Segment performance Q4 2016 compared with Q3 2016 ● An operating loss of £225 million compared with an operating profit of £355 million in Q3 2016 reflecting increased litigation and conduct charges. Adjusted operating profit of £228 million was £154 million lower than Q3 2016 driven by increased adjusted operating expenses and increased impairments. ● Adjusted operating expenses increased by £109 million principally due to the annual UK bank levy charge, £90 million. ● Net impairment losses of £83 million increased by £63 million compared with Q3 2016 largely reflecting single name charges in the quarter. ● Net loans and advances continued to grow in the quarter, up £0.3 billion, similar to the growth achieved in Q3 2016, but at a slower rate than in H1 2016. Q4 2016 compared with Q4 2015 ● An operating loss of £225 million compared with an operating profit of £140 million in Q4 2015 reflecting increased litigation and conduct charges. Adjusted operating profit increased by £42 million to £228 million driven by higher income and lower adjusted operating expenses. ● Total income increased by £70 million, or 9%, principally reflecting higher asset and deposit volumes, partially offset by asset margin pressure. ● Adjusted operating expenses reduced by £28 million reflecting cost efficiencies and a lower bank levy. Private Banking 2016 compared with 2015 ● An operating profit of £111 million compared with an operating loss of £470 million in 2015 which included a goodwill impairment of £498 million. Adjusted operating profit of £149 million was £36 million, or 32%, higher than 2015 reflecting increased income, lower adjusted operating expenses and lower impairments. ● Total income increased by £13 million to £657 million primarily reflecting higher asset volumes. Net interest margin fell by 9 basis points to 2.66% reflecting asset margin pressures. ● Adjusted operating expenses of £511 million were £7 million, or 1%, lower than 2015 driven by reductions in the direct cost base, with employee numbers down 10%, partially offset by increased infrastructure costs absorbed following the sale of the international business. ● Net loans and advances of £12.2 billion increased by £1.0 billion compared with 2015 driven by mortgages. Assets under management of £17.0 billion were £3.1 billion higher compared with 2015 reflecting underlying growth and equity index inflation. In addition, investment cash balances were included in assets under management for the first time in Q3 2016, excluding this, growth was £2.0 billion. Q4 2016 compared with Q3 2016 ● Operating profit decreased by £40 million to £10 million. Adjusted operating profit of £23 million was £30 million lower than Q3 2016 driven by increased adjusted operating expenses partially offset by a net impairment release in Q4 2016. ● Adjusted operating expenses increased by £37 million due to the annual UK bank levy charge, £19 million, and a £13 million VAT recovery in Q3 2016. ● Net loans and advances increased by £0.4 billion to £12.2 billion due to increased mortgage lending. Assets under management increased by £0.5 billion to £17.0 billion driven by market movements. 42 RBS – Annual results 2016