Final Results

Royal Bank of Scotland Group PLC 28 February 2002 PART 1 THE ROYAL BANK OF SCOTLAND GROUP plc YEAR ENDED 31 DECEMBER 2001 RESULTS THE ROYAL BANK OF SCOTLAND GROUP plc FINANCIAL HIGHLIGHTS Pro forma 31 December 31 December 2001 2000* £m £m Increase Total income 14,581 12,358 18% --------- --------- Operating expenses 6,841 6,614 3% --------- --------- Profit before tax, goodwill amortisation and integration costs 5,801 4,401 32% --------- --------- Profit before tax 4,275 3,327 28% --------- --------- Cost:income ratio 46.9% 53.5% - --------- --------- Adjusted earnings per ordinary share 127.9p 102.0p 25% --------- --------- Dividends per ordinary share 38.0p 33.0p 15% --------- --------- * See page 22 for the basis of preparation of the pro forma results. Sir George Mathewson, Chairman of The Royal Bank of Scotland Group plc said:- '2001 was another year of substantial improvement in the strength and profitability of our Group. All our businesses have grown income and improved efficiency, producing notable profit increases. Credit quality remains good, although we have made prudent increases in our level of provisions to reflect the growth in our business combined with the deterioration in the short-term economic outlook and a small number of specific customer situations. The integration of NatWest is progressing well and we expect to achieve significantly greater revenue benefits and cost savings than originally envisaged. Our focus on building strategic options for the Group, together with our emphasis on growing income in ways which are beneficial for both customers and shareholders, has delivered another significant uplift in our performance. I am confident that the resultant strength, diversity and flexibility of the Group will enable us to continue to build value.' THE ROYAL BANK OF SCOTLAND GROUP plc 2001 highlights • Profit before tax, goodwill amortisation and integration costs £5,801 million, up 32%. • Income up 18%, increased in all divisions. • Margin increased to 3.1%. • Income growth underpinned by strong growth in customer numbers: In the UK: - Personal current accounts up 0.7 million, 7%, to 10.3 million. - Credit card accounts up 1.7 million, 22%, to 9.6 million. - Motor policies up 0.8 million, 25%, to 4 million. - Mortgages up £4.4 billion, 13%, to £37 billion. - Small business customers up 26,000, 3%, to 931,000. • Costs up only 3%. • Further efficiency gains - cost:income ratio now 46.9%, down from 53.5%. • Integration progress even further ahead. • Integration benefits will now be greater: - Annual benefits now up £300 million to £2.0 billion. - 2000 - 2003 total benefits up £1.4 billion to £5.5 billion. - One off costs increased to £2.3 billion. • Mellon acquisition going well and integration benefits confirmed. • Credit quality remains good. • New provisions up 27% - but lower recoveries result in a profit and loss charge for provisions up 54%. • Balance sheet provision coverage of risk elements in lending maintained at over 80%. • Creating value for shareholders: - Adjusted earnings per share up 25%. - Dividend up 15%. - Total shareholder return of 70% over 2 years to 31 December 2001. THE ROYAL BANK OF SCOTLAND GROUP plc CONTENTS Page Review of results 4 Consolidated profit and loss account 7 Consolidated balance sheet 9 Divisional performance 10 Corporate Banking and Financial Markets 11 Retail Banking 12 Retail Direct 13 Manufacturing 14 Wealth Management 15 Direct Line Group 16 Ulster Bank 17 Citizens 18 Central items 19 Consolidated profit and loss account - half year analysis 20 Divisional performance - half year analysis 21 Notes 22 Integration information 26 Average balance sheet 29 Average interest rates, yields, spreads and margins 30 Asset quality Analysis of loans and advances to customers 31 Cross border outstandings 32 Selected country exposures 32 Risk elements in lending 33 Market risk 34 Regulatory ratios and other information 35 Contacts 36 THE ROYAL BANK OF SCOTLAND GROUP plc REVIEW OF RESULTS The Group has performed strongly in 2001, driven by higher income and improvements in efficiency in each of its businesses. Good progress continues to be made on the integration of NatWest; revenue enhancements and cost reductions are now expected to be higher than the initial plan. Profit Profit before tax, goodwill amortisation and integration costs at £5,801 million was up 32%, £1,400 million, from £4,401 million. Profit before tax at £4,275 million increased by 28% from £3,327 million after charging integration costs of £875 million compared with £434 million in 2000. All businesses contributed to this improvement. Total income Total income rose by 18%, £2,223 million, to £14,581 million. Strong growth was achieved across all businesses. Net interest income Net interest income increased by 16%, £940 million, to £6,869 million underpinned by good growth in both corporate and personal lending and deposits. Average interest-earning assets of the Group's banking business increased by 11%, including 14% growth in average loans and advances to customers. Net interest margin of the banking business improved from 3.0% to 3.1%. Improved lending spread together with the benefit of income from the proceeds of the market placing of ordinary shares in July 2001, prior to deployment in the acquisition of certain businesses from Mellon Financial Corporation in December 2001 (the 'Mellon acquisition'), contributed to this improvement and more than offset a small decrease in deposit margins. Non-interest income Non-interest income, which represents 53% of total income, grew by 16%, £887 million, to £6,337 million, excluding general insurance. Fees and commissions receivable were up 16%, £656 million, to £4,735 million, with strong growth in lending related fees, cards and merchant acquiring and in money transmission fees. Dealing profits were £295 million, 26% ahead of the prior year as a result of strong growth in customer activity levels and favourable market conditions. This additional dealing income contributed approximately £160 million to the Group's profits. General insurance premium income, after reinsurance, increased by 40%, £396 million, to £1,375 million, reflecting strong volume growth in Direct Line and branch based insurance. Total expenses Operating expenses, excluding goodwill amortisation and integration costs, rose by 3%, £227 million, to £6,841 million, with increased integration benefits from the NatWest acquisition largely offsetting increases due to inflation, business development and customer service improvement initiatives. General insurance claims, after reinsurance, increased by 36%, £250 million, to £948 million in line with volume growth. The number of staff employed in the Group rose by 11,700, 12% to 105,700. The increase reflects approximately 5,000 staff in businesses acquired in the year, as well as additional staff to support the strong growth in business levels and to deliver enhanced customer service in the branch networks. The total also includes short-term appointments in connection with the integration of NatWest. Cost:income ratio The Group's focus on income growth along with tight control of costs and the benefits of integration have driven the cost:income ratio down from 53.5% to 46.9%. THE ROYAL BANK OF SCOTLAND GROUP plc REVIEW OF RESULTS (continued) Credit quality and provisions The Group's lending portfolio is widely diversified