Final Results - Part 3 of 6

Companies

NATWEST GROUP (NWG)

UK 100

Latest directors dealings

3 minutes ago Avon Technologies plc
9 minutes ago Thungela Resources Limited NPV (DI)
9 minutes ago Thungela Resources Limited NPV (DI)
27 minutes ago Standard Life plc
54 minutes ago Naked Wines

All directors dealings today

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*
	£m	£m	£m	£m	£m

Interest receivable	16,740	18,530	3,973	4,207	4,439
Interest payable	(5,759)	(7,128)	(1,209)	(1,427)	(1,666)

Net interest income	10,981	11,402	2,764	2,780	2,773

Fees and commissions receivable	5,460	5,709	1,370	1,382	1,374
Fees and commissions payable	(942)	(834)	(244)	(238)	(245)
Income from trading activities	2,685	1,675	177	444	474
Gain on redemption of own debt	175	454	(29)	13	-
Other operating income/(loss)	1,398	(465)	31	35	227

Non-interest income	8,776	6,539	1,305	1,636	1,830

Total income	19,757	17,941	4,069	4,416	4,603

Staff costs	(7,163)	(8,188)	(1,541)	(1,895)	(1,656)
Premises and equipment	(2,348)	(2,232)	(700)	(544)	(592)
Other administrative expenses	(7,244)	(5,593)	(3,960)	(1,103)	(2,506)
Depreciation and amortisation	(1,410)	(1,802)	(336)	(338)	(498)
Write-down of goodwill and other intangible assets	(1,403)	(124)	(1,403)	-	(124)

Operating expenses	(19,568)	(17,939)	(7,940)	(3,880)	(5,376)

Profit/(loss) before impairment losses	189	2	(3,871)	536	(773)
Impairment losses	(8,432)	(5,279)	(5,112)	(1,170)	(1,454)

Operating loss before tax	(8,243)	(5,277)	(8,983)	(634)	(2,227)
Tax credit/(charge)	(382)	(441)	377	(81)	(39)

Loss from continuing operations	(8,625)	(5,718)	(8,606)	(715)	(2,266)

Profit/(loss) from discontinued operations, net of tax
- Direct Line Group	127	(184)	-	-	(351)
- Other	21	12	15	(5)	6

Profit/(loss) from discontinued operations,
net of tax	148	(172)	15	(5)	(345)

Loss for the period	(8,477)	(5,890)	(8,591)	(720)	(2,611)
Non-controlling interests	(120)	136	3	(6)	108
Preference share and other dividends	(398)	(301)	(114)	(102)	(115)

Loss attributable to ordinary and
B shareholders	(8,995)	(6,055)	(8,702)	(828)	(2,618)

Basic and diluted loss per ordinary and equivalent
B share from continuing operations	(81.3p)	(54.5p)	(77.3p)	(7.4p)	(21.6p)

Basic and diluted loss per ordinary and equivalent
B share from continuing and discontinued operations	(80.3p)	(55.0p)	(77.3p)	(7.4p)	(23.6p)

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*
	£m	£m	£m	£m	£m

Loss for the period	(8,477)	(5,890)	(8,591)	(720)	(2,611)

Items that do not qualify for reclassification
Actuarial gains/(losses) on defined benefit plans	446	(2,158)	446	-	(2,158)
Tax	(246)	352	(83)	(163)	429

	200	(1,806)	363	(163)	(1,729)

Items that do qualify for reclassification
Available-for-sale financial assets	(406)	645	(103)	430	(70)
Cash flow hedges	(2,291)	1,006	(667)	(88)	(126)
Currency translation	(229)	(900)	(328)	(1,211)	169
Tax	1,014	(152)	203	85	118

	(1,912)	599	(895)	(784)	91

Other comprehensive loss after tax	(1,712)	(1,207)	(532)	(947)	(1,638)

Total comprehensive loss for the period	(10,189)	(7,097)	(9,123)	(1,667)	(4,249)

Total comprehensive loss is attributable to:
Non-controlling interests	137	(129)	16	(13)	(104)
Preference shareholders	349	273	99	98	99
Paid-in equity holders	49	28	15	4	16
Ordinary and B shareholders	(10,724)	(7,269)	(9,253)	(1,756)	(4,260)

	(10,189)	(7,097)	(9,123)	(1,667)	(4,249)

·	The movement in available-for-sale financial assets during the year and quarter reflects net realised gains on high quality UK, US and German sovereign bonds.

·	Cash flow hedging losses in both the year and Q4 2013 largely result from increases in Sterling and US dollar swap rates in the main durations of the underlying portfolio.

