UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended
September 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
(Not Applicable)
Commission File Number 001-36636
CITIZENS FINANCIAL GROUP, INC.
(Exact name of the registrant as specified in its charter)

Delaware
 
05-0412693
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
One Citizens Plaza, Providence, RI 02903
( Address of principal executive offices, including zip code )

(401) 456-7000
( Registrant’s telephone number, including area code )

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
[] Yes [X] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer                      [ ]          Accelerated filer      [ ]
Non-accelerated filer (Do not check if a smaller reporting company) [X]          Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

There were 545,700,563 shares of Registrant's common stock ($.01 par value) outstanding on November 1, 2014.


EXPLANATORY NOTE
This amendment (Form 10-Q/A) is being provided for the sole purpose of providing a conformed signature omitted from our Form 10-Q for the period ended September 30, 2014, as filed on November 14, 2014. No other changes have been made to the Form 10-Q.



 
 
 
 
 
 
 
 
 
 
Table of Contents
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



GLOSSARY OF ACRONYMS AND TERMS
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
AFS
 
Available For Sale
ALLL
 
Allowance for Loan and Lease Losses
AOCI
 
Accumulated Other Comprehensive Income
ATM
 
Automatic Teller Machine
BHC
 
Bank Holding Company
bps
 
Basis Points
C&I
 
Commercial and Industrial
Capital Plan Rule
 
Federal Reserve’s Regulation Y Capital Plan Rule
CBNA
 
Citizens Bank, National Association
CBPA
 
Citizens Bank of Pennsylvania
CCAR
 
Comprehensive Capital Analysis and Review
CCO
 
Chief Credit Officer
CEO
 
Chief Executive Officer
Citizens or CFG or the Company
 
Citizens Financial Group, Inc. and its Subsidiaries
CLTV
 
Combined Loan-to-Value
CMO
 
Collateralized Mortgage Obligation
CRE
 
Commercial Real Estate
CRO
 
Chief Risk Officer
CSA
 
Credit Support Annex
DFAST
 
Dodd-Frank Act Stress Test
Dodd-Frank Act (DFA)
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS
 
Earnings Per Share
ESPP
 
Employee Stock Purchase Program
ERISA
 
Employee Retirement Income Security Act of 1974
Fannie Mae (FNMA)
 
The Federal National Mortgage Association


FASB
 
The Financial Accounting Standards Board
FDIC
 
Federal Deposit Insurance Corporation
FDICIA
 
Federal Deposit Insurance Corporation Improvement Act of 1991
FHC
 
Financial Holding Company
FHLB
 
Federal Home Loan Bank
FICO
 
Fair Isaac Corporation (credit rating)
FRB
 
Federal Reserve Bank
FRBG
 
Federal Reserve Board of Governors
Freddie Mac (FHLMC)
 
The Federal Home Loan Mortgage Corporation
FTP
 
Funds Transfer Pricing
GAAP
 
Accounting Principles Generally Accepted in the United States of America
GDP
 
Gross Domestic Product
Ginnie Mae (GNMA)
 
The Government National Mortgage Association
GRG
 
Global Recovery Group
HELOC
 
Home Equity Line of Credit
HTM
 
Held To Maturity
ILP
 
Incurred Loss Period

1

IPO
 
Initial Public Offering
IST
 
Integrated Stress Testing
IT
 
Information Technology
LCR
 
Liquidity Coverage Ratio
LGD
 
Loss Given Default
LIBOR
 
London Interbank Offered Rate
LOB
 
Line of Business
LTV
 
Loan-to-Value
MBS
 
Mortgage-Backed Securities
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
MSR
 
Mortgage Servicing Right
NSFR
 
Net Stable Funding Ratio
OCC
 
Office of the Comptroller of the Currency
OCI
 
Other Comprehensive Income
OIS
 
Overnight Index Swap
PD
 
Probability of Default
peers or peer banks or peer regional banks
 
BB&T, Comerica, Fifth Third, KeyCorp. M&T, PNC, Regions, SunTrust and U.S. Bancorp
RBS
 
The Royal Bank of Scotland plc
RBS CBFM
 
The Royal Bank of Scotland plc Corporate Banking and Financial Markets
RBS Group
 
The Royal Bank of Scotland Group plc and its subsidiaries
RBSG
 
The Royal Bank of Scotland Group plc
ROTCE
 
Return on Tangible Common Equity
RPA
 
Risk Participation Agreement
SBO
 
Serviced by Others loan portfolio
SVaR
 
Stress Value-at-Risk
TDR
 
Troubled Debt Restructuring
VaR
 
Value-at-Risk

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)
September 30, 2014
December 31, 2013
ASSETS:
 
 
Cash and due from banks

$993


$1,406

Interest-bearing cash and due from banks
1,896

1,351

Interest-bearing deposits in banks
292

233

Securities available for sale, at fair value
18,666

15,995

Securities held to maturity (fair value of $5,278 and $4,257, respectively)
5,289

4,315

Other investment securities
893

935

Loans held for sale, at fair value
205

176

Other loans held for sale
3

1,078

Loans and leases
90,749

85,859

Less: Allowance for loan and lease losses
1,201

1,221

Net loans and leases
89,548

84,638

Derivative assets
547

650

Premises and equipment, net
541

592

Bank-owned life insurance
1,370

1,339

Goodwill
6,876

6,876

Due from broker
2,067

446

Other branch assets held for sale
—

46

Other assets (related party balances of $8 and $63, respectively)
2,155

2,078

TOTAL ASSETS

$131,341


$122,154

LIABILITIES AND STOCKHOLDERS' EQUITY:
 
 
LIABILITIES:
 
 
Deposits:
 
 
      Noninterest-bearing

$25,877


$24,931

      Interest-bearing (related party balances of $5 and $5, respectively)
67,586

61,972

          Total deposits
93,463

86,903

Deposits held for sale
—

5,277

Federal funds purchased and securities sold under agreements to repurchase
5,184

4,791

Other short-term borrowed funds
6,715

2,251

Derivative liabilities (related party balances of $485 and $835, respectively)
638

939

Deferred taxes, net
354

199

Long-term borrowed funds (related party balances of $1,666 and $1,000, respectively)
2,062

1,405

Due to broker
2,087

—

Other liabilities (related party balances of $42 and $27, respectively)
1,455

1,193

TOTAL LIABILITIES

$111,958


$102,958

Contingencies (refer to Note 12)



STOCKHOLDERS' EQUITY:
 
 
Preferred stock:
 
 
$25.00 par value, 100,000,000 shares authorized, no shares outstanding at September 30, 2014 and $1.00 par value, 30,000 shares authorized, no shares outstanding at December 31, 2013

$—


$—

Common stock:
 
 
$.01 par value, 1,000,000,000 shares authorized, 559,998,324 shares issued and outstanding at September 30, 2014 and December 31, 2013
6

6

Additional paid-in capital
18,660

18,603

Retained earnings
1,152

1,235

Accumulated other comprehensive loss
(435
)
(648
)
TOTAL STOCKHOLDERS' EQUITY

$19,383


$19,196

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$131,341


$122,154

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

3


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
Three Months Ended September 30,
Nine Months Ended September 30,
 (in millions, except share data)
2014
2013
2014
2013
INTEREST INCOME:
 
 


Interest and fees on loans and leases (related party balances of $18, $17, $54 and $38, respectively)

$754


$748


$2,235


$2,258

Interest and fees on loans held for sale
2

3

4

10

Interest and fees on other loans held for sale
—

—

22

—

Investment securities
155

120

458

348

Interest-bearing deposits in banks
2

2

4

9

Total interest income
913

873

2,723

2,625

INTEREST EXPENSE:
 
 


Deposits (related party balances of $0, $12, $0 and $15, respectively)
41

58

108

176

Deposits held for sale
—

—

4

—

Federal funds purchased and securities sold under agreement to repurchase (related party balances of $3, $33, $16 and $143, respectively)
9

35

25

150

Other short-term borrowed funds (related party balances of $16, $3, $60 and $3, respectively)
21

2

70

4

Long-term borrowed funds (related party balances of $17, $4, $42 and $6, respectively)
22

8

55

16

Total interest expense
93

103

262

346

Net interest income
820

770

2,461

2,279

Provision for credit losses
77

145

247

347

Net interest income after provision for credit losses
743

625

2,214

1,932

NONINTEREST INCOME:
 
 


Service charges and fees (related party balances of $1, $4, $4 and $13, respectively)
144

163

430

488

Card fees
58

63

175

176

Trust and investment services fees
39

39

120

109

Foreign exchange and trade finance fees (related party balances of $59, ($33), $52 and ($20), respectively)
26

25

70

73

Capital markets fees (related party balances of $4, $4, $9 and $9, respectively)
22

11

66

35

Mortgage banking fees
21

20

55

133

Bank-owned life insurance income
13

12

36

37

Securities gains, net
2

25

27

119

Other-than-temporary impairment:
 
 


Total other-than-temporary impairment losses
(3
)
(1
)
(42
)
(61
)
Portions of loss recognized in other comprehensive income (before taxes)
2

(2
)
35

54

Net impairment losses recognized in earnings
(1
)
(3
)
(7
)
(7
)
Other income (related party balances of $5, ($44), ($130) and $132, respectively)
17

28

367

90

Total noninterest income
341

383

1,339

1,253

NONINTEREST EXPENSE:
 
 


Salaries and employee benefits
409

403

1,281

1,261

Outside services
106

87

314

259

Occupancy (related party balances of $0, $1, $0 and $3, respectively)
77

80

245

244

Equipment expense
58

69

187

207

Amortization of software
38

26

102

71

Goodwill impairment
—

—

—

4,435

Other operating expense
122

123

439

384

Total noninterest expense
810

788

2,568

6,861

Income (loss) before income tax expense (benefit)
274

220

985

(3,676
)
Income tax expense (benefit)
85

76

317

(98
)
NET INCOME (LOSS)