and, based on internal grading systems, the composition of the portfolio is broadly unchanged. Overall credit quality remains strong. New provisions were up 27%, £230 million to £1,071 million. This increase reflects the growth in lending and the deterioration in the short-term economic outlook combined with the impact of a small number of specific customer situations. Recoveries of amounts previously written off were down £116 million, 59% to £80 million. Consequently the net charge to the profit and loss account was up from £645 million to £991 million. Total balance sheet provisions for bad and doubtful debts amounted to £3,653 million (31 December 2000 - £3,153 million) equivalent to 81% (31 December 2000 - 83%) of risk elements in lending. Mellon acquisition Citizens completed the Mellon acquisition on 1 December 2001 for a cash consideration of US$2.2 billion (£1,564 million). The goodwill arising on this acquisition amounted to £1,655 million. Integration benefits anticipated at the time of the announcement of the acquisition have been confirmed and the business is already making good progress. Integration Integration now comprises two elements: NatWest Integration costs were £847 million compared with £434 million in 2000. Good progress continues to be made in integrating NatWest. Implementation has been faster which has resulted in revenue benefits and cost savings being achieved ahead of plan. In addition to value being created earlier than planned, additional revenue benefits and cost savings have been identified which will result in combined annual benefits being £300 million more than plan giving a benefit of £2.0 billion per annum at the end of the programme. As a consequence of the accelerated implementation and the additional benefits, the cumulative profits from the integration programme to the end of 2003 are expected to be £5.5 billion. This is £1.4 billion greater than the planned £4.1 billion and the overall cost of the programme is now estimated to be £2.3 billion against a plan of £1.4 billion. Mellon Mellon was acquired in December 2001 and expenditure of £28 million was incurred in the early stages of integrating Mellon with Citizens. No benefits from this integration have yet been recognised, however, the forecast future benefits announced at the time of the Mellon acquisition have been confirmed. Tax charge The tax charge for the year was £1,537 million, equivalent to 36% of profit before tax of £4,275 million. The rate is affected by goodwill amortisation, which is not allowable for UK tax purposes. The effective tax rate after adjusting for goodwill amortisation was 31% (2000 - 30%). THE ROYAL BANK OF SCOTLAND GROUP plc REVIEW OF RESULTS (continued) Shareholder returns Earnings per share, adjusted for goodwill amortisation, integration costs and the Additional Value Shares ('AVS') dividend, increased by 25%, from 102.0p to 127.9p. The first dividend of 15.0p per share was paid on the AVS issued in connection with the acquisition of NatWest. This was paid on 3 December 2001 in accordance with the original payment schedule. A final dividend of 27.0p per ordinary share is recommended resulting in a total dividend for the year of 38.0p per ordinary share, up 15% on 2000. The total ordinary dividend of £1,085 million is covered 3.3 times (2000 - 3.1 times) by earnings before goodwill amortisation, integration costs and the AVS dividend. Profit attributable to ordinary shareholders after tax, minority interests, preference dividends and perpetual securities interest, at £2,267 million, increased by 28%. After deducting the dividend on the AVS, attributable profit increased by 5%, from £1,774 million to £1,868 million. Return on equity Group post-tax return on average equity, adjusted for goodwill, integration costs and the AVS dividend increased from 37.0% to 41.1%. Balance sheet Total assets were £369 billion at 31 December 2001, of which £285 billion (77%) related to banking business and £84 billion (23%) to trading business. Loans and advances to customers at 31 December 2001 were £190 billion, up 13% from £168 billion at 31 December 2000. Customer deposits increased by 12% from £177 billion to £199 billion. Capital ratios at 31 December 2001 were 7.1% (tier 1) and 11.5% (total) compared with 6.9% (tier 1) and 11.5% (total) at 31 December 2000. THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001 Pro forma 31 December 31 December 2001 2000 £m £m Interest receivable 14,421 14,626 Interest payable 7,552 8,697 --------- --------- Net interest income 6,869 5,929 --------- --------- Dividend income 54 46 Fees and commissions receivable 4,735 4,079 Fees and commissions payable (930) (804) Dealing profits 1,426 1,131 Other operating income 1,052 998 --------- -------- 6,337 5,450 General insurance - earned premiums 1,804 1,346 - reinsurance (429) (367) --------- -------- Non-interest income 7,712 6,429 --------- --------- Total income 14,581 12,358 --------- --------- Administrative expenses - staff costs 3,461 3,440 - premises and equipment 809 839 - other 1,715 1,566 Depreciation of tangible fixed assets 856 769 --------- -------- Operating expenses 6,841 6,614 --------- -------- Profit before other operating charges 7,740 5,744 General insurance - gross claims 1,263 982 - reinsurance (315) (284) --------- -------- Operating profit before provisions 6,792 5,046 Provisions for bad and doubtful debts 984 602 Amounts written off fixed asset investments 7 43 --------- -------- Profit before goodwill amortisation and integration costs 5,801 4,401 --------- -------- THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001 (continued) Pro forma 31 December 31 December 2001 2000 £m £m Profit before goodwill amortisation and integration costs 5,801 4,401 Goodwill amortisation 651 640 Integration costs 875 434 --------- -------- Profit before tax 4,275 3,327 Tax 1,537 1,171 -------- -------- Profit after tax 2,738 2,156 Minority interests 90 54 -------- -------- Profit after minority interests 2,648 2,102 Preference dividends 358 328 Perpetual regulatory securities interest 23 - -------- -------- 2,267 1,774 Additional Value Shares dividend 399 - -------- -------- Profit attributable to ordinary shareholders 1,868 1,774 -------- -------- Basic earnings per ordinary share 67.6p 66.7p -------- -------- Adjusted earnings per ordinary share (Note 5) 127.9p 102.0p --------- --------- See page 22 for the basis of presentation and preparation of the pro forma results. THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2001 31 December 31 December 2001 2000 £m £m Assets Cash and balances at central banks 3,093 3,049 Items in the course of collection from other banks 3,288 2,961 Treasury bills and other eligible bills 10,136 3,316 Loans and advances to banks 38,513 32,061 Loans and advances to customers 190,492 168,076 Debt securities 64,040 57,789 Equity shares 1,557 1,553 Interests in associated undertakings 108 83 Intangible fixed assets 13,325 12,080 Tangible fixed assets 8,813 6,121 Other assets 21,473 18,034 Prepayments and accrued income 3,696 4,182 ----------- ----------- 358,534 309,305 Long-term assurance assets attributable to policyholders 10,248 10,699 ----------- ----------- Total assets 368,782 320,004 ----------- ----------- Liabilities Deposits by banks 40,038 35,130 Items in the course of transmission to other banks 2,109 1,707 Customer accounts 198,995 177,302 Debt securities in