·	Currency translation losses during the year are principally due to the strengthening of Sterling against the US dollar, 2.3%, partially offset by weakening against the Euro, 2.1%. Currency translation losses during the fourth quarter arose mainly from the 2.2% strengthening of Sterling against the US dollar.

·	Actuarial gains on defined benefit plans primarily relate to the higher value of assets of the UK pension schemes and changes in the discount rate. Both of these improvements were driven by improving market conditions, particularly yields on AA rated corporate bonds. These gains were partially offset by an increase in the assumed rate of inflation.

	31 December	30 September	31 December
	2013	2013	2012*
	£m	£m	£m

Assets
Cash and balances at central banks	82,659	87,066	79,290
Net loans and advances to banks	27,555	28,206	29,168
Reverse repurchase agreements and stock borrowing	26,516	33,757	34,783
Loans and advances to banks	54,071	61,963	63,951
Net loans and advances to customers	390,825	406,927	430,088
Reverse repurchase agreements and stock borrowing	49,897	62,214	70,047
Loans and advances to customers	440,722	469,141	500,135
Debt securities	113,599	122,886	157,438
Equity shares	8,811	10,363	15,232
Settlement balances	5,591	18,099	5,741
Derivatives	288,039	323,657	441,903
Intangible assets	12,368	13,742	13,545
Property, plant and equipment	7,909	8,476	9,784
Deferred tax	3,478	3,022	3,443
Prepayments, accrued income and other assets	7,614	8,586	7,820
Assets of disposal groups	3,017	2,435	14,013

Total assets	1,027,878	1,129,436	1,312,295

Liabilities
Bank deposits	35,329	38,601	57,073
Repurchase agreements and stock lending	28,650	32,748	44,332
Deposits by banks	63,979	71,349	101,405
Customer deposits	414,396	434,305	433,239
Repurchase agreements and stock lending	56,484	72,636	88,040
Customer accounts	470,880	506,941	521,279
Debt securities in issue	67,819	71,781	94,592
Settlement balances	5,313	18,514	5,878
Short positions	28,022	31,020	27,591
Derivatives	285,526	319,464	434,333
Accruals, deferred income and other liabilities	16,017	14,157	14,801
Retirement benefit liabilities	3,210	3,597	3,884
Deferred tax	507	514	1,141
Subordinated liabilities	24,012	23,720	26,773
Liabilities of disposal groups	3,378	249	10,170

Total liabilities	968,663	1,061,306	1,241,847

Equity
Non-controlling interests	473	462	1,770
Owners' equity*
Called up share capital	6,714	6,697	6,582
Reserves	52,028	60,971	62,096

Total equity	59,215	68,130	70,448

Total liabilities and equity	1,027,878	1,129,436	1,312,295

* Owners' equity attributable to:
Ordinary and B shareholders	53,450	62,376	63,386
Other equity owners	5,292	5,292	5,292

	58,742	67,668	68,678

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September
	2013	2012*	2013	2013
	%	%	%	%

Average yields, spreads and margins of the
banking business
Gross yield on interest-earning assets of banking business	3.07	3.12	3.01	3.07
Cost of interest-bearing liabilities of banking business	(1.38)	(1.49)	(1.22)	(1.38)

Interest spread of banking business	1.69	1.63	1.79	1.69
Benefit from interest-free funds	0.32	0.29	0.29	0.32

Net interest margin of banking business	2.01	1.92	2.08	2.01

Average interest rates
The Group's base rate	0.50	0.50	0.50	0.50

London inter-bank three month offered rates
- Sterling	0.52	0.82	0.52	0.51
- Eurodollar	0.24	0.43	0.24	0.26
- Euro	0.27	0.53	0.24	0.22

Final Results - Part 3 of 6

Strategic review

In November 2013, the Group announced that it was undertaking a comprehensive business review of its customer-facing businesses, IT and operations and organisational and decision making structures.

Companies

UK 100

Latest directors dealings

	Year ended			Year ended
	31 December 2013			31 December 2012*
	Average			Average
	balance	Interest	Rate	balance	Interest	Rate
	£m	£m	%	£m	£m	%

Assets
Loans and advances to banks	74,706	430	0.58	73,998	493	0.67
Loans and advances to customers	399,856	15,087	3.77	429,386	16,188	3.77
Debt securities	69,319	1,189	1.72	90,678	1,857	2.05

Interest-earning assets
- banking business (1,3,5)	543,881	16,706	3.07	594,062	18,538	3.12
- trading business (4)	216,211			240,131