$189


$144


$668


($3,578
)
Weighted-average number of shares outstanding:
 
 
 
 
Basic
559,998,324

559,998,324

559,998,324

559,998,324

Diluted
560,243,747

559,998,324

560,081,031

559,998,324

Per common share information:
 
 
 
 
Basic earnings (loss)

$0.34


$0.26


$1.19


($6.39
)
Diluted earnings (loss)
0.34

0.26

1.19

(6.39
)
   Dividends declared and paid to parent
0.68

0.68

1.34

1.45

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

4


CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (UNAUDITED)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
2013
 
2014
2013
Net income (loss)

$189


$144

 

$668


($3,578
)
Other comprehensive income (loss):
 
 
 
 
 
Net unrealized derivative instrument gains (losses) arising during the periods, net of income taxes of $10, $1, $80 and ($70), respectively
17

1

 
137

(121
)
Reclassification adjustment for net derivative losses included in net income, net of income taxes of $2, $11, $9 and $45, respectively
3

19

 
16

79

Net unrealized securities gains (losses) arising during the periods, net of income taxes of ($36), $19, $73 and ($107), respectively
(61
)
35

 
127

(184
)
Other-than-temporary impairment not recognized in earnings on securities, net of income taxes of $0, $0, ($12) and ($21), respectively
(1
)
—

 
(22
)
(35
)
Reclassification of net securities gains to net income, net of income taxes of $0, ($7), ($7) and ($41), respectively
(1
)
(15
)
 
(13
)
(71
)
Defined benefit pension plans:
 
 
 
 
 
Actuarial loss, net of taxes of ($35), $0, ($35) and $0, respectively
(59
)
—

 
(59
)
—

Net prior service credit, net of income taxes of $3, $0, $3 and $0, respectively
4

—

 
4

—

Amortization of actuarial loss, net of taxes of $1, $1, $2 and $4, respectively
2

2

 
4

5

Divestitures effective 9/1/14, net of taxes of $13, $0, $13 and $0, respectively
19

—

 
19

—

Total other comprehensive income (loss), net of income taxes
(77
)
42

 
213

(327
)
Total comprehensive income (loss)

$112


$186

 

$881


($3,905
)
The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

5


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

(in millions)
Preferred Stock
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total

Balance at December 31, 2012

$—


$6


$18,589


$5,846


($312
)

$24,129

Dividend to parent
—

—

—

(145
)
—

(145
)
Dividends to parent — exchange transactions
—

—

—

(666
)
—

(666
)
Total comprehensive loss:
 
 
 
 
 
 
Net loss
—

—

—

(3,578
)
—

(3,578
)
Other comprehensive loss
—

—

—

—

(327
)
(327
)
Total comprehensive loss
—

—

—

(3,578
)
(327
)
(3,905
)
Balance at September 30, 2013

$—


$6


$18,589


$1,457


($639
)

$19,413

 
 
 
 
 
 
 
Balance at December 31, 2013

$—


$6


$18,603


$1,235


($648
)

$19,196

Dividend to parent
—

—

—

(85
)
—

(85
)
Dividends to parent — exchange transactions
—

—

—

(666
)
—

(666
)
Share-based compensation plans
—

—

57

—

—

57

Total comprehensive income:
 
 
 
 
 
 
Net income
—

—

—

668

—

668

Other comprehensive income
—

—

—

—

213

213

Total comprehensive income
—

—

—

668

213

881

Balance at September 30, 2014

$—


$6


$18,660


$1,152


($435
)

$19,383

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
Nine Months Ended September 30,
(in millions)
2014
2013
OPERATING ACTIVITIES
 
 
Net income (loss)

$668


($3,578
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Provision for credit losses
247

347

Originations of mortgage loans held for sale
(1,131
)
(3,310
)
Proceeds from sales of mortgage loans held for sale
1,089

3,649

Amortization of terminated cash flow hedges (related party balances of $13 and $53, respectively)
36

57

Depreciation, amortization and accretion
313

304

Recovery of mortgage servicing rights
(8
)
(42
)
Securities impairment
7

7

Goodwill impairment
—

4,435

Deferred income taxes
31

(110
)
Share-based compensation
29

24

Loss on disposal/impairment of premises and equipment
18

15

Loss on sale of other branch assets held for sale
9

—

Gain on sales of:
 
 
Securities available for sale
(27
)
(119
)
Other loans held for sale
(11
)
—

Deposits held for sale
(286
)
—

(Increase) decrease in other assets (related party balances of $53 and $1, respectively)
(2,040
)
530

Increase (decrease) in other liabilities (related party balances of ($151) and $23, respectively)
2,256

(573
)
Net cash provided by operating activities
1,200

1,636

INVESTING ACTIVITIES
 
 
Investment securities:
 
 
Purchases of securities available for sale
(5,642
)
(8,830
)
Proceeds from maturities and paydowns of securities available for sale
2,238

3,931

Proceeds from sales of securities available for sale
1,265

3,014

Purchases of other investment securities
(72
)
(1
)
Proceeds from sales of other investment securities
114

101

Purchases of securities held to maturity
(1,174
)
—

Proceeds from maturities and paydowns of securities held to maturity
216

—

Net (increase) decrease in interest-bearing deposits in banks
(59
)
990

Net (increase) decrease in loans and leases
(4,120
)
1,289

Net increase in bank-owned life insurance
(31
)
(29
)
Premises and equipment:
 
 
Purchases
(48
)
(118
)
Proceeds from sales
29

—

Capitalization of software
(116
)
(129
)
Net cash (used in) provided by investing activities
(7,400
)
218

FINANCING ACTIVITIES
 
 
Net increase (decrease) in deposits
1,569

(1,218
)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
393

(742
)
Net increase in other short-term borrowed funds
4,462

64

Proceeds from issuance of long-term borrowed funds (related party balances of $666 and $666, respectively)
666

666

Repayments of long-term borrowed funds (related party balances of $0 and $280, respectively)
(7
)
(294
)
Dividends declared and paid to parent
(751
)
(811
)
Net cash provided by (used in) financing activities
6,332

(2,335
)
Increase (decrease) in cash and cash equivalents
132

(481
)
Cash and cash equivalents at beginning of period
2,757

3,063

Cash and cash equivalents at end of period

$2,889


$2,582

Supplemental disclosures:
 
 
Interest paid

$248


$354

Income taxes paid
201

19

Non-cash items:
 
 
Due from broker for securities sold but not settled

$1,621


$4

Due to broker for securities purchased but not settled
(2,110
)
(2
)
The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION
Basis of Presentation

The unaudited interim Consolidated Financial Statements, including the Notes thereto of Citizens Financial Group, Inc. (formerly RBS Citizens Financial Group, Inc., prior to April 16, 2014), have been prepared in accordance with GAAP interim reporting requirements, and therefore do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. These interim Consolidated Financial Statements and Notes thereto should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company's Registration Statement on Form S-1/A, declared effective by the United States Securities and Exchange Commission on September 23, 2014 (the "Registration Statement"). The Company is a majority-owned subsidiary of The Royal Bank of Scotland Group plc. The Company’s principal business activity is banking, conducted through its subsidiaries, Citizens Bank, N.A. (formerly RBS Citizens, N.A., prior to April 16, 2014) and Citizens Bank of Pennsylvania.

The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

On August 22, 2014, the Company's Board of Directors declared a 165,582 -for-1 stock split. Except for the amount of authorized shares and par value, all references to share and per share amounts in the unaudited interim Consolidated Financial Statements and accompanying Notes have been retroactively adjusted to reflect the stock split.

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications are immaterial and have no effect on net income, total comprehensive income, total assets or total stockholders’ equity as previously reported.

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The new standard provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The amendment is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” This update amends the guidance in Accounting Standards Codification 310 and requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendment is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2014 and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity.” This update amends the guidance in Accounting Standards Codification 820 and clarifies that a reporting entity that consolidates a collateralized financing entity within the scope of this update may elect to measure the financial assets and the financial liabilities of that collateralized financing entity using either the measurement alternative included in this update or Topic 820 on fair value measurement. When the measurement alternative is not elected for a consolidated collateralized financing entity within the scope of this update, the amendments clarify that (1) the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and (2) any differences in the fair value of the financial assets and the fair value of the financial liabilities of that consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income (loss). The amendment is effective for annual reporting periods,

8

including interim reporting periods within those periods, beginning after December 15, 2015 and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This update amends the guidance on stock compensation and clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Accordingly, an entity should not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which a transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. The amendment is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures,” which makes limited amendments to the guidance on accounting for certain repurchase agreements. This update requires entities to account for repurchase-to maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements); eliminates accounting guidance on linked repurchase financing transactions; and expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers accounted for as secured borrowings. This update also amends the existing guidance to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in the existing guidance should be accounted for as secured borrowings. This amendment is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2014, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue From Contracts With Customers.” This amendment outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The new guidance applies to all contracts with customers except those that are within the scope of other topics in GAAP. This amendment is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2016, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This amendment modifies the requirements for reporting a discontinued operation. The amended definition of “discontinued operations” includes only disposals, held-for-sale classifications of components, or groups of components of an entity that represent “strategic shift” that either has or will have a major effect on the entity’s operations and financial results, such as geographic area, line of business, equity method investment or other parts of an entity. This amendment also provides disclosure guidance for situations where an entity has continuing involvement with a discontinued operation or retains an equity method investment in a component after disposal. This amendment is effective for all disposals or classifications as held for sale (including businesses or nonprofit activities that, on acquisition, are classified as held for sale) that occur in annual periods, and in interim periods within those annual periods, beginning after December 15, 2014, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In January 2014, the FASB issued Accounting Standards Update No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” This amendment clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendment requires disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. This amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.

