memo: Profit before tax, pre APS	353	717	495

For definitions of the notes refer to page 7.

Results summary

		Quarter ended
	31 March	31 December	31 March
Key metrics	2011	2010	2010
Performance ratios
Core
- Net interest margin	2.26%	2.25%	2.15%
- Cost:income ratio (4)	56%	58%	53%
- Return on equity	15.1%	12.1%	17.1%
- Adjusted earnings per ordinary and B share from continuing operations	0.6p	0.4p	1.3p
- Adjusted earnings per ordinary and B share from continuing operations
assuming a normalised tax rate of 26.5% (2010 - 28.0%)	1.4p	1.1p	1.5p
Non-Core
- Net interest margin	0.90%	1.09%	1.27%
- Cost:income ratio (4)	90%	633%	82%
Group
- Net interest margin	2.03%	2.02%	1.95%
- Cost:income ratio (4)	58%	65%	55%
Continuing operations
- Basic loss per ordinary and B share (5)	(0.5p)	-	(0.2p)

For definitions of the notes refer to page 7.

Results summary

	31 March 2011	31 December 2010	Change	31 March 2010(12)	Change
Capital and balance sheet
Total assets	£1,413bn	£1,454bn	(3%)	£1,583bn	(11%)
Funded balance sheet (6)	£1,052bn	£1,026bn	3%	£1,121bn	(6%)
Loan:deposit ratio - Core (7)	96%	96%	-	102%	(600bp)
Loan:deposit ratio - Group (7)	115%	117%	(200bp)	131%	(1,600bp)
Risk-weighted assets - gross	£538bn	£571bn	(6%)	£586bn	(8%)
Benefit of Asset Protection Scheme (APS)	(£98bn)	(£106bn)	(7%)	(£125bn)	(21%)
Risk-weighted assets - net of APS	£440bn	£465bn	(6%)	£461bn	(5%)
Total equity	£76bn	£77bn	(1%)	£81bn	(6%)
Core Tier 1 ratio*	11.2%	10.7%	50bp	10.6%	60bp
Tier 1 ratio	13.5%	12.9%	60bp	13.7%	(20bp)
Risk elements in lending (REIL)	£41bn	£39bn	5%	£37bn	11%
REIL as a % of gross loans and advances (8)	7.9%	7.3%	60bp	6.3%	160bp
Provision balance as % of REIL and potential
problem loans (PPL)	46%	46%	-	45%	100bp
Tier 1 leverage ratio (9)	17.4x	16.8x	4%	17.6x	(1%)
Tangible equity leverage ratio (10)	5.3%	5.5%	(20bp)	5.1%	20bp
Tangible equity per ordinary and B share (11)	50.1p	51.1p	(2%)	51.5p	(3%)

* Benefit of APS in Core Tier 1 ratio is 1.3% at 31 March 2011 (31 December 2010 - 1.2%; 31 March 2010 - 1.4%).

Notes:

• (1) Excluding movements in the fair value of own debt, Asset Protection Scheme credit default swap fair value changes, strategic disposals and RFS Holdings minority interest.
• (2) Excluding amortisation of purchased intangible assets, integration and restructuring costs, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest.
• (3) Operating profit/(loss) before tax, movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest.
• (4) Cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
• (5) (Loss)/profit from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue. Refer to page 72.
• (6) Funded balance sheet represents total assets less derivatives.
• (7) Net of provisions.
• (8) Gross loans and advances to customers including disposal groups, excluding reverse repurchase agreements (reverse repos).
• (9) Tier 1 leverage ratio is total tangible assets (after netting derivatives) divided by Tier 1 capital.
• (10) Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives).
• (11) Tangible equity per ordinary and B share is total tangible equity divided by number of ordinary and B shares in issue.
• (12) Excluding RFS Holdings minority interest for comparability.

Results summary - statutory

Highlights

• Income of £7,058 million for Q1 2011.
• Operating loss before tax of £116 million for Q1 2011.
• Core Tier 1 ratio 11.2%.

	Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Continuing operations:
Total income	7,058	7,822	8,523
Operating expenses	(4,315)	(4,507)	(4,717)
Operating profit before impairment losses	1,831	2,133	2,670
Impairment losses	(1,947)	(2,141)	(2,675)
Operating loss before tax	(116)	(8)	(5)
(Loss)/profit attributable to ordinary and B shareholders	(528)	12	(248)

A reconciliation between statutory and managed view income statements is shown in Appendix 1 to this announcement.

Summary consolidated income statement for the quarter ended 31 March 2011

In the income statement set out below, movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest are shown separately. In the statutory condensed consolidated income statement on page 57, these items are included in income and operating expenses as appropriate.

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
Core	£m	£m	£m
Net interest income	3,052	3,220	3,035
Non-interest income (excluding insurance net premium income)	3,484	2,827	4,050
Insurance net premium income	1,011	1,091	1,121
Non-interest income	4,495	3,918	5,171
Total income (1)	7,547	7,138	8,206
Operating expenses (2)	(3,798)	(3,600)	(3,791)
Profit before other operating charges	3,749	3,538	4,415
Insurance net claims	(784)	(937)	(1,003)
Operating profit before impairment losses (3)	2,965	2,601	3,412
Impairment losses	(872)	(930)	(971)
Operating profit (3)	2,093	1,671	2,441
Non-Core
Net interest income	250	358	499
Non-interest income (excluding insurance net premium income)	98	(218)	250
Insurance net premium income	138	181	168
Non-interest income	236	(37)	418
Total income (1)	486	321	917
Operating expenses (2)	(323)	(481)	(639)
Profit/(loss) before other operating charges	163	(160)	278
Insurance net claims	(128)	(245)	(133)
Operating profit/(loss) before impairment losses (3)	35	(405)	145
Impairment losses	(1,075)	(1,211)	(1,704)
Operating loss (3)	(1,040)	(1,616)	(1,559)

For definitions of the notes refer to page 7.

Summary consolidated income statement

for the quarter ended 31 March 2011 (continued)

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
Total	£m	£m	£m
Net interest income	3,302	3,578	3,534
Non-interest income (excluding insurance net premium income)	3,582	2,609	4,300
Insurance net premium income	1,149	1,272	1,289
Non-interest income	4,731	3,881	5,589
Total income (1)	8,033	7,459	9,123
Operating expenses (2)	(4,121)	(4,081)	(4,430)
Profit before other operating charges	3,912	3,378	4,693
Insurance net claims	(912)	(1,182)	(1,136)
Operating profit before impairment losses (3)	3,000	2,196	3,557
Impairment losses	(1,947)	(2,141)	(2,675)
Operating profit (3)	1,053	55	882
Fair value of own debt	(480)	582	(169)
Asset Protection Scheme credit default swap - fair value changes	(469)	(725)	(500)
Amortisation of purchased intangible assets	(44)	(96)	(65)
Integration and restructuring costs	(145)	(299)	(168)
Strategic disposals	(23)	502	53
Bonus tax	(11)	(15)	(54)
Write-down of goodwill and other intangible assets	-	(10)	-
RFS Holdings minority interest	3	(2)	16
Loss before tax	(116)	(8)	(5)
Tax (charge)/credit	(423)	3	(107)
Loss from continuing operations	(539)	(5)	(112)
Profit from discontinued operations, net of tax	10	55	313
(Loss)/profit for the period	(529)	50	201
Non-controlling interests	1	(38)	(344)
Preference share and other dividends	-	-	(105)
(Loss)/profit attributable to ordinary and B shareholders	(528)	12	(248)

For definitions of the notes refer to page 7.

Summary consolidated balance sheet at 31 March 2011

	31 March 2011 £m	31 December 2010 £m
Loans and advances to banks (1)	59,304	57,911
Loans and advances to customers (1)	494,148	502,748
Reverse repurchase agreements and stock borrowing	105,659	95,119
Debt securities and equity shares	253,596	239,678
Other assets	139,498	131,043
Funded assets	1,052,205	1,026,499
Derivatives	361,048	427,077
Total assets	1,413,253	1,453,576
Owners' equity	74,076	75,132
Non-controlling interests	1,710	1,719
Subordinated liabilities	26,515	27,053
Bank deposits (2)	63,829	66,051
Customer deposits (2)	428,474	428,599
Repurchase agreements and stock lending	130,047	114,833
Derivatives, settlement balances and short positions	432,084	478,076
Other liabilities	256,518	262,113
Total liabilities and equity	1,413,253	1,453,576
Memo: Tangible equity (3)	54,923	55,940

Notes:

(1) Excluding reverse repurchase agreements and stock borrowing.

(2) Excluding repurchase agreements and stock lending.

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

Analysis of results

	Quarter ended
	31 March	31 December	31 March
Net interest income	2011	2010	2010
	£m	£m	£m
Net interest income (1)	3,289	3,365	3,447
Average interest-earning assets	658,578	661,380	717,900
Net interest margin (2)
- Group	2.03%	2.02%	1.95%
- Core
- Retail & Commercial (3)	3.27%	3.21%	3.01%
- Global Banking & Markets	0.76%	0.93%	1.13%
- Non-Core	0.90%	1.09%	1.27%

Notes:

(1) For further analysis refer to page 63.

(2) The basis of calculating the net interest margin has been refined and is now based on daily averages rather than quarterly averages. Prior periods have been re-computed on the new basis.

(3) Retail & Commercial comprises the UK Retail, UK Corporate, Wealth, Global Transaction Services, Ulster Bank and US Retail & Commercial divisions.

Key points

Q1 2011 compared with Q4 2010

• Net interest income was 2% lower, reflecting the continued run-off of Non-Core assets, higher funding costs and the shorter calendar quarter.
• Group NIM improved by 1 basis point to 2.03% compared with the prior quarter, benefiting from improving asset margins in Retail & Commercial and the reduction of low margin assets in Non-Core. However, these were offset by tighter margins in GBM, and higher funding costs.
• Core Retail & Commercial NIM improved to 3.27% from 3.21% in Q4 2010. UK Retail asset margins declined marginally, with lower front book margins reflecting the increasing proportion of higher quality, lower loan to value mortgage lending. UK Corporate NIM improved. Deposit margins were stable at low levels in all Retail & Commercial divisions.

Q1 2011 compared with Q1 2010

• Net interest income was 5% lower, largely reflecting the reduction in GBM and Non-Core interest-earning assets.
• Group NIM rose by 8 basis points from 1.95% in Q1 2010, with Core Retail & Commercial NIM showing an improvement of 26 basis points. GBM NIM, however, was 37 basis points lower.

		Quarter ended
Non-interest income	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Net fees and commissions	1,382	1,604	1,479
Income from trading activities	1,490	979	2,225
Other operating income	710	26	596
Non-interest income (excluding insurance net premium income)	3,582	2,609	4,300
Insurance net premium income	1,149	1,272	1,289
Total non-interest income	4,731	3,881	5,589

Key points

Q1 2011 compared with Q4 2010

• The substantial increase in non-interest income in Q1 2011 was largely driven by strong trading results from GBM, where a rebound in credit markets activity, particularly in the early part of the quarter, followed a seasonally subdued Q4 2010. Non-Core non-interest income improved, with lower fair value write-downs on asset portfolios and reduced disposal losses.
• UK Retail fees and commissions were lower, reflecting the absence of the profit share income received in Q4 and the restructuring of the division's financial planning joint venture.

Q1 2011 compared with Q1 2010

• Although GBM trading results were strong during the quarter, income was lower than in the buoyant market conditions of Q1 2010.

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
Operating expenses	£m	£m	£m
Staff costs	2,320	2,059	2,553
Premises and equipment	556	636	528
Other	865	938	935
Administrative expenses	3,741	3,633	4,016
Depreciation and amortisation	380	448	414
Operating expenses	4,121	4,081	4,430
General insurance	912	1,151	1,107
Bancassurance	-	31	29
Insurance net claims	912	1,182	1,136
Staff costs as a % of total income	29%	28%	28%

Key points

Q1 2011 compared with Q4 2010

• Group operating expenses remained broadly in line quarter-on-quarter, with a 1% increase from Q4 2010, as continued benefits from the Group's cost reduction programme have kept expense growth in check.
• There was a 13% rise in staff costs, largely reflecting an increase in GBM expenses driven by income 50% higher than in Q4 2010, partially offset by a fall in premises, equipment and other costs.
• Insurance net claims fell to £912 million from £1,182 million largely driven by more benign weather conditions experienced during Q1 2011 and a return to more normalised claims levels on Non-Core legacy business.

Q1 2011 compared with Q1 2010

• Operating expenses fell by 7% compared with Q1 2010 reflecting the realisation of cost saving benefits from the Group cost reduction programme and various country exits throughout 2010.
• Staff expenses decreased by 9% largely driven by the country and business exits in Non-Core since Q1 2010, and lower variable compensation in GBM in the quarter.
• Insurance net claims decreased by 20% as bodily injury reserving stabilised and the severe weather experienced in Q1 2010 was not repeated.

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
Impairment losses	£m	£m	£m
Loan impairment losses	1,898	2,155	2,602
Securities impairment losses	49	(14)	73
Group impairment losses	1,947	2,141	2,675
Loan impairment losses
- latent	(107)	(116)	31
- collectively assessed	720	729	841
- individual assessed	1,285	1,555	1,730
Customer loans	1,898	2,168	2,602
Bank loans	-	(13)	-
Loan impairment losses	1,898	2,155	2,602
Customer loan impairment charge as % of gross loans and advances (1)
Group	1.5%	1.6%	1.8%
Core	0.8%	0.9%	0.9%
Non-Core	4.0%	4.4%	4.6%

Note:

(1) Customer loan impairment charge as a percentage of gross loans and advances to customers including disposal groups and excluding reverse repurchase agreements.

Key points

Q1 2011 compared with Q4 2010

• Total impairments fell by 9% in Q1 2011 despite a £135 million increase in Ulster Bank (Core and Non-Core). The decrease was driven by improvements in UK Retail and in UK Corporate which benefited from a £108 million release of latent loss provisions, reflecting improving book quality and credit metrics. Non-Core impairments were 11% lower reflecting the improving corporate environment.
• Ulster Bank (Core and Non-Core) impairments continued to rise from Q4 2010, from £1,165 million to £1,300 million (12%). The Core increase was driven by continued deterioration in mortgage credit metrics together with a higher level of defaults recorded in the corporate investment and SME portfolios.

Q1 2011 compared with Q1 2010

• Group impairments fell by 27% from Q1 2010 levels as the overall economic environment continued to improve.
• In the Core business impairments fell by 10%. A 50% decrease in UK Retail, primarily reflecting lower arrears volumes on the unsecured portfolio, was offset by an increase in Ulster Bank impairments where the economic environment remains challenging. Both UK Corporate and US Retail & Commercial impairments fell, by 44% and 23% respectively.
• Non-Core impairments decreased from £1,704 million to £1,075 million as the corporate environment improved, but with continued high impairment levels in Ulster Bank and certain other real estate portfolios.

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
One-off and other items	£m	£m	£m
Fair value of own debt*	(480)	582	(169)
Asset Protection Scheme credit default swap - fair value changes	(469)	(725)	(500)
Amortisation of purchased intangible assets	(44)	(96)	(65)
Integration and restructuring costs	(145)	(299)	(168)
Strategic disposals	(23)	502	53
Bonus tax	(11)	(15)	(54)
Write-down of goodwill and other intangible assets	-	(10)	-
RFS Holdings minority interest	3	(2)	16
	(1,169)	(63)	(887)
* Fair value of own debt impact:
Income from trading activities	(186)	110	41
Other operating income	(294)	472	(210)
Fair value of own debt (FVOD)	(480)	582	(169)

Key points

Q1 2011 compared with Q4 2010

• A tightening of the Group's credit spreads resulted in a charge of £480 million in relation to movements in FVOD, compared with a gain of £582 million in the prior quarter.
• Q4 2010 included a £502 million gain largely from the strategic disposal of Global Merchant Services.
• Integration and restructuring costs decreased by 52% as costs in relation to business and country exits remain somewhat lumpy.
• APS is accounted for as a credit derivative, and movements in the fair value of the contract are taken as an 'other' item. The charge of £469 million in Q1 2011 primarily reflects a reduction in covered assets as well as improvement in credit spreads. The cumulative charge on APS now stands at £2,019 million.

Q1 2011 compared with Q1 2010

• The FVOD charge was £311 million higher than in Q1 2010.
• Integration and restructuring costs reduced from Q1 2010 as costs relating to the ABN AMRO integration in 2009 were replaced with comparatively smaller business and country exit costs.
• Strategic disposals in Q1 2010 included the disposal of a segment of the Group's asset management business.

For information relating to the bank levy refer to page 86.

Capital resources and ratios	31 March 2011	31 December 2010	31 March 2010 (2)
Core Tier 1 capital	£49bn	£50bn	£49bn
Tier 1 capital	£60bn	£60bn	£63bn
Total capital	£64bn	£65bn	£72bn
Risk-weighted assets
- gross	£538bn	£571bn	£586bn
- benefit of the Asset Protection Scheme	(£98bn)	(£106bn)	(£125bn)
Risk-weighted assets	£440bn	£465bn	£461bn
Core Tier 1 ratio (1)	11.2%	10.7%	10.6%
Tier 1 ratio	13.5%	12.9%	13.7%
Total capital ratio	14.5%	14.0%	15.7%

Notes

(1) Benefit of APS in Core Tier 1 ratio is 1.3% at 31 March 2011 (31 December 2010 - 1.2%; 31 March 2010 - 1.4%).

(2) Excluding RFS Holding minority interest for comparability.

Key points

Q1 2011 compared with Q4 2010

• The Core Tier 1 ratio improved by 50 basis points to 11.2% in Q1 2011, principally reflecting a £33 billion reduction in gross RWAs, excluding the benefit provided by the APS, driven by asset run-off, disposals and restructurings, and a reclassification of certain trades in Non-Core.
• The APS provided relief equivalent to 1.3% of Core Tier 1.

Q1 2011 compared with Q1 2010

• The Core Tier 1 ratio increased by 60 basis points from Q1 2010 levels due to a reduction of £48 billion in gross RWAs.
• Non-Core RWAs fell by over £36 billion in the year driven by disposals, asset run-off and risk reduction.

Balance sheet	31 March 2011	31 December 2010	31 March 2010 (4)
Total assets	£1,413bn	£1,454bn	£1,583bn
Funded balance sheet	£1,052bn	£1,026bn	£1,121bn
Loans and advances to customers (1)	£494bn	£503bn	£554bn
Customer deposits (2)	£428bn	£429bn	£425bn
Loan:deposit ratio - Core (3)	96%	96%	102%
Loan:deposit ratio - Group (3)	115%	117%	131%

Notes:

(1) Excluding reverse repurchase agreements and stock borrowing.

(2) Excluding repurchase agreements and stock lending.

(3) Net of provisions.

(4) Excluding RFS Holdings minority interest for comparability.

Key points

• Group funded assets, excluding derivatives, increased by £26 billion during the quarter to £1,052 billion at 31 March 2011. Non-Core funded assets continued to decline, falling by £13 billion to £125 billion. GBM assets increased by £27 billion from a seasonally low level at the end of 2010, but remain within the targeted range, and there has been modest growth in Retail & Commercial.
• Loans and advances fell by £9 billion during the quarter, with portfolio run-off in Non-Core and GBM only partially offset by growth in Core UK Retail & Commercial lending. With deposits holding steady, the Group loan:deposit ratio improved to 115% while the Core loan:deposit ratio was stable at 96%.
• Compared with 31 March 2010, funded assets fell by £69 billion, driven by the run-off of Non-Core. Over the year the Group loan:deposit ratio improved by 16 percentage points and the Core ratio by 6 percentage points.

Further discussion of the Group's funding and liquidity position is included on pages 91 to 96.

Divisional performance

The operating profit/(loss)(1) of each division is shown below.

		Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Operating profit/(loss) before impairment losses by division
UK Retail	702	780	527
UK Corporate	598	552	504
Wealth	85	93	66
Global Transaction Services	207	270	233
Ulster Bank	84	105	81
US Retail & Commercial	190	169	183
Retail & Commercial	1,866	1,969	1,594
Global Banking & Markets	1,074	522	1,530
RBS Insurance	67	(9)	(50)
Central items	(42)	119	338
Core	2,965	2,601	3,412
Non-Core	35	(405)	145
Group operating profit before impairment losses	3,000	2,196	3,557
Impairment losses by division
UK Retail	194	222	387
UK Corporate	105	219	186
Wealth	5	6	4
Global Transaction Services	20	3	-
Ulster Bank	461	376	218
US Retail & Commercial	110	105	143
Retail & Commercial	895	931	938
Global Banking & Markets	(24)	(5)	32
Central items	1	4	1
Core	872	930	971
Non-Core	1,075	1,211	1,704
Group impairment losses	1,947	2,141	2,675

Note:

(1) Operating profit/(loss) before movement in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest.

Divisional performance (continued)

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Operating profit/(loss) by division
UK Retail	508	558	140
UK Corporate	493	333	318
Wealth	80	87	62
Global Transaction Services	187	267	233
Ulster Bank	(377)	(271)	(137)
US Retail & Commercial	80	64	40
Retail & Commercial	971	1,038	656
Global Banking & Markets	1,098	527	1,498
RBS Insurance	67	(9)	(50)
Central items	(43)	115	337
Core	2,093	1,671	2,441
Non-Core	(1,040)	(1,616)	(1,559)
Group operating profit	1,053	55	882

	Quarter ended
	31 March 2011 %	31 December 2010 %	31 March 2010 %
Net interest margin by division
UK Retail	4.04	4.05	3.71
UK Corporate	2.73	2.55	2.41
Wealth	3.45	3.29	3.42
Global Transaction Services	5.91	6.14	8.08
Ulster Bank	1.72	1.77	1.79
US Retail & Commercial	3.01	3.00	2.72
Retail & Commercial	3.27	3.21	3.01
Global Banking & Markets	0.76	0.93	1.13
Non-Core	0.90	1.09	1.27
Group net interest margin	2.03	2.02	1.95

Divisional performance (continued)

	31 March 2011 £bn	31 December 2010 £bn	Change	31 March 2010 £bn	Change
Risk-weighted assets by division
UK Retail	50.3	48.8	3%	49.8	1%
UK Corporate	79.3	81.4	(3%)	91.3	(13%)
Wealth	12.6	12.5	1%	11.7	8%
Global Transaction Services	18.2	18.3	(1%)	20.4	(11%)
Ulster Bank	31.7	31.6	-	32.8	(3%)
US Retail & Commercial	53.6	57.0	(6%)	63.8	(16%)
Retail & Commercial	245.7	249.6	(2%)	269.8	(9%)
Global Banking & Markets	146.5	146.9	-	141.8	3%
Other	14.5	18.0	(19%)	9.6	51%
Core	406.7	414.5	(2%)	421.2	(3%)
Non-Core	128.5	153.7	(16%)	164.3	(22%)
Group before benefit of Asset Protection
Scheme	535.2	568.2	(6%)	585.5	(9%)
Benefit of Asset Protection Scheme	(98.4)	(105.6)	(7%)	(124.8)	(21%)
Group before RFS Holdings minority
interest	436.8	462.6	(6%)	460.7	(5%)
RFS Holdings minority interest	2.9	2.9	-	106.5	(97%)
	439.7	465.5	(6%)	567.2	(22%)

Employee numbers by division (full time equivalents in continuing operations rounded to the nearest hundred)	31 March 2011	31 December 2010	31 March 2010
UK Retail	28,100	28,200	29,200
UK Corporate	13,100	13,100	12,400
Wealth	5,400	5,200	4,900
Global Transaction Services	2,700	2,600	3,500
Ulster Bank	4,300	4,200	4,300
US Retail & Commercial	15,400	15,700	15,700
Retail & Commercial	69,000	69,000	70,000
Global Banking & Markets	19,000	18,700	18,200
RBS Insurance	14,900	14,500	14,200
Group Centre	4,800	4,700	4,400
Core	107,700	106,900	106,800
Non-Core	6,700	6,900	14,900
	114,400	113,800	121,700
Business Services	34,100	34,400	38,000
Integration	-	300	300
Group	148,500	148,500	160,000

UK Retail

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Income statement
Net interest income	1,076	1,088	933
Net fees and commissions	270	316	259
Other non-interest income (net of insurance claims)	34	55	58
Non-interest income	304	371	317
Total income	1,380	1,459	1,250
Direct expenses
- staff	(215)	(208)	(225)
- other	(113)	(71)	(133)
Indirect expenses	(350)	(400)	(365)
	(678)	(679)	(723)
Operating profit before impairment losses	702	780	527
Impairment losses	(194)	(222)	(387)
Operating profit	508	558	140
Analysis of income by product Personal advances Personal deposits Mortgages Cards	275 254 543 238	275 271 557 251	234 277 422 229
Other, including bancassurance	70	105	88
Total income	1,380	1,459	1,250
Analysis of impairments by sector
Mortgages	61	30	48
Personal Cards	95 38	131 61	233 106
Total impairment losses	194	222	387
Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector
Mortgages	0.3%	0.1%	0.2%
Personal	3.3%	4.5%	7.1%
Cards	2.7%	4.0%	7.1%
Total	0.7%	0.8%	1.5%

UK Retail (continued)

Key metrics

			31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)			26.2%	25.2%	7.1%
Net interest margin			4.04%	4.05%	3.71%
Cost:income ratio			49%	46%	57%
Adjusted cost:income ratio (2)			49%	47%	58%
	31 March 2011	31 December 2010		31 March 2010
	£bn	£bn	Change	£bn	Change
Capital and balance sheet
Loans and advances to customers (gross)
- mortgages	93.0	90.6	3%	84.8	10%
- personal	11.4	11.7	(3%)	13.2	(14%)
- cards	5.6	6.1	(8%)	6.0	(7%)
	110.0	108.4	1%	104.0	6%
Customer deposits (excluding
bancassurance)	96.1	96.1	-	89.4	7%
Assets under management (excluding
deposits)	5.8	5.7	2%	5.3	9%
Risk elements in lending	4.6	4.6	-	4.7	(2%)
Loan:deposit ratio (excluding repos)	112%	110%	200bp	113%	(100bp)
Risk-weighted assets	50.3	48.8	3%	49.8	1%

Notes:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions); Q4 2010 adjusted for timing of intraquarter items.

(2) Adjusted cost:income ratio is based on total income after netting insurance claims and operating expenses.

Key points

UK Retail is committed to rebuilding customer trust and the reputation of its brands by becoming the most helpful and sustainable bank in the UK. During Q1 2011 the division developed increased online functionality and simplified the product offering as part of a continued effort to achieve this goal.

In March 2011 the first externally assessed, six-monthly review of the RBS and NatWest Customer Charters was published with UK Retail having delivered on 80% of the 25 goals outlined. Although this was a positive start, the division recognises that there is still far to go and will not be complacent. Already, further feedback is being sought from customers to ensure the Charters continue to really focus on delivering for our customers throughout 2011.

UK Retail has also continued with a major investment programme that began in 2010. This programme aims to support the improvement in customer service embodied by the Customer Charters by providing the division and its staff with the training and tools necessary to achieve the strategic goals of the division.