issue 30,669 19,407 Other liabilities 37,357 32,959 Accruals and deferred income 7,654 7,172 Provisions for liabilities and charges - deferred taxation 1,456 1,224 - other provisions 341 306 Subordinated liabilities - dated loan capital 6,681 6,316 - undated loan capital including convertible debt 5,029 4,120 Minority interests - equity 5 (34) - non-equity 580 580 Shareholders' funds - equity 22,404 19,081 - non-equity 5,216 4,035 ----------- ----------- 358,534 309,305 Long-term assurance liabilities to policyholders 10,248 10,699 ----------- ----------- Total liabilities 368,782 320,004 ----------- ----------- Memorandum items Contingent liabilities and commitments 138,844 105,102 ----------- ----------- THE ROYAL BANK OF SCOTLAND GROUP plc DIVISIONAL PERFORMANCE The results of each division before goodwill amortisation and integration costs are detailed below: Pro forma 31 December 31 December Profit 2001 2000 increase £m £m % Corporate Banking and Financial Markets 3,011 2,730 10 Retail Banking 2,807 2,467 14 Retail Direct 551 373 48 --------- --------- Contribution before manufacturing costs 6,369 5,570 14 Manufacturing (1,568) (1,660) 6 Wealth Management 459 405 13 Direct Line Group 261 201 30 Ulster Bank 242 200 21 Citizens 501 349 44 Central items (463) (664) 30 --------- --------- Group operating profit before goodwill amortisation and integration costs 5,801 4,401 32 --------- --------- THE ROYAL BANK OF SCOTLAND GROUP plc CORPORATE BANKING AND FINANCIAL MARKETS Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 2,100 1,793 Non-interest income 3,304 2,856 -------- -------- Total income 5,404 4,649 Direct expenses - staff costs 1,119 998 - other 359 310 - operating lease depreciation 421 388 -------- -------- Contribution before provisions 3,505 2,953 Provisions 494 223 -------- -------- Contribution before manufacturing costs 3,011 2,730 -------- -------- Direct cost:income ratio (%) 35.1 36.5 Total assets - Corporate Banking (£bn) 95.1 81.1 - Financial Markets (£bn) 120.4 110.0 Loans and advances to customers - gross (£bn) 94.1 87.6 Customer deposits - excluding repos (£bn) 56.4 52.8 Weighted risk assets (£bn) 117.3 98.9 Corporate Banking and Financial Markets ('CBFM') is the largest provider of banking services to medium and large businesses in the UK and the leading player in the UK in asset finance. It provides an integrated range of products and services to mid-sized and large corporate and institutional customers in the UK and overseas, including corporate and commercial banking, treasury and capital markets products, structured and leveraged finance, trade finance, leasing and factoring. CBFM expanded its operations in Europe and completed the acquisition of Euro Sales Finance plc during 2001. Contribution before manufacturing costs was up 10%, £281 million to £3,011 million. Total income was up 16%, £755 million to £5,404 million. Net interest income was up 17%, £307 million to £2,100 million, primarily due to lending growth in Corporate Banking and also as a result of the benefits of favourable market conditions in Financial Markets. Average loans and advances to customers of the banking business increased by 14%, £9.5 billion to £76.6 billion, predominantly in Corporate Banking, both in the UK and overseas. Non-interest income was up 16%, £448 million to £3,304 million reflecting growth in customer advances, payment and transmission related fees and dealing profits. Direct expenses were up 12%, £203 million to £1,899 million. Staff costs increased by 12%, £121 million, mainly due to performance related payments reflecting higher income in Financial Markets. Other expenses, excluding operating lease depreciation, were 16%, £49 million higher reflecting increased business volumes, infrastructure costs supporting European expansion and acquisitions. The direct cost:income ratio improved from 36.5% to 35.1%. Provisions were up £271 million to £494 million. The increase reflects growth in lending, the global economic slowdown, a small number of specific customer situations and lower recoveries, partially offset by a reduction in amounts written off investments. THE ROYAL BANK OF SCOTLAND GROUP plc RETAIL BANKING Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 2,622 2,418 Non-interest income 1,277 1,128 -------- -------- Total income 3,899 3,546 Direct expenses - staff costs 702 736 - other 226 210 -------- -------- Contribution before provisions 2,971 2,600 Provisions for bad and doubtful debts 164 133 -------- -------- Contribution before manufacturing costs 2,807 2,467 -------- -------- Direct cost:income ratio (%) 23.8 26.7 Total assets (£bn) 61.1 57.9 Loans and advances to customers - gross (£bn) 49.0 44.3 Customer deposits (£bn) 56.8 53.7 Weighted risk assets (£bn) 35.2 31.2 Retail Banking provides a wide range of banking, insurance and related financial services to individuals and small businesses. These services are delivered from a network of Royal Bank of Scotland and NatWest branches throughout Great Britain and through telephone call centres, ATMs and the internet. Contribution before manufacturing costs increased by 14%, £340 million to £2,807 million. Total income was up 10%, £353 million to £3,899 million. Net interest income was 8%, £204 million higher at £2,622 million, reflecting strong growth in advances and deposits. Average loans to customers, excluding mortgages, were up 19% to £19.1 billion. Average mortgage lending grew by 9%, £2.3 billion, to £27.1 billion. Average customer deposits were 7%, £3.7 billion higher at £54.1 billion. The customer base continued to grow in both banks, with increased market share of current accounts. The number of personal customers increased by 5% to 12.9 million and small business customers were up 3% to 931,000. NatWest maintained its market leading position for small business relationships. Non-interest income increased by 13%, £149 million to £1,277 million, resulting from growth in fee paying packaged accounts, up 33%, together with significant benefits from integration initiatives. Direct expenses at £928 million were down 2%, £18 million, reflecting lower average headcount. The direct cost:income ratio improved from 26.7% to 23.8%. Provisions for bad and doubtful debts were up 23%, £31 million to £164 million, primarily due to growth in lending. THE ROYAL BANK OF SCOTLAND GROUP plc RETAIL DIRECT Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 674 516 Non-interest income 696 565 -------- -------- Total income 1,370 1,081 Direct expenses - staff costs 164 154 - other 400 327 ----- ----- Contribution before provisions 806 600 Provisions for bad and doubtful debts 255 227 ----- ----- Contribution before manufacturing costs 551 373 ----- ----- Direct cost:income ratio (%) 41.2 44.5 Total assets (£bn) 17.2 14.4 Loans and advances to customers - gross : mortgages (£bn) 5.9 4.4 : other (£bn) 11.2 9.7 Customer accounts (£bn) 4.3 2.7 Weighted risk assets (£bn) 12.5 11.5 Retail Direct issues a comprehensive range of credit, charge and debit cards to personal and corporate customers and engages in merchant acquisition and processing facilities for retail businesses. It also includes: Tesco Personal Finance ('TPF'), Virgin Direct Personal Finance ('VDPF'), Direct Line Financial Services ('DLFS'), Lombard Direct, the Group's internet banking platform and Comfort Card European businesses, all of them offering products to customers through