In January 2014, the FASB issued Accounting Standards Update No. 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” This amendment permits reporting entities to make an accounting policy election to account for

9

their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). Qualified affordable housing project investments that are not accounted for using the proportional amortization method must be accounted for as an equity method or cost method investment. This amendment is effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014, and is not expected to have a material impact on the Company’s unaudited interim Consolidated Financial Statements.


NOTE 2 - SECURITIES
The following table provides the major components of securities at amortized cost and fair value:
 
September 30, 2014
 
December 31, 2013
(in millions)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Securities Available for Sale
 
 
 
 
 




U.S. Treasury

$15


$—


$—


$15

 

$15


$—


$—


$15

State and political subdivisions
10

—

—

10

 
11

—

(1
)
10

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
17,759

207

(68
)
17,898

 
14,970

151

(128
)
14,993

Other/non-agency
747

6

(35
)
718

 
992

5

(45
)
952

Total mortgage-backed securities
18,506

213

(103
)
18,616

 
15,962

156

(173
)
15,945

Total debt securities available for sale
18,531

213

(103
)
18,641

 
15,988

156

(174
)
15,970

Marketable equity securities
10

3

—

13

 
10

3

—

13

Other equity securities
12

—

—

12

 
12

—

—

12

Total equity securities available for sale
22

3

—

25

 
22

3

—

25

Total securities available for sale

$18,553


$216


($103
)

$18,666

 

$16,010


$159


($174
)

$15,995

Securities Held to Maturity
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities

$3,833


$9


($46
)

$3,796

 

$2,940


$—


($33
)

$2,907

Other/non-agency
1,456

26

—

1,482

 
1,375

—

(25
)
1,350

Total securities held to maturity

$5,289


$35


($46
)

$5,278

 

$4,315


$—


($58
)

$4,257

Other Investment Securities
 
 
 
 
 
 
 
 
 
Federal Reserve Bank stock

$470


$—


$—


$470

 

$462


$—


$—


$462

Federal Home Loan Bank stock
417

—

—

417

 
468

—

—

468

Venture capital and other investments
6

—

—

6

 
5

—

—

5

Total other investment securities

$893


$—


$—


$893

 

$935


$—


$—


$935


10


The Company has reviewed its securities portfolio for other-than-temporary impairments. The following tables summarize those securities whose fair values are below carrying values, segregated by those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:
 
September 30, 2014
 
Less than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
U.S. Treasury
—


$—


$—

 
—


$—


$—

 
—


$—


$—

State and political subdivisions
—

—

—

 
1

10

—

 
1

10

—

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
121

7,178

(63
)
 
45

1,213

(51
)
 
166

8,391

(114
)
Other/non-agency
5

112

(1
)
 
17

414

(34
)
 
22

526

(35
)
Total mortgage-backed securities
126

7,290

(64
)
 
62

1,627

(85
)
 
188

8,917

(149
)
Total
126


$7,290


($64
)
 
63


$1,637


($85
)
 
189


$8,927


($149
)

 
December 31, 2013
 
Less than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
State and political subdivisions
1


$10


($1
)
 
—


$—


$—

 
1


$10


($1
)
Mortgage-backed securities:






 






 






Federal agencies and U.S. government sponsored entities
263

12,067

(158
)
 
7

20

(2
)
 
270

12,087

(160
)
Other/non-agency
22

1,452

(34
)
 
19

490

(37
)
 
41

1,942

(71
)
Total mortgage-backed securities
285

13,519

(192
)
 
26

510

(39
)
 
311

14,029

(231
)
Total
286


$13,529


($193
)
 
26


$510


($39
)
 
312


$14,039


($232
)

For each debt security identified with an unrealized loss, the Company reviews the expected cash flows to determine if the impairment in value is temporary or other-than-temporary. If the Company has determined that the present value of the debt security’s expected cash flows is less than its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of impairment loss that is recognized in current period earnings is dependent on the Company’s intent to sell (or not sell) the debt security.
If the Company intends to sell the impaired debt security, the impairment loss recognized in current period earnings equals the difference between the debt security’s fair value and its amortized cost. If the Company does not intend to sell the impaired debt security, and it is not likely that the Company will be required to sell the impaired security, the credit-related impairment loss is recognized in current period earnings and equals the difference between the amortized cost of the debt security and the present value of the expected cash flows that have currently been projected.
In addition to these cash flow projections, several other characteristics of each debt security are reviewed when determining whether a credit loss exists and the period over which the debt security is expected to recover. These characteristics include: (1) the type of investment, (2) various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), (3) the length and severity of impairment, and (4) the public credit rating of the instrument.
The Company estimates the portion of loss attributable to credit using a cash flow model. The inputs to this model include prepayment, default and loss severity assumptions that are based on industry research and observed data. The loss projections

11

generated by the model are reviewed on a quarterly basis by a cross-functional governance committee. This governance committee determines whether security impairments are other-than-temporary based on this review.
The following table presents the cumulative credit related losses recognized in earnings on debt securities held by the Company as of:
 
Three Months Ended   September 30,
 
Nine Months Ended September 30,
(in millions)
2014
2013
 
2014
2013
Cumulative balance at beginning of period

$60


$56

 

$56


$55

Credit impairments recognized in earnings on debt securities that have been previously impaired
1

3

 
7

7

Reductions due to increases in cash flow expectations on impaired securities
(1
)
(3
)
 
(3
)
(6
)
Cumulative balance at end of period

$60


$56

 

$60


$56


Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2014 and 2013 were $60 million and $56 million , respectively. There were no credit losses recognized in earnings for the Company's HTM portfolio as of September 30, 2014 and 2013 . In the three months ended September 30, 2014 and 2013, the Company recognized credit related other-than-temporary impairment losses in earnings of $1 million and $3 million , respectively, related to non-agency MBS in the AFS portfolio. For the nine months ended September 30, 2014 and 2013, $7 million of credit related other-than-temporary impairment losses was recognized in earnings. No impaired debt securities were sold during the three or nine month periods ended September 30, 2014 and 2013 . Reductions in credit losses due to increases in cash flow expectations were $1 million and $3 million in the three months ended September 30, 2014 and 2013, and were $3 million and $6 million for the nine months ended September 30, 2014 and 2013 , respectively, and were presented in investment securities interest income on the Consolidated Statements of Operations. The Company does not currently have the intent to sell these debt securities, and it is not likely that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. As of September 30, 2014 and 2013 , $35 million and $54 million , respectively, of pre-tax non-credit related losses were deferred in OCI.
The Company has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of the current reporting date. The unrealized losses on these debt securities reflect the reduced liquidity in the MBS market and the increased risk spreads due to the uncertainty of the U.S. macroeconomic environment. Therefore, the Company has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not likely that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Additionally, any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases.

12

The amortized cost and fair value of debt securities at September 30, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Distribution of Maturities
(in millions)
1 Year or Less
1-5 Years
5-10 Years
After 10 Years
Total
Amortized Cost:
 
 
 
 
 
Debt securities available for sale
 
 
 
 
 
U.S. Treasury

$15


$—


$—


$—


$15

State and political subdivisions
—

—

—

10

10

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
4

56

2,438

15,261

17,759

Other/non-agency
—

61

62

624

747

Total debt securities available for sale
19

117

2,500

15,895

18,531

Debt securities held to maturity
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

3,833

3,833

Other/non-agency
—

—

—

1,456

1,456

Total debt securities held to maturity
—

—

—

5,289

5,289

Total amortized cost of debt securities

$19


$117


$2,500


$21,184


$23,820

 
 
 
 
 
 
Fair Value:
 
 
 
 
 
Debt securities available for sale
 
 
 
 
 
U.S. Treasury

$15


$—


$—


$—


$15

State and political subdivisions
—

—

—

10

10

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
4

60

2,441

15,393

17,898

Other/non-agency
—

61

64

593

718

Total debt securities available for sale
19

121

2,505

15,996

18,641

Debt securities held to maturity
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

3,796

3,796

Other/non-agency
—

—

—

1,482

1,482

Total debt securities held to maturity
—

—

—

5,278

5,278

Total fair value of debt securities

$19


$121


$2,505


$21,274


$23,919


    

13

The following table reports the amounts recognized in interest income from investment securities on the Consolidated Statement of Operations:
 
Three Months Ended   September 30,
 
Nine Months Ended September 30,
(in millions)
2014
2013
 
2014
2013
Taxable

$155


$120

 

$458


$348

Non-taxable
—

—

 
—

—

Total interest income from investment securities

$155


$120

 

$458


$348

The Company recognized gains on sale of debt securities in earnings of $2 million and $25 million for the three months ended September 30, 2014 and 2013 , respectively, and $27 million and $119 million for the nine months ended September 30, 2014 and 2013 , respectively.
The amortized cost and fair value of securities pledged are shown below:
 
September 30, 2014
 
December 31, 2013
(in millions)
Amortized Cost
Fair Value
 
Amortized Cost
Fair Value
Pledged against repurchase agreements

$5,129


$5,165

 

$5,016


$4,998

Pledged against FHLB borrowed funds
1,390

1,416

 
1

1

Pledged against derivatives to qualify for fiduciary powers, and to secure public and other deposits as required by law
3,463

3,514

 
2,818

2,853

    
The Company regularly enters into security repurchase agreements with unrelated counterparties. Repurchase agreements are financial transactions that involve the transfer of a security from one party to another and a subsequent transfer of the same (or "substantially the same") security back to the original party. The Company’s repurchase agreements are typically short-term transactions (e.g., overnight), but they may be extended to longer terms to maturity. Such transactions are accounted for as secured borrowed funds on the Company’s financial statements. When permitted by GAAP, the Company offsets the short-term receivables associated with its reverse repurchase agreements with the short-term payables associated with its repurchase agreements.