UK Retail (continued)

Key points (continued)

The economic environment in the UK remains challenging for the division's customers and, while UK Retail remains focussed on providing support to customers who do find themselves in difficulty, the division also recognises the need for continued commitment to responsible lending - including first time buyers in the mortgage market.

Overall, Q1 2011 demonstrates continued progress towards achieving the business and strategic goals of the UK Retail division.

Q1 2011 compared with Q4 2010

• Operating profit of £508 million in Q1 2011 was £50 million lower than in the previous quarter. Excluding the lower Financial Services Compensation Scheme levy cost recognised in Q4 2010 and profit share payment received in the same quarter, operating profit increased £51 million in Q1 2011. Impairment losses improved by £28 million to £194 million.
• UK Retail continued to drive strong growth in secured lending.
• o Mortgage balances increased 3% on Q4 2010. RBS lending volumes showed signs of recovery in the quarter, with more new mortgages written at lower loan to value ratios. Market share of new mortgage lending increased to 14% in the quarter, well above the Group's 8% share of stock.
• o Unsecured lending fell by 4% in the quarter, in line with the Group's continued focus on lower risk secured lending.
• o Total deposits remained flat in the quarter after a strong period of growth in Q4 2010.
• o The loan to deposit ratio at 31 March 2011 was 112%, slightly higher than the prior quarter ratio of 110%.
• Net interest income fell by 1%, with net interest margin at 4.04%, a 1 basis point decline on Q4 2010. Asset margins fell marginally on Q4 2010, with rate upside offset by increased mortgage volumes written at lower loan to value ratios. Liability margins continued to contract in the quarter, largely reflecting the reduction in yield on current account hedges. Savings margins were broadly flat on Q4 2010.
• Non-interest income fell by 18% from the prior quarter. Excluding the one-off profit share received in Q4 2010 and the impact of restructuring the division's Bancassurance Joint Venture, fee income growth was 1% driven by an increase in transactional fees.
• Overall expenses remained flat quarter on quarter. Excluding the lower Financial Services Compensation Scheme cost recognised in Q4 2010 and the effect of restructuring our Bancassurance Joint Venture, costs improved by 1%, with continued management focus on process re-engineering and technology investment. The cost:income ratio (net of insurance claims) increased marginally from 47% to 49%.

Q1 2011 compared with Q4 2010 (continued)

• Impairment losses improved by 13% in Q1 2011. Impairments are expected to stabilise subject to normal seasonal fluctuations and broad stability within the economic environment.
• o Mortgage impairment losses were £61 million on a total book of £93 billion. The quarter on quarter increase of £31 million primarily reflects the continued impact of difficult housing market conditions on the recovery of already defaulted debt. Arrears rates, which continue to be supported by low interest rates and good book growth, were stable and remained below the Council of Mortgage Lenders industry average.
• o The unsecured portfolio impairment charge fell 31% to £133 million, on a book of £17 billion, with lower default volumes and improved collections performance. Industry benchmarks for cards arrears remain stable, with RBS continuing to perform better than the market.
• Risk-weighted assets increased in the quarter, primarily reflecting business growth.

Q1 2011 compared with Q1 2010

• Operating profit increased by £368 million, with income up 10%, costs down 6% and impairments 50% lower than in Q1 2010.
• Net interest income was 15% higher than Q1 2010, with strong mortgage balance growth and recovering asset margins across all products but with continual competitive pressure on liability margins.
• Costs were 6% lower than in Q1 2010, driven by careful management of process efficiencies within the branch network and operational centres. The cost:income ratio (net of insurance claims) improved from 58% to 49%.
• Impairment losses decreased by 50% on Q1 2010 primarily reflecting lower arrears on the unsecured portfolio.
• Savings balances were up 11% on Q1 2010, significantly outperforming the market which remains intensely competitive. Personal current account balances remained largely flat over the same period.

UK Corporate

		Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Income statement Net interest income	689	653	610
Net fees and commissions Other non-interest income	244 88	251 79	224 105
Non-interest income	332	330	329
Total income	1,021	983	939
Direct expenses - staff - other Indirect expenses	(202) (90) (131) (423)	(198) (93) (140) (431)	(205) (103) (127) (435)
Operating profit before impairment losses Impairment losses	598 (105)	552 (219)	504 (186)
Operating profit	493	333	318
Analysis of income by business Corporate and commercial lending Asset and invoice finance Corporate deposits Other	729 152 170 (30)	657 166 184 (24)	630 134 176 (1)
Total income	1,021	983	939
Analysis of impairments by sector Banks and financial institutions Hotels and restaurants Housebuilding and construction Manufacturing Other Private sector education, health, social work, recreational and community services Property Wholesale and retail trade, repairs Asset and invoice finance	3 8 32 6 1 11 18 16 10	12 18 47 (9) (12) 21 84 31 27	2 16 14 6 37 8 66 18 19
Total impairment losses	105	219	186

UK Corporate (continued)

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector
Banks and financial institutions	0.2%	0.8%	0.1%
Hotels and restaurants	0.5%	1.1%	1.0%
Housebuilding and construction	2.8%	4.2%	1.3%
Manufacturing	0.5%	(0.7%)	0.4%
Other	-	(0.2%)	0.5%
Private sector education, health, social work, recreational and community
services	0.5%	0.9%	0.4%
Property	0.2%	1.1%	0.8%
Wholesale and retail trade, repairs	0.7%	1.3%	0.7%
Asset and invoice finance	0.4%	1.1%	0.8%
Total	0.4%	0.8%	0.7%

Key metrics

	Quarter ended
	31 March		31 December	31 March
	2011	2010	2010
Performance ratios
Return on equity (1)	15.8%	11.8%	9.9%
Net interest margin	2.73%	2.55%	2.41%
Cost:income ratio	41%	44%	46%

	31 March	31 December		31 March
	2011 £bn	2010 £bn	Change	2010 £bn	Change
Capital and balance sheet
Total third party assets	115.0	114.6	-	117.4	(2%)
Loans and advances to customers (gross)
- banks and financial institutions	6.0	6.1	(2%)	6.5	(8%)
- hotels and restaurants	6.7	6.8	(1%)	6.6	2%
- housebuilding and construction	4.5	4.5	-	4.3	5%
- manufacturing	5.1	5.3	(4%)	5.9	(14%)
- other	31.8	31.0	3%	31.1	2%
- private sector education, health, social
work, recreational and community services	8.9	9.0	(1%)	8.5	5%
- property	30.2	29.5	2%	32.0	(6%)
- wholesale and retail trade, repairs	9.5	9.6	(1%)	10.4	(9%)
- asset and invoice finance	9.8	9.9	(1%)	9.0	9%
	112.5	111.7	1%	114.3	(2%)
Customer deposits	100.6	100.0	1%	91.4	10%
Risk elements in lending	4.6	4.0	15%	2.5	84%
Loan:deposit ratio (excluding repos)	110%	110%	-	124%	(1,400bp)
Risk-weighted assets	79.3	81.4	(3%)	91.3	(13%)

Note:

(1) Divisional return on equity is based on divisional operating profit after tax, adjusted for a one-off item in Q1 2011, divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

UK Corporate (continued)

Key points

UK Corporate has made good progress in enhancing the ways in which it services and adds value to its corporate and SME customers.

During Q1 2011, the division exceeded its overall business lending targets. The SME Customer Charter, introduced in 2009, underscores UK Corporate's determination to service its business customers fairly and transparently. This has brought real advantages to customers, with more than 80,000 SMEs benefiting from the Charter's overdraft price promise during the quarter.

UK Corporate has engaged in a £300 million investment programme over five years to strengthen its customer proposition, delivery channels, data analytics and risk discipline, and is increasing the number of experienced business managers in branches. The development of tailored propositions for targeted segments has delivered initial success, with strong customer recruitment among, for example, businesses run by women and start-ups.

Q1 2011 compared with Q4 2010

• Operating profit increased by 48% to £493 million, driven by lower impairments and a revision to deferred income recognition assumptions which boosted income in the quarter.
• Net interest income rose by 6% as a result of this revision to income deferral assumptions. Adjusting for this, (£50 million), net interest income was stable with net interest margin holding up well despite the continuing pressure on deposit margins. Customer deposits continued to grow. The growth in lending in Q1 2011 resulted from a transfer from Non-Core in preparation for the sale of the RBS England & Wales branch-based business to Santander. Underlying net lending was slightly down as customer deleveraging persisted.
• Non-interest income was broadly in line with Q4 2010 with fee accelerations from refinancing in the quarter offsetting lower Global Banking & Markets related income and lower operating lease activity.
• Total costs remain under control, down 2%, despite a small number of fraud cases costing £15 million in Q1 2011.
• Impairments of £105 million were £114 million lower than Q4 2010. This was primarily driven by a release of latent provisions reflecting improving book quality and credit metrics. In addition specific provisions fell, following the small number of specific, significant impairments recorded in Q4 2010.

Q1 2011 compared with Q1 2010

• Operating profit was up £175 million or 55%, primarily driven by lower impairments, widening asset margins and revised deferred income recognition assumptions implemented in Q1 2011.
• Excluding the deferred fee impact, net interest income rose 5% and net interest margin increased 22 basis points, reflecting re-pricing of the lending portfolio. Customer deposits saw significant growth, up £9.2 billion (10%), through successful deposit-gathering initiatives. This contributed to an improvement in the loan to deposit ratio from 124% to 110%.
• Non-interest income increased 1% as a result of strong refinancing activity largely offset by lower sales of financial market products.
• Total costs decreased by 3% compared with Q1 2010, which included an OFT penalty of £29 million.
• Impairments were 44% lower, reflecting improved book quality and credit metrics.

Wealth

		Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Income statement Net interest income	167	160	143
Net fees and commissions Other non-interest income	97 17	94 17	95 17
Non-interest income	114	111	112
Total income	281	271	255
Direct expenses - staff - other Indirect expenses	(100) (44) (52)	(96) (29) (53)	(99) (35) (55)
Operating profit before impairment losses Impairment losses	(196) 85 (5)	(178) 93 (6)	(189) 66 (4)
Operating profit	80	87	62
Analysis of income Private banking Investments	231 50	220 51	204 51
Total income	281	271	255

Key metrics

			Quarter ended
			31 March	31 December	31 March
			2011	2010	2010
Performance ratios
Return on equity (1)			19.0%	21.0%	15.9%
Net interest margin			3.45%	3.29%	3.42%
Cost:income ratio			70%	66%	74%
	31 March	31 December		31 March
	2011	2010		2010
	£bn	£bn	Change	£bn	Change
Capital and balance sheet
Loans and advances to customers (gross)

Loans and advances to customers (gross)
- mortgages	7.8	7.8	-	6.8	15%
- personal	7.0	6.7	4%	6.2	13%
- other	1.7	1.6	6%	1.5	13%
	16.5	16.1	2%	14.5	14%
Customer deposits	37.5	36.4	3%	36.4	3%
Assets under management (excluding
deposits)	34.4	32.1	7%	31.7	9%
Risk elements in lending	0.2	0.2	-	0.2	-
Loan:deposit ratio (excluding repos)	44%	44%	-	40%	400bp
Risk-weighted assets	12.6	12.5	1%	11.7	8%

Note:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Wealth (continued)

Key points

In Q1 2011 Wealth announced a new set of goals and strategic plans, which have been accompanied by significant management change. The new strategy focuses on a narrower range of territories, balancing mature and growth markets, where the Coutts brand is strong and resonant. Wealth is already making progress in the UK with an increased focus on investment advisory services, while internationally cash management services are receiving increasing attention.

The new Wealth strategy is underpinned by technology. A new IT platform, already in place within Wealth International was launched in Adam & Company during Q1 2011 and will be rolled out to the rest of the UK businesses during the year. This new platform will enhance the customer service provided to Wealth clients and allow for an integrated banking platform throughout the division. It is only the first of a number of planned technology investments to improve customer connectivity and take advantage of the growth opportunity the division represents.

Q1 2011 compared with Q4 2010

• Operating profit decreased 8% to £80 million in the first quarter with an increase in income being more than offset by increased expenses as the division continues to invest in enhancing its strategic proposition.
• Income increased 4% in Q1 2011, with net interest income up 4% primarily reflecting increased treasury income. As a result, net interest margin improved by 16 basis points. Non-interest income rose 3% reflecting growth in assets under management and improved brokerage income.
• Expenses grew by 10% to £196 million reflecting significant investment to support strategic initiatives.
• Lending volumes maintained strong momentum in the quarter with balances up a further 2%. Assets under management experienced strong growth of 7%.

Q1 2011 compared with Q1 2010

• Q1 2011 operating profit of £80 million was 29% higher than Q1 2010 as a result of strong income growth reflecting continued increases in client assets and liabilities managed by the division.
• Income increased by 10%, driven by a 17% increase in net interest income. Strong growth in lending margins and lending volumes was supported by increased deposit balances.
• Expenses grew by 4% reflecting additional strategic investment offset by phasing of bonus expense.
• Client assets and liabilities managed by the division increased by 7%. This reflects the success of attracting new customer deposits and sustained lending growth within the UK. There was continued recovery in assets under management as underlying balances grew 3% despite the impact of client losses in the international businesses, resulting from the private banker attrition previously experienced.

Global Transaction Services

		Quarter ended
	31 March 2011	31 December 2010	31 March 2010
	£m	£m	£m
Income statement
Net interest income	260	263	217
Non-interest income	282	375	390
Total income	542	638	607
Direct expenses
- staff	(96)	(105)	(104)
- other	(29)	(51)	(33)
Indirect expenses	(210)	(212)	(237)
	(335)	(368)	(374)
Operating profit before impairment losses	207	270	233
Impairment losses	(20)	(3)	-
Operating profit	187	267	233
Analysis of income by product
Domestic cash management	212	207	194
International cash management	211	223	185
Trade finance	73	81	71
Merchant acquiring	3	80	115
Commercial cards	43	47	42
Total income	542	638	607

Key metrics

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)	30.8%	42.7%	35.8%
Net interest margin	5.91%	6.14%	8.08%
Cost:income ratio	62%	58%	62%

	31 March 2011	31 December 2010
	£bn	£bn	Change	£bn	Change
Capital and balance sheet
Total third party assets	27.1	25.2	8%	25.6	6%
Loans and advances	17.2	14.4	19%	14.3	20%
Customer deposits	69.3	69.9	(1%)	64.6	7%
Risk elements in lending	0.2	0.1	100%	0.2	-
Loan:deposit ratio (excluding repos)	25%	21%	400bp	22%	300bp
Risk-weighted assets	18.2	18.3	(1%)	20.4	(11%)

Note:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Global Transaction Services (continued)

Key points

Global Transaction Services (GTS) delivered a strong deposit-gathering performance over the past year and, with the reinforcement of the management of the business in January, the division is poised to take further advantage of its strong position as a liquidity manager and provider of working capital solutions to its customers.

During the first quarter success was achieved with innovative supply chain finance services, among other product developments, and GTS has continued its support of UK exporters in growing their businesses in new markets.

Q1 2011 compared with Q4 2010

• Operating profit fell 30%, in part reflecting the sale of GMS, which completed on 30 November 2010. Adjusting for the disposal, operating profit decreased 21% significantly driven by a specific impairment provision recognised in Q1 2011.
• Excluding GMS, income was 3% lower as a result of volume and pricing pressure in the International Cash Management and Trade businesses.
• Expenses, excluding GMS, increased by 5%, driven by higher technology and support infrastructure costs, partly offset by tight cost control of discretionary expenditure.
• Q1 2011 impairment losses of £20 million included a single large provision.
• Third party assets increased by £1.9 billion due to an increase in UK Domestic Cash Management lending. This affected the loan to deposit ratio, which increased by 400 basis points to 25%.
• For the two months in Q4 2010 before completion of the disposal, GMS recorded income of £80 million, expenses of £50 million and an operating profit of £30 million. Q1 2011 includes £3 million of income from the ongoing investment that GTS holds in WorldPay.

Q1 2011 compared with Q1 2010

• Operating profit decreased 20%, primarily reflecting the sale of GMS which completed on 30 November 2010. Adjusting for the disposal, operating profit increased 5%.
• Excluding GMS, income was 10% higher, with a strong increase in income from Domestic and International Cash Management products driven by growth in interest-bearing balances.
• Customer deposits increased by 7% to £69.3 billion as a result of higher international cash management balances reflecting further strengthening of deposit gathering initiatives.
• Third party assets, excluding GMS, increased by £2.9 billion, driven by an increase in trade finance balances and the impact of Yen clearing activities brought in-house during 2010. The loan to deposit ratio increased by 300 basis points to 25%.
• During Q1 2010, GMS recorded income of £115 million, total expenses of £61 million and an operating profit of £54 million.

Ulster Bank

		Quarter ended
	31 March	31 December	31 March
	2011 £m	2010 £m	2010 £m
Income statement
Net interest income	169	187	188
Net fees and commissions	36	40	35
Other non-interest income	15	16	18
Non-interest income	51	56	53
Total income	220	243	241
Direct expenses
- staff	(56)	(57)	(66)
- other	(18)	(17)	(19)
Indirect expenses	(62)	(64)	(75)
	(136)	(138)	(160)
Operating profit before impairment losses	84	105	81
Impairment losses	(461)	(376)	(218)
Operating loss	(377)	(271)	(137)
Analysis of income by business
Corporate	113	122	145
Retail	113	124	112
Other	(6)	(3)	(16)
Total income	220	243	241
Analysis of impairments by sector
Mortgages	233	159	33
Corporate
- property	97	69	82
- other corporate Other lending	120 11	135 13	91 12
Total impairment losses	461	376	218
Loan impairment charge as % of gross customer loans and advances
(excluding reverse repurchase agreements) by sector
Mortgages	4.3%	3.0%	0.8%
Corporate
- property	7.2%	5.1%	3.3%
- other corporate	5.5%	6.0%	3.5%
Other lending	2.8%	4.0%	2.0%
Total	5.0%	4.1%	2.3%

Key metrics

			Quarter ended
			31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)			(41.9%)	(29.8%)	(14.9%)
Net interest margin			1.72%	1.77%	1.79%
Cost:income ratio			62%	57%	66%
	31 March 2011 £bn	31 December 2010 £bn	Change	31 March 2010 £bn	Change
Capital and balance sheet
Loans and advances to customers (gross)
- mortgages	21.5	21.2	1%	16.1	34%
- corporate
- property	5.4	5.4	-	9.9	(45%)
- other corporate	8.8	9.0	(2%)	10.4	(15%)
- other lending	1.5	1.3	15%	2.4	(38%)
	37.2	36.9	1%	38.8	(4%)
Customer deposits	23.8	23.1	3%	23.7	-
Risk elements in lending
- mortgages	1.8	1.5	20%	0.7	157%
- corporate
- property	1.0	0.7	43%	1.0	-
- other corporate	1.6	1.2	33%	1.1	45%
- other lending	0.2	0.2	-	0.2	-
	4.6	3.6	28%	3.0	53%
Loan:deposit ratio (excluding repos)	147%	152%	(500bp)	159%	(1200bp)
Risk-weighted assets	31.7	31.6	-	32.8	(3%)
Spot exchange rate - €/£	1.131	1.160		1.122

Note:

(1) Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Key points

Ulster Bank's results for Q1 2011 continue to be overshadowed by the challenging economic climate in Ireland, with impairments remaining elevated. Key priorities are the further development of Ulster Bank's deposit-gathering franchise combined with cost control. Nonetheless, the early restructuring measures undertaken by Ulster Bank have left it in position to capitalise on those growth opportunities that are starting to emerge in the significantly more consolidated Irish banking market, particularly in export-oriented sectors.

Q1 2011 compared with Q4 2010

• Operating loss for the quarter was £377 million, a deterioration of £106 million compared with the previous quarter. The key driver was an increase in impairment losses of £85 million.
• Net interest income declined by 9% in constant currency terms. Higher funding costs in both the wholesale and deposit markets more than offset actions to improve lending margins. Noninterest income fell 11% in constant currency terms, partially reflecting the loss of income from the Merchant Services business, disposed of in Q4 2010.

Ulster Bank (continued)

Key points (continued)

Q1 2011 compared with Q4 2010 (continued)

• Direct costs remained relatively flat, reflecting continued tight expense management.
• Impairment losses were £461 million, an increase of 22% on a constant currency basis, driven by the continued deterioration in retail mortgage credit metrics. Higher levels of default were also recorded in the Corporate Investment and SME portfolio. The credit quality of customers has continued to decline in line with market trends.
• Deposits remained resilient in the period, up 1% at constant exchange rates, with continued steady growth in both retail and business banking deposits.
• Loans to customers fell by 1% at constant exchange rates as repayments continued to exceed demand for new lending.

Q1 2011 compared with Q1 2010

• Income fell over the period reflecting the impact of higher funding costs and the continued high cost of deposit raising.
• Expenses decreased by 15% on a constant currency basis, driven by the impact of the restructuring programme initiated in late 2009 and the continued focus on cost management.
• Impairments rose by 119% on a constant currency basis, reflecting the significant deterioration in customer credit quality combined with asset price deflation over the period.
• Loans and advances to customers reduced by 4% at constant exchange rates reflecting the impact of muted new business demand and continued customer deleveraging.
• Customer deposits have increased slightly over the period with strong growth in current and savings accounts offset by lower wholesale balances.

US Retail & Commercial (£ Sterling)

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Income statement
Net interest income	451	467	468
Net fees and commissions	170	169	177
Other non-interest income	73	62	75
Non-interest income	243	231	252
Total income	694	698	720
Direct expenses
- staff	(197)	(204)	(215)
- other	(124)	(124)	(134)
Indirect expenses	(183)	(201)	(188)
	(504)	(529)	(537)
Operating profit before impairment losses	190	169	183
Impairment losses	(110)	(105)	(143)
Operating profit	80	64	40
Average exchange rate - US\$/£	1.601	1.581	1.560
Analysis of income by product
Mortgages and home equity	109	128	115
Personal lending and cards	107	113	114
Retail deposits	216	206	226
Commercial lending	137	141	142
Commercial deposits	69	75	81
Other	56	35	42
Total income	694	698	720
Analysis of impairments by sector Residential mortgages	6	3	19
Home equity	40	26	6
Corporate and commercial	17	54	49
Other consumer	20	6	56
Securities	27	16	13
Total impairment losses	110	105	143
Loan impairment charge as % of gross customer loans and advances
(excluding reverse repurchase agreements) by sector
Residential mortgages	0.4%	0.2%	1.1%
Home equity	1.1%	0.7%	0.1%
Corporate and commercial	0.3%	1.1%	1.0%
Other consumer	1.3%	0.3%	2.8%
Total	0.7%	0.7%	1.0%

US Retail & Commercial (£ Sterling) (continued)

Key metrics

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)	4.4%	3.3%	1.9%
Net interest margin	3.01%	3.00%	2.72%
Cost:income ratio	72%	76%	74%

	31 March	31 December		31 March
	2011 £bn	2010 £bn	Change	2010 £bn	Change
Capital and balance sheet
Total third party assets	70.6	71.2	(1%)	78.9	(11%)
Loans and advances to customers (gross)
- residential mortgages	5.6	6.1	(8%)	6.7	(16%)
- home equity	14.7	15.2	(3%)	16.2	(9%)
- corporate and commercial	20.2	20.4	(1%)	20.5	(1%)
- other consumer	6.4	6.9	(7%)	8.0	(20%)
	46.9	48.6	(3%)	51.4	(9%)
Customer deposits (excluding repos)	56.7	58.7	(3%)	62.5	(9%)
Risk elements in lending
- retail	0.5	0.4	25%	0.4	25%
- commercial	0.5	0.5	-	0.3	67%
	1.0	0.9	11%	0.7	43%
Loan:deposit ratio (excluding repos)	81%	81%	-	81%	-
Risk-weighted assets	53.6	57.0	(6%)	63.8	(16%)
Spot exchange rate - US\$/£	1.605	1.552		1.517

Note:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

• Sterling strengthened relative to the US dollar during the first quarter, with the average exchange rate increasing by 1% compared with Q4 2010.
• Performance is described in full in the US dollar-based financial statements set out on pages 38 and 39.

US Retail & Commercial (US Dollar)

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	\$m	\$m	\$m
Income statement
Net interest income	723	739	730
Net fees and commissions	273	267	276
Other non-interest income	116	100	116
Non-interest income	389	367	392
Total income	1,112	1,106	1,122
Direct expenses
- staff	(315)	(322)	(335)
- other	(198)	(197)	(207)
Indirect expenses	(293)	(317)	(293)
	(806)	(836)	(835)
Operating profit before impairment losses	306	270	287
Impairment losses	(177)	(168)	(224)
Operating profit	129	102	63
Analysis of income by product
Mortgages and home equity	175	201	180
Personal lending and cards	171	179	178
Retail deposits	346	329	351
Commercial lending	219	223	222
Commercial deposits	110	119	126
Other	91	55	65
Total income	1,112	1,106	1,122
Analysis of impairments by sector
Residential mortgages	9	5	30
Home equity	64	40	10
Corporate and commercial	28	87	77
Other consumer	33	11	87
Securities	43	25	20
Total impairment losses	177	168	224
Loan impairment charge as % of gross customer loans and advances
(excluding reverse repurchase agreements) by sector
Residential mortgages	0.4%	0.2%	1.2%
Home equity	1.1%	0.7%	0.2%
Corporate and commercial	0.3%	1.1%	1.0%
Other consumer	1.3%	0.4%	2.9%
Total	0.7%	0.8%	1.1%

US Retail & Commercial (US Dollar) (continued)

Key metrics

				Quarter ended
			31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)			4.4%	3.3%	1.9%
Net interest margin			3.01%	3.00%	2.72%
Cost:income ratio			72%	76%	74%
	31 March	31 December		31 March
	2011	2010		2010
	\$bn	\$bn	Change	\$bn	Change
Capital and balance sheet
Total third party assets	113.2	110.5	2%	119.6	(5%)
Loans and advances to customers (gross)
- residential mortgages	9.1	9.4	(3%)	10.1	(10%)
- home equity	23.6	23.6	-	24.6	(4%)
- corporate and commercial	32.2	31.7	2%	31.1	4%
- other consumer	10.3	10.6	(3%)	12.1	(15%)
	75.2	75.3	-	77.9	(3%)
Customer deposits (excluding repos)	91.0	91.2	-	94.8	(4%)
Risk elements in lending
- retail	0.8	0.7	14%	0.6	33%
- commercial	0.8	0.7	14%	0.5	60%
	1.6	1.4	14%	1.1	45%
Loan:deposit ratio (excluding repos)	81%	81%	-	81%	-
Risk-weighted assets	86.0	88.4	(3%)	96.8	(11%)

Note:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of monthly average of divisional RWAs, adjusted for capital deductions).

Key points

Despite operating in a challenging market and regulatory environment, US Retail & Commercial's "back-to-basics" strategy has made good progress in developing the division's customer franchise.

US Retail & Commercial has taken a market leading role in providing transparency around overdraft fees, communicating to its customers what new regulations mean and how they will affect their banking. In February, Citizens received external recognition for superior customer experience.

Citizens has continued to expand its branch network selectively and increased ATM distribution through partnerships, enhancing convenience for its customers. It has also invested in innovative technology channels such as mobile banking through an iPhone and iPad application. Citizens' active online banking penetration of households - a key driver of retention - continues to grow and remains superior to peers.