Non-interest earning assets	467,274			596,179

Total assets	1,227,366			1,430,372

Memo: Funded assets	845,506			942,847

Liabilities
Deposits by banks	23,474	395	1.68	38,405	580	1.51
Customer accounts	336,069	2,831	0.84	334,440	3,496	1.05
Debt securities in issue	55,923	1,389	2.48	91,741	2,173	2.37
Subordinated liabilities	24,188	856	3.54	21,917	679	3.10
Internal funding of trading business	(19,564)	329	(1.68)	(9,148)	199	(2.18)

Interest-bearing liabilities
- banking business (1,2,3)	420,090	5,800	1.38	477,355	7,127	1.49
- trading business (4)	223,264			248,647

Non-interest-bearing liabilities
- demand deposits	76,607			74,320
- other liabilities	438,856			556,242
Owners' equity	68,549			73,808

Total liabilities and owners' equity	1,227,366			1,430,372

(1)	Interest receivable has been increased by £4 million (2012 - £8 million) and interest payable has been increased by £83 million (2012 - £152 million) 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.
(2)	Interest payable has been decreased by £11 million (2012 - £15 million) to exclude RFS Holdings minority interest. Related interest-bearing liabilities have also been adjusted.
(3)	Interest receivable has been decreased by £38 million (2012 - nil) and interest payable has been decreased by £31 million (2012 - £138 million) in respect of non-recurring adjustments.
(4)	Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(5)	Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.

(1)	Paid-in equity was increased by £548 million on adoption of IFRS 10 - see page 93.
(2)	Net of tax - £35 million charge.
(3)	Net of tax - £1 million charge.

	2013	2012*
	£m	£m

Operating activities
Operating loss before tax on continuing operations	(8,243)	(5,277)
Operating profit/(loss) before tax on discontinued operations	177	(111)
Adjustments for non-cash items	6,561	9,306

Net cash (outflow)/inflow from trading activities	(1,505)	3,918
Changes in operating assets and liabilities	(28,780)	(48,736)

Net cash flows from operating activities before tax	(30,285)	(44,818)
Income taxes paid	(346)	(295)

Net cash flows from operating activities	(30,631)	(45,113)

Net cash flows from investing activities	21,183	27,175

Net cash flows from financing activities	(2,728)	2,017

Effects of exchange rate changes on cash and cash equivalents	512	(3,893)

Net decrease in cash and cash equivalents	(11,664)	(19,814)
Cash and cash equivalents at beginning of year	132,841	152,655

Cash and cash equivalents at end of year	121,177	132,841

●	in May 2013, IFRIC 21 'Levies'. This interpretation provides guidance on accounting for the liability to pay a government imposed levy. IFRIC 21 is effective for annual periods beginning on or after 1 January 2014.

●	in May 2013, 'Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)'. These amendments align IAS 36's disclosure requirements about recoverable amounts with IASB's original intentions. They are effective for annual periods beginning on or after 1 January 2014.

●	in June 2013, 'Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)'. These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. They are effective for annual periods beginning on or after 1 January 2014.
●	in November 2013, 'Defined Benefit Plans: Employee Contributions'. This amendment distinguishes the accounting for employee contributions that are related to service from those that are independent of service. It is effective for annual periods beginning on or after 1 July 2014.

●	in November 2013, IFRS 9 'Financial Instruments' (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) which sets out new requirements for hedge accounting and in respect of IFRS 9 transition.
●	in December 2013, Annual Improvements to IFRS 2010 - 2012 and 2011 - 2013 cycles. There are a number of minor changes to IFRS that will not have a material effect on the Group's financial statements. All amendments are effective for annual periods beginning on or after 1 July 2014.

3. Analysis of income, expenses and impairment losses

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*
	£m	£m	£m	£m	£m

Loans and advances to customers	15,125	16,188	3,656	3,829	3,940
Loans and advances to banks	430	493	102	106	114
Debt securities	1,185	1,849	215	272	385

Interest receivable	16,740	18,530	3,973	4,207	4,439

Customer accounts	2,831	3,491	562	692	849
Deposits by banks	406	600	88	95	122
Debt securities in issue	1,307	2,023	294	315	404
Subordinated liabilities	886	815	216	223	201
Internal funding of trading businesses	329	199	49	102	90

Interest payable	5,759	7,128	1,209	1,427	1,666

Net interest income	10,981	11,402	2,764	2,780	2,773

Fees and commissions receivable
- payment services	1,432	1,368	368	375	317
- credit and debit card fees	1,078	1,088	265	284	280
- lending (credit facilities)	1,377	1,480	344	335	368
- brokerage	479	548	110	117	122
- trade finance	300	314	74	73	64
- investment management	450	471	131	109	106
- other	344	440	78	89	117