The effects of this offsetting on the Consolidated Balance Sheets are presented in the following table:
 
September 30, 2014
 
December 31, 2013
(in millions)
Gross Assets (Liabilities)
Gross Assets (Liabilities) Offset
Net Amounts of Assets (Liabilities)
 
Gross Assets (Liabilities)
Gross Assets (Liabilities) Offset
Net Amounts of Assets (Liabilities)
Securities purchased under agreements to resell

$—


$—


$—

 

$—


$—


$—

Securities sold under agreements to repurchase
(4,100
)
—

(4,100
)
 
(3,000
)
—

(3,000
)

Note: The Company also offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. See Note 11 "Derivatives" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information.
    
 

14

NOTE 3 - LOANS AND LEASES
A summary of the loans and leases portfolio follows:
(in millions)
September 30, 2014
 
December 31, 2013
Commercial

$30,356

 

$28,667

Commercial real estate
7,239

 
6,948

Leases
3,875

 
3,780

Total commercial
41,470

 
39,395

Residential, including originated home equity products
30,458

 
29,694

Home equity products serviced by others
1,870

 
2,171

Other secured retail
13,206

 
10,700

Unsecured retail
3,745

 
3,899

Total retail
49,279

 
46,464

Total loans and leases (1) (2)

$90,749

 

$85,859


(1)  Excluded from the table above are loans held for sale totaling $208 million as of September 30, 2014 and $1.3 billion as of December 31, 2013 . The December 31, 2013 loans held for sale balance primarily related to the Company's sale of certain assets and liabilities associated with its Chicago-area retail branches. For further discussion, see Note 13 "Divestitures and Branch Assets and Liabilities Held for Sale" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information.

(2)  Mortgage loans serviced for others by the Company's subsidiaries are not included above, and amounted to $18.1 billion and $18.7 billion at September 30, 2014 and December 31, 2013 , respectively.

Loans held for sale totaled $205 million and $176 million at September 30, 2014 and December 31, 2013 , respectively, and consisted of residential mortgages originated for sale. Other loans held for sale totaled $3 million and $1.1 billion at September 30, 2014 and December 31, 2013 , respectively. The other loans held for sale balance at December 31, 2013 primarily related to the Company's sale of certain assets and liabilities associated with its Chicago-area retail branches (the "Chicago Divestiture"). See Note 13 "Divestitures and Branch Assets and Liabilities Held for Sale" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further details.
Loans pledged as collateral for FHLB borrowed funds totaled $19.5 billion and $19.0 billion at September 30, 2014 and December 31, 2013 , respectively. This collateral consists primarily of residential mortgages and home equity loans. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, totaled $13.4 billion and $13.9 billion at September 30, 2014 and December 31, 2013 , respectively.
During the nine months ended September 30, 2014 , the Company purchased a portfolio of residential loans with an outstanding principal balance of $1.5 billion , a portfolio of auto loans with an outstanding principal balance of $1.3 billion and a portfolio of student loans with an outstanding principal balance of $59 million . In addition to the $1.0 billion loans sold as part of the Chicago Divestiture, the Company sold portfolios of residential mortgage loans with outstanding principal balances of $126 million and student loans of $357 million as well as commercial loans with an outstanding principal balance of $165 million during the nine months ended September 30, 2014 . The Company had no loan portfolio purchase or sale transactions during the nine months ended September 30, 2013 .    

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK
The ALLL is increased through a provision for credit losses that is charged to earnings, based on the Company’s quarterly evaluation of the loan portfolio, and is reduced by net charge-offs and the ALLL associated with sold loans. See Note 1 “Significant Accounting Policies” of the Company’s audited Consolidated Financial Statements, for a detailed discussion of ALLL methodologies and estimation techniques.
On a quarterly basis, the Company reviews and refines its estimate of the allowance for credit losses, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. Changes in these factors since September 30, 2013, led to an increase in the allowance for credit losses as of September 30, 2014. ALLL decreased over the same period reflecting asset quality improvements and lower charge-offs.

15

            During 2013, the Company modified the way that it establishes the ALLL. The ALLL is reviewed separately for commercial and retail loan portfolios, and the ALLL for each includes an adjustment for qualitative reserves that includes certain risks, factors and events that might not be measured in the statistical analysis. As a result of this change, the unallocated reserve was absorbed into the separately measured commercial and retail qualitative reserves.
            There were no other material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s ALLL and the reserve for unfunded lending commitments.

The following is a summary of changes in the allowance for credit losses:

Nine Months Ended September 30, 2014
(in millions)
Commercial
Retail
Total
Allowance for loan and lease losses as of January 1, 2014

$498


$723


$1,221

Charge-offs
(30
)
(344
)
(374
)
Recoveries
47

84

131

Net recoveries (charge-offs)
17

(260
)
(243
)
Provision charged to income
27

196

223

Allowance for loan and lease losses as of September 30, 2014
542

659

1,201

Reserve for unfunded lending commitments as of January 1, 2014
39

—

39

Provision for unfunded lending commitments
24

—

24

Reserve for unfunded lending commitments as of September 30, 2014
63

—

63

Total allowance for credit losses as of September 30, 2014

$605


$659


$1,264

 
Nine Months Ended September 30, 2013
(in millions)
Commercial
Retail
Unallocated
Total
Allowance for loan and lease losses as of January 1, 2013

$509


$657


$89


$1,255

Charge-offs
(72
)
(470
)
—

(542
)
Recoveries
69

87

—

156

Net charge-offs
(3
)
(383
)
—

(386
)
Provision charged to income
(51
)
329

72

350

Allowance for loan and lease losses as of September 30, 2013
455

603

161

1,219

Reserve for unfunded lending commitments as of January 1, 2013
40

—

—

40

Provision for unfunded lending commitments
(3
)
—

—

(3
)
Reserve for unfunded lending commitments as of September 30, 2013
37

—

—

37

Total allowance for credit losses as of September 30, 2013

$492


$603


$161


$1,256


The recorded investment in loans and leases based on the Company’s evaluation methodology is as follows:
 
September 30, 2014
 
December 31, 2013
(in millions)
Commercial
Retail
Total
 
Commercial
Retail
Total
Individually evaluated

$191


$1,214


$1,405

 

$239


$1,200


$1,439

Formula-based evaluation
41,279

48,065

89,344

 
39,156

45,264

84,420

Total

$41,470


$49,279


$90,749

 

$39,395


$46,464


$85,859


The following is a summary of the allowance for credit losses by evaluation method:
 
September 30, 2014
 
December 31, 2013
(in millions)
Commercial
Retail
Total
 
Commercial
Retail
Total
Individually evaluated

$14


$116


$130

 

$23


$108


$131

Formula-based evaluation
591

543

1,134

 
514

615

1,129

Allowance for credit losses

$605


$659


$1,264

 

$537


$723


$1,260



16

For commercial loans and leases, the Company utilizes regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that the Company believes will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness that indicates an increased probability of future loss. For retail loans, the Company primarily uses the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators for both commercial and retail loans are continually updated and monitored.
The recorded investment in classes of commercial loans and leases based on regulatory classification ratings is as follows:
 
September 30, 2014
 
 
Criticized
 
(in millions)
Pass
Special Mention
Substandard
Doubtful
Total
Commercial

$28,857


$861


$517


$121


$30,356

Commercial real estate
6,869

207

97

66

7,239

Leases
3,814

15

46

—

3,875

Total

$39,540


$1,083


$660


$187


$41,470


 
December 31, 2013
 
 
Criticized
 
(in millions)
Pass
Special Mention
Substandard
Doubtful
Total
Commercial

$27,433


$588


$541


$105


$28,667

Commercial real estate
6,366

339

116

127

6,948

Leases
3,679

40

61

—

3,780

Total

$37,478


$967


$718


$232


$39,395


The recorded investment in classes of retail loans, categorized by delinquency status is as follows:
 
September 30, 2014
(in millions)
Current
1-29 Days Past Due
30-89 Days Past Due
90 Days or More Past Due
Total
Residential, including originated home equity products

$28,852


$811


$227


$568


$30,458

Home equity products serviced by others
1,638

138

42

52

1,870

Other secured retail
12,438

673

79

16

13,206

Unsecured retail
3,548

118

49

30

3,745

Total

$46,476


$1,740


$397


$666


$49,279

 
December 31, 2013
(in millions)
Current
1-29 Days Past Due
30-89 Days Past Due
90 Days or More Past Due
Total
Residential, including originated home equity products

$27,912


$861


$259


$662


$29,694

Home equity products serviced by others
1,901

167

43

60

2,171

Other secured retail
10,068

550

66

16

10,700

Unsecured retail
3,593

185

67

54

3,899

Total

$43,474


$1,763


$435


$792


$46,464


    

17

Nonperforming Assets
A summary of nonperforming loans and leases by class is as follows:
 
September 30, 2014
 
December 31, 2013
(in millions)
Nonaccruing
Accruing and 90 Days or More Delinquent
Total Nonperforming Loans and Leases
 
Nonaccruing
Accruing and 90 Days or More Delinquent
Total Nonperforming Loans and Leases
Commercial

$93


$—


$93

 

$96


$—


$96

Commercial real estate
82

1

83

 
169

—

169

Leases
—

—

—

 
—

—

—

Total commercial
175

1

176

 
265

—

265

Residential, including originated home equity products
770

—

770

 
981

—

981

Home equity products serviced by others
81

—

81

 
89

—

89

Other secured retail
22

—

22

 
26

—

26

Unsecured retail
23

7

30

 
22

33

55

Total retail
896

7

903

 
1,118

33

1,151

Total

$1,071


$8


$1,079

 

$1,383


$33


$1,416


A summary of other nonperforming assets is as follows:
(in millions)
September 30, 2014
 
December 31, 2013
Nonperforming assets, net of valuation allowance:
 
 
 
Commercial

$3

 

$10

Retail
39

 
40

Nonperforming assets, net of valuation allowance

$42

 

$50


Nonperforming assets consists primarily of other real estate owned and is presented in other assets on the Consolidated Balance Sheets.