Consumer Finance has continued to strengthen its alignment with branch banking, further increasing the penetration of products to deposit households, particularly branch-based credit cards. The Commercial Banking business has achieved good momentum, expanding specialised lines of business such as franchise and health care lending, and expanding its cross-sales of capital markets and Global Transaction Services (GTS) products.

US Retail & Commercial (US Dollar) (continued)

Key points (continued)

Q1 2011 compared with Q4 2010

• US Retail & Commercial posted an operating profit of \$129 million compared with \$102 million in the prior quarter. The Q1 2011 operating environment remained challenging, marked by low absolute interest rates, high but stable unemployment, a soft housing market and the impact of legislative changes.
• Net interest income was down 2%. Product net interest income was up slightly from the previous quarter and net interest margin increased by 1 basis point. Loans and advances were flat, with continued run-off of fixed rate consumer products offset by commercial loan growth.
• Non-interest income was up 6% driven by higher securities gains partially offset by lower mortgage banking income.
• Total expenses were 4% lower than Q4 2010, which included a number of specific items such as higher litigation costs.
• Impairment losses were up 5% reflecting higher impairments related to securities, partially offset by improving credit conditions across the portfolio. Excluding the impact of the securities impairments, credit costs generally remained stable or improved across the entire portfolio.

Q1 2011 compared with Q1 2010

• Operating profit increased to \$129 million from \$63 million, as impairments fell and expenses were reduced.
• Net interest income was down 1%, as a result of a smaller balance sheet. Net interest margin improved by 29 basis points to 3.01% reflecting changes in deposit mix and continued discipline around deposit pricing, combined with the positive impact of the balance sheet restructuring programme carried out during Q3 2010.
• Customer deposits were down 4% reflecting the impact of a changed pricing strategy on low margin term and time products partially offset by strong checking balance growth. Consumer checking balances grew by 7% while small business checking balances grew by 9%.
• Non-interest income was in line with Q1 2010 reflecting lower deposit fees which were impacted by Regulation E legislative changes offset by higher gains on sales of securities. Regulation E prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-off debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
• Total expenses were down 3% primarily reflecting a change in accrual methodology relating to the annual incentive plan and lower Federal Deposit Insurance Corporation (FDIC) deposit insurance levies.
• Impairment losses declined by 21% reflecting a gradual improvement in the underlying credit environment partially offset by higher impairments related to securities. Loan impairments as a percentage of loans and advances have declined to 0.7% from 1.1%.

Global Banking & Markets

	Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Income statement
Net interest income from banking activities	193	245	379
Net fees and commissions receivable	390	425	345
Income from trading activities	1,752	893	2,027
Other operating income (net of related funding costs)	45	24	73
Non-interest income	2,187	1,342	2,445
Total income	2,380	1,587	2,824
Direct expenses
- staff	(863)	(554)	(887)
- other	(216)	(292)	(184)
Indirect expenses	(227)	(219)	(223)
	(1,306)	(1,065)	(1,294)
Operating profit before impairment losses	1,074	522	1,530
Impairment losses	24	5	(32)
Operating profit	1,098	527	1,498
Analysis of income by product
Rates - money markets	(74)	(65)	88
Rates - flow	733	413	699
Currencies & commodities	224	178	295
Credit and mortgage markets	885	433	959
Portfolio management and origination	337	445	469
Equities	275	183	314
Total income	2,380	1,587	2,824
Analysis of impairments by sector
Manufacturing and infrastructure	32	2	(7)
Property and construction	6	10	8
Banks and financial institutions	(23)	54	16
Other	(39)	(71)	15
Total impairment losses	(24)	(5)	32
Loan impairment charge as % of gross customer loans and advances
(excluding reverse repurchase agreements)	(0.1%)	-	0.1%

Global Banking & Markets (continued)

Key metrics

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
Performance ratios
Return on equity (1)	20.8%	10.2%	30.5%
Net interest margin	0.76%	0.93%	1.13%
Cost:income ratio	55%	67%	46%
Compensation ratio (2)	36%	35%	31%

	31 March 2011 £bn	31 December 2010 £bn	Change	31 March 2010 £bn	Change
Capital and balance sheet
Loans and advances to customers	70.1	75.1	(7%)	91.5	(23%)
Loans and advances to banks	46.2	44.5	4%	42.0	10%
Reverse repos	105.1	94.8	11%	93.1	13%
Securities	132.2	119.2	11%	116.6	13%
Cash and eligible bills	33.9	38.8	(13%)	61.9	(45%)
Other	35.8	24.3	47%	38.6	(7%)
Total third party assets (excluding derivatives
mark-to-market)	423.3	396.7	7%	443.7	(5%)
Net derivative assets (after netting)	34.5	37.4	(8%)	66.9	(48%)
Customer deposits (excluding repos)	36.6	38.9	(6%)	47.0	(22%)
Risk elements in lending	1.8	1.7	6%	1.2	50%
Loan:deposit ratio (excluding repos)	191%	193%	(200bp)	195%	(400bp)
Risk-weighted assets	146.5	146.9	-	141.8	3%

Notes:

(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2) Compensation ratio is based on staff costs as a percentage of total income.

Key points

Q1 2011 witnessed a strong rebound in investor activity, compared with the prior quarter, which benefited GBM's credit and mortgage franchises. This rebound lessened over the course of the quarter with the re-emergence of sovereign debt concerns and global economic uncertainty compounded by events in the Middle East and Japan. Specific exposure to these regions is limited, but these events had a dampening effect on overall client activity in the quarter.

Nevertheless, GBM continued to deliver on its strategic plan, focusing on its chosen client franchises and achieving its targeted return and efficiency metrics while investing for the future.

Global Banking & Markets (continued)

Key points (continued)

Q1 2011 compared with Q4 2010

• Operating profit increased to £1,098 million with strong growth in income.
• Revenue increased 50% on a slow Q4 2010, although investor confidence remained fragile:
• The underlying Money Markets business was profitable but, as in Q4 2010, this was more than offset by the cost of the division's funding activities.
• Rates Flow and Currencies benefited from a rebound in market opportunities early in the quarter.
• Credit and Mortgage Markets were well positioned to take advantage of higher activity driven by increased client risk appetite coupled with limited issuance.
• The underlying Portfolio Management and Origination business remained broadly flat; the decline in revenue was driven by movements in market derivative values.
• Equities had a solid quarter and improved sharply in comparison to a quiet Q4 2010.
• The fall in net interest margin from 0.93% to 0.76% reflected a lengthening of the GBM funding profile and continuing margin compression on the portfolio as markets normalised and loans were booked or refinanced at finer margins.
• Total costs increased £241 million in the quarter, primarily reflecting higher performance-related pay driven by the increase in revenue. This was partially offset by lower non-staff costs.
• Impairments generated a net gain of £24 million in Q1 2011 as a small number of specific impairments were offset by a release of latent loss provision.
• Third party assets increased by £27 billion from a seasonally low Q4 2010 level, but remained comfortably within the targeted range of £400 - £450 billion.
• Risk-weighted assets remained flat, reflecting continued focus on the balance sheet and a prudent approach to risk management.
• Return on equity of 20.8% was driven by the improved revenue performance on unchanged risk-weighted assets.

Q1 2011 compared with Q1 2010

• Operating profit declined by 27% driven by a fall in revenue.
• Although Q1 2011 began strongly, activity across all business lines was more restrained than Q1 2010 which benefitted from more buoyant client demand.
• Total costs remained flat, with lower staff costs but an increase in non-staff costs, primarily driven by increased depreciation charges reflecting previous strategic investment.
• Q1 impairments were minimal in both periods.

RBS Insurance

		Quarter ended
	31 March 2011 £m	31 December 2010* £m	31 March 2010* £m
Income statement Earned premiums Reinsurers' share	1,065 (54)	1,100 (40)	1,130 (34)
Net premium income Fees and commissions Instalment income Other income	1,011 (75) 35 35	1,060 (133) 38 70	1,096 (90) 42 38
Total income Net claims	1,006 (784)	1,035 (898)	1,086 (966)
Underwriting profit	222	137	120
Staff expenses Other expenses	(76) (87)	(72) (77)	(70) (86)
Total direct expenses Indirect expenses	(163) (56)	(149) (74)	(156) (65)
	(219)	(223)	(221)
Technical result Investment income	3 64	(86) 77	(101) 51
Operating profit/(loss)	67	(9)	(50)
Analysis of income by product Personal lines motor excluding broker - own brands	440	468	456
- partnerships Personal lines home excluding broker	73	91	84
- own brands - partnerships Personal lines other excluding broker	117 98	120 100	116 99
- own brands - partnerships Other	46 46	49 2	51 55
- commercial - international - other (1)	74 80 32	76 82 47	81 79 65
Total income	1,006	1,035	1,086

* Revised to reflect reclassifications between certain income statement captions. The operating loss is unchanged.

RBS Insurance (continued)

Key metrics

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
In-force policies (000's)
Personal lines motor excluding broker
- own brands	4,071	4,162	4,623
- partnerships	559	645	797
Personal lines home excluding broker
- own brands	1,738	1,758	1,755
- partnerships	1,836	1,850	1,896
Personal lines other excluding broker
- own brands	2,009	2,005	2,346
- partnerships	8,574	8,177	7,350
Other
- commercial	383	352*	264
- international	1,234	1,082	1,014
- other (1)	418	644	1,108
Total in-force policies (2)	20,822	20,675*	21,153
Gross written premium (£m)	1,037	988	1,090
Performance ratios
Return on equity (3)	7.0%	(0.9%)	(5.6%)
Loss ratio (4)	77%	85%	88%
Commission ratio (5 )	8%	15%	9%
Expense ratio (6)	21%	19%	18%
Combined operating ratio (7)	106%	119%	116%
Balance sheet
General insurance reserves - total (£m)	7,541	7,559	7,101

*Revised

Notes:

• (1) Other is predominantly made up of the discontinued personal lines broker business.
• (2) Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan and card repayment payment protection.
• (3) Divisional return on equity is based on divisional operating profit/(loss) after tax, divided by divisional average notional equity (based on regulatory capital).
• (4) Loss ratio is based on net claims divided by net premium income for the UK businesses.
• (5) Commission ratio is based on fees and commissions divided by gross written premium for the UK businesses.
• (6) Expense ratio is based on expenses (excluding fees and commissions) divided by gross written premium for the UK businesses.
• (7) Combined operating ratio is expenses (including fees and commissions) divided by gross written premium added to the loss ratio, for the UK businesses.

Key points

RBS Insurance returned to profit in the first quarter of 2011 with an operating profit of £67 million. RBS Insurance continues on a significant programme of investment designed to achieve a substantial improvement in operational and financial performance, ahead of the planned divestment of the business, with a current target date of the second half of 2012. New pricing models and business selection criteria have been the main drivers of the turnaround, coupled with early benefits from new claims processes.

RBS Insurance (continued)

Key points (continued)

While overall motor volumes have been deliberately reduced over recent months, new business continues to be grown in selected areas. In March 2011, negotiations started with Sainsbury's Finance with the intention of forming a long-term strategic partnership for the supply of car insurance under the Sainsbury's brand. RBS Insurance also entered the premium insurance market with the launch of Select Insurance from Direct Line.

Initiatives to grow ancillary income, implemented during 2010, continued to deliver into 2011.

Claims and underwriting profit showed strong improvement due to pricing methodology and underwriting selection which resulted in lower claims in the personal and commercial motor business. Overall prior year reserve impact was broadly neutral with a modest release from 2010 accident year motor reserves, which compensated for some adverse development in reserves for the end-December 2010 severe weather event.

Overall underwriting profit at £222 million was substantially better than recent quarters and the highest quarterly figure since Q2 2009.

The actions being taken to improve claims processes and operating efficiency, together with continued focus on pricing and underwriting, are intended to achieve major increases to profitability in future periods.

In the home business, gross written premiums and total income were stable compared with Q4 2010 and Q1 2010.

The International business continued to grow in Q1 2011 with gross written premium for the quarter up 28% on the same quarter in 2010. The Italian business performed strongly due largely to the Fiat partnership and the German business also increased gross written premium by 4% against Q1 2010 in a flat market.

Q1 2011 compared with Q4 2010

• There was a return to profitability with an operating profit of £67 million in Q1 2011, compared with a Q4 2010 operating loss of £9 million, driven by lower claims.
• Claims fell by £114 million, 13%, largely because there was no repeat of December 2010's severe weather.
• The total number of in-force policies increased marginally due to new travel policy business from the Nationwide Building Society partnership.

Q1 2011 compared with Q1 2010

• The operating profit of £67 million for Q1 2011 was a significant improvement from the loss of £50 million in Q1 2010. An £80 million decrease in income was more than offset by a £182 million reduction in claims.
• Net claims were 19% lower reflecting the de-risking of the portfolio and improved performance in motor.

Key points (continued)

Q1 2011 compared with Q1 2010 (continued)

• Total income was down 7% compared with Q1 2010, driven by the managed reduction in the risk of the UK motor book throughout 2010 and into 2011 and the exit of the motor broker business. The fall in in-force policies was partially offset by significant premium increases, in line with industry trends. Average motor premiums for RBS Insurance were up 9% in Q1 2011 compared with Q1 2010.
• Total expenses of £219 million were broadly stable. However, as RBS Insurance prepares to reshape for divestment, certain functions and capability (including systems development) are being developed to replace services provided by RBS Group. This results in a switch from indirect expenses to staff and other direct expenses.

Central items

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Central items not allocated	(43)	115	337

Note:

(1) Costs/charges are denoted by brackets.

Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.

Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

Key points

Q1 2011 compared with Q4 2010

• Central items not allocated represented a charge of £43 million versus a credit of £115 million in the previous quarter. This movement was primarily due to lower net gains and adverse IFRS volatility and other volatile Treasury items.

Q1 2011 compared with Q1 2010

• Central items not allocated represented a net charge of £43 million versus a credit of £337 million in Q1 2010. This movement is primarily driven by a £170 million VAT recovery in Q1 2010 which was not repeated as well as unallocated Group Treasury items, including the impact of economic hedges that do not qualify for IFRS hedge accounting.

Non-Core

	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Income statement
Net interest income	303	419	568
Net fees and commissions	47	166	104
Loss from trading activities	(298)	(152)	(131)
Insurance net premium income	138	181	168
Other operating income
- rental income	192	218	187
- other (1)	104	(511)	21
Non-interest income	183	(98)	349
Total income	486	321	917
Direct expenses
- staff	(91)	(105)	(252)
- operating lease depreciation	(87)	(108)	(109)
- other	(69)	(141)	(156)
Indirect expenses	(76)	(127)	(122)
	(323)	(481)	(639)
Operating profit/(loss) before other operating charges and impairment losses	163	(160)	278
Insurance net claims	(128)	(245)	(133)
Impairment losses	(1,075)	(1,211)	(1,704)
Operating loss	(1,040)	(1,616)	(1,559)

Note:

(1) Includes losses on disposals (quarter ended 31 March 2011 - £35 million; quarter ended 31 December 2010 - £247 million; quarter ended 31 March 2010 - £1 million).

	31 March	Quarter ended 31 December	31 March
	2011	2010	2010
	£m	£m	£m
Analysis of income by business
Banking & portfolios	598	157	630
International businesses & portfolios	89	84	269
Markets	(201)	80	18
Total income	486	321	917
Loss from trading activities
Monoline exposures	(130)	(57)	-
Credit derivative product companies	(40)	(38)	(31)
Asset-backed products (1)	66	33	(55)
Other credit exotics	(168)	21	11
Equities	1	11	(7)
Banking book hedges	(29)	(70)	(36)
Other (2)	2	(52)	(13)
	(298)	(152)	(131)
Impairment losses
Banking & portfolios	1,058	1,258	1,579
International businesses & portfolios	20	59	68
Markets	(3)	(106)	57
Total impairment losses	1,075	1,211	1,704
Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) (3)
Banking & portfolios	4.1%	4.6%	4.7%
International businesses & portfolios	2.1%	5.2%	2.1%
Markets	(0.1%)	(38.4%)	55.1%
Total	4.0%	4.4%	4.6%

Notes:

(1) Asset-backed products include super senior asset-backed structures and other asset-backed products.

(2) Includes profits in RBS Sempra Commodities JV (quarter ended 31 March 2011 - nil; quarter ended 31 December 2010 - £19 million; quarter ended 31 March 2010 - £127 million).

(3) Includes disposal groups.

Key metrics

			Quarter ended
			31 March 2011	31 December 2010	31 March 2010
Performance ratios
Net interest margin			0.90%	1.09%	1.27%
Cost:income ratio			66%	150%	70%
Adjusted cost:income ratio			90%	633%	82%
	31 March 2011	31 December 2010		31 March 2010
	£bn	£bn	Change	£bn	Change

Capital and balance sheet (1)
Total third party assets (excluding derivatives)	124.8	137.9	(9%)	193.5	(36%)
Total third party assets (including derivatives)	137.1	153.9	(11%)	212.6	(36%)
Loans and advances to customers (gross)	101.0	108.4	(7%)	141.2	(28%)
Customer deposits	7.1	6.7	6%	10.2	(30%)
Risk elements in lending	24.0	23.4	3%	24.0	-
Risk-weighted assets (2)	128.5	153.7	(16%)	164.3	(22%)

Notes:

(1) Includes disposal groups.

(2) Includes RBS Sempra Commodities JV (31 March 2011 Third party assets (TPAs) £3.9 billion, RWAs £2.4 billion; 31 December 2010 TPAs £6.7 billion, RWAs £4.3 billion; 31 March 2010 TPAs £14.0 billion, RWAs £11.1 billion).

	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Gross customer loans and advances
Banking & portfolios	98.0	104.9	132.3
International businesses & portfolios	2.9	3.5	8.8
Markets	0.1	-	0.1
	101.0	108.4	141.2
Risk-weighted assets
Banking & portfolios	76.5	83.5	94.3
International businesses & portfolios	5.1	5.6	10.6
Markets	46.9	64.6	59.4
	128.5	153.7	164.3

Third party assets (excluding derivatives)

Quarter ended 31 March 2011

	31 December 2010 £bn	Run-off £bn	Disposals/ restructuring £bn	Drawings/ £bn	roll overs Impairments £bn	FX £bn	31 March 2011 £bn
Commercial real estate	42.6	(3.0)	(0.4)	0.2	(1.0)	0.3	38.7
Corporate	59.8	(1.9)	(2.4)	0.8	-	(0.3)	56.0
SME	3.7	(0.6)	-	-	-	-	3.1
Retail	9.0	(0.4)	-	-	(0.1)	(0.2)	8.3
Other	2.5	-	-	-	-	-	2.5
Markets	13.6	(1.1)	-	0.1	-	(0.3)	12.3
Total (excluding derivatives) Markets - RBS Sempra	131.2	(7.0)	(2.8)	1.1	(1.1)	(0.5)	120.9
Commodities JV	6.7	(0.3)	(2.3)	-	-	(0.2)	3.9
Total (1)	137.9	(7.3)	(5.1)	1.1	(1.1)	(0.7)	124.8

Quarter ended 31 December 2010

	30 September		Disposals/	Drawings/			31 December
	2010	Run-off	restructuring		roll overs Impairments	FX	2010
	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Commercial real estate	46.5	(2.3)	(0.8)	0.4	(1.2)	-	42.6
Corporate	66.1	(2.0)	(4.9)	0.4	-	0.2	59.8
SME	3.9	(0.3)	-	0.1	-	-	3.7
Retail	10.3	(0.6)	(0.7)	-	(0.1)	0.1	9.0
Other	2.6	(0.1)	-	-	-	-	2.5
Markets	16.5	0.2	(3.7)	0.3	0.1	0.2	13.6
Total (excluding derivatives)	145.9	(5.1)	(10.1)	1.2	(1.2)	0.5	131.2
Markets - RBS Sempra Commodities JV	8.3	1.4	(3.0)	-	-	-	6.7
Total (1)	154.2	(3.7)	(13.1)	1.2	(1.2)	0.5	137.9

Quarter ended 31 March 2010

	31 December		Disposals/	Drawings/			31 March
	2009 £bn	Run-off £bn	restructuring £bn	£bn	roll overs Impairments £bn	FX £bn	2010 £bn
Commercial real estate	51.3	(1.5)	-	0.2	(1.1)	0.6	49.5
Corporate	82.6	(4.6)	(1.2)	0.4	(0.4)	2.0	78.8
SME	3.9	-	-	-	-	0.1	4.0
Retail	19.9	(0.4)	(0.2)	0.1	(0.2)	0.6	19.8
Other	4.7	(1.6)	-	0.2	-	-	3.3
Markets	24.4	(1.2)	(0.3)	-	-	1.2	24.1
Total (excluding derivatives) Markets - RBS Sempra	186.8	(9.3)	(1.7)	0.9	(1.7)	4.5	179.5
Commodities JV	14.2	(1.2)	-	-	-	1.0	14.0
Total (1)	201.0	(10.5)	(1.7)	0.9	(1.7)	5.5	193.5

Note:

(1) £7 billion of disposals have been signed as of 31 March 2011 but are pending closing (31 December 2010 - £12 billion; 31 March 2010 - £2 billion).

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Loan impairment losses by donating division and sector
UK Retail
Mortgages	(3)	1	3
Personal	3	2	2
Total UK Retail	-	3	5
UK Corporate
Manufacturing and infrastructure	-	5	(5)
Property and construction	13	103	54
Transport	20	(20)	-
Banks and financials	3	51	24
Lombard	18	50	25
Other	11	50	57
Total UK Corporate	65	239	155
Ulster Bank
Mortgages	-	-	20
Commercial real estate
- investment	223	206	99
- development	503	596	362
Other corporate	107	(19)	51
Other EMEA	6	6	20
Total Ulster Bank	839	789	552
US Retail & Commercial
Auto and consumer	25	37	15
Cards	(7)	3	14
SBO/home equity	53	51	102
Residential mortgages	4	(1)	12
Commercial real estate	19	31	63
Commercial and other	(3)	2	2
Total US Retail & Commercial	91	123	208
Global Banking & Markets
Manufacturing and infrastructure	(2)	15	29
Property and construction	105	176	472
Transport	(6)	24	1
Telecoms, media and technology	(11)	(23)	(11)
Banks and financials	1	19	161
Other	(8)	(163)	101
Total Global Banking & Markets	79	48	753
Other
Wealth	1	-	28
Global Transaction Services	-	7	3
Central items	-	2	-
Total Other	1	9	31
Total impairment losses	1,075	1,211	1,704

	31 March 2011 £bn	31 December 2010 £bn	31 March 2010 £bn
Gross loans and advances to customers (excluding reverse repurchase agreements) by donating division and sector
UK Retail
Mortgages	1.6	1.6	1.8
Personal	0.3	0.4	0.6
Total UK Retail	1.9	2.0	2.4
UK Corporate
Manufacturing and infrastructure	0.2	0.3	0.4
Property and construction	8.0	11.4	13.2
Transport	5.1	5.4	5.8
Banks and financials Lombard	0.8 1.5	0.8 1.7	1.0 2.7
Invoice finance	-	-	0.4
Other	7.5	7.4	9.2
Total UK Corporate	23.1	27.0	32.7
Ulster Bank
Mortgages	-	-	6.1
Commercial real estate
- investment	3.9	4.0	2.8
- development	8.9	8.4	5.7
Other corporate	2.0	2.2	1.3
Other EMEA	0.5	0.4	1.1
Total Ulster Bank	15.3	15.0	17.0
US Retail & Commercial
Auto and consumer	2.4	2.6	3.2
Cards	0.1	0.1	0.2
SBO/home equity	2.9	3.2	3.7
Residential mortgages Commercial real estate	0.7 1.4	0.7 1.5	1.2 2.0
Commercial and other	0.4	0.5	0.8
Total US Retail & Commercial	7.9	8.6	11.1
Global Banking & Markets
Manufacturing and infrastructure	8.9	8.7	17.2
Property and construction	19.1	19.6	23.4
Transport	4.5	5.5	6.0
Telecoms, media and technology	1.1	0.9	3.4
Banks and financials	11.1	12.0	16.1
Other	8.2	9.0	11.7
Total Global Banking & Markets	52.9	55.7	77.8
Other
Wealth	0.4	0.4	2.4
Global Transaction Services	0.2	0.3	0.8
RBS Insurance	0.1	0.2	0.2
Central items	(1.0)	(1.0)	(4.3)
Total Other	(0.3)	(0.1)	(0.9)
Gross loans and advances to customers (excluding reverse repurchase
agreements)	100.8	108.2	140.1

Key points

Non-Core continues to make good progress in balance sheet reduction and is on track to reduce funded assets to below £100 billion by the end of 2011. 24 of 30 country/whole business exits have been agreed or completed, and so far this year Non-Core has signed and/or completed over 190 portfolio asset disposals and run-off.

Momentum continues from the previous year - Non-Core has now realised £6 billion of the £12 billion of transactions signed but not completed by the end of 2010, which included assets totalling £3 billion which were returned to Core in preparation for the sale of the RBS England and Wales branch-based business to Santander.

Overall Q1 2011 saw a reduction of £13 billion in assets and Non-Core continues to develop a healthy pipeline of transactions, typically with a six to nine month execution cycle. At the end of Q1 2011 there were signed but not completed transactions totalling £7 billion, including those remaining from end 2010.

Since December 2009, headcount has fallen from 15,100 to 6,700, largely as a result of the completion of country exits.

The division is central to the strategy which will return RBS Group to standalone strength, and Non-Core continues to deliver results in what is a challenging and complex environment with significant regulatory headwinds.

As Non-Core continues to reduce, income and expenses are falling in line with expectations. Impairments remain high, driven by continued difficulties in Ireland, where high impairment charges are expected to persist. Non-Core is also still experiencing higher impairment charges in real estate. Across the remaining book impairment losses have eased as fewer cases flow into restructuring units.

Q1 2011 compared with Q4 2010

• Non-Core made further progress in its asset reduction programme, with third party assets (excluding derivatives) declining by £13 billion to £125 billion, driven by disposals of £5 billion and run-off of £7 billion which included £3 billion of assets transferred to Core in preparation for the sale of the RBS England and Wales branch-based business to Santander.
• Risk-weighted assets decreased by £25 billion driven principally by asset run-off, changes in certain asset reclassifications, and foreign exchange movements.
• Non-Core operating loss was £1,040 million in the first quarter, compared with £1,616 million in Q4 2010. This primarily reflects:
• Continued decrease in net interest income, reflecting ongoing balance sheet reduction.
• Higher trading losses of £298 million, reflecting costs of portfolio de-risking and net losses, after CVA, on monoline related structures.
• Fair value gains arising from equity positions held in restructured assets.
• Lower expenses following exits from a number of countries in 2010.
• Impairments were lower, reflecting the improving corporate environment, but with continued high impairment levels in Ulster Bank.