direct channels. The acquisition of the remaining 50% interest in the Virgin One business was completed in the second half of the year. Contribution before manufacturing costs rose by 48%, £178 million to £551 million, due to expansion of the Cards businesses and strong sales growth in TPF. Total income was up 27%, £289 million to £1,370 million driven by strong performances in Cards and TPF. Net interest income was up 31%, £158 million to £674 million. Average card balances were up 12% to £6.6 billion. The total number of credit card accounts grew by 22%, from 7.9 million to 9.6 million. The number of Cards' merchant outlets increased by 8% to 206,000. Average mortgage lending in DLFS was 17% higher at £2.1 billion and in VDPF the increase was 81%, from £1.7 billion to £3.1 billion. TPF increased its average customer advances and customer deposits by 15% to £1.8 billion, and 29% to £1.4 billion, respectively. Non-interest income rose 23%, £131 million to £696 million, primarily as a result of increased fees reflecting higher retailer volumes. Direct expenses at £564 million were 17%, £83 million higher, mainly as a result of increased business volumes and marketing activity. The direct cost:income ratio improved from 44.5% to 41.2%. Provisions for bad and doubtful debts increased by 12%, £28 million to £255 million reflecting the increase in unsecured lending. THE ROYAL BANK OF SCOTLAND plc MANUFACTURING Pro forma 31 December 31 December 2001 2000 £m £m Staff costs 428 490 Other costs 1,140 1,170 ------- ------- Total manufacturing costs 1,568 1,660 ------- ------- Analysis: Group Technology 632 723 Group Property 467 486 Customer Support and other operations 469 451 ------- ------- Total manufacturing costs 1,568 1,660 ------- ------- Manufacturing supports the customer facing businesses, mainly Corporate Banking and Financial Markets, Retail Banking and Retail Direct, and provides operational technology, account management, money transmission, property and other services. Total manufacturing costs of £1,568 million were 6%, £92 million lower. Group Technology costs reduced by 13%, £91 million to £632 million reflecting lower staff costs and the benefits of de-duplication initiatives. Expenditure in Customer Support and other operations was up £18 million, 4% to £469 million due to volume growth in lending and account management and costs associated with customer service enhancement initiatives. Average staff numbers fell by 12%. Integration savings offset a rise in work transferred into the Customer Support areas which extended the Manufacturing service provision and increased support for higher business volumes along with customer service enhancement initiatives. THE ROYAL BANK OF SCOTLAND GROUP plc WEALTH MANAGEMENT Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 464 425 Non-interest income 469 463 ----- ----- Total income 933 888 Expenses - staff costs 298 303 - other 181 185 ----- ----- Profit before provisions 454 400 Net release of provisions for bad and doubtful debts 5 5 ----- ----- Profit before integration costs 459 405 ----- ----- Cost:income ratio (%) 51.3 55.0 Total assets (£bn) 12.5 10.4 Investment management assets - excluding deposits (£bn) 21.4 21.8 Customer deposits (£bn) 29.1 27.6 Weighted risk assets (£bn) 7.8 7.1 Wealth Management comprises Coutts Group, Adam & Company and the offshore banking businesses, The Royal Bank of Scotland International and NatWest Offshore. The Coutts Group focuses on private banking through the Coutts, The Royal Bank of Scotland and NatWest Private Banking brands. Adam & Company is a private bank operating primarily in Scotland. The offshore businesses provide retail banking services to local and expatriate customers, and corporate banking and treasury services to corporate, intermediary and institutional clients. Profit before integration costs increased by 13%, £54 million to £459 million. Total income was up 5%, £45 million to £933 million. Net interest income grew by 9%, £39 million to £464 million. This was largely due to higher average customer deposits, which were up 7% from £26.6 billion to £28.5 billion as customers moved out of equity investments, and growth in average customer lending, up 16%, £0.9 billion to £6.4 billion, principally in offshore banking. Non-interest income increased 1%, £6 million to £469 million despite the depressed equity markets and the adverse effect on investor confidence particularly in the second half of 2001. The decline in equity market values affected fees earned on assets under management. Expenses were 2%, £9 million lower at £479 million. The cost:income ratio improved from 55.0% to 51.3%. There was a net release of provisions for bad and doubtful debts of £5 million (2000: release of £5 million). THE ROYAL BANK OF SCOTLAND GROUP plc DIRECT LINE GROUP Pro forma 31 December 31 December 2001 2000 £m £m Earned premiums 1,804 1,346 Reinsurers' share (429) (367) -------- -------- Insurance premium income 1,375 979 Other income 168 176 -------- ------- Total income 1,543 1,155 Expenses - staff costs 152 124 - other 182 132 Gross claims 1,263 982 Reinsurers' share (315) (284) ------- ------- Profit before goodwill amortisation 261 201 ------- ------- In-force policies (000's) - motor : UK 4,017 3,219 : International 601 286 - home : UK 1,360 1,055 Combined operating ratio - UK (%) 88.0 86.2 Insurance reserves - UK (£m) 1,541 1,221 Direct Line Group sells and underwrites retail and wholesale insurance on the telephone and the internet. The Direct Division sells general insurance and motor breakdown services direct to the customer and Green Flag is a leading wholesale provider of insurance and motoring related services. Through its International Division, Direct Line sells insurance in Spain and Japan, and in September 2001 expanded into Germany and Italy. The acquisition, subject to regulatory approvals, of Royal & Sun Alliance's direct motor insurance operation in Italy, announced in January 2002, will make Direct Line the second largest direct insurer in Italy with over 300,000 customers. Profit before goodwill amortisation increased by 30%, £60 million to £261 million. This has been driven by higher volumes, particularly in motor policies, and increases in partnership businesses including the joint venture with TPF. Total income was up 34%, £388 million to £1,543 million. Earned premiums grew strongly, up 34%, £458 million to £1,804 million. Net insurance premium income increased by 40%, £396 million to £1,375 million. Direct motor business, where in-force policies increased 13% to 3.3 million, contributed £137 million to this increase and Direct home business was up £19 million. Strong growth from the joint venture with TPF and other motor partnerships accounted for £126 million of the increase. The acquisitions in Italy and Germany contributed £11 million of premium income in the three months since completion. Expenses were up 30%, £78 million to £334 million reflecting business expansion, including the costs of establishing overseas operations in the second half. Net claims rose 36%, £250 million to £948 million, reflecting increased volumes. THE ROYAL BANK OF SCOTLAND GROUP plc ULSTER BANK Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 351 294 Non-interest income 185 172 ----- ----- Total income 536 466 Expenses - staff costs 147 144 - other 124 103 ----- ----- Profit before provisions 265 219 Provisions for