Analysis of results Key points 2016 compared with 2015  Operating expenses of £16,194 million were £159 million, or 1%, lower than 2015 reflecting a £1,136 million, or 12%, reduction in adjusted operating expenses and a £825 million, or 28%, reduction in restructuring costs. In addition, 2015 included a £498 million write down of goodwill relating to Private Banking. Partially offsetting the above, litigation and conduct costs increased by £2,300 million.  Adjusted operating expenses reduced by £1,136 million, or 12%, compared with 2015 to £8,220 million. Excluding expenses associated with Williams & Glyn, write down of intangibles and a £227 million VAT recovery, adjusted expenses reduced by £985(1) million, or 11%, in excess of our £800 million target. RBS has achieved a cumulative cost reduction of £3.1 billion across 2014 – 2016.  Staff costs of £4,482 million were £414 million, or 8%, lower than 2015 underpinned by a 13,700, or 15%, reduction in FTEs.  Restructuring costs were £2,106 million for 2016, compared with £2,931 million in 2015, and included a £750 million provision in respect of the 17 February 2017 update on RBS’s remaining State Aid obligation regarding Williams & Glyn. In addition, £706 million of the remaining restructuring costs relate to Williams & Glyn, including £146 million of termination costs associated with the decision to discontinue the programme to create a cloned banking platform.  Litigation and conduct costs of £5,868 million included; a £3,107 million provision in relation to various investigations and litigation matters relating to RBS’s issuance and underwriting of residential mortgage-backed securities (RMBS), £601 million of additional PPI provisions, a £400 million provision in respect of the FCA review of RBS’s treatment of SMEs, an additional £169 million charge in respect of the settlement with the National Credit Union Administration Board to resolve two outstanding RMBS lawsuits in the United States relating to residential mortgage backed securities, a £172 million provision in Ulster Bank RoI, principally in respect of remediation and programme costs associated with an industry wide examination of tracker mortgages, and a provision in respect of the UK 2008 rights issue shareholder litigation. Q4 2016 compared with Q3 2016  Operating expenses of £7,354 million were £4,443 million higher than Q3 2016 driven by a £3,703 million increase in litigation and conduct costs, a £538 million increase in restructuring costs and a £202 million increase in adjusted operating expenses.  Adjusted operating expenses of £2,219 million were £202 million higher than Q3 2016 principally reflecting the UK bank levy charge of £190 million.  Restructuring costs of £1,007 million, compared with £469 million in Q3 2016, and included a £750 million provision in respect of the 17 February 2017 update on RBS’s remaining State Aid obligation regarding Williams & Glyn. In addition, £60 million of the remaining cost related to Williams & Glyn, £241 million, or 80%, lower than Q3 2016 following the decision to discontinue the programme to create a cloned banking platform.  Litigation and conduct costs of £4,128 million included; a £3,107 million provision in relation to various investigations and litigation matters relating to RBS’s issuance and underwriting of RMBS, a £400 million provision in respect of the FCA review of RBS’s treatment of SMEs, £201 million of additional PPI provisions and a £77 million provision in Ulster Bank RoI, principally in respect of remediation and programme costs associated with an industry wide examination of tracker mortgages. Q4 2016 compared with Q4 2015  Operating expenses of £7,354 million were £1,593 million higher than Q4 2015 reflecting a £2,004 million increase in litigation and conduct costs and a £393 million increase in restructuring costs, partially offset by a £498 million write down of goodwill in Q4 2015 and a £306 million reduction in adjusted operating expenses, principally driven by a £218 million reduction in Capital Resolution. Note: (1) Operating expenses excluding restructuring costs £2,106 million (2015 - £2,931 million), litigation and conduct costs £5,868 million (2015 - £3,568 million), write down of goodwill nil (2015 - £498 million), write down of other intangible assets of £117 million (2015 - £75 million), the operating costs of Williams and Glyn £393 million (2015 - £359 million) and the VAT recovery £227 million in 2016. 25 RBS – Annual results 2016