Key points (continued)

Q1 2011 compared with Q1 2010

• Third party assets have declined £69 billion (36%) since Q1 2010 reflecting run-off (£30 billion) and disposals (£37 billion).
• Risk-weighted assets were £36 billion lower, driven principally by disposals and run-offs, offset by increases from regulatory changes.
• In addition to the impact of continuing balance sheet reduction on net interest income, noninterest income was lower as a result of higher disposal losses, increased trading losses and a fall in associated income following the sale of the RBS Sempra Commodities joint venture in the second half of 2010.

Condensed consolidated income statement

for the quarter ended 31 March 2011

	31 March 2011	31 December 2010	31 March 2010
	£m	£m	£m
Interest receivable Interest payable	5,401 (2,100)	5,612 (2,032)	5,692 (2,150)
Net interest income	3,301	3,580	3,542
Fees and commissions receivable	1,642	2,052	2,051
Fees and commissions payable	(260)	(449)	(572)
Income from trading activities	835	364	1,766
Other operating income (excluding insurance premium income)	391	1,003	447
Insurance net premium income	1,149	1,272	1,289
Non-interest income	3,757	4,242	4,981
Total income	7,058	7,822	8,523
Staff costs	(2,399)	(2,194)	(2,689)
Premises and equipment	(571)	(709)	(535)
Other administrative expenses	(921)	(1,048)	(1,011)
Depreciation and amortisation	(424)	(546)	(482)
Write-down of goodwill and other intangible assets	-	(10)	-
Operating expenses	(4,315)	(4,507)	(4,717)
Profit before other operating charges and impairment losses	2,743	3,315	3,806
Insurance net claims	(912)	(1,182)	(1,136)
Impairment losses	(1,947)	(2,141)	(2,675)
Operating loss before tax	(116)	(8)	(5)
Tax (charge)/credit	(423)	3	(107)
Loss from continuing operations	(539)	(5)	(112)
Profit from discontinued operations, net of tax	10	55	313
(Loss)/profit for the period	(529)	50	201
Non-controlling interests	1	(38)	(344)
Preference share and other dividends	-	-	(105)
(Loss)/profit attributable to ordinary and B shareholders	(528)	12	(248)
Basic loss per ordinary and B share from continuing operations	(0.5p)	-	(0.2p)

In the income statement above one-off and other items as shown on page 16 are included in the appropriate caption. A reconciliation between the income statement above and the managed view income statement on page 10 is given in Appendix 1 to this announcement.

Condensed consolidated statement of comprehensive income

for the quarter ended 31 March 2011

	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
(Loss)/profit for the period	(529)	50	201
Other comprehensive (loss)/income
Available-for-sale financial assets (1)	(37)	(1,132)	415
Cash flow hedges	(227)	(353)	(195)
Currency translation	(360)	34	785
Actuarial gains on defined benefit plans	-	158	-
Other comprehensive (loss)/income before tax	(624)	(1,293)	1,005
Tax (charge)/credit	32	393	(115)
Other comprehensive (loss)/income after tax	(592)	(900)	890
Total comprehensive (loss)/income for the period	(1,121)	(850)	1,091
Total comprehensive (loss)/income recognised in the statement of changes in equity is attributable as follows:
Non-controlling interests	(9)	52	325
Preference shareholders	-	-	105
Ordinary and B shareholders	(1,112)	(902)	661
	(1,121)	(850)	1,091

Note:

(1) Analysis provided on page 84.

Key point

• The Q1 2011 currency translation movement represents the net charge on retranslating net investments in foreign operations and related currency hedging, following the weakening of the US dollar against sterling since the year end.

Condensed consolidated balance sheet at 31 March 2011

	31 March 2011	31 December 2010
Assets	£m	£m
Cash and balances at central banks	59,591	57,014
Net loans and advances to banks	59,304	57,911
Reverse repurchase agreements and stock borrowing	45,148	42,607
Loans and advances to banks	104,452	100,518
Net loans and advances to customers	494,148	502,748
Reverse repurchase agreements and stock borrowing	60,511	52,512
Loans and advances to customers	554,659	555,260
Debt securities	231,384	217,480
Equity shares	22,212	22,198
Settlement balances	23,006	11,605
Derivatives	361,048	427,077
Intangible assets	14,409	14,448
Property, plant and equipment	15,846	16,543
Deferred tax	6,299	6,373
Prepayments, accrued income and other assets	11,355	12,576
Assets of disposal groups	8,992	12,484
Total assets	1,413,253	1,453,576
Liabilities
Bank deposits	63,829	66,051
Repurchase agreements and stock lending	39,615	32,739
Deposits by banks	103,444	98,790
Customer deposits Repurchase agreements and stock lending	428,474 90,432	428,599 82,094
Customer accounts Debt securities in issue	518,906 215,968	510,693 218,372
Settlement balances	21,394	10,991
Short positions	50,065	43,118
Derivatives	360,625	423,967
Accruals, deferred income and other liabilities	23,069	23,089
Retirement benefit liabilities	2,257	2,288
Deferred tax	2,094	2,142
Insurance liabilities	6,754	6,794
Subordinated liabilities	26,515	27,053
Liabilities of disposal groups	6,376	9,428
Total liabilities	1,337,467	1,376,725
Equity
Non-controlling interests	1,710	1,719
Owners' equity*
Called up share capital	15,156	15,125
Reserves	58,920	60,007
Total equity	75,786	76,851
Total liabilities and equity	1,413,253	1,453,576
* Owners' equity attributable to:
Ordinary and B shareholders	69,332	70,388
Other equity owners	4,744	4,744
	74,076	75,132

Commentary on condensed consolidated balance sheet

Total assets of £1,413.3 billion at 31 March 2011 were down £40.3 billion, 3%, compared with 31 December 2010. This principally reflects the reduction in the mark-to-market value of derivatives within Global Banking & Markets and the continuing planned disposal of Non-Core assets, offset in part by higher settlement balances as a result of increased customer activity from seasonal year-end lows.

Loans and advances to banks increased by £3.9 billion, 4%, to £104.5 billion including reverse repurchase agreements and stock borrowing ('reverse repos'), up £2.5 billion, 6%, to £45.2 billion and bank placings up £1.4 billion, 2%, to £59.3 billion.

Loans and advances to customers declined £0.6 billion to £554.7 billion. Within this, reverse repurchase agreements were up £8.0 billion, 15%, to £60.5 billion. Customer lending decreased by £8.6 billion to £494.1 billion, or £513.3 billion before impairments. This reflected planned reductions in Non-Core of £7.3 billion along with declines in Global Banking & Markets, £4.7 billion and Ulster Bank, £0.4 billion. These were partially offset by growth in Global Transaction Services, £2.7 billion, UK Retail, £1.6 billion, UK Corporate, £0.8 billion and Wealth, £0.3 billion, together with the effect of exchange rate and other movements.

Debt securities were up £13.9 billion, 6%, to £231.4 billion, driven mainly by increased holdings of government bonds within Global Banking & Markets.

Settlement asset balances rose £11.4 billion, 98%, to £23.0 billion as a result of increased customer activity from seasonal year-end lows.

Movements in the value of derivative assets, down £66.0 billion, 15%, to £361.0 billion, and liabilities, down £63.3 billion 15% to £360.6 billion, primarily reflect decreases in interest rate contracts, higher interest rates and the net effect of currency movements, with Sterling strengthening against the US dollar but weakening against the Euro.

The reduction in assets and liabilities of disposal groups primarily resulted from the completion of parts of the RBS Sempra Commodities JV business disposal.

Deposits by banks increased £4.7 billion, 5%, to £103.4 billion, with higher repurchase agreements and stock lending ('repos'), up £6.9 billion, 21%, to £39.6 billion offset by reduced inter-bank deposits, down £2.2 billion, 3%, to £63.8 billion.

Customer accounts increased £8.2 billion, 2%, to £518.9 billion. Within this, repos increased £8.3 billion, 10%, to £90.4 billion. Excluding repos, customer deposits were down £0.1 billion at £428.5 billion, reflecting decreases in Global Banking & Markets, £2.2 billion, offset by growth in Wealth, £1.1 billion, UK Corporate, £0.6 billion, Non-Core £0.4 billion and Ulster Bank £0.3 billion, together with exchange and other movements.

Settlement liability balances were up £10.4 billion, 95%, to £21.4 billion and short positions rose £6.9 billion, 16% to £50.1 billion due to increased customer activity from seasonal year-end lows.

Commentary on condensed consolidated balance sheet

Subordinated liabilities decreased by £0.5 billion, 2% to £26.5 billion. This reflected the redemption of £0.2 billion US dollar subordinated notes, together with the effect of exchange rate movements and other adjustments of £0.3 billion.

Owner's equity decreased by £1.1 billion, 1%, to £74.1 billion, driven by the £0.5 billion attributable loss for the period together with movements in foreign exchange reserve, £0.4 billion and cash flow hedging reserves, £0.2 billion.

Average balance sheet

	Quarter ended
	31 March	31 December
	2011	2010
Average yields, spreads and margins of the banking business	%	%
Gross yield on interest-earning assets of banking business	3.33	3.35
Cost of interest-bearing liabilities of banking business	(1.57)	(1.57)
Interest spread of banking business	1.76	1.78
Benefit from interest-free funds	0.27	0.24
Net interest margin of banking business	2.03	2.02
Average interest rates
The Group's base rate	0.50	0.50
		0.74
		0.29
		0.96
London inter-bank three month offered rates - Sterling - Eurodollar - Euro	0.79 0.31 1.04

Average balance sheet (continued)

		Quarter ended 31 March 2011			Quarter ended 31 December 2010
	Average balance £m	Interest £m	Rate %	Average balance £m	Interest £m	Rate %
Assets
Loans and advances to banks Loans and advances to	64,021	172	1.09	61,826	167	1.07
customers	474,177	4,593	3.93	481,973	4,757	3.92
Debt securities	120,380	638	2.15	117,581	654	2.21
Interest-earning assets -
banking business	658,578	5,403	3.33	661,380	5,578	3.35
Trading business	279,164			276,306
Non-interest earning assets	507,209			646,384
Total assets	1,444,951			1,584,070
Memo: Funded assets	1,066,690			1,072,447
Liabilities
Deposits by banks	66,671	259	1.58	70,567	287	1.61
Customer accounts	329,825	831	1.02	333,895	928	1.10
Debt securities in issue	175,585	846	1.95	189,751	825	1.72
Subordinated liabilities	25,078	170	2.75	27,756	203	2.90
Internal funding of trading
business	(52,013)	8	(0.06)	(63,213)	(30)	0.19
Interest-bearing liabilities -
banking business	545,146	2,114	1.57	558,756	2,213	1.57
Trading business Non-interest-bearing liabilities	301,753			288,431
- demand deposits	63,701			67,707
- other liabilities	459,981			593,802
Owners' equity	74,370			75,374
Total liabilities and
Owners' equity	1,444,951			1,584,070

Notes:

(1) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.

(2) Interest-earning assets and interest-bearing liabilities exclude the Retail bancassurance long-term assets and liabilities, attributable to policyholders, in view of their distinct nature. As a result, net interest income has been increased by nil for Q1 2011 (Q4 2010 - £2 million).

(3) Interest receivable has been decreased by £1 million for Q1 2011 (Q4 2010 - £1 million) and interest payable has been increased by nil for Q1 2011 (Q4 2010 - £1 million) to exclude the RFS Holdings minority interest. Related interestearning assets and interest-bearing liabilities have also been adjusted.

(4) Interest receivable has been increased by £3 million for Q1 2011 (Q4 2010 - £35 million decrease) and interest payable has been increased by £29 million for Q1 2011 (Q4 2010 - £45 million decrease) to record 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.

(5) Interest payable has been decreased by £15 million for Q1 2011 (Q4 2010 - increased by £225 million) in respect of non-recurring adjustments.

Condensed consolidated statement of changes in equity for the quarter ended 31 March 2011

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Called-up share capital
At beginning of period	15,125	15,030	14,630
Ordinary shares issued	31	121	401
Preference shares redeemed	-	1	-
Cancellation of non-voting deferred shares	-	(27)	-
At end of period	15,156	15,125	15,031
Paid-in equity
At beginning and end of period	431	431	565
Share premium account
At beginning of period	23,922	23,858	23,523
Ordinary shares issued	-	64	217
At end of period	23,922	23,922	23,740
Merger reserve
At beginning of period	13,272	13,272	25,522
Transfer to retained earnings	-	-	(12,250)
At end of period	13,272	13,272	13,272
Available-for-sale reserve
At beginning of period	(2,037)	(1,242)	(1,755)
Unrealised gains/(losses)	162	(1,148)	528
Realised (gains)/losses	(197)	16	(147)
Tax	9	337	(153)
At end of period	(2,063)	(2,037)	(1,527)
Cash flow hedging reserve
At beginning of period	(140)	119	(252)
Amount recognised in equity	14	(149)	(11)
Amount transferred from equity to earnings	(241)	(197)	10
Tax	53	87	(19)
At end of period	(314)	(140)	(272)

Condensed consolidated statement of changes in equity

for the quarter ended 31 March 2011 (continued)

	Quarter ended
	31 March 2011	31 December 2010	31 March 2010
	£m	£m	£m
Foreign exchange reserve
At beginning of period	5,138	5,085	4,528
Retranslation of net assets	(429)	-	1,109
Foreign currency gains/(losses) on hedges of net assets	76	(6)	(420)
Tax	(31)	34	12
Recycled to profit or loss on disposal of businesses	-	25	-
At end of period	4,754	5,138	5,229
Capital redemption reserve
At beginning of period	198	172	170
Preference shares redeemed	-	(1)	-
Cancellation of non-voting deferred shares	-	27	-
At end of period	198	198	170
Contingent capital reserve
At beginning and end of period	(1,208)	(1,208)	(1,208)
Retained earnings
At beginning of period (Loss)/profit attributable to ordinary and B shareholders and other equity	21,239	20,904	12,134
owners
- continuing operations	(530)	12	(139)
- discontinued operations	2	-	(4)
Equity preference dividends paid	-	-	(105)
Transfer from merger reserve	-	-	12,250
Actuarial gains/(losses) recognised in retirement benefit schemes
- gross	-	158	-
- tax	-	(71)	-
Purchase of non-controlling interests	-	(38)	-
Shares issued under employee share schemes	(41)	(2)	(7)
Share-based payments
- gross	38	282	35
- tax	5	(6)	-
At end of period	20,713	21,239	24,164
Own shares held
At beginning of period	(808)	(821)	(121)
Shares disposed/(purchased)	12	11	(374)
Shares issued under employee share schemes	11	2	7
At end of period	(785)	(808)	(488)
Owners' equity at end of period	74,076	75,132	78,676

Condensed consolidated statement of changes in equity

for the quarter ended 31 March 2011 (continued)

		Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Non-controlling interests
At beginning of period	1,719	1,780	16,895
Currency translation adjustments and other movements	(7)	15	96
(Loss)/profit attributable to non-controlling interests
- continuing operations	(9)	(17)	27
- discontinued operations	8	55	317
Dividends paid	-	17	(2,674)
Movements in available-for-sale securities
- unrealised gains/(losses)	1	(2)	25
- realised (gains)/losses	(3)	1	9
- tax	1	-	(3)
Movements in cash flow hedging reserves
- amounts recognised in equity	-	(21)	(195)
- amounts transferred from equity to earnings	-	-	1
- tax	-	6	48
- recycled to profit or loss on disposal of discontinued operations	-	15	-
Equity raised	-	58	511
Equity withdrawn and disposals	-	(188)	(4,693)
At end of period	1,710	1,719	10,364
Total equity at end of period	75,786	76,851	89,040
Total comprehensive (loss)/income recognised in the statement of
changes in equity is attributable as follows:
Non-controlling interests	(9)	52	325
Preference shareholders	-	-	105
Ordinary and B shareholders	(1,112)	(902)	661
	(1,121)	(850)	1,091

Notes

1. Basis of preparation

Having reviewed the Group's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. Accordingly, the Interim Management Statement for the quarter ended 31 March 2011 has been prepared on a going concern basis.

2. Accounting policies

The annual accounts are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB as adopted by the European Union (EU) (together IFRS). The Group's Financial Statements are prepared in accordance with IFRS as issued by the IASB. There have been no significant changes to the Group's principal accounting policies as set out on pages 275 to 283 of the 2010 Annual Report and Accounts.

3. Analysis of income, expenses and impairment losses

		Quarter ended
	31 March	31 December	31 March
	2011 £m	2010 £m	2010 £m
Loans and advances to customers	4,593	4,755	4,697
Loans and advances to banks	172	167	140
Debt securities	636	690	855
Interest receivable	5,401	5,612	5,692
Customer accounts	831	926	868
Deposits by banks	259	288	297
Debt securities in issue	817	866	854
Subordinated liabilities	185	(18)	200
Internal funding of trading businesses	8	(30)	(69)
Interest payable	2,100	2,032	2,150
Net interest income	3,301	3,580	3,542
Fees and commissions receivable Fees and commissions payable	1,642	2,052	2,051
- banking	(181)	(392)	(466)
- insurance related	(79)	(57)	(106)
Net fees and commissions	1,382	1,603	1,479
Foreign exchange	203	217	449
Interest rate	893	(165)	954
Credit	(492)	83	(23)
Other	231	229	386
Income from trading activities	835	364	1,766
Operating lease and other rental income	322	369	343
Changes in fair value of own debt	(294)	472	(210)
Changes in the fair value of securities and other financial assets and liabilities	68	(83)	14
Changes in the fair value of investment properties	(25)	(293)	(3)
Profit/(loss) on sale of securities	236	(10)	148
Profit on sale of property, plant and equipment	11	29	9
(Loss)/profit on sale of subsidiaries and associates	(29)	511	70
Life business (losses)/profits	(2)	29	35
Dividend income	15	11	20
Share of profits less losses of associated entities	7	14	22
Other income	82	(46)	(1)
Other operating income	391	1,003	447
Non-interest income (excluding insurance net premium income)	2,608	2,970	3,692
Insurance net premium income	1,149	1,272	1,289
Total non-interest income	3,757	4,242	4,981
Total income	7,058	7,822	8,523

3. Analysis of income, expenses and impairment losses (continued)

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Staff costs
- wages, salaries and other staff costs	2,059	1,859	2,294
- bonus tax	11	15	54
- social security costs	192	166	194
- pension costs	137	154	147
	2,399	2,194	2,689
Premises and equipment	571	709	535
Other	921	1,048	1,011
Administrative expenses	3,891	3,951	4,235
Write-down of goodwill and other intangible assets	-	10	-
Depreciation and amortisation	424	546	482
Operating expenses	4,315	4,507	4,717
General insurance	912	1,151	1,107
Bancassurance	-	31	29
Insurance net claims	912	1,182	1,136
Loan impairment losses	1,898	2,155	2,602
Securities impairment losses	49	(14)	73
Impairment losses	1,947	2,141	2,675

Note:

A reconciliation between key line items within the income statements on page 10 and page 57 is shown in Appendix 1 to this announcement.

4. Loan impairment provisions

Operating profit/(loss) is stated after charging loan impairment losses of £1,898 million (31 December 2010 - £2,155 million). The balance sheet loan impairment provisions increased in the quarter ended 31 March 2011 from £18,182 million to £19,258 million and the movements thereon were:

	Quarter ended 31 March 2011			Quarter ended 31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
At beginning of period	7,866	10,316	18,182	7,791	9,879	17,670
Transfers to disposal groups	-	(9)	(9)	-	(5)	(5)
Intra-group transfers	177	(177)	-	(217)	217	-
Currency translation and other adjustments	56	95	151	147	(235)	(88)
Disposals	-	-	-	-	(3)	(3)
Amounts written-off	(514)	(438)	(952)	(745)	(771)	(1,516)
Recoveries of amounts previously written-off	39	80	119	29	67	96
Charge to income statement	852	1,046	1,898	912	1,243	2,155
Unwind of discount	(60)	(71)	(131)	(51)	(76)	(127)
At end of period	8,416	10,842	19,258	7,866	10,316	18,182

Provisions at 31 March 2011 include £130 million (31 December 2010 - £127 million) in respect of loans and advances to banks.

The table above excludes impairment charges relating to securities.

5. Strategic disposals

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
(Loss)/gain on sale and provision for loss on disposal of investments in:
- RBS Asset Management's investment strategies business	-	-	80
- Global Merchant Services	47	837	-
- Non-Core project finance assets	-	(221)	-
- Other	(70)	(114)	(27)
	(23)	502	53

6. Tax

The (charge)/credit for tax differs from the tax credit computed by applying the standard UK corporation tax rate of 26.5% (2010 - 28%) as follows:

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Loss before tax	(116)	(8)	(5)
Tax credit based on the standard UK corporation tax rate of 26.5% (2010 - 28%)	31	2	1
Unrecognised timing differences	5	11	(52)
Items not allowed for tax
- losses on strategic disposals and write downs	(3)	(129)	(6)
- other	(40)	(190)	(25)
Non-taxable items
- gain on sale of Global Merchant Services	12	221	-
- gain on redemption of own debt	-	(1)	-
- other	12	240	2
Taxable foreign exchange movements	2	2	-
Foreign profits taxed at other rates	(200)	(131)	(124)
UK tax rate change - deferred tax impact	(87)	8	-
Losses in period where no deferred tax asset recognised	(166)	(96)	(83)
Losses brought forward and utilised	16	(8)	8
Adjustments in respect of prior periods	(5)	74	172
Actual tax (charge)/credit	(423)	3	(107)

The high charge in the first three months of 2011 reflects profits in high tax regimes (principally US) and losses in low tax regimes (principally Ireland), losses in overseas subsidiaries for which a deferred tax asset has not been recognised (principally Ireland and the Netherlands) and the effect of the reduction of 1% in the rate of UK Corporation Tax enacted in March 2011 on the net deferred tax balance.

The combined effect of the Irish tax losses and the 1% change in the standard rate of UK corporation tax accounts for £331 million (73%) of the difference between the actual tax charge and the tax credit derived from applying the standard UK Corporation Tax rate to the results for the period.

The Group has recognised a deferred tax asset at 31 March 2011 of £6,299 million (31 December 2010 - £6,373 million), of which £3,770 million (31 December 2010 - £3,849 million) relates to carried forward trading losses in the UK. Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 31 March 2011 and concluded that it is recoverable based on future profit projections.

7. (Loss)/profit attributable to non-controlling interests

	Quarter ended
	31 March 2011 £m	31 December 2010 £m	31 March 2010 £m
Trust preferred securities	-	-	10
RBS Sempra Commodities JV	(9)	(11)	-
ABN AMRO
- RFS Holdings minority interest	10	49	332
- other	-	(1)	-
RBS Life Holdings	-	9	4
Other	(2)	(8)	(2)
(Loss)/profit attributable to non-controlling interests	(1)	38	344

8. Earnings per ordinary and B share

Earnings per ordinary and B share have been calculated based on the following:

	31 March 2011	31 December 2010	31 March 2010
	£m	£m	£m
Earnings (Loss)/profit from continuing operations attributable to ordinary and
B shareholders	(530)	12	(244)
Profit/(loss) from discontinued operations attributable to ordinary and
B shareholders	2	-	(4)
Ordinary shares in issue during the period (millions)	56,798	56,166	56,238
B shares in issue during the period (millions)	51,000	51,000	51,000
Weighted average number of ordinary and B shares in issue during the
period (millions)	107,798	107,166	107,238
Basic loss per ordinary and B share from continuing operations	(0.5p)	-	(0.2p)
Fair value of own debt	0.3p	(0.4p)	0.1p
Asset Protection Scheme credit default swap - fair value changes	0.3p	0.5p	0.3p
Amortisation of purchased intangible assets	-	0.1p	-
Integration and restructuring costs	0.2p	0.3p	0.1p
Strategic disposals	-	(0.5p)	-
Bonus tax	-	-	0.1p
Adjusted earnings per ordinary and B share from continuing operations	0.3p	-	0.4p
Loss from Non-Core attributable to ordinary and B shareholders	0.3p	0.4p	0.9p
Core adjusted earnings per ordinary and B share from continuing operations	0.6p	0.4p	1.3p
Core impairment losses	0.3p	0.3p	0.5p
Pre-impairment Core adjusted earnings per ordinary and B share	0.9p	0.7p	1.8p
Memo: Core adjusted earnings per ordinary and B share from continuing
operations assuming normalised tax rate of 26.5% (2010 - 28.0%)	1.4p	1.1p	1.5p

9. Segmental analysis

Analysis of divisional operating profit/(loss)

The following tables provide an analysis of the divisional profit/(loss) for the quarters ended 31 March 2011, 31 December 2010 and 31 March 2010, by main income statement captions. The divisional income statements on pages 22 to 56 reflect certain presentational reallocations as described in the notes below. These do not affect the overall operating profit/(loss).

	Net interest	Non interest	Total	Operating	Insurance	Impairment	Operating
	income	income	income	expenses	net claims	losses	profit/(loss)
Quarter ended 31 March 2011	£m	£m	£m	£m	£m	£m	£m
UK Retail	1,076	304	1,380	(678)	-	(194)	508
UK Corporate	689	332	1,021	(423)	-	(105)	493
Wealth	167	114	281	(196)	-	(5)	80
Global Transaction Services	260	282	542	(335)	-	(20)	187
Ulster Bank	169	51	220	(136)	-	(461)	(377)
US Retail & Commercial	451	243	694	(504)	-	(110)	80
Global Banking & Markets (1)	180	2,200	2,380	(1,306)	-	24	1,098
RBS Insurance (2)	88	982	1,070	(219)	(784)	-	67
Central items	(28)	(13)	(41)	(1)	-	(1)	(43)
Core	3,052	4,495	7,547	(3,798)	(784)	(872)	2,093
Non-Core (3)	250	236	486	(323)	(128)	(1,075)	(1,040)
	3,302	4,731	8,033	(4,121)	(912)	(1,947)	1,053
Fair value of own debt (4)	-	(480)	(480)	-	-	-	(480)
Asset Protection Scheme credit
default swap - fair value changes (5)	-	(469)	(469)	-	-	-	(469)
Amortisation of purchased
intangible assets	-	-	-	(44)	-	-	(44)
Integration and restructuring costs	(2)	(4)	(6)	(139)	-	-	(145)
Strategic disposals	-	(23)	(23)	-	-	-	(23)
Bonus tax	-	-	-	(11)	-	-	(11)
RFS Holdings minority interest	1	2	3	-	-	-	3
Total statutory	3,301	3,757	7,058	(4,315)	(912)	(1,947)	(116)

Notes:

(2) Total income includes £64 million investment income, £53 million in net interest income and £11 million in non-interest income. Reallocation of £35 million between non-interest income and net interest income in respect of instalment income.

(3) Reallocation of £53 million between net interest income and non-interest income in respect of funding costs of rental assets, £51 million and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £2 million.

(4) Comprises £186 million loss included in 'Income from trading activities' and £294 million loss included in 'Other operating income' on a statutory basis.

(5) Included in 'Income from trading activities' on a statutory basis.

⁽¹⁾ Reallocation of £13 million between net interest income and non-interest income in respect of funding costs of rental assets, £10 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £3 million.