bad and doubtful debts 23 19 ----- ----- Profit before integration costs 242 200 ----- ----- Cost:income ratio (%) 50.6 53.0 Total assets (£bn) 11.8 11.1 Loans and advances to customers - gross (£bn) 8.6 7.6 Customer deposits (£bn) 7.7 7.1 Weighted risk assets (£bn) 8.7 7.9 Average exchange rate - €/£ 1.609 1.642 Spot exchange rate - €/£ 1.637 1.606 Ulster Bank provides a comprehensive range of retail and wholesale financial services in Northern Ireland and the Republic of Ireland. Retail Banking has a network of branches throughout Ireland and operates in the personal, commercial and wealth management sectors. Corporate Banking and Financial Markets provides a wide range of services in the corporate and institutional markets. Profit before integration costs of £242 million was 21%, £42 million higher. At constant exchange rates, profit before integration costs rose by 19%, £39 million. Total income increased by 15%, £70 million to £536 million. Net interest income rose by 19%, £57 million to £351 million due to strong growth in customer loans and deposits. Average loans and advances to customers increased by 24%, £1.6 billion, to £8.3 billion, and average customer deposits increased by 11%, £0.7 billion, to £7.3 billion. The number of customers increased by 5%, 36,000 to 744,000. Non-interest income was up 8%, £13 million to £185 million. The increase is mainly due to higher card, lending and transmission fees. Expenses rose by 10%, £24 million to £271 million to support business expansion. Staff costs increased by 2%, £3 million. Other expenses increased by 20%, £21 million as a result of higher depreciation on operating lease assets, marketing costs to support business expansion, and expenditure related to the preparation for the issue of euro notes and coins in the Republic of Ireland. The cost: income ratio improved from 53.0% to 50.6%. Provisions for bad and doubtful debts were up 21%, £4 million to £23 million. The increase is largely due to growth in lending. THE ROYAL BANK OF SCOTLAND GROUP plc CITIZENS Pro forma 31 December 31 December 2001 2000 £m £m Net interest income 814 667 Non-interest income 306 247 -------- ----- Total income 1,120 914 Expenses - staff costs 305 290 - other 245 235 ----- ----- Profit before provisions 570 389 Provisions for bad and doubtful debts 69 40 ----- ----- Profit before goodwill amortisation and integration costs 501 349 ----- ----- Cost:income ratio (%) 49.1 57.4 Total assets (£bn) 36.2 20.3 Loans and advances to customers - gross (£bn) 18.1 12.0 Customer deposits (£bn) 29.5 16.7 Weighted risk assets (£bn) 24.7 15.8 Average exchange rate - US$/£ 1.440 1.516 Spot exchange rate - US$/£ 1.450 1.493 Citizens is engaged in retail and corporate banking activities through its branch network in the states of Rhode Island, Connecticut, Massachusetts and New Hampshire and is the second largest bank in New England. The acquisition of the regional retail and commercial banking businesses of Mellon Financial Corporation, which was completed on 1 December 2001, has extended Citizens presence to the states of Pennsylvania, Delaware and New Jersey. Profit before goodwill amortisation and integration costs was up 44%, £152 million to £501 million reflecting strong organic growth and the strengthening of the dollar. At constant exchange rates the increase was 37%, £134 million. The Mellon acquisition, completed on 1 December 2001, contributed £13 million to this increase, £10.1 billion to customer deposits, £4.4 billion to customer loans and advances and added 345 branches to the Citizens network, bringing the total number of branches to 712 at 31 December 2001. Net interest income rose by 22%, £147 million to £814 million due to growth in customer deposits and secured consumer lending. Non-interest income was up 24%, £59 million to £306 million reflecting growth in deposit service charges, mortgage banking and ATM and debit card income. Expenses at £550 million were 5%, £25 million higher reflecting organic growth, the Mellon acquisition and the effect of exchange rates. At constant exchange rates expenses declined by 1%, £3 million. The cost:income ratio improved from 57.4% to 49.1%. Provisions for bad and doubtful debts were £69 million compared with £40 million in 2000, reflecting growth in lending and the economic environment in the US. THE ROYAL BANK OF SCOTLAND GROUP plc CENTRAL ITEMS Pro forma 31 December 31 December 2001 2000 £m £m Funding costs 188 217 Central department costs - staff costs 99 114 - other 93 107 Other corporate items - net 83 226 ----- ----- Loss before goodwill amortisation and integration costs 463 664 ----- ----- The Centre comprises group and corporate functions which provide services to the operating divisions. The loss before goodwill amortisation and integration costs reduced by £201 million to £463 million. Funding costs at £188 million were down 13%, £29 million. The current year benefited from the proceeds of the share placing in July 2001 prior to deployment in the Mellon acquisition, contributing £35 million. Central department costs at £192 million declined £29 million, 13%, due mainly to the benefit of integration initiatives. Other corporate items, which included certain one-off items in both years, reduced by 63%, £143 million to £83 million. THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT - HALF YEAR ANALYSIS Pro forma 31 December 2001 31 December 2000 Second half First half Second half First half £m £m £m £m Net interest income 3,616 3,253 3,061 2,868 -------- -------- -------- -------- Dividend income 30 24 29 17 Fees and commissions receivable 2,526 2,209 2,109 1,970 Fees and commissions payable (471) (459) (410) (394) Dealing profits 737 689 557 574 Other operating income 547 505 509 489 -------- -------- -------- -------- 3,369 2,968 2,794 2,656 General insurance - earned income 987 817 725 621 - reinsurance (213) (216) (196) (171) -------- -------- -------- -------- Non-interest income 4,143 3,569 3,323 3,106 -------- -------- -------- -------- Total income 7,759 6,822 6,384 5,974 -------- -------- -------- -------- Administrative expenses - staff costs 1,802 1,659 1,693 1,747 - premises and equipment 405 404 414 425 - other 903 812 797 769 Depreciation of tangible fixed assets 447 409 380 389 -------- -------- -------- -------- Operating expenses 3,557 3,284 3,284 3,330 -------- -------- -------- -------- Profit before other operating charges 4,202 3,538 3,100 2,644 General insurance - gross claims 678 585 520 462 - reinsurance (148) (167) (145) (139) -------- -------- -------- -------- Operating profit before provisions 3,672 3,120 2,725 2,321 Provisions for bad and doubtful debts 617 367 318 284 Amounts written off investments 5 2 17 26 -------- -------- -------- -------- Profit before goodwill amortisation and integration costs 3,050 2,751 2,390 2,011 Goodwill amortisation 331 320 327 313 Integration costs 514 361 245 189 -------- -------- -------- -------- Profit before tax 2,205 2,070 1,818 1,509 Tax 791 746 623 548 -------- -------- -------- -------- Profit after tax 1,414 1,324 1,195 961 Minority interests 46 44 32 22 -------- -------- -------- -------- Profit after minority interests 1,368 1,280 1,163 939 Preference dividends 180 178 166 162 Additional Value Shares dividend 399 - - - Perpetual regulatory securities interest 23 - - - -------- -------- -------- -------- Profit attributable to ordinary shareholders 766 1,102 