A summary of key performance indicators is as follows:

September 30, 2014
 
December 31, 2013
Nonperforming commercial loans and leases as a percentage of total loans and leases
0.19
%
 
0.31
%
Nonperforming retail loans as a percentage of total loans and leases
1.00

 
1.34

Total nonperforming loans and leases as a percentage of total loans and leases
1.19

 
1.65

 
 
 
 
Nonperforming commercial assets as a percentage of total assets
0.13

 
0.23

Nonperforming retail assets as a percentage of total assets
0.72

 
0.97

Total nonperforming assets as a percentage of total assets
0.85
%
 
1.20
%


18

The following is an analysis of the age of the past due amounts (accruing and nonaccruing):
 
September 30, 2014
 
December 31, 2013
(in millions)
 30-89 Days Past Due
 90 Days or More Past Due
 Total Past Due
 
 30-89 Days Past Due
 90 Days or More Past Due
 Total Past Due
Commercial

$30


$93


$123

 

$61


$96


$157

Commercial real estate
42

83

125

 
34

169

203

Leases
2

—

2

 
24

—

24

Total commercial
74

176

250

 
119

265

384

Residential, including originated home equity products
227

568

795

 
259

662

921

Home equity products serviced by others
42

52

94

 
43

60

103

Other secured retail
79

16

95

 
66

16

82

Unsecured retail
49

30

79

 
67

54

121

Total retail
397

666

1,063

 
435

792

1,227

Total

$471


$842


$1,313

 

$554


$1,057


$1,611


Impaired loans include: (1) nonaccruing larger balance commercial loans (greater than $3 million carrying value); and (2) commercial and retail TDRs. The following is a summary of impaired loan information by class:

September 30, 2014
(in millions)
Impaired Loans With a Related Allowance
Allowance on Impaired Loans
Impaired Loans Without a Related Allowance
Unpaid Contractual Balance
Total Recorded Investment in Impaired Loans
Commercial

$116


$14


$53


$195


$169

Commercial real estate
—

—

34

72

34

Total commercial
116

14

87

267

203

Residential, including originated home equity products
361

57

518

1,131

879

Home equity products serviced by others
83

14

23

120

106

Other secured retail
21

4

10

39

31

Unsecured retail
198

41

—

198

198

Total retail
663

116

551

1,488

1,214

Total

$779


$130


$638


$1,755


$1,417


 
December 31, 2013
(in millions)
Impaired Loans With a Related Allowance
Allowance on Impaired Loans
Impaired Loans Without a Related Allowance
Unpaid Contractual Balance
Total Recorded Investment in Impaired Loans
Commercial

$86


$15


$33


$214


$119

Commercial real estate
76

8

44

221

120

Total commercial
162

23

77

435

239

Residential, including originated home equity products
355

59

497

1,081

852

Home equity products serviced by others
91

11

21

125

112

Other secured retail
23

3

12

43

35

Unsecured retail
201

35

—

201

201

Total retail
670

108

530

1,450

1,200

Total

$832


$131


$607


$1,885


$1,439



19

Additional information on impaired loans is as follows:

For the Three Months Ended September 30,

2014
 
2013
(in millions)
Interest Income Recognized
Average Recorded Investment
 
Interest Income Recognized
Average Recorded Investment
Commercial

$2


$138

 

$1


$154

Commercial real estate
—

62

 
—

154

Total commercial
2

200

 
1

308

Residential, including originated home equity products
6

865

 
6

762

Home equity products serviced by others
1

106

 
1

118

Other secured retail
1

30

 
(4
)
36

Unsecured retail
3

195

 
6

197

Total retail
11

1,196

 
9

1,113

Total

$13


$1,396

 

$10


$1,421

 
For the Nine Months Ended September 30,

2014
 
2013
(in millions)
Interest Income Recognized
Average Recorded Investment
 
Interest Income Recognized
Average Recorded Investment
Commercial

$2


$141

 

$2


$169

Commercial real estate
1

70

 
1

172

Total commercial
3

211

 
3

341

Residential, including originated home equity products
19

835

 
9

727

Home equity products serviced by others
4

105

 
4

119

Other secured retail
1

29

 
—

35

Unsecured retail
8

188

 
8

185

Total retail
32

1,157

 
21

1,066

Total

$35


$1,368

 

$24


$1,407


Troubled Debt Restructurings
A loan modification is identified as a TDR when the Company or a bankruptcy court grants the borrower a concession the Company would not otherwise make in response to the borrower’s financial difficulties. TDRs typically result from the Company's loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship. The Company's loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower's financial needs. Concessions granted in TDRs for all classes of loans may include lowering the interest rate, forgiving a portion of principal, extending the loan term, lowering scheduled payments for a specified period of time, principal forbearance, or capitalizing past due amounts. A rate increase can be a concession if the increased rate is lower than a market rate for debt with risk similar to that of the restructured loan. TDRs for commercial loans and leases may also involve creating a multiple note structure, accepting non-cash assets, accepting an equity interest, or receiving a performance-based fee. In some cases a TDR may involve multiple concessions. The financial effects of TDRs for all loan classes may include lower income (either due to a lower interest rate or a delay in the timing of cash flows), larger loan loss provisions, and accelerated charge-offs if the modification renders the loan collateral-dependent. In some cases interest income throughout the term of the loan may increase if, for example, the loan is extended or the interest rate is increased as a result of the restructuring.
Because TDRs are impaired loans, the Company measures impairment by comparing the present value of expected future cash flows, or, when appropriate, to the fair value of collateral, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is recognized by creating a valuation allowance or increasing

20

an existing valuation allowance. Any portion of the loan’s recorded investment the Company does not expect to collect as a result of the modification is charged off at the time of modification.
Commercial TDRs were $140 million and $167 million on September 30, 2014 and December 31, 2013 , respectively. Retail TDRs totaled $1.2 billion on September 30, 2014 and December 31, 2013 . Commitments to lend additional funds to debtors owing receivables which were TDRs were $48 million and $52 million on September 30, 2014 and December 31, 2013 , respectively.
The following table summarizes how loans were modified during the three months ended September 30, 2014 , the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2014 , and were paid off in full, charged off, or sold prior to September 30, 2014 .

Primary Modification Types

Interest Rate Reduction (1)

Maturity Extension (2)
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment

Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Commercial
5


$—


$—


10


$2


$2

Commercial real estate
1

—

—


3

1

1

Total commercial
6

—

—


13

3

3

Residential, including originated home equity products
57

6

7


87

6

6

Home equity products serviced by others
8

—

—


—

—

—

Other secured retail
7

—

—


4

—

—

Unsecured retail
513

3

3


—

—

—

Total retail
585

9

10


91

6

6

Total
591


$9


$10


104


$9


$9


Primary Modification Types




Other (3)



(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment

Net Change to ALLL Resulting from Modification
Charge-offs Resulting from Modification
Commercial
3


$—


$—



$—


$—

Commercial real estate
—

—

—


—

—

Total commercial
3

—

—


—

—

Residential, including originated home equity products
466

34

32


(1
)
2

Home equity products serviced by others
35

2

2


(1
)
—

Other secured retail
262

5

3


—

2

Unsecured retail
346

6

6


1

—

Total retail
1,109

47

43


(1
)
4

Total
1,112


$47


$43



($1
)

$4

(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forbearance, capitalizing arrearages, and principal forgiveness. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.


21

The following table summarizes how loans were modified during the three months ended September 30, 2013 , the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2013 , and were paid off in full, charged off, or sold prior to September 30, 2013 .


Primary Modification Types

Interest Rate Reduction (1)

Maturity Extension (2)
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment

Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Commercial
29


$1


$1


22


$1


$1

Commercial real estate
6

4

4


—

—

—

Total commercial
35

5

5


22

1

1

Residential, including originated home equity products
102

11

12


11

1

1

Home equity products serviced by others
4

1

1


—

—

—

Other secured retail
29

—

—


—

—

—

Unsecured retail
712

4

4


—

—

—

Total retail
847

16

17


11

1

1

Total
882


$21


$22


33


$2


$2



Primary Modification Types
 
 
 

Other (3)



(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment

Net Change to ALLL Resulting from Modification
Charge-offs Resulting from Modification
Commercial
3


$1


$1



$1


$—

Commercial real estate
1

—

—


(2
)
—

Total commercial
4

1

1


(1
)
—

Residential, including originated home equity products
598

44

42


1

1

Home equity products serviced by others
105

5

4


1

1

Other secured retail
370

5

3


—

2

Unsecured retail
541

10

10


—

—

Total retail
1,614

64

59


2

4

Total
1,618


$65


$60



$1


$4


(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forbearance, capitalizing arrearages, and principal forgiveness. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.


22

The following table summarizes how loans were modified during the nine months ended September 30, 2014 , the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2014 , and were paid off in full, charged off, or sold prior to September 30, 2014 .
 