	5,460	5,709	1,370	1,382	1,374
Fees and commissions payable - banking	(942)	(834)	(244)	(238)	(245)

Net fees and commissions	4,518	4,875	1,126	1,144	1,129

Foreign exchange	854	654	206	198	86
Interest rate	596	1,932	(54)	248	456
Credit	998	737	2	116	118
Own credit adjustments	35	(1,813)	15	(155)	(98)
Other	202	165	8	37	(88)

Income from trading activities	2,685	1,675	177	444	474

Gain/(loss) on redemption of own debt	175	454	(29)	13	-

Operating lease and other rental income	484	876	103	125	152
Own credit adjustments	(155)	(2,836)	(15)	(341)	(122)
Changes in the fair value of:
- securities and other financial assets and liabilities	(26)	146	(91)	36	19
- investment properties	(281)	(153)	(258)	(7)	(77)
Profit on sale of securities	830	1,146	91	167	237
Profit/(loss) on sale of:
- property, plant and equipment	44	34	11	10	(1)
- subsidiaries and associates	168	95	171	(21)	(21)
Dividend income	87	59	46	6	16
Share of profits less losses of associates	320	29	43	73	21
Other income	(73)	139	(70)	(13)	3

Other operating income	1,398	(465)	31	35	227

(1)	Includes bank levy of £200 million (2012 - £175 million), Payment Protection Insurance costs of £900 million (2012 - £1,110 million), Interest Rate Hedging Products redress and related costs of £550 million (2012 - £700 million) and regulatory and legal actions of £2,394 million (2012 - £381 million).
(2)	Excludes goodwill of £394 million written-off in Q4 2012 in respect of Direct Line Group.

			Sensitivity
	Actual to date	Current assumption	Change in assumption	Consequential change in provision
Assumption	Actual to date	Current assumption	%	£m

Past business review take up rate	36%	38%	+/-5	+/-45
Uphold rate	84%	83%	+/-5	+/-30
Average redress	£1,733	£1,646	+/-5	+/-26

Staff expenses

Staff expenses comprise	2013	2012*	Change
Staff expenses comprise	£m	£m	%

Salaries	4,429	4,748	(7)
Variable compensation	588	716	(18)
Temporary and contract costs	650	699	(7)
Social security costs	486	562	(14)
Share based compensation	49	126	(61)
Pension costs
- defined benefit schemes	517	528	(2)
- curtailment and settlement gains	(7)	(41)	(83)
- defined contribution schemes	76	29	162
Severance	69	426	(84)
Other	306	395	(23)

Staff expenses	7,163	8,188	(13)

Variable compensation awards
The following tables analyse Group and Markets variable compensation awards for 2013⁽¹⁾.

	Group			Markets
	2013	2012	Change	2013	2012	Change
	£m	£m	%	£m	£m	%

Non-deferred cash awards (2)	67	73	(8)	9	10	(10)
Non-deferred share awards	-	27	(100)	-	17	(100)

Total non-deferred variable compensation	67	100	(33)	9	27	(67)

Deferred bond awards	188	497	(62)	43	212	(80)
Deferred share awards	321	82	291	185	48	285

Total deferred variable compensation	509	579	(12)	228	260	(12)

Total variable compensation (3)	576	679	(15)	237	287	(17)

Variable compensation as a % of operating profit (4)	19%	19%		27%	16%
Proportion of variable compensation that is deferred	88%	85%		96%	91%
- Of which deferred bond awards	37%	86%		19%	82%
- Of which deferred share awards	63%	14%		81%	18%

	Year ended
	31 December 2013			31 December 2012
		Non-			Non-	RFS
	Core	Core	Total	Core	Core	MI	Total
	£m	£m	£m	£m	£m	£m	£m

At beginning of period	10,062	11,188	21,250	8,414	11,469	-	19,883
Transfers (to)/from disposal groups	(9)	-	(9)	764	-	-	764
Currency translation and other adjustments	81	40	121	53	(363)	-	(310)
Disposals	-	(77)	(77)	-	(1)	(4)	(5)
Amounts written-off	(2,490)	(1,856)	(4,346)	(2,145)	(2,121)	-	(4,266)
Recoveries of amounts previously written-off	168	88	256	211	130	-	341
Charge to income statement
- continuing operations	3,766	4,646	8,412	2,995	2,320	-	5,315
- discontinued operations	-	-	-	-	-	4	4
Unwind of discount (recognised in interest income)	(201)	(190)	(391)	(230)	(246)	-	(476)