9. Segmental analysis (continued)

Analysis of divisional operating profit/(loss) (continued)

Total statutory	3,580	4,242	7,822	(4,507)	(1,182)	(2,141)	(8)
RFS Holdings minority interest	2	2	4	(6)	-	-	(2)
intangible assets	-	-	-	(10)	-	-	(10)
Write-down of goodwill and
Bonus tax	-	-	-	(15)	-	-	(15)
Strategic disposals	-	502	502	-	-	-	502
Integration and restructuring costs	-	-	-	(299)	-	-	(299)
Amortisation of purchased intangible assets	-	-	-	(96)	-	-	(96)
default swap - fair value changes (6)	-	(725)	(725)	-	-	-	(725)
Asset Protection Scheme credit
Fair value of own debt (5)	-	582	582	-	-	-	582
	3,578	3,881	7,459	(4,081)	(1,182)	(2,141)	55
Non-Core (4)	358	(37)	321	(481)	(245)	(1,211)	(1,616)
Core	3,220	3,918	7,138	(3,600)	(937)	(930)	1,671
Central items	92	24	116	11	(8)	(4)	115
RBS Insurance (3)	96	1,016	1,112	(223)	(898)	-	(9)
Global Banking & Markets (2)	214	1,373	1,587	(1,065)	-	5	527
US Retail & Commercial	467	231	698	(529)	-	(105)	64
Ulster Bank	187	56	243	(138)	-	(376)	(271)
Global Transaction Services	263	375	638	(368)	-	(3)	267
Wealth	160	111	271	(178)	-	(6)	87
UK Corporate	653	330	983	(431)	-	(219)	333
UK Retail (1)	1,088	402	1,490	(679)	(31)	(222)	558
Quarter ended 31 December 2010	£m	£m	£m	£m	£m	£m	£m
	income	income	income	expenses	net claims	losses	profit/(loss)
	Net interest	Non interest	Total	Operating	Insurance	Impairment	Operating

Notes:

(1) Reallocation of bancassurance claims of £31 million from non-interest income.

• (2) Reallocation of £31 million between net interest income and non-interest income in respect of funding costs of rental assets, £11 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £20 million.
• (3) Total income includes £77 million investment income, £58 million in net interest income and £19 million in non-interest income. Reallocation of £38 million between non-interest income and net interest income in respect of instalment income.
• (4) Reallocation of £61 million between net interest income and non-interest income in respect of funding costs of rental assets, £57 million and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £4 million.
• (5) Comprises £110 million gain included in 'Income from trading activities' and £472 million gain included in 'Other operating income' on a statutory basis.
• (6) Included in 'Income from trading activities' on a statutory basis.

9. Segmental analysis (continued)

Analysis of divisional operating profit/(loss) (continued)

Fair value of own debt (5) Asset Protection Scheme credit default swap - fair value changes (6) Amortisation of purchased intangible assets Integration and restructuring costs Strategic disposals Bonus tax RFS Holdings minority interest	- - - - 8	- - 53 - 8	- - 53 - 16	(65) (168) - (54) -	- - - - -	- - - - -	(65) (168) 53 (54) 16
	-	(500)	(500)	-	-	-	(500)
	3,534 -	5,589 (169)	9,123 (169)	(4,430) -	(1,136) -	(2,675) -	882 (169)
Core Non-Core (4)	3,035 499	5,171 418	8,206 917	(3,791) (639)	(1,003) (133)	(971) (1,704)	2,441 (1,559)
Central items	7	197	204	142	(8)	(1)	337
Global Banking & Markets (2) RBS Insurance (3)	373 96	2,451 1,041	2,824 1,137	(1,294) (221)	- (966)	(32) -	1,498 (50)
Ulster Bank US Retail & Commercial	188 468	53 252	241 720	(160) (537)	- -	(218) (143)	(137) 40
Wealth Global Transaction Services	143 217	112 390	255 607	(189) (374)	- -	(4) -	62 233
UK Retail (1) UK Corporate	933 610	346 329	1,279 939	(723) (435)	(29) -	(387) (186)	140 318
Quarter ended 31 March 2010	Net interest income £m	Non interest income £m	Total income £m	Operating expenses £m	Insurance net claims £m	Impairment losses £m	Operating profit/(loss) £m

Notes:

(1) Reallocation of bancassurance claims of £29 million from non-interest income.

• (2) Reallocation of £6 million between net interest income and non-interest income in respect of funding costs of rental assets, £9 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £3 million.
• (3) Total income includes £51 million of investment income, £54 million in net interest income and £3 million in non-interest income. Reallocation of £42 million between non-interest income and net interest income in respect of instalment income.

(4) Reallocation of £69 million between net interest income and non-interest income in respect of funding costs of rental assets.

(5) Comprises £41 million gain included in 'Income from trading activities' and £210 million loss included in 'Other operating income' on a statutory basis.

(6) Included in 'Income from trading activities' on a statutory basis.

10. Financial instruments

Classification

The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39: held-for-trading (HFT), designated as at fair value (DFV), available-for-sale (AFS), loans and receivables (LAR) and other financial instruments. Assets and liabilities outside the scope of IAS 39 are shown separately.

					Finance	Non financial
	HFT	DFV	AFS	LAR	leases	assets	Total
31 March 2011	£m	£m	£m	£m	£m	£m	£m
Assets
Cash and balances
at central banks	-	-	-	59,591			59,591
Loans and advances
to banks
- reverse repos	39,838	-	-	5,310			45,148
- other	26,377	6	-	32,921			59,304
Loans and advances
to customers
- reverse repos	49,007	-	-	11,504			60,511
- other	17,540	1,053	-	465,673	9,882		494,148
Debt securities	113,139	332	111,128	6,785			231,384
Equity shares	19,134	1,051	2,027	-			22,212
Settlement balances	-	-	-	23,006			23,006
Derivatives (1)	361,048						361,048
Intangible assets						14,409	14,409
Property, plant
and equipment						15,846	15,846
Deferred tax						6,299	6,299
Prepayments, accrued
income and other assets	-	-	-	1,381		9,974	11,355
Assets of disposal
groups						8,992	8,992
	626,083	2,442	113,155	606,171	9,882	55,520	1,413,253

For the note to this table refer to page 78.

Additional analyses on loans and advances, debt securities and derivatives are included in Risk and balance sheet management.

10. Financial instruments (continued)

Classification (continued)

- - 4,933 43,681 - -	38,595 31,186 409,837 162,904 21,394			63,829 90,432 428,474 215,968 21,394
	-			50,065 360,625
- 1,064	1,560 - - - 25,451	476	21,033 2,257 2,094 6,754 - 6,376	23,069 2,257 2,094 6,754 26,515 6,376
49,678	706,338	476	38,514	1,337,467

For the note to this table refer to page 78.

10. Financial instruments (continued)

Classification (continued)

					Other financial instruments (amortised	Finance	Non financial assets/
31 December 2010	HFT £m	DFV £m	AFS £m	LAR £m	cost) £m	leases £m	liabilities £m	Total £m
Assets
Cash and balances at
central banks	-	-	-	57,014				57,014
Loans and advances to banks
- reverse repos	38,215	-	-	4,392				42,607
- other	26,082	-	-	31,829				57,911
Loans and advances to
customers
- reverse repos	41,110	-	-	11,402				52,512
- other	19,903	1,100	-	471,308		10,437		502,748
Debt securities	98,869	402	111,130	7,079				217,480
Equity shares	19,186	1,013	1,999	-				22,198
Settlement balances	-	-	-	11,605				11,605
Derivatives (1)	427,077							427,077
Intangible assets							14,448	14,448
Property, plant and equipment							16,543	16,543
Deferred tax							6,373	6,373
Prepayments, accrued
income and other assets	-	-	-	1,306			11,270	12,576
Assets of disposal groups							12,484	12,484
	670,442	2,515	113,129	595,935		10,437	61,118	1,453,576
Liabilities
Deposits by banks
- repos	20,585	-			12,154			32,739
- other	28,216	-			37,835			66,051
Customer accounts
- repos	53,031	-			29,063			82,094
- other	14,357	4,824			409,418			428,599
Debt securities in issue	7,730	43,488			167,154			218,372
Settlement balances	-	-			10,991			10,991
Short positions	43,118	-						43,118
Derivatives (1)	423,967							423,967
Accruals, deferred income and
other liabilities	-	-			1,793	458	20,838	23,089
Retirement benefit liabilities					-		2,288	2,288
Deferred tax					-		2,142	2,142
Insurance liabilities					-		6,794	6,794
Subordinated liabilities		1,129			25,924			27,053
Liabilities of disposal groups							9,428	9,428
Total liabilities	591,004	49,441			694,332	458	41,490	1,376,725
Equity								76,851
								1,453,576

Note:

(1) Held for trading derivatives include hedging derivatives.

10. Financial instruments (continued)

Financial instruments carried at fair value

Refer to Note 12 Financial instruments - valuation of the 2010 Annual Report and Accounts for valuation techniques.

Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.

Valuation reserves

When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity and credit risk.

The table below shows the valuation reserves and adjustments.

	31 March 2011	31 December 2010
	£m	£m
Credit valuation adjustments (CVA)
Monoline insurers	2,178	2,443
Credit derivative product companies (CDPCs)	445	490
Other counterparties	1,629	1,714
	4,252	4,647
Bid-offer, liquidity and other reserves	2,931	2,797
	7,183	7,444

CVA represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures.

Key points

• The decrease in monoline CVA was driven by a reduction in exposure mainly due to higher prices of underlying reference instruments (see page 108).
• The CDPC CVA reduced as exposure decreased reflecting decline in relative value of senior tranches partially offset by wider credit spreads of the underlying portfolios (see page 108).
• CVA held against exposures to other counterparties decreased due to tighter credit spreads (specifically European names), changes to risk parameters and realised defaults.

Own credit

securities in issue £m	Subordinated liabilities £m	Total £m	Derivatives £m	Total £m
1,566	372	1,938	447	2,385
2,091	325	2,416	534	2,950

Carrying values of underlying liabilities	£bn	£bn	£bn
31 March 2011	53.1	1.1	54.2
31 December 2010	51.2	1.1	52.3

10. Financial instruments (continued)

Valuation hierarchy

			31 March 2011			31 December 2010		Total £bn £bn
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3
Assets	£bn	£bn	£bn	£bn	£bn	£bn
Loans and advances to banks
- reverse repos	-	39.8	-	39.8	-	38.2	-	38.2
- collateral	-	25.3	-	25.3	-	25.1	-	25.1
- other	-	0.4	0.7	1.1	-	0.6	0.4	1.0
	-	65.5	0.7	66.2	-	63.9	0.4	64.3
Loans and advances to customers
- reverse repos	-	49.0	-	49.0	-	41.1	-	41.1
- collateral	-	12.8	-	12.8	-	14.4	-	14.4
- other	-	5.3	0.5	5.8	-	6.2	0.4	6.6
	-	67.1	0.5	67.6	-	61.7	0.4	62.1
Debt securities
- government	117.2	17.8	-	135.0	110.2	13.7	-	123.9
- MBS (1)	-	52.9	0.4	53.3	-	49.5	0.7	50.2
- CDOs (2)	-	0.9	2.4	3.3	-	1.0	2.4	3.4
- CLOs (3)	-	3.4	2.1	5.5	-	3.6	2.1	5.7
- other ABS (4)	-	3.6	1.2	4.8	-	4.0	1.4	5.4
- corporate	-	9.3	0.8	10.1	-	7.7	0.9	8.6
- banks and building societies	0.1	11.7	0.3	12.1	0.1	12.2	0.7	13.0
- other	-	0.5	-	0.5	-	0.2	-	0.2
	117.3	100.1	7.2	224.6	110.3	91.9	8.2	210.4
Equity shares	18.6	2.6	1.0	22.2	18.4	2.8	1.0	22.2
Derivatives
- foreign exchange	-	73.5	0.1	73.6	-	83.2	0.1	83.3
- interest rate	0.2	257.4	1.4	259.0	1.7	308.3	1.7	311.7
- equities and commodities	-	5.2	0.5	5.7	0.1	4.9	0.2	5.2
- credit - APS (5)	-	-	0.1	0.1	-	-	0.6	0.6
- credit - other	-	20.0	2.6	22.6	-	23.2	3.1	26.3
	0.2	356.1	4.7	361.0	1.8	419.6	5.7	427.1
Total	136.1	591.4	14.1	741.6	130.5	639.9	15.7	786.1
Proportion	18.4%	79.7%	1.9%	100%	16.6%	81.4%	2.0%	100%
Of which
Core	134.9	572.6	6.5	714.0	129.4	617.6	7.2	754.2
Non-Core	1.2	18.8	7.6	27.6	1.1	22.3	8.5	31.9
Total	136.1	591.4	14.1	741.6	130.5	639.9	15.7	786.1

For notes to this table refer to page 82.

10. Financial instruments (continued)

Valuation hierarchy (continued)

The following table details AFS assets included in total assets on page 80.

		31 March 2011				31 December 2010		Total £bn £bn - 59.4
Assets	Level 1 £bn	Level 2 £bn	Level 3 £bn	Total £bn	Level 1 £bn	Level 2 £bn	Level 3
Debt securities
- government	51.3	7.1	-	58.4	53.0	6.4
- MBS (1)	-	32.8	0.2	33.0	-	31.1	0.4	31.5
- CDOs (2)	-	0.5	1.4	1.9	-	0.6	1.4	2.0
- CLOs (3)	-	3.2	1.2	4.4	-	3.5	1.5	5.0
- other ABS (4)	-	2.5	1.1	3.6	-	2.9	1.1	4.0
- corporate	-	2.0	-	2.0	-	2.0	-	2.0
- banks and building societies	0.1	7.7	-	7.8	0.1	7.1	-	7.2
	51.4	55.8	3.9	111.1	53.1	53.6	4.4	111.1
Equity shares	0.3	1.4	0.3	2.0	0.3	1.4	0.3	2.0
Total	51.7	57.2	4.2	113.1	53.4	55.0	4.7	113.1
Of which
Core	51.4	51.4	0.9	103.7	52.8	49.2	1.0	103.0
Non-Core	0.3	5.8	3.3	9.4	0.6	5.8	3.7	10.1
Total	51.7	57.2	4.2	113.1	53.4	55.0	4.7	113.1

For notes to this table refer to page 82.

10. Financial instruments (continued)

Valuation hierarchy (continued)

		31 March 2011				31 December 2010
Liabilities	Level 1 £bn	Level 2 £bn	Level 3 £bn	Total £bn	Level 1 £bn	Level 2 £bn	Level 3 £bn	Total £bn
Deposits by banks
- repos	-	24.2	-	24.2	-	20.6	-	20.6
- collateral	-	23.6	-	23.6	-	26.6	-	26.6
- other	-	1.6	-	1.6	-	1.6	-	1.6
	-	49.4	-	49.4	-	48.8	-	48.8
Customer accounts
- repos	-	59.2	-	59.2	-	53.0	-	53.0
- collateral	-	8.5	-	8.5	-	10.4	-	10.4
- other	-	10.0	0.1	10.1	-	8.7	0.1	8.8
	-	77.7	0.1	77.8	-	72.1	0.1	72.2
Debt securities in issue	-	50.5	2.6	53.1	-	49.0	2.2	51.2
Short positions	40.4	8.8	0.9	50.1	35.0	7.3	0.8	43.1
Derivatives
- foreign exchange	-	78.7	0.3	79.0	0.1	89.3	-	89.4
- interest rate	0.1	249.9	0.5	250.5	0.2	298.0	1.0	299.2
- equities and commodities	-	8.7	0.7	9.4	0.1	9.6	0.4	10.1
- credit	-	21.4	0.3	21.7	-	25.0	0.3	25.3
	0.1	358.7	1.8	360.6	0.4	421.9	1.7	424.0
Subordinated liabilities	-	1.1	-	1.1	-	1.1	-	1.1
Total	40.5	546.2	5.4	592.1	35.4	600.2	4.8	640.4
Proportion	6.9%	92.2%	0.9%	100%	5.5%	93.7%	0.8%	100%
Of which
Core	40.5	536.2	4.4	581.1	35.4	586.9	3.8	626.1
Non-Core	-	10.0	1.0	11.0	-	13.3	1.0	14.3
Total	40.5	546.2	5.4	592.1	35.4	600.2	4.8	640.4

Notes:

(1) Mortgage-backed securities.

(2) Collateralised debt obligations.

(3) Collateralised loan obligations.

(4) Asset-backed securities.

(5) Asset Protection Scheme.

10. Financial instruments (continued)

Valuation hierarchy (continued)

• Total assets carried at fair value decreased by £44.5 billion in the quarter to £741.6 billion, principally in derivatives (£66.1 billion) and collateral (£1.4 billion), partially offset by higher debt securities (£14.2 billion) and reverse repos (£9.5 billion).
• Total liabilities carried at fair value decreased by £48.3 billion to £592.1 billion, mainly in derivatives (£63.4 billion) and collateral (£4.9 billion) offset by higher debt securities in issue (£1.9 billion), repos (£9.8 billion) and short positions (£7.0 billion).
• Level 3 assets decreased by £1.6 billion to £14.1 billion, mainly reflecting French bank bond disposals and increased observability and liquidity in debt securities and credit derivatives. The APS derivative decreased from £550 million to £81 million primarily due to reduction in covered assets.
• Level 3 liabilities increased by £0.6 billion to £5.4 billion primarily due to refinements to structured note classifications in RBS N.V..
• The favourable and unfavourable effects of reasonably possible alternative assumptions on level 3 instruments were £1,730 million and £1,190 million respectively excluding £660 million and £400 million relating to the APS derivative. These sensitivities are calculated at subportfolio level and hence these aggregated figures do not reflect the correlation between some of the sensitivities.

11. Available-for-sale financial assets

During Q1 2011 gains were realised, mainly in Group Treasury (£163 million), which were offset by adverse movements relating to IFRS volatility and other volatile Treasury items.

	Quarter ended
	31 March	31 December
	2011	2010
Available-for-sale reserve	£m	£m
At beginning of period	(2,037)	(1,242)
Unrealised gains/(losses)	162	(1,148)
Realised (gains)/losses	(197)	16
Tax	9	337
At end of period	(2,063)	(2,037)

The above table excludes gains attributable to non-controlling interests of £2 million (Q4 2010 - £1 million loss).

12. Contingent liabilities and commitments

		31 March 2011			31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
Contingent liabilities
Guarantees and assets pledged as
collateral security	26,849	3,156	30,005	28,859	2,242	31,101
Other contingent liabilities	11,407	469	11,876	11,833	421	12,254
	38,256	3,625	41,881	40,692	2,663	43,355
Commitments
Undrawn formal standby facilities, credit
lines and other commitments to lend	236,096	18,460	254,556	245,425	21,397	266,822
Other commitments	953	2,494	3,447	1,560	2,594	4,154
	237,049	20,954	258,003	246,985	23,991	270,976
Total contingent liabilities and
commitments	275,305	24,579	299,884	287,677	26,654	314,331

Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.

13. Litigation and investigations developments

Except for the developments noted below, there have been no material changes to the litigation or investigations as disclosed in the Annual Results for the year ended 31 December 2010.

Personal current accounts

On 29 March 2011, the Office of Fair Trading (OFT) published its update report in relation to personal current accounts. This noted further progress in improving consumer control over the use of unarranged overdrafts. In particular, the Lending Standards Board has led on producing standards and guidance included in a revised Lending Code published on 31 March 2011. The OFT will continue to monitor the market and will consider the need for, and appropriate timing of, further update reports in light of other developments, in particular the work of the Independent Commission on Banking. The OFT intends to conduct a more comprehensive review of the market in 2012.

Independent Commission on Banking

On 16 June 2010, HM Treasury published the terms of reference for the Government's Independent Commission on Banking (ICB). The ICB is considering the structure of the United Kingdom banking sector and is looking at structural and non-structural measures to reform the banking system and to promote competition. It is mandated to formulate policy recommendations with a view to: (i) reducing systemic risk in the banking sector, exploring the risk posed by banks of different size, scale and function; (ii) mitigating moral hazard in the banking system; (iii) reducing the likelihood and impact of a bank's failure; and (iv) promoting competition in retail and investment banking with a view to ensuring that the needs of banks' customers are served efficiently and considering the extent to which large banks can gain competitive advantage from being perceived as "too big to fail".

The ICB published its Interim Report on 11 April 2011 which contains the ICB's suggestions for changes to the UK banking sector. The report is complex, and while its proposals have potential implications for the Group and many of its stakeholders, they require further clarification and elaboration if they are to be implemented. At this stage it is not possible to estimate the effect of the ICB's report and recommendations upon the Group, if any.

The ICB reports to the Cabinet Committee on Banking Reform and is required to produce a final report by the end of September 2011.

13. Litigation and investigations developments (continued)

US dollar clearing activities

In May 2010, following a criminal investigation by the United States Department of Justice (DoJ) into its dollar clearing activities, Office of Foreign Assets Control compliance procedures and other Bank Secrecy Act compliance matters, RBS NV formally entered into a Deferred Prosecution Agreement (DPA) with the DoJ resolving the investigation. The investigation was in relation to activities before the Consortium Members acquired ABN AMRO Holding N.V. (now known as RBS Holdings N.V.). The agreement was signed by RBS NV and is binding on that entity and its subsidiaries. Pursuant to the DPA, RBS NV paid a penalty of US\$500 million and agreed that it will comply with the terms of the DPA and continue to co-operate fully with any further investigations. Payment of the penalty was made from a provision established in April 2007 when an agreement in principle to settle was first announced. At the joint request of the DoJ and RBS NV, in order to allow RBS NV sufficient time to fulfil its obligations, the U.S. District Court, on 6 April 2011, extended the duration of the DPA until 31 December 2011. Upon satisfaction of the conditions of the DPA within that period, the matter will be fully resolved. Failure to comply with the terms of the DPA could result in the DoJ recommencing its investigations, the outcome of which would be uncertain and could result in public censure and fines or have an adverse effect on RBS Holdings N.V.'s operations, any of which could have a material adverse effect on its business, reputation, results of operation and financial condition.

Payment Protection Insurance (PPI)

Following unsuccessful negotiations with the industry, the Financial Services Authority (FSA) issued consultation papers on PPI complaint handling and redress in September 2009 and again in March 2010. The FSA published its final policy statement on 10 August 2010 and instructed firms to implement the measures contained in it by 1 December 2010. The new rules impose significant changes with respect to the handling of mis-selling PPI complaints. On 8 October 2010, the British Bankers' Association (BBA) filed an application for judicial review of the FSA's policy statement and of related guidance issued by the Financial Ombudsman Service (FOS). The application was heard in January 2011. On 20 April 2011 the High Court issued judgment in favour of the FSA and the FOS. The BBA is considering whether to appeal the judgment. At this time, the Group is unable reliably to estimate any potential financial liability, although it could prove to be material.

LIBOR Investigation

The US Commodity Futures Trading Commission, the US Securities and Exchange Commission and the European Commission are conducting investigations into the submission of various LIBOR rates by relevant panel banks. As a panel bank in each instance, RBS Group is co-operating with these investigations and is keeping other relevant regulators informed. It is not possible to estimate with any certainty what effect these investigations and any related developments may have on the Group.

14. Other developments

Bank levy

The UK bank levy announced in the June 2010 Budget has been included in the Finance Bill 2011 published in March 2011. The levy is an annual charge based on period-end equity and liabilities. The legislation has yet to be enacted and no amounts have been accrued for the levy in the Group's Q1 2011 results. The estimated cost for 2011 is in the region of £350 million to £400 million.

14. Other developments (continued)

Proposed transfers of a substantial part of the business activities of RBS N.V. to The Royal Bank of Scotland plc (RBS plc)

On 19 April 2011, the Group announced its intention to transfer a substantial part of the business activities of RBS N.V. to RBS plc (the "Proposed Transfers"), subject, amongst other matters, to regulatory and other approvals, further tax and other analysis in respect of the assets and liabilities to be transferred and employee consultation procedures.

The Proposed Transfers will streamline the manner in which the GBM and GTS businesses of the Group interact with clients with simplified access to the GBM and GTS product suites.

It is expected that the Proposed Transfers will be implemented on a phased basis over a period ending 31 December 2013. A large part of the Proposed Transfers (including the transfers of certain securities issued by RBS N.V.) is expected to have taken place by the end of 2012.

Rating agencies

The Group and RBS plc's long term and short term ratings have remained unchanged in the quarter. On 9 March 2011, Standard & Poor's affirmed the A+ counterparty rating of RBS plc and upgraded its standalone credit profile from BBB+ to A-. The agency highlighted that they expect RBS plc's standalone credit profile to move toward the A+ counterparty rating by 2012 if continued progress is made, following the strategic plan. The counterparty rating contains 2 notches of uplift to account for the systemic importance of RBS.

Gender equality in insurance contracts

On 1 March 2011, the European Court of Justice (ECJ) upheld a ruling that insurers are no longer allowed to use gender as a rating factor across the insurance industry. This will have a significant impact on the insurance industry in calculating premiums and determining benefits. The Group is currently working through the findings, and any consequences arising will be rectified by December 2012 in line with the ruling from the ECJ. At this stage, it is not possible to estimate the impact which the ECJ's ruling may have on the Group's businesses, financial position or profitability.

15. Date of approval

This announcement was approved by the Board of directors on 5 May 2011.

16. Post balance sheet events

There have been no significant events between 31 March 2011 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.

Risk and balance sheet management

Balance sheet management

Capital

The Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Group's regulatory capital resources and risk asset ratios calculated in accordance with FSA definitions are set out below.

Risk-weighted assets (RWAs)	31 March 2011 £bn	31 December 2010 £bn
Credit risk	367.9	385.9
Counterparty risk	62.8	68.1
Market risk	69.5	80.0
Operational risk	37.9	37.1
Benefit of Asset Protection Scheme	538.1 (98.4)	571.1 (105.6)
	439.7	465.5
Risk asset ratio	%	%

Core Tier 1	11.2	10.7
Tier 1	13.5	12.9
Total	14.5	14.0

• Credit and counterparty RWAs fell by £23.3 billion principally driven by asset run-off, disposals and restructurings, and a reclassification of certain trades in Non-Core.
• Market risk decreased by £10.5 billion reflecting a lower event risk charge and reductions in VaR.
• The reduction in APS RWA benefit reflects the run-off of covered assets.
• The benefit of the APS to the Core Tier 1 was 1.3% compared with 1.2% at 31 December 2010.