Primary Modification Types
 
Interest Rate Reduction (1)
 
Maturity Extension (2)
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Commercial
20


$7


$7

 
38


$4


$4

Commercial real estate
3

—

—

 
5

1

1

Total commercial
23

7

7

 
43

5

5

Residential, including originated home equity products
193

20

21

 
353

24

22

Home equity products serviced by others
29

1

1

 
1

—

—

Other secured retail
65

1

1

 
11

—

—

Unsecured retail
1,698

9

9

 
—

—

—

Total retail
1,985

31

32

 
365

24

22

Total
2,008


$38


$39

 
408


$29


$27


 
Primary Modification Types
 
 
 
 
Other (3)
 
 
 
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Net Change to ALLL Resulting from Modification
Charge-offs Resulting from Modification
Commercial
5


$—


$—

 

($8
)

$—

Commercial real estate
—

—

—

 
—

—

Total commercial
5

—

—

 
(8
)
—

Residential, including originated home equity products
1,387

107

101

 
(4
)
7

Home equity products serviced by others
144

6

6

 
(1
)
—

Other secured retail
708

12

8

 
—

4

Unsecured retail
1,199

22

22

 
2

—

Total retail
3,438

147

137

 
(3
)
11

Total
3,443


$147


$137

 

($11
)

$11


(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forbearance, capitalizing arrearages, and principal forgiveness. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.
    








23


The following table summarizes how loans were modified during the nine months ended September 30, 2013 , the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2013 , and were paid off in full, charged off, or sold prior to September 30, 2013 .
 
Primary Modification Types
 
Interest Rate Reduction (1)
 
Maturity Extension (2)
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Commercial
100


$5


$5

 
106


$5


$5

Commercial real estate
10

7

7

 
1

—

—

Total commercial
110

12

12

 
107

5

5

Residential, including originated home equity products
340

38

41

 
91

8

8

Home equity products serviced by others
23

2

2

 
1

—

—

Other secured retail
224

2

2

 
2

—

—

Unsecured retail
2,054

11

11

 
—

—

—

Total retail
2,641

53

56

 
94

8

8

Total
2,751


$65


$68

 
201


$13


$13


 
Primary Modification Types
 
 
 
 
Other (3)
 
 
 
(dollars in millions)
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
 
Net Change to ALLL Resulting from Modification
Charge-offs Resulting from Modification
Commercial
6


$1


$1

 

$1


$—

Commercial real estate
1

—

—

 
(3
)
—

Total commercial
7

1

1

 
(2
)
—

Residential, including originated home equity products
1,648

129

122

 
6

7

Home equity products serviced by others
250

12

9

 
1

3

Other secured retail
1,217

13

10

 
—

3

Unsecured retail
2,077

38

38

 
(1
)
—

Total retail
5,192

192

179

 
6

13

Total
5,199


$193


$180

 

$4


$13


(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forbearance, capitalizing arrearages, and principal forgiveness. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.

24

The table below summarizes TDRs that defaulted during the three months ended September 30, 2014 and 2013 within 12 months of their modification date.

September 30, 2014
 
September 30, 2013
(dollars in millions)
Number of Contracts
Balance Defaulted
 
Number of Contracts
Balance Defaulted
Commercial
5


$4

 
7


$1

Commercial real estate
1

—

 
—

—

Total commercial
6

4

 
7

1

Residential, including originated home equity products
247

22

 
289

19

Home equity products serviced by others
23

—

 
51

—

Other secured retail
32

—

 
84

1

Unsecured retail
224

3

 
414

6

Total retail
526

25

 
838

26

Total
532


$29

 
845


$27

The table below summarizes TDRs that defaulted during the nine months ended September 30, 2014 and 2013 within 12 months of their modification date.
 
September 30, 2014
 
September 30, 2013
(dollars in millions)
Number of Contracts
Balance Defaulted
 
Number of Contracts
Balance Defaulted
Commercial
22


$7

 
8


$1

Commercial real estate
2

1

 
1

—

Total commercial
24

8

 
9

1

Residential, including originated home equity products
676

55

 
1,413

104

Home equity products serviced by others
69

1

 
201

4

Other secured retail
99

1

 
214

2

Unsecured retail
728

8

 
1,006

14

Total retail
1,572

65

 
2,834

124

Total
1,596


$73

 
2,843


$125


 For purposes of the tables above, a payment default is defined as being past due 90 days or more under the modified terms. Amounts represent the loan's recorded investment at the time of payment default. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to September 30, 2014 and 2013 . If a TDR of any loan type becomes 90 days past due after being modified, the loan is written down to the fair value of collateral less cost to sell. The amount written off is charged to the ALLL.
Concentrations of Credit Risk
Most of the Company's business activity is with customers located in the New England, Mid-Atlantic and Mid-West regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of September 30, 2014 and December 31, 2013 , the Company had a significant amount of loans collateralized by residential and commercial real estate. There are no significant concentrations in particular industries within the commercial loan portfolio. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company's policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.
Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics.

25

The following table presents balances of loans with these characteristics:
 
September 30, 2014
(in millions)
Residential Mortgages
Home Equity Loans and Lines of Credit
Home Equity Products serviced by others
Credit Cards
Total
High loan-to-value

$847


$2,183


$1,291


$—


$4,321

Interest only/negative amortization
863

—

—

—

863

Low introductory rate
—

—

—

100

100

Multiple characteristics and other
56

—

—

—

56

Total

$1,766


$2,183


$1,291


$100


$5,340

 
December 31, 2013
(in millions)
Residential Mortgages
Home Equity Loans and Lines of Credit
Home Equity Products serviced by others
Credit Cards
Total
High loan-to-value

$1,054


$2,798


$1,581


$—


$5,433

Interest only/negative amortization
882

—

—

—

882

Low introductory rate
—

—

—

119

119

Multiple characteristics and other
96

—

—

—

96

Total

$2,032


$2,798


$1,581


$119


$6,530


NOTE 5 - GOODWILL

Goodwill represents the excess of fair value of assets purchased over the purchase price. Since 1988, the Company has completed more than 25 acquisitions of banks or assets of banks. The changes in the carrying value of goodwill for the nine months ended September 30, 2014 and 2013 were:

(in millions)
Consumer Banking
 
Commercial Banking
 
Total
Balance at December 31, 2012

$6,393

 

$4,918

 

$11,311

Impairment losses based on results of interim impairment testing
(4,435
)
 
—

 
(4,435
)
Transfers
178

 
(178
)
 
—

Balance at September 30, 2013

$2,136

 

$4,740

 

$6,876

Balance at December 31, 2013

$2,136

 

$4,740

 

$6,876

Adjustments
—

 
—

 
—

Balance at September 30, 2014

$2,136

 

$4,740

 

$6,876


Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at September 30, 2014, and 2013. The accumulated impairment losses related to the Commercial Banking unit totaled $50 million at September 30, 2014 and 2013.

The Company performs an annual test for impairment of goodwill at a level of reporting referred to as a reporting unit. The Company has identified and allocated goodwill to the following reporting units based upon reviews of the structure of the Company's executive team and supporting functions, resource allocations and financial reporting processes:

•
Consumer Banking
•
Commercial Banking

The Company tested the value of goodwill as of June 30, 2013, and recorded an impairment charge of $4.4 billion relating to the Consumer Banking reporting unit. The impairment charge, which was a non-cash item, had minimal impact on the Company's regulatory capital ratios and liquidity, and for segment reporting purposes was included in Other. Refer to Note 19 "Business

26

Segments" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information regarding segment reporting.

The valuation of goodwill is dependent on forward-looking expectations related to the performance of the U.S. economy and the associated financial performance of the Company. The prolonged delay in the full recovery of the U.S. economy, and the impact of that delay on earnings expectations, prompted a goodwill impairment test as of June 30, 2013. Although the U.S. economy has demonstrated signs of recovery, notably improvements in unemployment and housing, the pace and extent of these indicators, as well as in overall GDP, have lagged previous expectations. The impact of the slow recovery is most evident in the Company's Consumer Banking reporting unit. Forecasted economic growth for the U.S., coupled with the continuing impact of the new regulatory framework in the financial industry, have resulted in a deceleration of expected growth for the Consumer Banking reporting unit's future profits and an associated goodwill impairment. Refer to Note 1 "Significant Accounting Policies" in the Company's audited Consolidated Financial Statements for information regarding the impairment test.

NOTE 6 - MORTGAGE BANKING
In its mortgage banking business, the Company sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. The Company retains no beneficial interests in these sales, but may retain the servicing rights of the loans sold. The Company is obligated to subsequently repurchase a loan if the purchaser discovers a standard representation or warranty violation such as noncompliance with eligibility requirements, customer fraud, or servicing violations. This primarily occurs during a loan file review.
The Company received $1.1 billion and $3.6 billion of proceeds from the sale of residential mortgages in the nine months ended September 30, 2014 and 2013 , respectively, and recognized gains on such sales of $25 million and $58 million in the nine months then ended, respectively. Pursuant to the standard representations and warranties obligations discussed in the preceding paragraph, the Company repurchased mortgage loans totaling $22 million and $30 million for the nine months ended September 30, 2014 and 2013 , respectively.
Mortgage servicing fees, a component of mortgage banking income, were $44 million and $49 million for the nine months ended September 30, 2014 and 2013 , respectively. The Company recorded a valuation recovery of $8 million compared to a recovery of $42 million for its MSRs for the nine months ended September 30, 2014 and 2013 , respectively.
Changes related to MSRs were as follows:
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
MSRs:
 
 
 
Balance as of January 1

$208

 

$215

Amount capitalized
13

 
39

Amortization
(32
)
 
(41
)
Carrying amount before valuation allowance
189

 
213

Valuation allowance for servicing assets:
 
 
 
Balance as of January 1
23

 
70

Valuation recovery
(8
)
 
(42
)
Balance at end of period
15

 
28

Net carrying value of MSRs

$174

 

$185


MSRs are presented in other assets on the Consolidated Balance Sheets.