At end of period	11,377	13,839	25,216	10,062	11,188	-	21,250

	Quarter ended
	31 December 2013			30 September 2013			31 December 2012
		Non-			Non-			Non-	RFS
	Core	Core	Total	Core	Core	Total	Core	Core	MI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

At beginning of period	10,101	11,320	21,421	10,358	11,395	21,753	9,203	11,115	-	20,318
Transfers (to)/from disposal groups	(9)	-	(9)	-	-	-	764	-	-	764
Currency translation and other adjustments	(28)	(90)	(118)	(98)	(211)	(309)	57	139	-	196
Disposals	-	-	-	-	(77)	(77)	-	(1)	(4)	(5)
Amounts written-off	(607)	(586)	(1,193)	(728)	(302)	(1,030)	(688)	(733)	-	(1,421)
Recoveries of amounts previously written-off	38	27	65	40	30	70	50	46	-	96
Charge to income statement
- continuing operations	1,924	3,207	5,131	584	536	1,120	729	673	-	1,402
- discontinued operations	-	-	-	-	-	-	-	-	4	4
Unwind of discount
(recognised in interest income)	(42)	(39)	(81)	(55)	(51)	(106)	(53)	(51)	-	(104)

At end of period	11,377	13,839	25,216	10,101	11,320	21,421	10,062	11,188	-	21,250

	Net	Non-
	interest	interest	Total	Operating	Impairment	Operating
	income	income	income	expenses	losses	profit/(loss)
Year ended 31 December 2013	£m	£m	£m	£m	£m	£m

UK Retail	3,979	958	4,937	(2,670)	(324)	1,943
UK Corporate	2,874	1,593	4,467	(2,219)	(1,188)	1,060
Wealth	674	419	1,093	(843)	(29)	221
International Banking	713	1,135	1,848	(1,340)	(229)	279
Ulster Bank	631	240	871	(554)	(1,774)	(1,457)
US Retail & Commercial	1,916	1,073	2,989	(2,186)	(156)	647
Markets (1)	157	3,165	3,322	(2,610)	(92)	620
Central items	147	114	261	(286)	(64)	(89)

Core	11,091	8,697	19,788	(12,708)	(3,856)	3,224
Non-Core (2)	(99)	(247)	(346)	(605)	(4,576)	(5,527)

Managed basis	10,992	8,450	19,442	(13,313)	(8,432)	(2,303)
Reconciling items
Own credit adjustments (3)	-	(120)	(120)	-	-	(120)
Payment Protection Insurance costs	-	-	-	(900)	-	(900)
Interest Rate Hedging Products
redress and related costs	-	-	-	(550)	-	(550)
Regulatory and legal actions	-	-	-	(2,394)	-	(2,394)
Integration and restructuring costs	-	-	-	(656)	-	(656)
Gain on redemption of own debt	-	175	175	-	-	175
Write-down of goodwill	-	-	-	(1,059)	-	(1,059)
Amortisation of purchased intangible assets	-	-	-	(153)	-	(153)
Strategic disposals	-	161	161	-	-	161
Bank levy	-	-	-	(200)	-	(200)
Write-down of other intangible assets	-	-	-	(344)	-	(344)
RFS Holdings minority interest	(11)	110	99	1	-	100

Statutory basis	10,981	8,776	19,757	(19,568)	(8,432)	(8,243)

Reconciliation of variable compensation awards to income statement charge	2013	2012
	£m	£m

Variable compensation awarded	576	679
Less: deferral of charge for amounts awarded for current year	(245)	(262)

Income statement charge for amounts awarded in current year	331	417

Add: current year charge for amounts deferred from prior years	294	355
Less: forfeiture of amounts deferred from prior years	(37)	(56)

Income statement charge for amounts deferred from prior year	257	299

Income statement charge for variable compensation (3)	588	716

	Actual		Expected
Year in which income statement charge is expected to be taken for deferred variable compensation				2015
	2012	2013	2014	and beyond
	£m	£m	£m	£m

Variable compensation deferred from 2011 and earlier	414	105	5	-
Variable compensation deferred from 2012	-	199	39	24
Clawback of variable compensation	(59)	(10)	(3)	-
Less: Forfeiture of amounts deferred from prior years	(56)	(37)	-	-
Variable compensation for 2013 deferred	-	-	170	76

	299	257	211	100

(1)	The tables above relate to continuing businesses only. There are no amounts relating to discontinued businesses in 2013 (2012 - £24 million).
(2)	Cash payments to all employees are limited to £2,000.
(3)	Excludes other performance related compensation.
(4)	Reported operating profit excluding the impact of RCR and before variable compensation expense and one-off and other items.