997 777 -------- -------- -------- -------- THE ROYAL BANK OF SCOTLAND GROUP plc DIVISIONAL PERFORMANCE - HALF YEAR ANALYSIS Pro forma 31 December 2001 31 December 2000 Second half First half Second half First half £m £m £m £m Corporate Banking and Financial Markets 1,506 1,505 1,393 1,337 Retail Banking 1,430 1,377 1,265 1,202 Retail Direct 310 241 196 177 ------- ------- ------- ------- Contribution before manufacturing costs 3,246 3,123 2,854 2,716 Manufacturing (790) (778) (801) (859) Wealth Management 225 234 205 200 Direct Line Group 149 112 125 76 Ulster Bank 123 119 104 96 Citizens 268 233 182 167 Central items (171) (292) (279) (385) ------- ------- ------- ------- Group operating profit before goodwill amortisation and integration costs 3,050 2,751 2,390 2,011 ------- ------- ------- ------- THE ROYAL BANK OF SCOTLAND GROUP plc NOTES 1. Basis of preparation and presentation of results The acquisition of National Westminster Bank Plc ('NatWest') on 6 March 2000 had a significant effect on the Group's financial position. Comparison with the prior period on a statutory basis (which is a 15 month period and includes NatWest from 6 March 2000) is of limited benefit. Accordingly, in order to provide more meaningful and relevant comparatives, the results for the year ended 31 December 2000 are on a pro forma basis and assume that the acquisition of NatWest took place on 1 January 1999. The results for the year ended 31 December 2001 are also presented with the statutory results for the 15 months ended 31 December 2000 in a separate announcement. For the purposes of this announcement goodwill amortisation and integration costs are shown separately in the profit and loss account. In the statutory results announcement these items are included in the profit and loss account captions prescribed by the Companies Act. (a) Basis of preparation The profit and loss account for the year ended 31 December 2001 is extracted from the audited accounts, modified as described in note (b) below. The balance sheets at 31 December 2001 and 2000 are as included in the audited accounts. The pro forma results for the year ended 31 December 2000 have been prepared on the following basis: (i) They incorporate the full year results of NatWest for 2000 and assume that the fair value adjustments were made on 31 December 1998. (ii) Goodwill arising on the acquisition of NatWest of £11,483 million has been amortised over its estimated economic life of 20 years. Goodwill arising on other acquisitions made by the Group after 1 January 1999 has been amortised from the effective dates of acquisition, generally also over 20 years. Goodwill arising on acquisitions prior to 1 January 1999 was written off directly to reserves and has not been reinstated, as permitted by Financial Reporting Standard ('FRS') 10. (iii) A surplus of £1,070 million in NatWest Pension Funds has been amortised, from 1 January 1999, over the estimated average remaining service life of members of the schemes. (iv) An adjustment has been made to reflect the net funding of the acquisition of NatWest as if acquired on 1 January 1999. The net funding comprises cash paid and loan notes issued to NatWest shareholders of £7,349 million and fees and expenses relating to the acquisition of £176 million less net proceeds of £3,910 million from the issue of new ordinary and preference shares and £20 million of proceeds from the exercise of options over NatWest ordinary shares. (v) The results of businesses disposed of since 1 January 1999 and the profit arising on their sale have been excluded from the pro forma accounts. The principal disposals were RBS Trust Bank, Gartmore and the venture capital investments of NatWest. A funding adjustment has been made to recognise the benefit of estimated net proceeds of £1,500 million assuming that these funds were received on 1 January 1999. THE ROYAL BANK OF SCOTLAND GROUP plc NOTES (continued) (b) Basis of presentation The results for the year ended 31 December 2001 and the pro forma results for the year ended 31 December 2000 have been presented on the following basis: (i) Group operating profit is stated before goodwill amortisation and integration costs which are shown separately on the face of the profit and loss account. (ii) Integration costs comprise expenditure incurred in respect of cost reduction and revenue enhancement targets set in connection with the acquisition of NatWest and costs of integrating the regional retail and commercial banking operations acquired from Mellon Financial Corporation in December 2001, together with expenditure incurred on the related cost reduction and revenue enhancement targets. 2. Accounting policies and presentation There have been no changes to the Group's principal accounting policies as set out on pages 49 to 51 of the 2000 Report and Accounts. Disclosures required by FRS 17 'Retirement Benefits' are included in the 2001 Report and Accounts. Further disclosures under the transitional requirements of the standard will be made in the Group's financial statements for 2002, and full implementation is required in 2003. The Group has also implemented FRS 18 'Accounting Policies'. 3. Provisions for bad and doubtful debts Group operating profit is stated after charging provisions for bad and doubtful debts of £984 million (31 December 2000 - £602 million). The balance sheet provisions for bad and doubtful debts increased in the year to 31 December 2001 from £3,153 million to £3,653 million, and the movements thereon were: 2001 2000 Specific General Total Total £m £m £m £m At 1 January 2,585 568 3,153 3,152 Currency translation and other adjustments 14 3 17 42 Acquisitions of businesses 221 33 254 55 Amounts written off (835) - (835) (894) Recoveries of amounts previously written off 80 - 80 196 Charge to profit and loss account 974 10 984 602 ------- ----- ------- ------- At 31 December 3,039 614 3,653 3,153 ------- ----- ------- ------- THE ROYAL BANK OF SCOTLAND GROUP plc NOTES (continued) 4. Taxation The charge for taxation is based on a UK corporation tax rate of 30% for the year ended 31 December 2001 (2000 - 30%) and comprises: Pro forma 31 December 31 December 2001 2000 £m £m Tax on profit before goodwill amortisation and integration costs 1,798 1,306 Tax relief on goodwill amortisation and integration costs (261) (135) ------- ------- 1,537 1,171 ------- ------- The tax charge of £1,537 million, equivalent to 36% of pre-tax profit, is higher than the standard UK tax rate of 30% mainly due to goodwill amortisation, which is not allowable for UK tax. 5. Earnings per share The earnings per share have been calculated based on the following: Pro forma 31 December 31 December 2001 2000 £m £m Earnings: Profit attributable to ordinary shareholders 1,868 1,774 ------- ------- Number of shares - millions Weighted average number of ordinary shares in issue during the year 2,762 2,660 ------- ------- Basic earnings per share 67.6p 66.7p AVS dividend 14.5p - ---------- --------- 82.1p 66.7p Goodwill amortisation 23.2p 23.6p Integration costs 22.6p 11.7p ---------- --------- Adjusted earnings per share 127.9p 102.0p --------- --------- Adjusted earnings are calculated by excluding from the profit attributable to ordinary shareholders the after tax effect of goodwill amortisation and integration costs, and the AVS dividend. THE ROYAL BANK OF SCOTLAND GROUP plc NOTES (continued) 6. Ordinary dividend The directors have recommended a final dividend of 27.0p per share on the ordinary shares which, when added to the interim dividend of 11.0p per share, makes a total of 38.0p per share. Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 7 June 2002 to shareholders registered on 15 March 2002. As an alternative to cash, a scrip dividend election is to be offered and shareholders will receive details of this by letter. 7. Additional Value Shares The first dividend of 15.0p per share on the AVS issued in connection with the acquisition of NatWest was paid on 3 December 2001. 8. Goodwill Citizens completed the acquisition of the regional retail and commercial banking operations of Mellon Financial Corporation on 1 December 2001. The goodwill arising on this acquisition amounted to £1,655 million. The goodwill arising on other acquisitions completed during the year was £147 million. The provisional fair value adjustments made in 2000 in respect of the acquisition of NatWest have been finalised giving rise to an increase in the related goodwill of £93 million to £11,483 million. The increase principally relates to adjustments to the fair value of financial instruments including loans and advances to customers, tangible fixed assets and other liabilities. THE ROYAL BANK OF SCOTLAND GROUP plc INTEGRATION INFORMATION 1. Period to 31 December 2001 In the Offer Document for NatWest issued on 16 December 1999, the Group made various estimates in respect of cost savings, staff reductions and revenue benefits. Those estimates were based on the latest available published information at that time, namely NatWest's interim accounts for the half year to 30 June 1999 and the Group's accounts for the year to 30 September 1999. On 19 April 2000, the Group revised its estimates upwards as a consequence of the experience gained by having detailed access to NatWest following the acquisition on 6 March 2000. These revised estimates are shown in the tables below as 'plan'. Period ended December December REVENUE BENEFITS 2001 2000 • Cumulative gross revenue initiatives implemented at the end of each period (£m) plan 350 120 actual 605 147 • Impact on profit before tax (£m) plan 120 50 actual 312 52 The gross revenue initiatives generated income of £415 million, which, net of costs, claims and provisions added £312 million to profit in the year to 31 December 2001. COST SAVINGS • Cumulative cost savings implemented at the end of each period (£m) plan 900 550 actual 1,205 653 • Impact on profit before tax (£m) plan 700 290 actual 1,008 448 STAFF REDUCTIONS • Cumulative total plan 14,000 9,000 actual 17,000 13,000 INTEGRATION COSTS • Cumulative charge (£m)* plan 1,150 650 actual 1,394 547 * includes £113 million incurred by NatWest in the second half of 1999. THE ROYAL BANK OF SCOTLAND GROUP plc INTEGRATION INFORMATION (continued) 2. Revised integration plan The estimated revenue benefits, cost savings and staff reductions for 2002 and 2003, together with related integration costs, are now expected to be as follows: Year ending As at Year ending December March December 2002 2003 2003 REVENUE BENEFITS • Cumulative gross revenue initiatives implemented at the end of each period (£m) Plan 550 595 Revised plan 800 890 • Impact on profit before tax (£m) Plan 240 390 Revised plan 460 590 COST SAVINGS • Cumulative cost savings initiatives implemented at the end of each period (£m) Plan 1,200 1,340 Revised plan 1,340 1,440 • Impact on profit before tax (£m) Plan 1,050 1,300 Revised plan 1,280 1,400 STAFF REDUCTIONS • Cumulative total Plan 16,000 18,000 Revised plan 18,000 18,000 INTEGRATION COSTS • Cumulative charge (£m) Plan 1,350 1,400 Revised plan 2,200 2,300 THE ROYAL BANK OF SCOTLAND GROUP plc INTEGRATION INFORMATION (continued) 2. Revised integration plan (continued) OVERALL PROGRAMME As a consequence, the estimated overall result of the programme to integrate NatWest is as follows: • Annual benefits to profit before tax from 1 January 2004 £m Revenue benefits 590 Cost savings 1,440 ------- 2,030 ------- • One-off integration costs 2,300 ------- • Cumulative benefit of integration: Revised Plan plan Uplift Year £m £m £m 2000 340 500* 160 2001 820 1,320* 500 2002 1,290 1,740 450 2003 1,690 1,990 300 ------- ------- ------- 4,140 5,550 1,410 ------- ------- ------- * actuals THE ROYAL BANK OF SCOTLAND GROUP plc AVERAGE BALANCE SHEET Pro forma 2001 2000 Average Average balance Rate balance Rate Year ended 31 December £m % £m % Assets Treasury and other eligible bills UK 231 4.8 463 4.5 Overseas 277 2.9 131 4.6 Loans and advances to banks UK 18,214 4.6 14,965 5.8 Overseas 7,467 5.6 8,884 6.7 Loans and advances to customers UK 122,621 6.8 106,302 7.9 Overseas 27,327 6.9 23,271 7.8 Instalment credit and finance lease receivables UK 14,611 8.4 14,113 8.5 Overseas 1,520 6.7 1,796 7.0 Debt securities UK 16,632 5.6 18,004 5.7 Overseas 11,427 5.7 9,812 6.3 ----------- ----------- Interest-earning assets - banking business 220,327 6.6 197,741 7.4 Interest-earning assets - trading business 66,545 53,946 ----------- ----------- Total interest-earning assets 286,872 251,687 Non-interest-earning assets 63,316 52,931 ----------- ----------- Total assets 350,188 304,618 ----------- ----------- Liabilities Deposits by banks UK 18,360 4.1 13,851 5.4 Overseas 8,779 4.4 7,667 5.7 Customer accounts UK 113,290 3.7 106,012 4.7 Overseas 26,239 3.5 22,297 4.7 Debt securities in issue UK 20,140 5.1 14,831 5.9 Overseas 8,407 4.6 7,881 6.3 Loan capital UK 10,464 6.1 9,829 7.1 Overseas 171 8.2 502 9.8 Internal funding of trading business UK (14,626) 4.5 (10,774) 4.9 Overseas (1,576) 4.0 (1,025) 5.1 ----------- ----------- Interest-bearing liabilities - banking business 189,648 4.0 171,071 5.1 Interest-bearing liabilities - trading business 63,159 50,336 ----------- ----------- Total interest-bearing liabilities 252,807 221,407 Non-interest-bearing liabilities - demand deposits 25,538 21,938 Non-interest-bearing liabilities - other liabilities 46,062 38,520 Shareholders' equity 25,781 22,753 ----------- ----------- Total liabilities and shareholders' equity 350,188 304,618 ----------- ----------- The analysis into UK and Overseas has been compiled on the basis of location of office. Interest receivable and interest payable on trading assets and liabilities are included in dealing profits. THE ROYAL BANK OF SCOTLAND GROUP plc AVERAGE INTEREST RATES, YIELDS, SPREADS AND MARGINS Pro forma 2001 2000 Average Average rate rate Year ended 31 December % % The Group's base rate 5.1 6.0* London inter-bank offered rate: three month sterling 5.0 6.2* three month eurodollar 3.8 6.5* three month euro 4.3 4.4* Yields, spreads and margins of the banking business: Gross yield (1) Group 6.6 7.4 UK 6.6 7.5 Overseas 6.4 7.2 Interest spread (2) Group 2.6 2.3 UK 2.6 2.4 Overseas 2.5 1.9 Net interest margin (3) Group 3.1 3.0 UK 3.2 3.1 Overseas 3.0 2.7 * actual rate (1) Gross yield is the interest rate earned on average interest-earning assets of the banking business. (2) Interest spread is the difference between the gross yield and the interest rate paid on average interest-bearing liabilities of the banking business. (3) Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business. THE ROYAL BANK OF SCOTLAND GROUP plc ASSET QUALITY Analysis of loans and advances to customers 31 December 31 December 2001 2000 UK £m £m Central and local government 706 1,957 Manufacturing 7,401 6,806 Construction 3,018 