The fair value of MSRs is estimated using a valuation model that calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The valuation model uses a static discounted cash flow methodology incorporating current market interest rates. A static model does not attempt to forecast or predict the future direction of interest rates; rather it estimates the amount and timing of future servicing cash flows using current market interest rates. The current mortgage interest rate influences the expected prepayment rate and therefore, the length of the cash flows associated with the servicing asset, while the discount rate determines the present value of those cash flows. Expected mortgage loan prepayment assumptions are obtained using the QRM Multi Component prepayment model. The Company periodically obtains third-party valuations of its MSRs to assess the reasonableness of the fair value calculated by the valuation model.

27


The key economic assumptions used to estimate the value of MSRs are presented in the following table:

 
September 30,
(dollars in millions)
2014
 
2013
Fair value

$187

 

$193

Weighted average life (in years)
5.3

 
5.1

Weighted average constant prepayment rate
12.2
%
 
13.9
%
Weighted average discount rate
10.3
%
 
10.8
%


The key economic assumptions used in estimating the fair value of MSRs capitalized during the period were as follows:
 
Nine Months Ended September 30,
 
2014
 
2013
Weighted average life (in years)
5.7

 
6.1

Weighted average constant prepayment rate
11.7
%
 
12.6
%
Weighted average discount rate
10.3
%
 
10.5
%

The sensitivity analysis below as of September 30, 2014 and 2013 , presents the impact to current fair value of an immediate 50 basis points and 100 basis points adverse change in the key economic assumptions and presents the decline in fair value that would occur if the adverse change were realized. These sensitivities are hypothetical. The effect of a variation in a particular assumption on the fair value of the mortgage servicing rights is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in interest rates, which drive changes in prepayment speeds, could result in changes in the discount rates), which might amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is dependent upon market movements of interest rates.
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
Prepayment rate:
 
 
 
Decline in fair value from 50 basis points adverse change in interest rates

$6

 

$7

Decline in fair value from 100 basis points adverse change in interest rates
11

 
10

Weighted average discount rate:
 
 
 
Decline in fair value from 50 basis points adverse change
3

 
3

Decline in fair value from 100 basis points adverse change
6

 
6


NOTE 7 - BORROWED FUNDS

The following is a summary of the Company’s short-term borrowed funds:
(in millions)
As of September 30, 2014
 
As of December 31, 2013
Federal funds purchased

$—

 

$689

Securities sold under agreements to repurchase
5,184

 
4,102

Other short-term borrowed funds
6,715

 
2,251

Total short-term borrowed funds

$11,899

 

$7,042


28


Key data related to short-term borrowed funds is presented in the following table:

(dollars in millions)
As of and For the Nine Months Ended September 30, 2014
 
As of and For the Year Ended December 31, 2013
Weighted-average interest rate at period end:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
0.12
%
 
0.09
%
Other short-term borrowed funds
0.25

 
0.20

Maximum amount outstanding at month-end during the period:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase

$7,022

 

$5,114

Other short-term borrowed funds
7,702

 
2,251

Average amount outstanding during the period:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase

$5,908

 

$2,400

Other short-term borrowed funds
5,479

 
259

Weighted-average interest rate during the period:
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
0.08
%
 
0.31
%
Other short-term borrowed funds
0.26

 
0.44



The following is a summary of the Company’s long-term borrowed funds:
(in millions)
September 30, 2014
 
December 31, 2013
Citizens Financial Group, Inc.:
 
 
 
4.150% fixed rate subordinated debt, due 2022

$350

 

$350

5.158% fixed-to-floating rate subordinated debt, (LIBOR + 3.56%) callable, due 2023 (1)
333

 
333

4.771% fixed rate subordinated debt, due 2023 (1)
333

 
333

4.691% fixed rate subordinated debt, due 2024 (1)
334

 
334

4.153% fixed rate subordinated debt, due 2024 (1)
333

 
—

4.023% fixed rate subordinated debt, due 2024 (1)
333

 
—

Banking Subsidiaries:
 
 
 
Federal Home Loan advances due through 2033
23

 
25

Other
23

 
30

Total long-term borrowed funds

$2,062

 

$1,405


(1)  Intercompany borrowed funds with the RBS Group. See Note 14 “Related Party Transactions” to the Company's unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Information included elsewhere in this report.

Advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and pledged securities at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $11.0 billion and $4.2 billion at September 30, 2014 and December 31, 2013 , respectively. The Company’s available FHLB borrowing capacity was $3.5 billion and $8.2 billion at September 30, 2014 and December 31, 2013 , respectively. The Company can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, such as investment securities and loans, is pledged to provide borrowing capacity at the FRB. At September 30, 2014 , the Company’s unused secured borrowing capacity was approximately $26.0 billion , which includes free securities, FHLB borrowing capacity, and FRB discount window capacity.


29

The following is a summary of maturities for the Company’s long-term borrowed funds at September 30, 2014:
Year
 
(in millions)
2015 or on demand
 

$1

2016
 
5

2017
 
13

2018
 
11

2019
 
1

2020 and thereafter
 
2,031

Total
 

$2,062


NOTE 8 - PREFERRED STOCK

As of September 30, 2014, the Company had authorized 100,000,000 shares of $25.00 par value undesignated preferred stock. These undesignated shares were authorized on April 9, 2014, by resolution of the Board of Directors. The Company's Board of Directors (the "Board of Directors") or any authorized committee thereof are authorized to provide for the issuance of these shares in one or more series, and by filing a certificate pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.
Prior to April 9, 2014, the Company had authorized 30,000 of $1.00 par value non-cumulative, non-voting perpetual preferred stock. That preferred stock ranked senior to the common stock of the Company with respect to dividend rights upon liquidation or dissolution of the Company. The stock was not convertible into any other property of the Company, nor was it redeemable by either the Company or the holder thereof. Dividends were non-cumulative and were payable quarterly at LIBOR plus 180 basis points, if and when declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of the Company, holders of each share of the preferred stock outstanding were entitled to be paid, out of the assets of the Company available for distribution to stockholders, before any payment was made to the holders of common stock, an amount equal to $100,000 per share of preferred stock then issued and outstanding.
There were no shares of preferred stock issued and outstanding during 2014 or 2013.

NOTE 9 - EMPLOYEE BENEFITS
Pension Plans
The Company maintains a non-contributory pension plan (the “Plan” or “qualified plan”) that was closed to new hires and re-hires effective January 1, 2009 and frozen to all participants effective December 31, 2012. Benefits under the Plan are based on employees' years of service and highest 5-year average eligible compensation. The Plan is funded on a current basis, in compliance with the requirements of ERISA. The Company also provides an unfunded, non-qualified supplemental retirement plan (the “non-qualified plan”), which was closed and frozen consistent with the qualified plan.
RBS Group restructured the administration of employee benefit plans during 2008. As a result, the qualified and non-qualified pension plans of certain RBS Group subsidiaries referred to as the Company's "Affiliates" merged with the Company's pension plans. In September 2014, in preparation for the IPO, the Company divested portions of the qualified and non-qualified plans to newly established plans sponsored by the Affiliates. Citizens remains the sponsor of the original plans, which provides benefits for its current and former employees. RBS is the plan sponsor of the newly established plans, which provide benefits for current and former employees of the Affiliates. As a result of this divestiture, which was recorded as a plan settlement, the Company transferred $114 million of plan assets and $148 million of plan liabilities from the qualified plan to the new plan for Affiliates. The Company also transferred liabilities of $7 million related to the non-qualified plan to the new plan established for Affiliates.
 

30

The following table presents the components of net periodic (income) cost for the Company's qualified and non-qualified plans:
 
Three Months Ended September 30,
 
Nine Months Ended September 30
 
Qualified Plan
 
Non-Qualified Plan
 
Total
 
Qualified Plan
 
Non-Qualified Plan
 
Total
(in millions)
2014

2013

 
2014

2013

 
2014

2013

 
2014

2013

 
2014

2013

 
2014

2013

Service cost

$1


$1

 

$—


$—

 

$1


$1

 

$3


$3

 

$—


$—

 

$3


$3

Interest cost
11

10

 
1

1

 
12

11

 
33

31

 
3

3

 
36

34

Expected return on plan assets
(18
)
(17
)
 
—

—

 
(18
)
(17
)
 
(53
)
(51
)
 
—

—

 
(53
)
(51
)
Amortization of actuarial loss
2

3

 
—

—

 
2

3

 
6

9

 
1

1

 
7

10

Net periodic pension (income) cost

($4
)

($3
)
 

$1


$1

 

($3
)

($2
)
 

($11
)

($8
)
 

$4


$4

 

($7
)

($4
)

Postretirement Benefits
The Company and Affiliates merged their postretirement plans into a single postretirement plan in 2008 and continue to provide health care insurance benefits for certain retired employees and their spouses. In preparation for the IPO, the Company divested the portion of the postretirement plan associated with the Affiliates in September 2014. As a result, the Company transferred liabilities of approximately $7 million to the Affiliates.
Employees enrolled in medical coverage immediately prior to retirement and meeting eligibility requirements can elect retiree medical coverage. Employees and covered spouses can continue coverage at the full cost, except for a small group described below. However, coverage must be elected at the time of retirement and cannot be elected at a future date. Spouses may be covered only if the spouse is covered at the time of the employee’s retirement.
The Company reviews coverage on an annual basis and reserves the right to modify or cancel coverage at any renewal date. The Company’s cost sharing for certain full-time employees, who were hired prior to August 1, 1993 with 25 years of service who reach retirement age (under age 65) while employed by the Company is 70% ; for those with 15 - 24 years of service, the Company’s share is 50% . Also, the Company shares in the cost for retiree medical benefits for a closed group of grandfathered arrangements from acquisitions. A small, closed group of retirees receive life insurance coverage. Effective July 1, 2014, the Company utilizes a private health care exchange to provide medical and dental benefits to current and future Medicare-eligible plan participants. The Company provides a fixed subsidy to a small, closed group of retirees and spouses based on the subsidy levels prior to July 1, 2014; retirees and spouses pay the cost of benefits in excess of the fixed subsidy.
As a result of divesting the portion of the pension and other benefit plans associated with the Affiliates, the Company recorded an $18 million cash liability due to RBS.