4. Pensions
	2013	2012*
Pension costs	£m	£m

Defined benefit schemes	510	487
Defined contribution schemes	76	29

Pension costs - continuing operations	586	516

	2013	2012*
Net pension deficit	£m	£m

At 1 January	3,740	2,051
Currency translation and other adjustments	13	(12)
Income statement
Pension costs
- continuing operations	510	487
- discontinued operations	-	30
Net actuarial (gains)/losses	(446)	2,158
Contributions by employer	(821)	(977)
Transfer to disposal groups	-	3

At 31 December	2,996	3,740

Net assets of schemes in surplus	(214)	(144)
Net liabilities of schemes in deficit	3,210	3,884

7. Profit/(loss) attributable to non-controlling interests

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*
	£m	£m	£m	£m	£m

RBS Sempra Commodities JV	(3)	3	(2)	1	1
RFS Holdings BV Consortium Members	113	(30)	(5)	5	1
Direct Line Group	19	(125)	-	-	(125)
Other	(9)	16	4	-	15

Profit/(loss) attributable to non-controlling interests	120	(136)	(3)	6	(108)

8. Dividends
Dividends paid to preference shareholders and paid-in equity holders are as follows:

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*
	£m	£m	£m	£m	£m

Preference shareholders
Non-cumulative preference shares of US$0.01	226	153	41	69	43
Non-cumulative preference shares of €0.01	121	115	57	29	55
Non-cumulative preference shares of £1	2	5	1	-	1

Paid-in equity holders
Interest on securities classified as equity, net of tax	49	28	15	4	16

	398	301	114	102	115

9. Earnings per ordinary and equivalent B share
Earnings per ordinary and equivalent B share (1) have been calculated based on the following:

	Year ended		Quarter ended
	31 December	31 December	31 December	30 September	31 December
	2013	2012*	2013	2013	2012*

Earnings
Loss from continuing operations attributable
to ordinary and equivalent B shareholders (£m)	(9,106)	(5,995)	(8,706)	(825)	(2,393)
Profit/(loss) from discontinued operations attributable
to ordinary and equivalent B shareholders (£m)	111	(60)	4	(3)	(225)

Loss attributable to ordinary and equivalent B shareholders (£m)	(8,995)	(6,055)	(8,702)	(828)	(2,618)

Ordinary shares outstanding during the period (millions)	6,096	5,902	6,156	6,123	6,003
Equivalent B shares in issue during the period (millions)	5,100	5,100	5,100	5,100	5,100

Weighted average number of ordinary
shares and equivalent B shares
outstanding during the period (millions)	11,196	11,002	11,256	11,223	11,103

Basic (loss)/earnings per ordinary and equivalent B
share from continuing operations	(81.3p)	(54.5p)	(77.3p)	(7.4p)	(21.6p)
Own credit adjustments	1.0p	32.5p	-	3.5p	1.1p
Payment Protection Insurance costs	6.2p	7.8p	3.1p	1.7p	3.1p
Interest Rate Hedging Products redress and related
costs	3.8p	4.9p	3.4p	-	4.9p
Regulatory fines	15.1p	3.5p	11.1p	0.5p	3.4p
Integration and restructuring costs	4.6p	10.1p	1.2p	1.4p	4.1p
(Gain)/loss on redemption of own debt	(1.7p)	(3.2p)	0.2p	(0.1p)	-
Write-down of goodwill	9.4p	0.1p	9.4p	-	0.1p
Asset Protection Scheme	-	0.3p	-	-	-
Amortisation of purchased intangible assets	1.1p	1.2p	0.3p	0.3p	0.2p
Strategic disposals	(1.4p)	(1.0p)	(1.5p)	0.1p	0.2p
Bank levy	1.8p	1.6p	1.8p	-	1.6p
Write-down of other intangible assets	3.1p	1.0p	3.1p	-	1.0p

Adjusted (loss)/earnings per ordinary and equivalent
B share from continuing operations (1)	(38.3p)	4.3p	(45.2p)	-	(1.9p)

Basic and diluted loss per ordinary and equivalent B
share from continuing and discontinuing operations	(80.3p)	(55.0p)	(77.3p)	(7.4p)	(23.6p)

(1)	Reallocation of £2 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(2)	Reallocation of £38 million between net interest income and non-interest income in respect of funding costs of rental assets, £35 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £3 million.
(3)	Comprises £35 million gain included in 'Income from trading activities' and £155 million loss included in 'Other operating income' on a statutory basis.