2,615 Finance 8,517 9,944 Service industries 19,169 17,242 Agriculture, forestry and fishing 2,391 2,373 Property 12,274 10,415 Business and other services 5,864 3,661 Individuals - home mortgage 36,976 32,600 - other 20,076 17,881 Instalment credit and other loans 5,347 4,929 Finance leases 5,911 5,887 ----------- ----------- 127,650 116,310 Overseas residents 24,164 19,257 ------------ ------------ Total UK offices 151,814 135,567 ----------- ----------- USA 29,230 23,050 Rest of the World 13,093 12,598 ----------- ----------- Total overseas offices 42,323 35,648 ----------- ----------- Loans and advances to customers - gross 194,137 171,215 Provisions for bad and doubtful debts (3,645) (3,139) ----------- ----------- Total loans and advances to customers 190,492 168,076 ----------- ----------- THE ROYAL BANK OF SCOTLAND GROUP plc Cross border outstandings The table below sets out the Group's cross border outstandings in excess of 0.75% of Group total assets (including acceptances) of £371.6 billion (2000 - £320.8 billion). None of these countries has experienced repayment difficulties which have required refinancing of outstanding debt. 31 December 31 December 2001 2000 £m £m USA 8,901 6,520 Germany 7,969 6,156 Cayman Islands 5,501 2,878 France 4,930 3,310 Netherlands 4,596 3,446 Switzerland 3,646 3,137 Cross border outstandings to Japan were less than 0.75% of Group total assets (including acceptances) at 31 December 2001 (31 December 2000 - £3,891 million). Selected country exposures 31 December 2001 Bank Non-bank Total £m £m £m Turkey 38 102 140 Argentina 39 12 51 Brazil 158 22 180 Mexico 108 62 170 Venezuela - 99 99 31 December 2000 Bank Non-bank Total £m £m £m Turkey 153 35 188 Argentina 113 63 176 Brazil 193 38 231 Mexico 155 87 242 Venezuela - 91 91 THE ROYAL BANK OF SCOTLAND GROUP plc Risk elements in lending The Group's loan control and review procedures do not include the classification of loans as non-accrual, accruing past due, restructured and potential problem loans, as defined by the Securities and Exchange Commission ('SEC') in the US. The following table shows the estimated amount of loans which would be reported using the SEC's classifications. The figures incorporate estimates and are stated before deducting the value of security held or related provisions. 31 December 31 December 2001 2000 £m £m Loans accounted for on a non-accrual basis: Domestic 2,829 2,482 Foreign 737 344 -------- -------- 3,566 2,826 -------- -------- Accruing loans which are contractually overdue 90 days or more as to principal or interest*: Domestic 643 662 Foreign 142 168 -------- -------- 785 830 -------- -------- Loans not included above which are classified as 'troubled debt restructurings' by the SEC: Domestic 26 43 Foreign 116 122 -------- -------- 142 165 -------- -------- Total risk elements in lending 4,493 3,821 -------- -------- Closing provisions for bad and doubtful debts as a % of total risk elements in lending 81% 83% Risk elements in lending as a % of gross loans and advances to customers 2.31% 2.23% * Generally, lending by way of overdraft has no fixed repayment schedule and consequently is not included in this category. Loans that are current as to payment of principal and interest and not reflected in the above table but in respect of which management has serious doubts about the ability of the borrower to comply with contractual repayment terms totalled approximately £1,080 million at 31 December 2001 (31 December 2000 - £772 million). Substantial security is held in respect of these loans and appropriate provisions have already been made in accordance with the Group's provisioning policy for bad and doubtful debts. THE ROYAL BANK OF SCOTLAND GROUP plc MARKET RISK The Group manages the market risk in its trading and treasury portfolios through value-at-risk (VaR) limits as well as stress testing, position and sensitivity limits. VaR is a technique that produces estimates of the potential negative change in the market value of a portfolio over a specified time horizon at a given confidence level. The table below sets out the VaR for the Group. The comparative figures for the year ended 31 December 2000 are presented as if NatWest had been part of the Group throughout that period. The Group's VaR assumes a 95% confidence level and a one-day time horizon. Year ended 31 December At 31 December Maximum Minimum Average £m £m £m £m Trading 2001 8.2 15.6 7.7 11.3 2000 9.8 12.4 8.1 9.7 Treasury 2001 4.6 5.9 3.8 4.5 2000 5.4 5.7 2.8 4.0 The Group's VaR should be interpreted in the light of the assumptions underlying the methodologies adopted and their limitations. Historical data used in computing VaR may not be indicative of future market conditions. THE ROYAL BANK OF SCOTLAND GROUP plc REGULATORY RATIOS AND OTHER INFORMATION 31 December 31 December 2001 2000 Capital base (£m) Tier 1 capital 15,052 12,071 Tier 2 capital 11,734 10,082 Tier 3 capital 172 167 ----------- ----------- 26,958 22,320 Less: investments in insurance companies, associated undertakings and other supervisory deductions (2,698) (2,228) ----------- ----------- 24,260 20,092 ----------- ----------- Weighted risk assets (£m) Banking book - on balance sheet 176,000 146,600 - off balance sheet 22,000 16,200 Trading book 12,500 12,400 ----------- ----------- 210,500 175,200 ----------- ----------- Risk asset ratio - tier 1 7.1% 6.9% - total 11.5% 11.5% Share price at year end £16.72 £15.82 Number of shares in issue at year end 2,860m 2,678m Market capitalisation £47.8bn £42.4bn Net asset value per ordinary share £7.83 £7.12 Employee numbers Corporate Banking and Financial Markets 14,100 13,100 Retail Banking 30,500 28,900 Retail Direct 6,200 5,800 Manufacturing 20,700 19,200 Wealth Management 7,100 6,800 Direct Line Group 9,200 6,700 Ulster Bank 4,800 4,600 Citizens 11,500 7,300 Centre 1,600 1,600 ----------- ----------- Group total 105,700 94,000 ----------- ----------- Forward looking statements Certain sections of this document contain forward-looking statements. We use words such as 'expect', 'believe', 'risk' and 'VaR' to identify forward-looking statements. Our statements are subject to certain risks and uncertainties, as discussed in the Operating and Financial Review and Risk Management sections of the Report and Accounts. These risks and uncertainties could cause actual results to differ materially from our statements. The Royal Bank of Scotland Group plc assumes no responsibility to update any of the forward looking statements contained herein. Statutory accounts Financial figures as at and for the years ended 31 December 2001 and 31 December 2000 do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 ('the Act'). The statutory accounts for that year will be filed with the Registrar of Companies following the company's Annual General Meeting. The auditors have reported on these accounts; their report was unqualified and did not contain a statement under Section 237(2) or (3) of the Act. THE ROYAL BANK OF SCOTLAND GROUP plc CONTACTS Fred Goodwin Group Chief Executive 020 7427 8145 0131 523 2033 Fred Watt Group Finance Director 020 7427 8412 0131 523 2028 A copy of management's presentation to investment analysts will be available on the Group's website www.rbs.co.uk. 28 February 2002 END This information is provided by RNS The company news service from the London Stock Exchange

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