Balance sheet management: Capital (continued)

	31 March 2011	31 December 2010
Composition of regulatory capital	£m	£m
Tier 1
Ordinary and B shareholders' equity	69,332	70,388
Non-controlling interests	1,710	1,719
Adjustments for:
- goodwill and other intangible assets - continuing businesses	(14,409)	(14,448)
- unrealised losses on available-for-sale (AFS) debt securities	2,125	2,061
- reserves arising on revaluation of property and unrealised gains on AFS equities	(62)	(25)
- reallocation of preference shares and innovative securities	(548)	(548)
- other regulatory adjustments*	(379)	(1,097)
Less excess of expected losses over provisions net of tax	(2,385)	(1,900)
Less securitisation positions	(2,410)	(2,321)
Less APS first loss	(3,936)	(4,225)
Core Tier 1 capital	49,038	49,604
Preference shares	5,380	5,410
Innovative Tier 1 securities	4,561	4,662
Tax on the excess of expected losses over provisions	860	758
Less material holdings	(291)	(310)
Total Tier 1 capital	59,548	60,124
Tier 2
Reserves arising on revaluation of property and unrealised gains on AFS equities	62	25
Collective impairment provisions	750	778
Perpetual subordinated debt	1,845	1,852
Term subordinated debt	16,334	16,745
Non-controlling and other interests in Tier 2 capital	11	11
Less excess of expected losses over provisions	(3,245)	(2,658)
Less securitisation positions	(2,410)	(2,321)
Less material holdings	(291)	(310)
Less APS first loss	(3,936)	(4,225)
Total Tier 2 capital	9,120	9,897
Supervisory deductions
Unconsolidated investments
- RBS Insurance	(3,988)	(3,962)
- other investments	(330)	(318)
Other deductions	(422)	(452)
Deductions from total capital	(4,740)	(4,732)
Total regulatory capital	63,928	65,289
* Includes reduction for own liabilities carried at fair value	(863)	(1,182)

Balance sheet management: Capital (continued)

Movement in Core Tier 1 capital	£m
At 1 January 2011	49,604
Attributable loss net of movement in fair value of own debt	(209)
Foreign currency reserves	(384)
Issue of ordinary shares	31
Increase in capital deductions including APS first loss	(285)
Other movements	281
At 31 March 2011	49,038

Risk-weighted assets by division

Risk-weighted assets by risk category and division are set out below.

	Credit risk	Counterparty risk	Market risk	Operational risk	Gross total	APS relief	Net total
31 March 2011	£bn	£bn	£bn	£bn	£bn	£bn	£bn
UK Retail	43.0	-	-	7.3	50.3	(11.4)	38.9
UK Corporate	72.6	-	-	6.7	79.3	(21.5)	57.8
Wealth	10.6	-	0.1	1.9	12.6	-	12.6
Global Transaction Services	13.3	-	-	4.9	18.2	-	18.2
Ulster Bank	29.4	0.4	0.1	1.8	31.7	(7.4)	24.3
US Retail & Commercial	48.4	0.8	-	4.4	53.6	-	53.6
Retail & Commercial	217.3	1.2	0.2	27.0	245.7	(40.3)	205.4
Global Banking & Markets	51.0	32.0	48.0	15.5	146.5	(11.1)	135.4
Other	13.3	0.5	-	0.7	14.5	-	14.5
Core	281.6	33.7	48.2	43.2	406.7	(51.4)	355.3
Non-Core	83.6	29.1	21.3	(5.5)	128.5	(47.0)	81.5
Group before RFS MI	365.2	62.8	69.5	37.7	535.2	(98.4)	436.8
RFS MI	2.7	-	-	0.2	2.9	-	2.9
Group	367.9	62.8	69.5	37.9	538.1	(98.4)	439.7
31 December 2010
UK Retail	41.7	-	-	7.1	48.8	(12.4)	36.4
UK Corporate	74.8	-	-	6.6	81.4	(22.9)	58.5
Wealth	10.4	-	0.1	2.0	12.5	-	12.5
Global Transaction Services	13.7	-	-	4.6	18.3	-	18.3
Ulster Bank	29.2	0.5	0.1	1.8	31.6	(7.9)	23.7
US Retail & Commercial	52.0	0.9	-	4.1	57.0	-	57.0
Retail & Commercial	221.8	1.4	0.2	26.2	249.6	(43.2)	206.4
Global Banking & Markets	53.5	34.5	44.7	14.2	146.9	(11.5)	135.4
Other	16.4	0.4	0.2	1.0	18.0	-	18.0
Core	291.7	36.3	45.1	41.4	414.5	(54.7)	359.8
Non-Core	91.3	31.8	34.9	(4.3)	153.7	(50.9)	102.8
Group before RFS MI	383.0	68.1	80.0	37.1	568.2	(105.6)	462.6
RFS MI	2.9	-	-	-	2.9	-	2.9
Group	385.9	68.1	80.0	37.1	571.1	(105.6)	465.5

Balance sheet management: Funding and liquidity risk

The Group's balance sheet composition is a function of the broad array of product offerings and diverse markets served by its Core divisions. The structural composition of the balance sheet is augmented as needed through active management of both asset and liability portfolios. The objective of these activities is to optimise liquidity transformation in normal business environments while ensuring adequate coverage of all cash requirements under extreme stress conditions.

Diversification of the Group's funding base is central to its liquidity management strategy. The Group's businesses have developed large customer franchises based on strong relationship management and high quality service. These customer franchises are strongest in the UK, US and Ireland but extend into Europe, Asia and Latin America. Customer deposits provide large pools of stable funding to support the majority of the Group's lending. It is a strategic objective to improve the Group's loan to deposit ratio to 100%, or better, by 2013.

The Group also accesses professional markets funding by way of public and private debt issuances on an unsecured and secured basis. These debt issuance programmes are spread across multiple currencies and maturities to appeal to a broad range of investor types and preferences around the world. This market based funding supplements the Group's structural liquidity needs and in some cases achieves certain capital objectives.

		31 March 2011		31 December 2010
	£m	%	£m	%
Deposits by banks
- central banks	13,773	1.9	11,612	1.6
- cash collateral	23,594	3.2	28,074	3.8
- other	26,462	3.6	26,365	3.6
	63,829	8.7	66,051	9.0
Debt securities in issue
- commercial paper	24,216	3.3	26,235	3.5
- certificates of deposits	35,967	4.9	37,855	5.1
- medium-term notes and other bonds	130,230	17.7	131,026	17.7
- covered bonds	6,850	0.9	4,100	0.6
- other securitisations	18,705	2.6	19,156	2.6
	215,968	29.4	218,372	29.5
Subordinated liabilities	26,515	3.6	27,053	3.6
Total wholesale funding	306,312	41.7	311,476	42.1
Customer deposits
- cash collateral	8,673	1.2	10,433	1.4
- other	419,801	57.1	418,166	56.5
Total customer deposits	428,474	58.3	428,599	57.9
Total funding	734,786	100.0	740,075	100.0

The table below shows the Group's primary funding sources, excluding repurchase agreements.

Balance sheet management: Funding and liquidity risk (continued)

The table below shows the Group's debt securities in issue and subordinated liabilities by remaining maturity.

		31 March 2011			31 December 2010
	Debt securities in issue £m	Subordinated liabilities £m	Total £m	%	Debt securities in issue £m	Subordinated liabilities £m	Total £m	%
Less than 1 year	107,110	826	107,936	44.5	94,048	964	95,012	38.7
1-3 years	35,801	2,247	38,048	15.7	49,149	754	49,903	20.3
3-5 years	23,613	7,217	30,830	12.7	22,806	8,476	31,282	12.8
More than 5 years	49,444	16,225	65,669	27.1	52,369	16,859	69,228	28.2
	215,968	26,515	242,483	100.0	218,372	27,053	245,425	100.0

• The proportion of funding from customer deposits, excluding cash collateral, improved marginally from 56.5% to 57.1%.
• Short-term wholesale funding excluding derivative collateral increased from £129.4 billion to £144.7 billion during the first quarter of 2011 due to the inclusion of £15.6 billion of medium-term notes issued under the Credit Guarantee Scheme which will mature in Q1 2012. Short-term wholesale instruments (excluding repos and cash collateral) declined by £1.6 billion in Q1 2011.

Balance sheet management: Funding and liquidity risk (continued)

Long-term debt issuances

The table below shows debt securities issued by the Group with an original maturity of one year or more. The Group also executes other long-term funding arrangements (predominately term repos) not reflected in the tables below.

		Quarter ended
	31 March 2011 £m	31 December 2010 £m	30 September 2010 £m	30 June 2010 £m	31 March 2010 £m	31 December 2010 £m
Public
- unsecured	3,277	775	6,254	1,882	3,976	12,887
- secured	2,652	1,725	5,286	1,030	-	8,041
Private
- unsecured	4,251	4,623	6,299	2,370	4,158	17,450
Gross issuance	10,180	7,123	17,839	5,282	8,134	38,378

The table below shows the original maturity and currency breakdown of long-term debt securities issued in Q1 2011 and Q4 2010.

		Quarter ended
		31 March 2011		31 December 2010
	£m	%	£m	%
Original maturity
1-2 years	438	4.3	433	6.1
2-3 years	184	1.8	618	8.6
3-4 years	2,474	24.3	697	9.8
4-5 years	248	2.5	290	4.1
5-10 years	5,001	49.1	2,321	32.6
> 10 years	1,835	18.0	2,764	38.8
	10,180	100.0	7,123	100.0

Currency

GBP	483	4.7	264	3.7
EUR	4,069	40.0	3,935	55.2
USD	3,310	32.5	1,280	18.0
Other	2,318	22.8	1,644	23.1
	10,180	100.0	7,123	100.0

• Term issuances in Q1 2011 were £10.2 billion, including £2.7 billion of euro denominated covered bonds, of which £0.9 billion had original maturity of 7 years and the balance had original maturity of 5 years.
• Issuances in Q1 2011 were £3.1 billion higher than in Q4 2010, of which £2.0 billion related to US dollar denominated instruments.
• The Group issued a further £3.8 billion of term debt in April 2011.

Balance sheet management: Funding and liquidity risk (continued)

Liquidity portfolio

The table below shows the composition of the Group's liquidity portfolio.

	31 March 2011	31 December 2010
Liquidity portfolio	£m	£m
Cash and balances at central banks	58,936	53,661
Treasury bills	9,859	14,529
Central and local government bonds (1)
- AAA rated governments (2)	40,199	41,435
- AA- to AA+ rated governments	1,408	3,744
- governments rated below AA	1,052	1,029
- local government	4,771	5,672
	47,430	51,880
Unencumbered collateral (3)
- AAA rated	21,328	17,836
- below AAA rated and other high quality assets	13,637	16,693
	34,965	34,529
Total liquidity portfolio	151,190	154,599

Notes:

• (1) Includes FSA eligible government bonds of £30.1 billion at 31 March 2011 (31 December 2010 £34.7 billion).
• (2) Includes AAA rated US government guaranteed agencies.

• (3) Includes secured assets eligible for discounting at central banks, comprising loans and advances and debt securities.

• The Group's liquidity portfolio was £151.2 billion, a decline of £3.4 billion from 31 December 2010.

• The strategic target of £150 billion is unchanged.
• The liquidity portfolio is actively managed and as such its composition varies over time. Actions initiated in March 2011 to alter the maturity and currency mix resulted in a higher proportion of cash and central bank balances at the end of the quarter.

Balance sheet management: Funding and liquidity risk (continued)

Net stable funding

The table below shows the Group's net stable funding ratio estimated by applying the Basel III guidance issued in December 2010. This measure seeks to show the proportion of structural term assets which are funded by stable funding including customer deposits, long-term wholesale funding, and equity. The Group's net stable funding ratio calculation will continue to be refined over time in line with regulatory developments.

		31 March 2011		31 December 2010
		ASF (1)		ASF (1)
	£bn	£bn	£bn	£bn	%
Equity	76	76	76	76	100
Wholesale funding > 1 year	138	138	154	154	100
Wholesale funding < 1 year	168	-	157	-	-
Derivatives	361	-	424	-	-
Repurchase agreements	130	-	115	-	-
Deposits
- Retail and SME - more stable	171	154	172	155	90
- Retail and SME - less stable	26	21	51	41	80
- Other	231	116	206	103	50
Other (2)	112	-	98	-	-
Total liabilities and equity	1,413	505	1,453	529
Cash	60	-	57	-	-
Inter bank lending	59	-	58	-	-
Debt securities > 1 year
- central and local governments AAA to AA-	83	4	89	4	5
- other eligible bonds	79	16	75	15	20
- other bonds	16	16	10	10	100
Debt securities < 1 year	53	-	43	-	-
Derivatives	361	-	427	-	-
Reverse repurchase agreements	106	-	95	-	-
Customer loans and advances > 1 year
- residential mortgages	143	93	145	94	65
- other	200	200	211	211	100
Customer loans and advances < 1 year
- retail loans	19	16	22	19	85
- other	132	66	125	63	50
Other (3)	102	102	96	96	100
Total assets	1,413	513	1,453	512
Undrawn commitments	255	13	267	13	5
Total assets and undrawn commitments	1,668	526	1,720	525
Net stable funding ratio		96%		101%

Notes:

(1) Available stable funding.

(2) Deferred tax, insurance liabilities and other liabilities.

(3) Prepayments, accrued income, deferred tax and other assets.

Key point

• The Group's net stable funding ratio reduced to 96% at 31 March 2011, from 101% at 31 December 2010, primarily due to an increase in the wholesale funding with maturity of less than one year arising from the inclusion of £15.6 billion medium-term notes issued under the Credit Guarantee Scheme maturing during Q1 2012.

Balance sheet management: Funding and liquidity risk (continued)

Loan deposit ratio and funding gap

The table below shows quarterly trends in the loan to deposit ratio and customer funding gap.

		Loan to deposit ratio (1)
	Group	Core	funding gap (1) Group
	%	%	£bn
31 March 2011	115	96	66
31 December 2010	117	96	74
30 September 2010	126	101	107
30 June 2010	128	102	118
31 March 2010	131	102	131
31 December 2009	135	104	142

Note:

(1) Excludes repurchase agreements and bancassurance deposits to 31 March 2010 and loans are net of provisions.

Key points

• The Group's loan to deposit ratio improved by 200 basis points in Q1 2011 to 115%. The customer funding gap narrowed by £8 billion to £66 billion in Q1 2011, primarily due to a reduction in Non-Core customer loans.
• The loan to deposit ratio for the Group's Core business at 31 March 2011 remained stable at 96%.

Sensitivity of net interest income

The Group seeks to mitigate the effect of prospective interest rate movements which could reduce future net interest income through its management of market risk in the Group's businesses, whilst balancing the cost of such hedging activities on the current net revenue stream. Hedging activities also consider the impact on market value sensitivity under stress.

The following table shows the sensitivity of net interest income over the next twelve months to an immediate up and down 100 basis points change to all interest rates.

	31 March	31 December
	2011	2010
	£m	£m
+ 100bp shift in yield curves	266	232
– 100bp shift in yield curves	(302)	(352)

• In aggregate, the Group's interest rate exposure continues to reflect a slight asset sensitive bias in Q1 2011.
• There were no material actions taken to alter the position during the quarter. Certain assumptions used for modelling customer pricing have been modified to show greater opportunity for margin expansion as and when short-term interest rates begin to rise.

Risk management: Credit risk

Credit risk is the risk of financial loss due to the failure of customers or counterparties to meet payment obligations. The quantum and nature of credit risk assumed across the Group's different businesses varies considerably, while the overall credit risk outcome usually exhibits a high degree of correlation with the macroeconomic environment.

Loans and advances to customers by geography and industry

The table below analyses loans and advances to customers excluding reverse repos and disposal groups.

	31 March 2011			31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
Central and local government	5,650	1,514	7,164	6,781	1,671	8,452
Finance	47,797	7,559	55,356	46,910	7,651	54,561
Residential mortgages	142,920	5,678	148,598	140,359	6,142	146,501
Personal lending	32,362	3,482	35,844	33,581	3,891	37,472
Property	45,038	43,866	88,904	42,455	47,651	90,106
Construction	9,011	3,231	12,242	8,680	3,352	12,032
Manufacturing	24,621	6,295	30,916	25,797	6,520	32,317
Service industries and business activities	92,623	20,712	113,335	95,127	22,383	117,510
Agriculture, forestry and fishing	3,741	130	3,871	3,758	135	3,893
Finance leases and instalment credit	8,061	8,119	16,180	8,321	8,529	16,850
Interest accruals	673	193	866	831	278	1,109
Gross loans	412,497	100,779	513,276	412,600	108,203	520,803
Loan impairment provisions	(8,287)	(10,841)	(19,128)	(7,740)	(10,315)	(18,055)
Net loans	404,210	89,938	494,148	404,860	97,888	502,748

• Gross loans reduced by £7.5 billion in the quarter principally due to disposals, run-offs and transfers in Non-Core, partially offset by increased mortgage lending in UK Retail.
• The movement between Non-Core and Core property-related lending primarily reflected Non-Core returning loans to UK Corporate in preparation for the sale of the RBS England and Wales branch-based business to Santander.

Risk management: Credit risk

Loans and advances to customers by geography and industry (continued)

The table below analyses loans and advances to customers excluding reverse repos and disposal groups by geography (by location of office).

	31 March 2011			31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
UK
Central and local government	5,144	104	5,248	5,728	173	5,901
Finance	27,510	5,910	33,420	27,995	6,023	34,018
Residential mortgages	102,462	1,632	104,094	99,928	1,665	101,593
Personal lending	22,278	451	22,729	23,035	585	23,620
Property	36,419	28,322	64,741	34,970	30,492	65,462
Construction	7,271	2,282	9,553	7,041	2,310	9,351
Manufacturing	10,810	1,498	12,308	12,300	1,510	13,810
Service industries and business activities	57,299	11,500	68,799	58,265	11,741	70,006
Agriculture, forestry and fishing	2,935	61	2,996	2,872	67	2,939
Finance leases and instalment credit	5,565	7,431	12,996	5,589	7,785	13,374
Interest accruals	371	48	419	415	98	513
	278,064	59,239	337,303	278,138	62,449	340,587
Europe
Central and local government	220	899	1,119	365	1,017	1,382
Finance	3,768	821	4,589	2,642	1,019	3,661
Residential mortgages	19,892	684	20,576	19,473	621	20,094
Personal lending	2,276	587	2,863	2,270	600	2,870
Property	5,304	12,711	18,015	5,139	12,636	17,775
Construction	1,246	851	2,097	1,014	873	1,887
Manufacturing	6,167	4,139	10,306	5,853	4,181	10,034
Service industries and business activities	16,111	5,648	21,759	17,537	6,072	23,609
Agriculture, forestry and fishing	774	69	843	849	68	917
Finance leases and instalment credit	265	688	953	370	744	1,114
Interest accruals	76	85	161	143	101	244
	56,099	27,182	83,281	55,655	27,932	83,587

Risk management: Credit risk

Loans and advances to customers by geography and industry (continued)

		31 March 2011			31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
US
Central and local government	169	38	207	263	53	316
Finance	9,635	495	10,130	9,522	587	10,109
Residential mortgages	20,084	3,243	23,327	20,548	3,653	24,201
Personal lending	6,327	2,444	8,771	6,816	2,704	9,520
Property	2,574	1,768	4,342	1,611	3,318	4,929
Construction	420	63	483	442	78	520
Manufacturing	5,614	80	5,694	5,459	143	5,602
Service industries and business activities	13,705	2,261	15,966	14,075	2,724	16,799
Agriculture, forestry and fishing	26	-	26	31	-	31
Finance leases and instalment credit	2,188	-	2,188	2,315	-	2,315
Interest accruals	179	59	238	183	73	256
	60,921	10,451	71,372	61,265	13,333	74,598
RoW
Central and local government	117	473	590	425	428	853
Finance	6,884	333	7,217	6,751	22	6,773
Residential mortgages	482	119	601	410	203	613
Personal lending	1,481	-	1,481	1,460	2	1,462
Property	741	1,065	1,806	735	1,205	1,940
Construction	74	35	109	183	91	274
Manufacturing	2,030	578	2,608	2,185	686	2,871
Service industries and business activities	5,508	1,303	6,811	5,250	1,846	7,096
Agriculture, forestry and fishing	6	-	6	6	-	6
Finance leases and instalment credit	43	-	43	47	-	47
Interest accruals	47	1	48	90	6	96
	17,413	3,907	21,320	17,542	4,489	22,031

Risk management: Credit risk: REIL and PPL

The table below analyses the Group's risk elements in lending (REIL) and potential problem loans (PPL) and takes no account of the value of any security held which could reduce the eventual loss should it occur, nor of any provisions.

		31 March 2011		31 December 2010
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m
Impaired loans (1)
- UK	8,523	7,147	15,670	7,903	7,835	15,738
- Overseas	6,584	15,878	22,462	5,608	14,355	19,963
	15,107	23,025	38,132	13,511	22,190	35,701
Accruing loans past due 90 days or more (2)
- UK	1,545	752	2,297	1,434	939	2,373
- Overseas	366	246	612	262	262	524
	1,911	998	2,909	1,696	1,201	2,897
Total REIL	17,018	24,023	41,041	15,207	23,391	38,598
PPL (3)	324	202	526	473	160	633
Total REIL and PPL	17,342	24,225	41,567	15,680	23,551	39,231
REIL as a % of gross loans and advances (4)	4.1%	23.0%	7.9%	3.7%	20.7%	7.3%
REIL and PPL as a % of gross loans and
advances (4)	4.2%	23.2%	8.0%	3.8%	20.8%	7.4%
Provisions as a % of total REIL	49%	45%	47%	51%	44%	47%
Provisions as a % of total REIL & PPL	49%	45%	46%	49%	44%	46%

Notes:

(1) Loans against which an impairment provision is held.

(2) Loans where an impairment event has taken place but no impairment provision recognised. This category is used for fully collateralised non-revolving credit facilities.

(3) Loans for which an impairment event has occurred but no impairment provision is necessary. This category is used for advances and revolving credit facilities where the past due concept is not applicable.

(4) Gross loans and advances to customers including disposal groups and excluding reverse repos.

Risk management: Credit risk: Loans, REIL and impairment provisions

Movement in REIL and PPL

The table below details the movement in REIL and PPL for the quarter ended 31 March 2011.

		REIL		PPL			Total
		Non			Non			Non
	Core	Core	Total	Core	Core	Total	Core	Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2011	15,207	23,391	38,598	473	160	633	15,680	23,551	39,231
Intra-group transfers	369	(369)	-	-	-	-	369	(369)	-
Currency translation and
other adjustments	68	98	166	1	4	5	69	102	171
Additions	3,119	2,866	5,985	305	152	457	3,424	3,018	6,442
Transfers	81	(53)	28	(137)	(39)	(176)	(56)	(92)	(148)
Disposals, restructurings
and repayments	(1,286)	(1,334)	(2,620)	(318)	(75)	(393)	(1,604)	(1,409)	(3,013)
Amounts written-off	(540)	(576)	(1,116)	-	-	-	(540)	(576)	(1,116)
At 31 March 2011	17,018	24,023	41,041	324	202	526	17,342	24,225	41,567

• REIL increased by £2.4 billion predominantly due to growth in Ulster Bank Group of £2.2 billion (Core - £1.0 billion; Non-Core - £1.2 billion).
• The Group's provision coverage was stable at 47% (see page 100); Core coverage reduced from 51% to 49% and Non-Core coverage increased marginally from 44% to 45%. The Core coverage is typically higher at 49%, due to a greater weighting of unsecured retail products within REIL and the proportion of latent provision on performing portfolios. Lower coverage of Non-Core reflects secured wholesale lending, particularly commercial real estate portfolios.
• The intra-group transfer of REIL relates to Non-Core returning loans to UK Corporate as part of the preparation for the sale of the RBS England and Wales branch-based business to Santander.

Risk management: Credit risk: Loans, REIL and impairment provisions (continued)

Movement in loan impairment provisions

The following table shows the movement in impairment provisions for loans and advances to customers and banks.

	Quarter ended
		31 March 2011		31 December 2010
	Core £m	Non-Core £m	Total £m	Core £m	Non-Core £m	Total £m
At beginning of period	7,866	10,316	18,182	7,791	9,879	17,670
Transfers to disposal groups	-	(9)	(9)	-	(5)	(5)
Intra-group transfers	177	(177)	-	(217)	217	-
Currency translation and other
adjustments	56	95	151	147	(235)	(88)
Disposals	-	-	-	-	(3)	(3)
Amounts written-off	(514)	(438)	(952)	(745)	(771)	(1,516)
Recoveries of amounts
previously written-off	39	80	119	29	67	96
Charge to income statement	852	1,046	1,898	912	1,243	2,155
Unwind of discount	(60)	(71)	(131)	(51)	(76)	(127)
At end of period	8,416	10,842	19,258	7,866	10,316	18,182

Loan impairment provisions on loans and advances

		31 March 2011		31 December 2010
	Core £m	Non-Core £m	Total £m	Core £m	Non-Core £m	Total £m
Latent loss	1,583	963	2,546	1,653	997	2,650
Collectively assessed	4,375	1,112	5,487	4,139	1,157	5,296
Individually assessed	2,329	8,766	11,095	1,948	8,161	10,109
Customer loans	8,287	10,841	19,128	7,740	10,315	18,055
Bank loans	129	1	130	126	1	127
Total loans	8,416	10,842	19,258	7,866	10,316	18,182
% of loans (1)	2.01%	10.42%	3.71%	1.88%	9.14%	3.44%

Note:

(1) Customer provisions as a % of gross customer loans including disposal groups and excluding reverse repurchase agreements.

• Loan impairment provisions increased by £1.1 billion, primarily in Ulster Bank Group (Core £0.5 billion; Non-Core - £0.9 billion) reflecting the deteriorating economic environment in Ireland with lower asset values and consumer spending. Of the increase in Ulster Bank Group, £0.8 billion related to commercial real estate portfolios, £0.3 billion to other corporate lending and £0.2 billion to mortgage lending.
• The decrease in latent loss provision was primarily due to improved book quality and credit metrics in UK Corporate.

Risk management: Credit risk: Loans, REIL and impairment provisions (continued)

Impairment charge

	Quarter ended
	31 March	31 December	31 March
	2011	2010	2010
	£m	£m	£m
Latent loss	(107)	(116)	31
Collectively assessed	720	729	841
Individually assessed - customer loans	1,285	1,555	1,730
Customer loans	1,898	2,168	2,602
Bank loans	-	(13)	-
Securities	49	(14)	73
Charge to income statement	1,947	2,141	2,675
Charge relating to customer loans as a % of gross customer loans (1)	1.5%	1.6%	1.8%

Note:

(1) Customer loans excluding reverse repurchase agreements, gross of provisions and including gross loans relating to disposal groups.

Risk management: Credit risk: Debt securities

The table below analyses debt securities by issuer and measurement classification.

		Central and local government		Banks and building
	UK	US	Other	societies	ABS	Corporate	Other	Total
	£m	£m	£m	£m	£m	£m	£m	£m
31 March 2011
Held-for-trading	5,422	19,079	51,792	4,356	23,907	8,045	538	113,139
DFV (1)	1	-	199	3	114	15	-	332
Available-for-sale	8,474	15,621	34,325	7,767	42,884	2,033	24	111,128
Loans and receivables	11	-	-	-	5,951	822	1	6,785
	13,908	34,700	86,316	12,126	72,856	10,915	563	231,384
Short positions	(4,852)	(12,715)	(22,463)	(2,612)	(1,014)	(3,252)	(241)	(47,149)
	9,056	21,985	63,853	9,514	71,842	7,663	322	184,235
Available-for-sale
Gross unrealised gains	207	202	346	38	1,102	62	3	1,960
Gross unrealised losses	(24)	(44)	(820)	(31)	(3,201)	(33)	-	(4,153)
31 December 2010
Held-for-trading	5,097	15,956	43,224	5,778	21,988	6,590	236	98,869
DFV (1)	1	-	262	3	119	16	1	402
Available-for-sale	8,377	17,890	33,122	7,198	42,515	2,011	17	111,130
Loans and receivables	11	-	-	15	6,203	848	2	7,079
	13,486	33,846	76,608	12,994	70,825	9,465	256	217,480
Short positions	(4,200)	(11,398)	(18,909)	(1,853)	(1,335)	(3,288)	(34)	(41,017)
	9,286	22,448	57,699	11,141	69,490	6,177	222	176,463
Available-for-sale
Gross unrealised gains	349	341	700	60	1,057	87	1	2,595
Gross unrealised losses	(10)	(1)	(618)	(32)	(3,396)	(37)	(3)	(4,097)

Note:

(1) Designated as at fair value.