10. Segmental analysis (continued)
	Net	Non-
	interest	interest	Total	Operating	Impairment	Operating
	income	income	income	expenses	losses	profit/(loss)
Year ended 31 December 2012	£m	£m	£m	£m	£m	£m

UK Retail	3,990	979	4,969	(2,549)	(529)	1,891
UK Corporate	2,974	1,749	4,723	(2,089)	(838)	1,796
Wealth	720	450	1,170	(881)	(46)	243
International Banking (1)	913	1,209	2,122	(1,417)	(111)	594
Ulster Bank	649	196	845	(521)	(1,364)	(1,040)
US Retail & Commercial	1,932	1,159	3,091	(2,246)	(91)	754
Markets (2)	111	4,372	4,483	(2,937)	(37)	1,509
Central items	(116)	510	394	(270)	(40)	84

Core	11,173	10,624	21,797	(12,910)	(3,056)	5,831
Non-Core (3)	244	44	288	(944)	(2,223)	(2,879)

Managed basis	11,417	10,668	22,085	(13,854)	(5,279)	2,952
Reconciling items
Own credit adjustments (4)	-	(4,649)	(4,649)	-	-	(4,649)
Payment Protection Insurance costs	-	-	-	(1,110)	-	(1,110)
Interest Rate Hedging Products redress and
related costs	-	-	-	(700)	-	(700)
Regulatory and legal actions	-	-	-	(381)	-	(381)
Integration and restructuring costs	-	-	-	(1,415)	-	(1,415)
Gain on redemption of own debt	-	454	454	-	-	454
Write-down of goodwill	-	-	-	(18)	-	(18)
Asset Protection Scheme (5)	-	(44)	(44)	-	-	(44)
Amortisation of purchased intangible assets	-	-	-	(178)	-	(178)
Strategic disposals	-	113	113	-	-	113
Bank levy	-	-	-	(175)	-	(175)
Write-down of other intangible assets	-	-	-	(106)	-	(106)
RFS Holdings minority interest	(15)	(3)	(18)	(2)	-	(20)

Statutory basis	11,402	6,539	17,941	(17,939)	(5,279)	(5,277)

(1)	Reallocation of £9 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2)	Reallocation of £2 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(3)	Reallocation of £102 million between net interest income and non-interest income in respect of funding costs of rental assets, £115 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £13 million.
(4)	Comprises £1,813 million loss included in 'Income from trading activities' and £2,836 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 £1 million between net interest income and non-interest income to record interest in financial assets and liabilities designated as fair value through profit or loss.
(2)	Reallocation of £8 million between net interest income and non-interest income in respect of funding costs of rental assets, £7 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £1 million.

(1)	Reallocation of £10 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 through profit or loss, £1 million.
(2)	Comprises £155 million loss included in 'Income from trading activities' and £341 million loss included in 'Other operating income' on a statutory basis.

(1)	Reallocation of £3 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(2)	Reallocation of £6 million between net interest income and non-interest income in respect of funding costs of rental assets, £12 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £6 million.
(3)	Comprises £98 million loss included in 'Income from trading activities' and £112 million loss included in 'Other operating income' on a statutory basis.

10. Segmental analysis (continued)

Total assets by division
	31 December	30 September	31 December
	2013	2013	2012
Total assets	£m	£m	£m

UK Retail	117,577	117,020	117,411
UK Corporate	104,985	106,995	110,158
Wealth	21,101	21,046	21,484
International Banking	48,526	53,276	53,091
Ulster Bank	28,170	29,395	30,754
US Retail & Commercial	71,738	71,911	72,902
Markets	495,106	564,457	714,303
Central items	108,569	123,345	115,239

Core	995,772	1,087,445	1,235,342
Non-Core	31,197	41,065	63,418

	1,026,969	1,128,510	1,298,760
Reconciling items
Direct Line Group	-	-	12,697
RFS Holdings minority interest	909	926	838

	1,027,878	1,129,436	1,312,295

	HFT (1)	DFV (2)		AFS (4)	LAR (5)	Other			Total
						financial		Non
						instruments		financial
						(amortised	Finance	assets/
			HD (3)			cost)	leases	liabilities
31 December 2013	£m	£m	£m	£m	£m	£m	£m	£m	£m