Key point

• Debt securities increased by £13.9 billion, reflecting growth in GBM's held-for-trading positions of £14.3 billion. Short positions increased by £6.1 billion.

Risk management: Credit risk: Debt securities (continued)

The table below analyses debt securities by issuer and external ratings.

		Central and local government							% of
	UK	US	Other	building societies		ABS Corporate	Other	Total	total
	£m	£m	£m	£m	£m	£m	£m	£m	%
31 March 2011
AAA	13,908	34,700	51,272	2,394	52,867	478	-	155,619	67
AA to AA+	-	-	6,428	3,207	7,031	599	175	17,440	7
A to AA-	-	-	22,778	4,594	3,187	1,601	3	32,163	14
BBB- to A-	-	-	3,351	1,219	3,799	2,453	108	10,930	5
Non-investment grade	-	-	1,946	574	4,805	4,137	2	11,464	5
Unrated	-	-	541	138	1,167	1,647	275	3,768	2
	13,908	34,700	86,316	12,126	72,856	10,915	563	231,384	100
31 December 2010
AAA	13,486	33,846	44,784	2,374	51,235	846	17	146,588	67
AA to AA+	-	-	18,025	3,036	6,335	779	-	28,175	13
A to AA-	-	-	9,138	4,185	3,244	1,303	5	17,875	8
BBB- to A-	-	-	2,843	1,323	3,385	2,029	6	9,586	5
Non-investment grade	-	-	1,766	1,766	4,923	2,786	4	11,245	5
Unrated	-	-	52	310	1,703	1,722	224	4,011	2
	13,486	33,846	76,608	12,994	70,825	9,465	256	217,480	100

Key points

• The proportion of AAA rated securities remained stable at 67% as did non-investment grade and unrated securities at 7%.
• During Q1 2011, Japan was downgraded resulting in the decrease in AA to AA+ and increase in A to AA- other government holdings. Japanese government held-for-trading securities at 31 March 2011 amounted to £8.4 billion (31 December 2010 - £10.7 billion).

Asset-backed securities

			RMBS
	G10	Covered		Non	Sub				Other
	government	bond	Prime	conforming	prime	CMBS	CDOs	CLOs	ABS	Total
31 March 2011	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	32,067	7,200	4,140	1,684	273	1,922	424	2,269		2,888 52,867
AA to AA+	1,547	475	653	96	218	744	565	1,617	1,116	7,031
A to AA-	-	197	118	73	246	979	358	345	871	3,187
BBB- to A-	-	157	162	299	84	390	185	578	1,944	3,799
Non-investment grade	-	-	760	917	246	439	1,847	344	252	4,805
Unrated	-	-	25	28	143	2	76	673	220	1,167
	33,614	8,029	5,858	3,097	1,210	4,476	3,455	5,826		7,291 72,856
31 December 2010
AAA	28,835	7,107	4,355	1,754	317	2,789	444	2,490		3,144 51,235
AA to AA+	1,529	357	147	144	116	392	567	1,786	1,297	6,335
A to AA-	-	408	67	60	212	973	296	343	885	3,244
BBB- to A-	-	-	82	316	39	500	203	527	1,718	3,385
Non-investment grade	-	-	900	809	458	296	1,863	332	265	4,923
Unrated	-	-	196	52	76	-	85	596	698	1,703
	30,364	7,872	5,747	3,135	1,218	4,950	3,458	6,074		8,007 70,825

Risk management: Credit risk: Country risk - available-for-sale debt securities

The table below analyses available-for-sale (AFS) debt securities by issuer and related AFS reserves (net of tax), for countries exceeding £0.5 billion, together with the total of those individually less than £0.5 billion.

	31 M h 2 01 1 arc					31 De mb 20 10 ce er
					AF S					AF S
	Go t ve rnm en £m	AB S £m	Ot he r £m	To tal £m	re se rve s £m	Go t ve rnm en £m	AB S £m	Ot he r £m	To tal £m	re se rve s £m
S U	15 67 0 ,	20 96 1 ,	73 7	37 36 8 ,	( ) 13 3	17 89 0 ,	20 87 2 ,	76 3	39 52 5 ,	( 116 )
UK	8, 50 0	4, 13 4	2, 08 3	14 71 7 ,	( 13 4)	8, 37 7	4, 00 2	2, 28 4	14 66 3 ,	( 106 )
Ge rm an y	12 58 9 ,	1, 29 8	50 0	14 38 7 ,	( 21 7)	10 65 3 ,	1, 36 0	53 5	12 54 8 ,	( 35 )
Ne the rla nd s	3, 97 7	09 6 7,	4 77	11 84 7 ,	( 8 )	3, 46 9	6, 77 3	71 3	10 95 5 ,	( ) 59
Sp ain	91	6, 91 2	78	7, 08 1	( ) 86 3	88	6, 77 3	169	7, 03 0	( ) 93 9
Fra nce	4, 19 5	57 9	1, 03 1	5, 80 5	( ) 42	5, 91 2	57 5	90 0	7, 38 7	33
Ja pa n	4, 20 4	-	3	4, 20 7	-	4, 35 4	-	82	4, 43 6	-
Au alia str	-	46 7	2, 42 1	2, 88 8	( 27 )	-	48 6	1, 58 6	2, 07 2	( 34 )
Ita ly	92 8	23 8	24	1, 19 0	( ) 67	90 6	24 3	24	1, 173	( ) 86
Sin g ap ore	79 8	-	20 6	1, 00 4	-	64 9	-	20 9	85 8	-
De ark nm	69 0	-	25 1	94 1	( 7)	62 9	-	172	80 1	2
Gr ee ce	93 6	-	-	93 6	( 47 6 )	89 5	-	-	89 5	( 51 7)
Sw itze rla nd	74 9	-	16 1	91 0	8	65 7	-	156	81 3	11
Lux bo em urg	43 1	18	5 37	82 4	18	25 3	78	22 6	55 7	20
Ind ia	65 7	-	15 6	81 3	( ) 3	54 8	-	139	68 7	2
Ho Ko ng ng	79 7	-	12	80 9	-	90 5	-	8	91 3	-
Be lg ium	74 2	35	8	78 5	( 32 )	76 3	34	24 3	1, 04 0	( 34 )
Re blic of Ire lan d pu	10 1	16 1	37 5	63 7	( 67 )	104	177	40 8	68 9	( 74 )
So uth Ko rea	22 9	38 3	-	61 2	1	26 1	42 9	-	69 0	( 2)
Sw ed en	77	25 0	21 9	54 6	-	30	26 9	165	46 4	-
Ot he r ( ind ivid lly <£ 0.5 bi llio n) ua	2, 05 9	35 2	41 0	2, 82 1	( 76 )	2, 04 6	44 4	44 4	2, 93 4	( 127 )
	58 42 0 ,	42 88 4 ,	9, 82 4	11 1, 12 8	( ) 2, 12 5	59 38 9 ,	42 51 5 ,	9, 22 6	11 1, 130	( 1) 2, 06

Risk management: Credit risk: Derivatives

The Group's derivative assets by internal grading scale and residual maturity are set out below. Master netting arrangements in respect of mark-to-market (mtm) values and collateral do not result in a net presentation in the Group's balance sheet under IFRS.

		31 March 2011
		0-3	3-6	6-12	1-5	Over 5		31 December 2010
Asset	Probability	months	months	months	years	years	Total	Total
quality	of default range	£m	£m	£m	£m	£m	£m	£m
AQ1	0% - 0.034%	25,485	11,173	16,191	102,680	167,773	323,302	408,489
AQ2	0.034% - 0.048%	561	141	235	1,750	2,678	5,365	2,659
AQ3	0.048% - 0.095%	1,678	601	865	2,959	4,677	10,780	3,317
AQ4	0.095% - 0.381%	804	218	509	2,345	2,473	6,349	3,391
AQ5	0.381% - 1.076%	601	133	272	2,100	3,290	6,396	4,860
AQ6	1.076% - 2.153%	2,180	55	126	785	845	3,991	1,070
AQ7	2.153% - 6.089%	177	63	47	498	1,095	1,880	857
AQ8	6.089% - 17.222%	2	5	9	121	649	786	403
AQ9	17.222% - 100%	433	13	38	189	322	995	450
AQ10	100%	19	56	17	518	594	1,204	1,581
		31,940	12,458	18,309	113,945	184,396	361,048	427,077
	Counterparty mtm netting						(290,462)	(330,397)
	Cash collateral held against derivative exposures						(25,363)	(31,096)
Net exposure							45,223	65,584

At 31 March 2011, the Group also held collateral in the form of securities of £3.3 billion (31 December 2010 - £2.9 billion) against derivative positions.

The table below analyses the fair value of the Group's derivatives by type of contract.

	31 March 2011		31 December 2010
Contract type	Assets £m	Liabilities £m	Assets £m	Liabilities £m
Exchange rate contracts	73,552	79,045	83,253	89,375
Interest rate contracts	259,006	250,515	311,731	299,209
Credit derivatives	22,704	21,689	26,872	25,344
Equity and commodity contracts	5,786	9,376	5,221	10,039
	361,048	360,625	427,077	423,967

• Net exposure, after taking account of mark-to-market and collateral netting arrangements, reduced by 31% to £45.2 billion.
• Exchange rate contracts decreased due to trading fluctuations and movements in forward rates.
• Interest rate contracts decreased due to greater use of over-the-counter contract compression through third party intermediaries, higher interest rate yields and sterling strengthening against the US dollar. These effects were partially offset by reduced use of clearing houses which resulted in the netting benefit declining from 60% to 57%.
• Credit derivative fair values declined mainly due to trade unwinds together with contract compressions and reduction in Non-Core relating to monolines (see below) and other index hedges, as credit spreads tightened across five and ten year maturities. The APS derivative decreased by £0.5 billion principally reflecting lower covered assets as well as market factors.
• The increase in derivative contracts against AQ3 rated counterparties reflected a combination of rating down grades and new deals.

Risk management: Credit risk: Derivatives (continued)

The Group's exposures to monolines and CDPCs by credit rating are summarised below, ratings are based on the lower of S&P and Moody's.

		Fair value:
	Notional:	reference		Credit
	protected	protected	Gross	valuation		Net
	assets	assets	exposure	adjustment	Hedges	exposure
Monoline insurers	£m	£m	£m	£m	£m	£m
31 March 2011
A to AA-	5,759	5,121	638	194	-	444
Non-investment grade	8,123	5,246	2,877	1,984	69	824
	13,882	10,367	3,515	2,178	69	1,268
Of which:
CMBS	3,859	2,316	1,543	1,132
CDOs	1,092	245	847	569
CLOs	6,183	5,747	436	139
Other ABS	2,260	1,734	526	260
Other	488	325	163	78
	13,882	10,367	3,515	2,178
31 December 2010
A to AA-	6,336	5,503	833	272	-	561
Non-investment grade	8,555	5,365	3,190	2,171	71	948
	14,891	10,868	4,023	2,443	71	1,509
Of which:
CMBS	4,149	2,424	1,725	1,253
CDOs	1,133	256	877	593
CLOs	6,724	6,121	603	210
Other ABS	2,393	1,779	614	294
Other	492	288	204	93
	14,891	10,868	4,023	2,443

		Fair value:
	Notional:	reference		Credit
	protected	protected	Gross	valuation	Net
	assets	assets	exposure	adjustment	exposure
CDPCs	£m	£m	£m	£m	£m
31 March 2011
AAA	206	206	-	-	-
A to AA-	623	607	16	5	11
Non-investment grade	19,686	18,793	893	362	531
Unrated	3,964	3,772	192	78	114
	24,479	23,378	1,101	445	656
31 December 2010
AAA	213	212	1	-	1
A to AA-	644	629	15	4	11
Non-investment grade	20,066	19,050	1,016	401	615
Unrated	4,165	3,953	212	85	127
	25,088	23,844	1,244	490	754

Risk management: Credit risk: Country risk

Under the Group's country risk framework, country exposures are actively managed both for countries that represent a larger concentration and which, using the Group's country watchlist process, have been identified as exhibiting signs of actual or potential stress.

The table below shows the Group's exposure in terms of credit risk assets, to countries where the total exposure for borrowers domiciled in that country exceed £1 billion; where the country had an external rating of A+ or below from Standard & Poor's, Moody's or Fitch at 31 March 2011; and selected other countries. The numbers are stated gross of mitigating action which may have been taken to reduce or eliminate exposure to country risk events.

Credit risk assets consist of:

• Lending: cash and balances at central banks, loans and advances to banks and customers (including overdraft facilities, instalment credit and finance leases);
• Rate risk management (RRM); and
• Contingent obligations, primarily letters of credit and guarantees.

Reverse repurchase agreements and issuer risk (primarily debt securities - see page 105) are excluded. Where relevant, and unless otherwise stated, the data reflect the effect of credit mitigation techniques.

	Lending
	Central and local government	Central bank	Other financial	institution Corporate Personal		Total		Core Non-Core	RRM and contingent obligations
31 March 2011	£m	£m	£m	£m	£m	£m	£m	£m	£m
Republic of Ireland	53	2,087	873	20,597	20,551	44,161	33,135	11,026	2,806
Italy	46	82	1,268	2,857	24	4,277	2,435	1,842	2,278
India	-	126	1,403	2,422	222	4,173	3,645	528	1,178
China	17	281	1,462	676	89	2,525	2,282	243	1,635
Turkey	241	11	466	1,384	13	2,115	1,440	675	490
Russia	-	113	505	953	93	1,664	1,427	237	137
South Korea	-	5	866	705	2	1,578	1,533	45	433
Brazil	-	-	994	287	5	1,286	1,169	117	101
Mexico	-	9	161	946	1	1,117	817	300	158
Romania	35	172	31	393	447	1,078	18	1,060	122
Indonesia	84	94	247	286	128	839	699	140	273
Portugal	35	-	42	680	6	763	425	338	464
Malaysia	-	3	301	294	45	643	496	147	364
Additional selected countries
Spain	20	6	429	6,784	404	7,643	3,051	4,592	2,138
Japan	1,028	-	707	815	25	2,575	1,886	689	2,210
Greece	10	35	50	417	16	528	407	121	192

		Lending
31 December 2010	Central and local government £m	Central bank £m	Other financial £m	institution Corporate £m	Personal £m	Total £m	£m	Core Non-Core £m	RRM and contingent obligations £m
Republic of Ireland	61	2,119	900	19,881	20,228	43,189	32,431	10,758	3,496
Italy	45	78	1,086	2,483	27	3,719	1,817	1,902	2,312
India	262	-	1,614	2,590	273	4,739	4,085	654	1,249
China	17	298	1,240	753	64	2,372	2,136	236	1,572
Turkey	282	68	485	1,365	12	2,212	1,520	692	547
Russia	-	110	251	1,181	58	1,600	1,475	125	216
South Korea	-	276	1,039	555	2	1,872	1,822	50	643
Brazil	-	-	825	315	5	1,145	1,025	120	120
Mexico	-	8	149	999	1	1,157	854	303	148
Romania	36	178	42	426	446	1,128	7	1,121	142
Indonesia	84	42	262	294	132	814	660	154	273
Portugal	86	-	63	611	6	766	450	316	537
Malaysia	-	44	125	293	45	507	347	160	240
Additional selected countries
Spain	19	5	258	6,962	407	7,651	3,130	4,521	2,447
Japan	1,379	-	685	809	24	2,897	2,105	792	2,000
Greece	14	36	49	188	16	303	173	130	214

Risk management: Credit risk: Country risk (continued)

• Credit risk assets relating to most of the countries above have remained broadly stable during the first quarter of 2011. Currency movements increased euro-denominated lending by 2.5% and reduced US dollar-denominated exposures by 3.4%. Reductions were seen in exposure to governments as well as in RRM exposures. This contrasted with financial institution and corporate exposures which increased in a number of countries. The increases in Non-Core exposures in some countries resulted primarily from drawings under committed facilities. In addition to credit risk asset components above, debt securities represent the main concentration for Japan and Greece.
• Granular portfolio reviews continue to be undertaken with a view to adjusting the risk profile and to align to the Group's country risk appetite in light of the evolving economic and political developments.
• Republic of Ireland lending increased by almost £1.0 billion in the first quarter (increases in lending to corporate clients by £0.7 billion and personal lending by £0.3 billion), primarily due to exchange rate movements. In euro terms, lending was largely unchanged. RRM exposure fell by £0.7 billion.

Risk management: Credit risk: Country risk (continued)

Key points (continued)

• Italy lending exposure increased by £0.6 billion as a result of increases in corporate activity (oil & gas) of £0.4 billion, largely caused by drawings under committed facilities, and financial institutions (banks and funds) of £0.2 billion.
• Portugal lending exposure was stable, with reductions in exposure to the government and financial institutions alongside a very small increase in corporate lending. RRM exposure decreased by almost £0.1 billion.
• Spain lending exposure fell slightly due to a reduction in corporate exposure of £0.2 billion which was partially offset by an increase in exposure to financial institutions. RRM exposure decreased by £0.3 billion.
• Japan lending exposure is £2.6 billion and has reduced by £0.3 billion since 31 December 2010 due to a reduction in government exposure. RRM accounts for an additional £2.2 billion of total exposure. Following the tsunami, impairment charges totalled approximately £77 million, of which £44 million relates to debt securities.
• Greece lending exposure rose by £0.2 billion to £0.5 billion, due to an increase in the Core corporate portfolio.
• Limit controls are being applied on a risk-differentiated basis and exposure to most countries in North Africa and the Middle East reduced during the first quarter of 2011. Of the countries experiencing varying degrees of social and political unrest in North Africa and the Middle East, Bahrain accounted for lending exposure of £302 million (total credit risk assets - £338 million), Oman for £160 million (total credit risk assets - £237 million) and Egypt for £101 million (total credit risk assets - £130 million).

Risk management: Credit risk: Commercial real estate

The commercial real estate lending portfolio totalled £85 billion at 31 March 2011, a 2% decrease over the quarter, from £87 billion at 31 December 2010. The Non-Core portion of the portfolio totalled £42 billion (50% of the portfolio) at 31 March 2011 (31 December 2010 - £46 billion, or 52% of the portfolio) and includes exposures in Ulster Bank Group as discussed on page 115. The analysis below excludes RRM and contingent obligations.

		31 March 2011		31 December 2010
		Investment Development	Total	Investment	Development	Total
By division	£m	£m	£m	£m	£m	£m
Core
UK Corporate	26,514	6,124	32,638	24,879	5,819	30,698
Ulster Bank	4,272	1,015	5,287	4,284	1,090	5,374
US Retail & Commercial	2,705	807	3,512	3,061	653	3,714
GBM	1,030	417	1,447	1,131	644	1,775
	34,521	8,363	42,884	33,355	8,206	41,561
Non-Core
UK Corporate	5,372	2,701	8,073	7,591	3,263	10,854
Ulster Bank	3,947	8,881	12,828	3,854	8,760	12,614
US Retail & Commercial	1,085	202	1,287	1,202	220	1,422
GBM	19,754	523	20,277	20,502	417	20,919
	30,158	12,307	42,465	33,149	12,660	45,809
	64,679	20,670	85,349	66,504	20,866	87,370

	Investment		Development
	Commercial	Residential	Commercial	Residential	Total
By geography	£m	£m	£m	£m	£m
31 March 2011
UK (excluding Northern Ireland)	32,221	7,195	1,405	8,184	49,005
Island of Ireland	5,153	1,143	2,848	6,556	15,700
Western Europe	10,320	712	8	70	11,110
US	5,316	1,105	718	480	7,619
RoW	1,490	24	141	260	1,915
	54,500	10,179	5,120	15,550	85,349
31 December 2010
UK (excluding Northern Ireland)	32,979	7,255	1,520	8,296	50,050
Island of Ireland	5,056	1,148	2,785	6,578	15,567
Western Europe	10,359	707	25	46	11,137
US	6,010	1,343	542	412	8,307
RoW	1,622	25	138	524	2,309
	56,026	10,478	5,010	15,856	87,370

	Investment		Development
	Core	Non-Core	Core	Non-Core	Total
By geography	£m	£m	£m	£m	£m
31 March 2011
UK (excluding Northern Ireland)	27,658	11,758	6,320	3,269	49,005
Island of Ireland	3,189	3,107	899	8,505	15,700
Western Europe	378	10,654	50	28	11,110
US	3,018	3,403	840	358	7,619
RoW	277	1,237	254	147	1,915
	34,520	30,159	8,363	12,307	85,349
31 December 2010
UK (excluding Northern Ireland)	26,168	14,066	5,997	3,819	50,050
Island of Ireland	3,159	3,044	963	8,401	15,567
Western Europe	409	10,657	25	46	11,137
US	3,375	3,978	733	221	8,307
RoW	244	1,404	488	173	2,309
	33,355	33,149	8,206	12,660	87,370

Risk management: Credit risk: Commercial real estate (continued)

• The decrease in exposure occurred primarily in the UK and US investment books. The asset mix has remained broadly unchanged since the end of 2010.
• The increase in Core UK Corporate exposures reflected Non-Core returning commercial real estate assets in preparation for the sale of the RBS England and Wales branch-based business to Santander. Excluding this transfer, Core UK Corporate exposure remained broadly stable.
• Of the total portfolio at 31 March 2011, £42.1 billion (31 December 2010 £45.5 billion) is managed within the Group's standard credit risk processes, £8.7 billion (31 December 2010 - £9.2 billion) is receiving heightened credit oversight under the Group watchlist process ("watch") and £34.5 billion (31 December 2010 - £32.6 billion) is managed within Global Restructuring Group (GRG).
• Short-term lending to property developers without firm long-term financing in place is characterised as speculative. Speculative lending at origination continues to represent less than 2% of the portfolio. The Group's appetite for originating speculative commercial real estate lending is very limited. Current market conditions have resulted in some borrowers experiencing difficulty in procuring long-term finance. These borrowers are managed within the problem debt management process in "watch" or GRG.
• Tighter risk appetite criteria for new business origination were implemented during 2010 but will take time to be reflected in the performance of the portfolio. Whilst there has been some recovery in the value of prime properties in the UK, the Group observes that it has been selective. To date this improvement has not fed through into lower quality properties in the UK and has not been evident in other regions, notably the eurozone, Republic of Ireland and the US.
• Commercial real estate will remain challenging for key markets, such as UK, Ireland and US; new business will be accommodated by running-off existing exposure. Liquidity in the market remains low with the focus on refinancing and support for the existing client base.

Risk management: Credit risk: Ulster Bank Group (Core and Non-Core)

Overview

Ulster Bank Group accounts for 10% of the Group's total gross customer loans or 9% of the Group's Core gross customer loans. The impairment charge of £1,294 million for Q1 2011 was £135 million higher than the £1,159 million impairment charge for Q4 2010. This was driven by continued deterioration across most portfolios during the quarter. High unemployment coupled with higher taxation and less liquidity in the economy continues to depress housing market confidence and consumer spending.

Core

Impairment losses for Q1 2011 of £461 million were £85 million higher than Q4 2010 losses of £376 million, reflecting the deteriorating economic environment in Ireland with rising default levels across both mortgage and other corporate non-property portfolios. Lower asset values together with pressure on borrowers with a dependence on consumer spending have resulted in higher corporate loan losses while higher unemployment, lower incomes and increased taxation have driven mortgage impairment increases.

Ulster Bank Group is helping customers in this difficult environment. Forbearance policies which are deployed through the 'Flex' initiative are aimed at assisting customers in financial difficulty. These policies were reviewed at the end of 2010 given the structural problem that exists in Ireland with the scale and duration of customers in financial difficulty. There were 9,200 customer accounts in a forbearance arrangement at 31 March 2011. This represents 5.5% (by volume) of the Ulster Bank Group mortgage portfolio, with 75% of these customers in amortising or interest only agreements.

Non-Core

The impairment charge increased from £783 million for Q4 2010 to £833 million for Q1 2011, primarily reflecting the deterioration in the development property portfolio.

Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)

Loans, REIL and impairments by sector

				REIL
				as a % of	Provisions	Provisions
	Gross			gross	as a % of	as a % of	Impairment	Amounts
	loans (1)		REIL Provisions	loans	REIL	gross loans	charge	written-off
31 March 2011	£m	£m	£m	%	%	%	£m	£m
Ulster Bank Group
Mortgages	21,495	1,780	676	8.3	38.0	3.1	233	2
Personal unsecured	1,499	193	164	12.9	85.0	10.9	11	8
Commercial real estate
- investment	8,219	3,222	1,342	39.2	41.7	16.3	296	-
- development	9,896	7,798	3,623	78.8	46.5	36.6	527	-
Other corporate	10,881	2,868	1,548	26.4	54.0	14.2	227	1
	51,990	15,861	7,353	30.5	46.4	14.1	1,294	11
Core
Mortgages	21,495	1,780	676	8.3	38.0	3.1	233	2
Personal unsecured	1,499	193	164	12.9	85.0	10.9	11	8
Commercial real estate
- investment	4,272	773	282	18.1	36.5	6.6	73	-
- development	1,015	210	99	20.7	47.1	9.8	24	-
Other corporate	8,886	1,682	890	18.9	52.9	10.0	120	1
	37,167	4,638	2,111	12.5	45.5	5.7	461	11
Non-Core
Commercial real estate
- investment	3,947	2,449	1,060	62.0	43.3	26.9	223	-
- development	8,881	7,588	3,524	85.4	46.4	39.7	503	-
Other corporate	1,995	1,186	658	59.4	55.5	33.0	107	-
	14,823	11,223	5,242	75.7	46.7	35.4	833	-

For the note to this table refer to page 116.

Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)

Loans, REIL and impairments by sector (continued)

31 December 2010	Gross loans (1) £m	REIL £m	Provisions £m	REIL as a % of loans %	Provisions as a % of REIL %	Provisions as a % of gross loans %	Q4 Impairment charge £m	Q4 Amounts written-off £m
Ulster Bank Group
Mortgages	21,162	1,566	439	7.4	28.0	2.1	159	3
Personal unsecured	1,282	185	158	14.4	85.4	12.3	13	6
Commercial real estate
- investment	8,138	2,989	1,332	36.7	44.6	16.4	285	-
- development	9,850	6,406	2,820	65.0	44.0	28.6	586	-
Other corporate	11,009	2,515	1,228	22.8	48.8	11.2	116	1
	51,441	13,661	5,977	26.6	43.8	11.6	1,159	10
Core
Mortgages	21,162	1,566	439	7.4	28.0	2.1	159	3
Personal unsecured	1,282	185	158	14.4	85.4	12.3	13	6
Commercial real estate
- investment	4,284	598	332	14.0	55.5	7.7	79	-
- development	1,090	65	37	6.0	56.9	3.4	(10)	-
Other corporate	9,039	1,205	667	13.3	55.4	7.4	135	1
	36,857	3,619	1,633	9.8	45.1	4.4	376	10
Non-Core
Commercial real estate
- investment	3,854	2,391	1,000	62.0	41.8	25.9	206	-
- development	8,760	6,341	2,783	72.4	43.9	31.8	596	-
Other corporate	1,970	1,310	561	66.5	42.8	28.5	(19)	-
	14,584	10,042	4,344	68.9	43.3	29.8	783	-

Note:

(1) Funded loans.