Assets
Cash and balances at central banks	-	-		-	82,659				82,659
Loans and advances to banks
- reverse repos	25,795	-		-	721				26,516
- other	9,952	-		-	17,603				27,555
Loans and advances to customers
- reverse repos	49,897	-		-	-				49,897
- other	19,170	49		-	364,772		6,834		390,825
Debt securities	56,582	122		53,107	3,788				113,599
Equity shares	7,199	400		1,212	-				8,811
Settlement balances	-	-		-	5,591				5,591
Derivatives	283,508		4,531						288,039
Intangible assets								12,368	12,368
Property, plant and equipment								7,909	7,909
Deferred tax								3,478	3,478
Prepayments, accrued income and
other assets	-	-		-	-			7,614	7,614
Assets of disposal groups								3,017	3,017

	452,103	571	4,531	54,319	475,134		6,834	34,386	1,027,878

Liabilities
Deposits by banks
- repos	23,127	-				5,523			28,650
- other	19,764	-				15,565			35,329
Customer accounts
- repos	52,300	-				4,184			56,484
- other	10,236	5,862				398,298			414,396
Debt securities in issue	8,560	15,848				43,411			67,819
Settlement balances	-	-				5,313			5,313
Short positions	28,022	-							28,022
Derivatives	281,299		4,227						285,526
Accruals, deferred income and
other liabilities	-	-				1,764	19	14,234	16,017
Retirement benefit liabilities								3,210	3,210
Deferred tax								507	507
Subordinated liabilities	-	868				23,144			24,012
Liabilities of disposal groups								3,378	3,378

	423,308	22,578	4,227			497,202	19	21,329	968,663

Equity									59,215

									1,027,878

11. Financial instruments: Classification (continued)
	HFT (1)	DFV (2)		AFS (4)	LAR (5)	Other			Total
						financial		Non
						instruments		financial
						(amortised	Finance	assets/
			HD (3)			cost)	leases	liabilities
31 December 2012	£m	£m	£m	£m	£m	£m	£m	£m	£m

Assets
Cash and balances at central banks	-	-		-	79,290				79,290
Loans and advances to banks
- reverse repos	33,394	-		-	1,389				34,783
- other	13,265	-		-	15,903				29,168
Loans and advances to customers
- reverse repos	70,025	-		-	22				70,047
- other	24,841	189		-	397,824		7,234		430,088
Debt securities	78,340	873		73,737	4,488				157,438
Equity shares	13,329	533		1,370					15,232
Settlement balances	-	-		-	5,741				5,741
Derivatives	433,264		8,639						441,903
Intangible assets								13,545	13,545
Property, plant and equipment								9,784	9,784
Deferred tax								3,443	3,443
Prepayments, accrued income and
other assets	-	-		-	-			7,820	7,820
Assets of disposal groups								14,013	14,013

	666,458	1,595	8,639	75,107	504,657		7,234	48,605	1,312,295

Liabilities
Deposits by banks
- repos	36,370	-				7,962			44,332
- other	30,571	-				26,502			57,073
Customer accounts
- repos	82,224	-				5,816			88,040
- other	12,077	6,323				414,839			433,239
Debt securities in issue	10,879	23,614				60,099			94,592
Settlement balances	-	-				5,878			5,878
Short positions	27,591	-							27,591
Derivatives	428,537		5,796						434,333
Accruals, deferred income and
other liabilities	-	-				1,684	12	13,105	14,801
Retirement benefit liabilities								3,884	3,884
Deferred tax								1,141	1,141
Subordinated liabilities	-	1,128				25,645			26,773
Liabilities of disposal groups								10,170	10,170

	628,249	31,065	5,796			548,425	12	28,300	1,241,847

Equity									70,448

									1,312,295

(1)	Held-for-trading.
(2)	Designated as at fair value.
(3)	Hedging derivatives.
(4)	Available-for-sale.
(5)	Loans and receivables.

The table below analyses CVA relating to other counterparties by rating and sector.
	31 December
Ratings:	2013
Ratings:	£m

AAA	104
AA to AA+	13
A to AA-	168
BBB- to A-	446
Non-investment grade	936

	1,667

Sector:
Banks	89
Other financial institutions	199
Corporate	1,126
Government	253

	1,667

·	Monoline insurers and CDPC: reduced exposures during the year, tighter credit spreads and exchange rate movements contributed to the decrease in CVA.

·	Other counterparties: the decrease in CVA during the year was driven by tighter credit spreads, reduction in exposure due to market movements together with realised default losses and reserve releases on certain exposures following restructuring. The net impact of updates to counterparty ratings and recovery rate assumptions also contributed to the decrease. This was partially offset by an increase in CVA due to methodology refinements.

·	The decrease in bid-offer reserves during the year reflects risk reduction.

·	Reduction in exposure due to market moves together with the impact of methodology refinements contributed to the decrease in FVA. This was partially offset by additional funding related reserves on uncollateralised derivatives in Q4 2013.