• The increase in REIL reflects continuing difficult conditions in both commercial and residential sectors in the Republic of Ireland. Of the REIL at 31 March 2011, 71% was in Non-Core (Q4 2010 - 74%).
• Provisions, including foreign currency effects, increased in the quarter from £6.0 billion to £7.4 billion and the coverage ratio increased to 46.4% from 43.8% at 31 December 2010. 68% of the provision at 31 March 2011 (31 December 2010 - 69%) relates to commercial real estate.

Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)

Residential mortgages

The table below shows how the continued decrease in property values has affected the distribution of residential mortgages by loan-to-value (LTV) (indexed). LTV is based upon gross loan amounts and, whilst including defaulted loans, does not account for impairments already taken.

By average LTV (1)	31 March 2011 %	31 December 2010 %
<= 50%	34.7	35.9
> 50% and <= 70%	13.0	13.5
> 70% and <= 90%	13.0	13.5
> 90%	39.3	37.1
Total portfolio average LTV	73.7	71.2
Average LTV on new originations during the period	69.0	75.9

Note:

(1) LTV averages calculated by transaction volume.

• The residential mortgage portfolio across Ulster Bank Group totalled £21.5 billion at 31 March 2011 - with 90% in the Republic of Ireland and 10% in Northern Ireland. At constant exchange rates, the portfolio remained at similar levels to 31 December 2010 (£21.2 billon) with little growth due to very low new business volumes. To date in 2011, 596 new mortgages were originated, of which 85% were in Northern Ireland.
• The 90 days arrears rate continues to increase due to the continued challenging economic environment. At 31 March 2011, the arrears rate was 6.6% (by volume) compared with 6.0% at 31 December 2010. The impairment charge for Q1 2011 was £233 million compared with £159 million for Q4 2010. Repossession levels remain low totalling 37 properties at 31 March 2011 (76 for full year 2010). 78% of repossessions during the quarter were through voluntary surrender or abandonment of the property.
• Ulster Bank Group has a number of initiatives in place aimed at increasing the level of support to customers experiencing temporary financial difficulties. At 31 March 2011, 7.4% (by value) of the mortgage book (£1.6 billion) was on forbearance arrangements, the majority of these are performing (77%) and not 90 days past due.

Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)

Commercial real estate

The commercial real estate lending portfolio in Ulster Bank Group increased marginally during the quarter to £18.1 billion at 31 March 2011, primarily due to exchange rate movements. The Non-Core portion of the portfolio totalled £12.8 billion (71% of the portfolio). Of the total Ulster Bank Group commercial real estate portfolio 25% relates to Northern Ireland, 61% to the Republic of Ireland and 14% to the rest of the UK.

	Development		Investment
		Residential	Commercial	Residential	Total
Exposure by geography	£m	£m	£m	£m	£m
31 March 2011
Island of Ireland	2,848	6,556	5,090	1,143	15,637
UK (excluding Northern Ireland)	112	362	1,835	129	2,438
RoW	-	17	22	1	40
	2,960	6,935	6,947	1,273	18,115
31 December 2010
Island of Ireland	2,785	6,578	5,072	1,098	15,533
UK (excluding Northern Ireland)	110	359	1,831	115	2,415
RoW	-	17	22	1	40
	2,895	6,954	6,925	1,214	17,988

• Commercial real estate remains a key driver of the increase in the defaulted loan book for Ulster Bank Group. The outlook remains challenging with limited liquidity in the marketplace to support refinancing.
• Ongoing reviews of the portfolio have led to a greater portion of the portfolio moving to specialised management in GRG.

Market risk

Market risk arises from changes in interest rates, foreign currency, credit spread, equity prices and risk related factors such as market volatilities. The Group manages market risk centrally within its trading and non-trading portfolios through a comprehensive market risk management framework. This framework includes limits based on, but not limited to, value-at-risk (VaR), stress testing, position and sensitivity analyses.

VaR is a technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels. For internal risk management purposes, the Group's VaR assumes a time horizon of one trading day and a confidence level of 99%. The Group's VaR model is based on a historical simulation model, utilising data from the previous two years trading results.

The VaR disclosure is broken down into trading and non-trading where trading VaR relates to the main trading activities of the Group and non-trading reflects the VaR associated with reclassified assets, money market business and the management of internal funds flow within the Group's businesses.

The Group's VaR should be interpreted in the light of the limitations of the methodology used, as follows:

• Historical simulation VaR may not provide the best estimate of future market movements. It can only provide a prediction of the future based on events that occurred in the 500 trading day time series. Therefore, events more severe than those in the historical data series cannot be predicted.
• The use of a 99% confidence level does not reflect the extent of potential losses beyond that percentile.
• The use of a one day time horizon will not fully capture the profit and loss implications of positions that cannot be liquidated or hedged within one day.
• The Group computes the VaR of trading portfolios at the close of business. Positions may change substantially during the course of the trading day and intra-day profits and losses will be incurred.

These limitations mean that the Group cannot guarantee that profits or losses will not exceed the VaR.

Market risk: GBM traded revenue

Note:

(1) The effect of any month end adjustments, not attributable to a specific daily market move, is spread evenly over the days in the month in question.

• The average daily revenue earned from GBM's trading, balance sheet management and other trading activities in Q1 2011 was £33.9 million, compared with £15.5 million in Q4 2010 and £39.7 million in Q1 2010. The standard deviation of these daily revenues was £19.9 million in Q1 2011, compared with £20.7 million in Q4 2010 and £19.7 million in Q1 2010. The standard deviation measures the variation of daily revenues about the mean value of those revenues.
• An analysis of the frequency distribution of daily revenue shows that there were two days with negative revenue during Q1 2011, compared with eleven days in Q4 2010 and no days in Q1 2010. The most frequent result in Q1 2011 is a daily revenue of between £25 million and £30 million with ten occurrences compared with five occurrences in Q4 2010 and six occurrences during Q1 2010.

Market risk (continued)

The table below details VaR for the Group's trading portfolio, segregated by type of market risk exposure, and between Core and Non-Core, Counterparty Exposure Management (CEM) and Core excluding CEM.

		Qu de d art er en
		31 M arc	h 2 01 1			31 De mb 20 10 ce er				31 M h 2 01 0 arc
	Av era g e	Pe rio d e nd	Ma xim um	Mi nim um	Av era g e	Pe rio d e nd	Ma xim um	Min im um	Av era g e	Pe rio d e nd	Ma xim um	Min im um
Tra din Va R g	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Int st rat ere e	60 .4	60 .2	79 .2	42 .1	64 .0	57 .0	83 .0	47 .6	47 .5	54 .4	64 .2	32 .5
Cre dit d sp rea	13 4.1	97 .7	15 1.1	97 .7	134 .4	133 .4	196 .1	110 .2	148 .8	163 .3	19 1.5	113 .0
Cu rre ncy	12 .2	10 .5	18 .0	8.1	15 .2	14 .8	25 .6	8.4	18 .6	22 .2	24 .7	13 .9
Eq uity	11 .1	10 .7	.5 14	8.0	10 .1	10 .9	15 .2	4.7	11 .3	8.2	17 .3	6.6
Co od ity mm	0.2	0.1	0.7		7.9	0.5	18 .1	0.5	10 .6	10 .8	14 .0	8.3
ific Div ati ers on		( .1) 71				( ) 75 .6				( .4) 126
To tal	15 6.4	10 8.1	18 1.3	10 8.1	154 .3	14 1.0	19 1.5	110 .8	140 .6	132 .5	20 4.7	103 .0
Co re	10 8.2	72 .2	13 3.9	72 .2	99 .2	10 1.2	12 1.0	58 .3	87 .2	82 .4	145 .4	58 .9
CE M	40 .0	34 .7	47 .6	34 .5	49 .1	54 .6	64 .2	38 .7	37 .5	33 .6	41 .2	30 .3
Co clu din CE M re ex g	88 .0	70 .6	10 6.2	65 .2	81 .3	78 .7	102 .8	54 .2	79 .5	73 .5	108 .7	53 .6
n-C No ore	11 3.9	10 9.4	12 8.6	10 4.1	105 .5	10 1.4	119 .7	92 .3	84 .6	87 .1	98 .8	63 .2

• • The credit spread VaR for Q1 2011 was lower than Q1 2010 primarily due to the exceptional volatility of the market data from the period of the financial crisis dropping out of the 500 days of time series data used in the VaR calculation. Credit spread VaR also reduced as the quality of the market data time series used in the ABS Mortgage Trading business was improved, moving from interpolated weekly data to daily observed time series. This change has improved the accuracy of the correlation between the different time series in the daily data. Additionally, the basis modelling between the cash and derivatives has been refined by introducing additional time series for the subprime and subordinated residential bonds, reducing the over-reliance on the commercial mortgage basis which was used as a conservative proxy.
• •CEM trading VaR reduced during Q1 2011 due to lower volatility combined with reduced exposures.
• • Non-Core VaR was slightly higher in Q1 2011 than for Q4 2010 due to increases in the market value of the exposures within the Structured Credit Portfolio (SCP) trading book, as credit indices continued to rally over the quarter.
• • The commodity VaR in Q1 2011 has reduced to a minimal level when compared with 2010 due to the sale of the Group's interest in the RBS Sempra Commodities joint venture.

Market risk (continued)

The table below details VaR for the Group's non-trading portfolio, excluding the SCP and loans and receivables (LAR), segregated by type of market risk exposure and between Core and Non-Core.

		Qu de d art er en
		31 M h 2 01 1 arc				31 De mb 20 10 ce er				(1 ) 31 M h 2 01 0 arc
	Av era g e	rio Pe d e nd	xim Ma um	Mi nim um	Av era g e	Pe rio d e nd	Ma xim um	Min im um	Av era g e	Pe rio d e nd	Ma xim um	Min im um
No rad ing Va R n-t	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Int st rat ere e	7.8	7.0	10 .8	6.5	8.0	10 .4	10 .8	5.3	10 .1	10 .4	13 .3	6.9
Cre dit d sp rea	23 .8	22 .5	39 .3	14 .2	17 .0	16 .1	21 .8	15 .4	55 .1	40 .2	10 1.2	40 .2
Cu rre ncy	0.6	0.6	1.8	0.1	2.3	3.0	3.7	1.3	1.4	0.9	4.9	0.3
Eq uity	2.5	2.3	3.1	2.2	2.9	3.1	4.6	0.3	1.2	0.3	3.5	0.2
Div ific ati ers on		( 5.4 )				( ) 15 .9				( ) 15 .0
To tal	26 .5	27 .0	41 .6	13 .4	16 .2	16 .7	21 .3	13 .7	52 .0	36 .8	98 .0	36 .8
Co re	25 .5	26 .1	38 .9	13 .5	15 .6	15 .6	21 .3	12 .8	51 .5	36 .5	98 .1	36 .5
No n-C ore	2.6	2.4	3.4	2.2	2.8	2.8	4.1	0.2	1.4	0.3	3.6	0.3

Note:

(1) Revised to exclude SCP and LAR portfolios, implemented in Q2 2010 and Q4 2010 respectively.

• • The general increase in total, Core and credit spread VaR is primarily due to a change in the time series used for the Dutch RMBS portfolio in RBS N.V. as more relevant and granular market data became available.
• • The total VaR at 31 March 2011 is lower than at 31 March 2010, due primarily to the disposal of a large portfolio of illiquid available-for-sale securities during 2010, and also due to the exceptional volatility of the market data from the period of the financial crisis dropping out of the 500 days of time series data used in the VaR calculation, which in particular impacted the credit spread VaR.

Market risk (continued)

Structured Credit Portfolio (SCP)

		Drawn notional						Fair value
				Other					Other
	CDOs £m	£m	CLOs MBS (1) £m	ABS £m	Total £m	CDOs £m	£m	CLOs MBS (1) £m	ABS £m	Total £m
31 March 2011
1-2 years	-	19	-	38	57	-	18	-	34	52
2-3 years	12	19	43	70	144	12	17	42	64	135
3-4 years	-	5	11	206	222	-	5	10	194	209
4-5 years	15	15	-	36	66	15	14	-	33	62
5-10 years	96	467	313	385	1,261	85	435	232	342	1,094
>10 years	397	624	561	530	2,112	154	500	400	369	1,423
	520	1,149	928	1,265	3,862	266	989	684	1,036	2,975
31 December 2010
1-2 years	-	-	-	47	47	-	-	-	42	42
2-3 years	85	19	44	98	246	81	18	37	91	227
3-4 years	-	41	20	205	266	-	37	19	191	247
4-5 years	16	-	-	-	16	15	-	-	-	15
5-10 years	98	466	311	437	1,312	87	422	220	384	1,113
>10 years	412	663	584	550	2,209	161	515	397	367	1,440
	611	1,189	959	1,337	4,096	344	992	673	1,075	3,084

Note:

(1) Mortgage-backed securities (MBS) include sub-prime residential mortgage-backed securities with a notional amount of £455 million (31 December 2010 - £471 million) and a fair value of £330 million (31 December 2010 - £329 million), all with residual maturities of greater than 10 years.

The SCP is within Non-Core. The risk on this portfolio is not measured or disclosed using VaR, as the Group believes this is not an appropriate tool for the banking book portfolio comprising illiquid debt securities. The main driver of the reduction in drawn notional is the depreciation of the US dollar and the amortisation of assets.

Additional information

	31 March 2011	31 December 2010
Ordinary share price	£0.408	£0.391
Number of ordinary shares in issue	58,579m	58,458m
Market capitalisation (including B shares)	£44.7bn	£42.8bn
Net asset value per ordinary share	£0.63	£0.64

Statutory results

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 2010 will be 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.

These first quarter 2011 results have not been audited or reviewed by the auditors.

Financial calendar
2011 interim results announcement	5 August 2011
2011 third quarter interim management statement	4 November 2011
2011 annual results announcement	23 February 2012

Appendix 1

Income statement reconciliations

Appendix 1 Income statement reconciliations

				Qu	de d art er en
	31	M h 2 01 1 arc		31 De	mb 20 ce er	10	31	M h 2 01 0 arc
	Re allo ion cat of ff on e-o				Re allo ion cat of ff on e-o			Re allo ion cat of ff on e-o
	Ma ed na g £m	ite ms £m	Sta tut ory £m	Ma ed na g £m	ite ms £m	Sta tut ory £m	Ma ed na g £m	ite ms £m	Sta tut ory £m
Ne t in in ter est co me	3, 30 2	( 1)	3, 30 1	3, 57 8	2	3, 58 0	3, 53 4	8	3, 54 2
No n-i nte t in res co me	4, 73 1	( 4) 97	3, 75 7	3, 88 1	36 1	4, 24 2	5, 58 9	( ) 60 8	4, 98 1
To tal in co me	8, 03 3	( 97 ) 5	7, 05 8	7, 45 9	36 3	7, 82 2	9, 12 3	( 60 0 )	8, 52 3
tin Op era g ex p en se s	( 1) 4, 12	( ) 194	( ) 4, 31 5	( 1) 4, 08	( ) 42 6	( 7) 4, 50	( ) 4, 43 0	( 7) 28	( 7) 4, 71
Pro fit be for the tin ch e o r o p era g arg es	3, 91 2	( 1, 169 )	2, 74 3	3, 37 8	( 63 )	3, 31 5	4, 69 3	( 88 7)	3, 80 6
Ins laim t c ura nce ne s	( 2) 91	-	( 2) 91	( 2) 1, 18	-	( 2) 1, 18	( ) 1, 13 6	-	( ) 1, 13 6
Op tin rof it b efo im air los nt era g p re p me se s	3, 00 0	( 1, 169 )	1, 83 1	2, 19 6	( 63 )	2, 13 3	3, 55 7	( 88 7)	2, 67 0
Im irm t lo pa en sse s	( 7) 1, 94	-	( 7) 1, 94	( 1) 2, 14	-	( 1) 2, 14	( 5 ) 2, 67	-	( 5 ) 2, 67
it/ ( ) Op tin rof los era g p s	1, 05 3	( 1, 169 )	( ) 11 6	55	( 63 )	( ) 8	88 2	( 88 7)	( ) 5
Fa ir v alu f o de bt e o wn	( 48 0 )	48 0	-	58 2	( 2) 58	-	( 16 9 )	169	-
As Pr ctio n S ch red it d efa ult - f air lue ch set ote em e c sw ap va an g es	( 46 9 )	46 9	-	( 72 5 )	72 5	-	( 50 0 )	50 0	-
Am isa tio f p ha d i ible ort nta set n o urc se ng as s	( ) 44	44	-	( ) 96	96	-	( 65 )	65	-
Int ion d r ing rat est tur sts eg an ruc co	( 14 5 )	145	-	( 29 9 )	29 9	-	( 16 8 )	168	-
Str ate ic d isp als g os	( ) 23	23	-	50 2	( 2) 50	-	53	( ) 53	-
Bo s t nu ax	( 11 )	11	-	( 15 )	15	-	( 54 )	54	-
of Wr ite- do dw ill a nd oth inta ible set wn g oo er ng as s	-	-	-	( ) 10	10	-	-	-	-
RF S H old ing ino rity in ter est s m	3	( 3 )	-	( 2)	2	-	16	( 16 )	-
for Lo be e t ss ax	( ) 11 6	-	( ) 11 6	( ) 8	-	( ) 8	( ) 5	-	( ) 5
Ta x ( cha ) /cr ed it rg e	( 42 3 )	-	( 42 3 )	3	-	3	( 10 7)	-	( 10 7)
Lo fro nti ing tio ss m co nu op era ns	( 53 ) 9	-	( 53 ) 9	( 5 )	-	( 5 )	( 2) 11	-	( 2) 11
Pro fit fro dis nti ed tio of et tax m co nu op era ns , n	10	-	10	55	-	55	31 3	-	31 3
( Lo ) /p rof it f the eri od ss or p	( 52 ) 9	-	( 52 ) 9	50	-	50	20 1	-	20 1
No llin inte tro ts n-c on g res	1	-	1	( 38 )	-	( 38 )	( 34 4)	-	( 34 4)
fer Pre sh d o the r d ivid ds en ce are an en	-	-	-	-	-	-	( ) 10 5	-	( ) 10 5
( Lo ) /p rof it a ibu tab le t rdi d B sh ho lde ttr ss o o na ry an are rs	( 52 8 )	-	( 52 8 )	12	-	12	( 24 8 )	-	( 24 8 )

Appendix 2

Asset Protection Scheme

Appendix 2 Asset Protection Scheme

Covered assets roll forward

The table below shows the movement in covered assets.

	Covered amount
	£bn
Covered assets at 30 September 2010	205.4
Disposals	(3.0)
Maturities, amortisation and early repayments	(8.3)
Effect of foreign currency movements and other adjustments	0.6
Covered assets at 31 December 2010	194.7
Disposals	(1.4)
Maturities, amortisation and early repayments	(10.6)
Effect of foreign currency movements and other adjustments	(0.9)
Covered assets at 31 March 2011	181.8

Key points

• The reduction in covered assets was due to run-off of the portfolio, disposals, early repayments, maturing loans and the amortisation of consumer finance assets in line with the Scheme rules.
• The Group took advantage of market conditions and executed sales from a number of its portfolios.

Credit impairments and write downs

The table below analyses the cumulative credit impairment losses and adjustments to par value (including available-for-sale reserves) relating to the covered assets.

	31 March 2011 £m	31 December 2010 £m
Loans and advances	18,799	18,033
Debt securities	11,085	11,747
Derivatives	1,826	2,043
	31,710	31,823
By division:
UK Retail	3,053	2,964
UK Corporate	1,703	1,382
Ulster Bank	1,040	804
Retail & Commercial	5,796	5,150
Global Banking & Markets	1,445	1,496
Core	7,241	6,646
Non-Core	24,469	25,177
	31,710	31,823

Key point

• Cumulative credit impairments and write-downs decreased by £0.1 billion in the quarter, primarily reflecting a decrease due to exchange rate movements (£0.4 billion) and Non-Core disposals (£0.1 billion) partially offset by an increase in further impairments and write-downs (£0.4 billion).

Appendix 2 Asset Protection Scheme (continued)

First loss utilisation

Definitions of triggered amounts and other related aspects are set out in the Group's 2010 Annual Report and Accounts. The table below summarises the triggered amount and related cash recoveries by division.

		31 March 2011		31 December 2010
		Cash	Net		Cash	Net
	Triggered	recoveries	triggered	Triggered	recoveries	triggered
	amount	to date	amount	amount	to date	amount
	£m	£m	£m	£m	£m	£m
UK Retail	3,789	514	3,275	3,675	455	3,220
UK Corporate	5,573	1,404	4,169	4,640	1,115	3,525
Ulster Bank	1,659	216	1,443	1,500	160	1,340
Retail & Commercial	11,021	2,134	8,887	9,815	1,730	8,085
Global Banking & Markets	2,692	808	1,884	2,547	749	1,798
Core	13,713	2,942	10,771	12,362	2,479	9,883
Non-Core	31,991	5,269	26,722	32,138	4,544	27,594
	45,704	8,211	37,493	44,500	7,023	37,477
Loss credits			1,468			1,241
			38,961			38,718

Key points

• The Group received loss credits in relation to some of the withdrawals and disposals of £0.2 billion during Q1 2011. The Group and the Asset Protection Agency remain in discussion with regard to loss credits in relation to the withdrawal of £0.5 billion of derivative assets during Q2 2010 and the disposal of £0.6 billion of structured finance and leveraged finance assets.
• The Group currently expects recoveries on triggered amounts to be approximately 45% over the life of the relevant assets. On this basis, the expected loss on triggered assets at 31 March 2011 is approximately £25 billion (42%) of the £60 billion first loss threshold under APS.

Risk-weighted assets

The table below analyses by division, risk-weighted assets (RWAs) covered by APS.

	31 March 2011 £bn	31 December 2010 £bn
UK Retail	11.4	12.4
UK Corporate	21.5	22.9
Ulster Bank	7.4	7.9
Retail & Commercial	40.3	43.2
Global Banking & Markets	11.1	11.5
Core	51.4	54.7
Non-Core	47.0	50.9
APS RWAs	98.4	105.6

Key point

• The decrease of £7.2 billion in APS RWAs principally reflects pool movements, partially offset by changes in risk parameters.

Appendix 3

Businesses outlined for disposal

Appendix 3 Businesses outlined for disposal

To comply with EC State Aid requirements the Group agreed to make a series of divestments by the end of 2013: the sale of RBS Insurance, Global Merchant Services and its interest in RBS Sempra Commodities JV. The Group also agreed to dispose of its RBS England and Wales and NatWest Scotland branch-based businesses, along with certain SME and corporate activities across the UK ('UK branch-based businesses'). The disposals of Global Merchant Services and RBS Sempra Commodities JV businesses have now effectively been completed.

On 4 August 2010, the Group announced its agreement to sell 318 branches and associated assets and liabilities to Santander UK plc for a premium of £350 million to net assets at closing. The consideration will be paid in cash and is subject to certain closing adjustments. The transaction includes 311 Royal Bank of Scotland branches in England and Wales; seven NatWest branches in Scotland; the retail and SME customer accounts attached to these branches; the Direct SME business; and certain mid-corporate businesses. EC/UK merger control and HMRC clearances were received during Q4 2010. The separation and transfer process is underway, and a joint transition plan is being developed.

Preparations for the disposal of RBS Insurance, by way of a trade sale or public flotation targeted for the second half of 2012, continue. External advisors were appointed during Q4 2010 and the process of separation is proceeding on plan. However, the business continues to be managed and reported as a separate core division.

The table below shows Total income and Operating profit of RBS Insurance, and the UK branchbased businesses.

	Operating profit/(loss)
	Total income		before impairments		Operating profit/(loss)
	Q1 2011	FY 2010	Q1 2011	FY 2010	Q1 2011	FY 2010
	£m	£m	£m	£m	£m	£m
RBS Insurance (1)	1,070	4,369	67	(295)	67	(295)
UK branch-based businesses (2)	241	902	128	439	129	160
Total	1,311	5,271	195	144	196	(135)

The table below shows the estimated risk-weighted assets, total assets and capital of the businesses identified for disposal.

	RWAs		Total assets		Capital
	31 March	31 December	31 March	31 December	31 March	31 December
	2011	2010	2011	2010	2011	2010
	£bn	£bn	£bn	£bn	£bn	£bn
RBS Insurance (1)	n/m	n/m	12.5	12.4	4.0	4.0
UK branch-based businesses (2)	11.5	13.2	19.9	19.9	1.0	1.2
Total	11.5	13.2	32.4	32.3	5.0	5.2

Notes:

(1) As reported in the 2011 Q1 IMS and Annual Results for the year ended 31 December 2010 and excluding Non-Core business. Estimated capital includes approximately £1.0 billion of goodwill.

(2) All data are estimated; notional equity based upon 9% of RWAs.

Appendix 3 Businesses outlined for disposal

Further estimated information on the UK branch-based business by division is shown in the tables below:

	Division		Total
	UK	UK Corporate	Q1 2011 £m	FY 2010 £m
	Retail £m
		£m
Income statement
Net interest income	71	107	178	656
Non-interest income	26	37	63	246
Total income	97	144	241	902
Direct expenses
- staff	(19)	(20)	(39)	(176)
- other	(20)	(19)	(39)	(144)
Indirect expenses	(22)	(13)	(35)	(143)
	(61)	(52)	(113)	(463)
Operating profit before impairment losses	36	92	128	439
Impairment losses (1)	(20)	21	1	(279)
Operating profit	16	113	129	160
Analysis of income by product
Loans & advances	35	96	131	445
Deposits	26	33	59	261
Mortgages	31	-	31	120
Other	5	15	20	76
Total income	97	144	241	902
Net interest margin	4.51%	3.30%	3.69%	3.24%
Employee numbers (full time equivalents rounded to the
nearest hundred)	3,000	1,400	4,400	4,400

	Division				Total
	UK Retail £bn	UK Corporate £bn	Global Banking & Markets £bn	31 March 2011 £bn	31 December 2010 £bn
Capital and balance sheet
Total third party assets	6.8	13.9	-	20.7	20.7
Loans and advances to customers (gross)	6.8	13.9	-	20.7	20.7
Customer deposits	8.8	14.7	-	23.5	24.0
Derivative assets	-	-	0.4	0.4	n/a
Derivative liabilities	-	-	0.1	0.1	n/a
Risk elements in lending	0.5	1.2	-	1.7	1.7
Loan:deposit ratio	77%	95%	-	88%	86%
Risk-weighted assets	3.2	8.3	-	11.5	13.2

Note:

(1) Q1 2011 impairment losses benefited from £54 million of latent and other provision releases.