NOTE 10 - INCOME TAXES
Income Tax Provision (Benefit)
The provision for income taxes was $85 million and $76 million for the three months ended September 30, 2014 and 2013 , respectively. This resulted in an effective tax rate of 31% and 35% for the three months ended September 30, 2014 and 2013 , respectively. The provision (benefit) for income taxes was $317 million and $(98) million for the nine months ended September 30, 2014 and 2013 , respectively. The provision represented an effective tax rate of 32% and 3% for the nine months ended September 30, 2014 and 2013 , respectively. For the nine months ended September 30, 2014 , the effective tax rate compared favorably to the statutory rate of 35% primarily as a result of tax credits and the permanent benefit of tax-exempt income. For the nine months ended September 30, 2013 , the effective tax rate compared favorably to the statutory rate of 35% primarily as a result of the tax rate impact of a goodwill impairment charge.
Deferred Tax Liability
At September 30, 2014 , the Company reported a net deferred tax liability of $354 million , compared to a $199 million liability as of December 31, 2013 . The increase in the net deferred tax liability is primarily attributable to the utilization of net operating loss and tax credit carryforwards, in addition to a decrease in the unrealized loss reported on securities AFS, derivative instruments, and hedging activities, which were both partially offset by a decrease in the deferred tax liability related to temporary differences.

31

NOTE 11 - DERIVATIVES
In the normal course of business, the Company enters into a variety of derivative transactions in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivatives for speculative purposes.
The Company’s derivative instruments are recognized on the Consolidated Balance Sheets at fair value. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 15 "Fair Value Measurements" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information.
The following table identifies derivative instruments included on the Consolidated Balance Sheets in derivative assets and derivative liabilities:
 
September 30, 2014
 
December 31, 2013
(in millions)
Notional Amount (1)
Derivative Assets
Derivative Liabilities
 
Notional Amount (1)
Derivative Assets
Derivative Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swaps

$5,000


$22


$203

 

$5,500


$23


$412

Derivatives not  designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swaps
28,940

541

452

 
29,355

654

558

Foreign exchange contracts
8,278

137

132

 
7,771

94

87

Other contracts
686

6

10

 
569

7

10

Total derivatives not  designated as hedging instruments
 
684

594

 
 
755

655

Gross derivative fair values
 
706

797

 
 
778

1,067

Less: Gross amounts offset in the Consolidated Balance Sheets (2)
 
(159
)
(159
)
 
 
(128
)
(128
)
Total net derivative fair values presented in the Consolidated Balance Sheets (3)
 

$547


$638

 
 

$650


$939


(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate derivatives, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they tend to greatly overstate the true economic risk of these contracts.

(2) Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions.

(3) The Company also offsets assets and liabilities associated with repurchase agreements on the Consolidated Balance Sheets. See Note 2 "Securities" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information.

The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer and residential loan.

Institutional derivatives
The institutional derivatives portfolio primarily consists of interest rate swap agreements that are used to hedge the interest rate risk associated with the Company’s investment securities, loans and financing liabilities (i.e., borrowed funds, deposits, etc.). The goal of the Company’s interest rate hedging activities is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect net interest income.
The Company enters into certain interest rate swap agreements to hedge the risk associated with floating rate loans. By entering into pay-floating/receive-fixed interest rate swaps, the Company was able to minimize the variability in the cash flows of these assets due to changes in interest rates. The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s borrowed funds and deposits. By entering into a pay-fixed/receive-floating interest rate swap, a portion of these liabilities has been effectively converted to a fixed rate liability for the term of the interest rate swap agreement.

32

Customer derivatives
The customer derivatives portfolio consists of interest rate swap agreements and option contracts that are transacted to meet the financing needs of the Company’s customers. Offsetting swap and cap agreements are simultaneously transacted to effectively eliminate the Company’s market risk associated with the customer derivative products. The customer derivatives portfolio also includes foreign exchange contracts that are entered into on behalf of customers for the purpose of hedging exposure related to cash orders and loans and deposits denominated in foreign currency. The primary risks associated with these transactions arise from exposure to changes in foreign currency exchange rates and the ability of the counterparties to meet the terms of the contract. To manage this market risk, the Company simultaneously enters into offsetting foreign exchange contracts.
Residential loan derivatives
The Company enters into residential loan commitments that allow residential mortgage customers to lock in the interest rate on a residential mortgage while the loan undergoes the underwriting process. The Company also uses forward sales contracts to protect the value of residential mortgage loans and loan commitments that are being underwritten for future sale to investors in the secondary market.
The Company has certain derivative transactions that are designated as hedging instruments described as follows:
Derivatives designated as hedging instruments
The Company’s total institutional hedging portfolio qualifies for hedge accounting. This includes interest rate swaps that are designated in highly effective cash flow hedging relationships. The Company formally documents at inception all hedging relationships, as well as risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Company uses dollar offset or regression analysis at the hedge’s inception, and monthly thereafter to assess whether the derivatives are expected to be, or have been, highly effective in offsetting changes in the hedged item’s expected cash flows. The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be effective as a hedge, and then reflects changes in fair value in earnings after termination of the hedge relationship.
Cash flow hedges
The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating rate assets and financing liabilities (including its borrowed funds and deposits). All of these swaps have been deemed as highly effective cash flow hedges. The effective portion of the hedging gains and losses associated with these hedges are recorded in OCI; the ineffective portion of the hedging gains and losses is recorded in earnings (other income). Hedging gains and losses on derivative contracts reclassified from OCI to current period earnings are included in the line item in the accompanying Consolidated Statements of Operations in which the hedged item is recorded, and in the same period that the hedged item affects earnings. During the next 12 months, approximately $23 million of net loss (pre-tax) on derivative instruments included in OCI is expected to be reclassified to net interest expense in the Consolidated Statements of Operations.
Hedging gains and losses associated with the Company’s cash flow hedges are immediately reclassified from OCI to current period earnings (other income) if it becomes probable that the hedged forecasted transactions will not occur during the originally specified time period.
The following table summarizes certain information related to the Company’s cash flow hedges:
The Effect of Cash Flow Hedges on Net Income and Stockholders' Equity
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
2013
 
2014
2013
Effective portion of gain (loss) recognized in OCI (1)

$27


$2

 

$217


($191
)
Amounts reclassified from OCI to interest income (2)
18

18

 
54

38

Amounts reclassified from OCI to interest expense (2)
(23
)
(48
)
 
(79
)
(160
)
Amounts reclassified from OCI to other income (3)
—

—

 
—

(2
)

(1) The cumulative effective gains and losses on the Company's cash flow hedging activities are included on the accumulated other comprehensive loss line item on the Consolidated Balance Sheets.
(2) This amount includes both (a) the amortization of effective gains and losses associated with the Company's terminated cash flow hedges and (b) the current reporting period's interest settlements realized on the Company's active cash flow hedges. Both (a) and (b) were previously included on the accumulated other comprehensive loss line item on the Consolidated Balance Sheets and were subsequently recorded as adjustments to the interest expense of the underlying hedged item.

33

(3) This amount represents hedging gains and losses that have been immediately reclassified from accumulated other comprehensive loss based on the probability that the hedged forecasted transactions would not occur by the originally specified time period. This amount is reflected in the other income line item on the Consolidated Statements of Operations.
Economic Hedges
The Company’s customer derivatives are recorded on the Consolidated Balance Sheets at fair value. These include interest rate and foreign exchange derivative contracts that are transacted to meet the hedging and financing needs of the Company’s customers. Mark-to-market adjustments to the fair value of customer related interest rate contracts are included in other income in the accompanying Consolidated Statements of Operations. Mark-to-market adjustments to the fair value of foreign exchange contracts relating to foreign currency loans are included in interest and fees on loans and leases in the accompanying Consolidated Statements of Operations, while all other foreign currency contract fair value changes are included in foreign exchange and trade finance fees. In both cases, the mark-to-market gains and losses associated with the customer derivatives are mitigated by the mark-to-market gains and losses on the offsetting interest rate and foreign exchange derivative contracts transacted.
The Company’s residential loan derivatives (including residential loan commitments and forward sales contracts) are recorded on the Consolidated Balance Sheets at fair value. Mark-to-market adjustments to the fair value of residential loan commitments and forward sale contracts are included in noninterest income under mortgage banking fees.
The following table summarizes certain information related to the Company’s economic hedges:
The Effect of Customer Derivatives and Economic Hedges on Net Income
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
2013
 
2014
2013
Customer derivative contracts
 
 
 
 
 
Customer interest rate contracts (1)

$2


$55

 

$151


($95
)
Customer foreign exchange contracts (1)
(60
)
32

 
(54
)
22

Residential loan commitments (3)
(4
)
48

 
4

8

 
 
 
 
 
 
Economic hedges
 
 
 
 
 
Offsetting derivatives transactions to hedge interest rate risk on customer interest rate contracts (1)
5

(45
)
 
(130
)
133

Offsetting derivatives transactions to hedge foreign exchange risk on customer foreign exchange contracts (2)
59

(33
)
 
52

(20
)
Forward sale contracts (3)
2

(21
)
 
(2
)
19

Total

$4


$36

 

$21


$67

(1) Reported in other income on the Consolidated Statements of Operations.
(2) Reported in foreign exchange and trade finance fees on the Consolidated Statements of Operations.
(3) Reported in mortgage banking fees on the Consolidated Statements of Operations.

NOTE 12 - COMMITMENTS AND CONTINGENCIES
Commitments
    Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
When-issued securities are agreements to purchase securities that have been authorized for issuance but not yet issued. The fair value of when-issued securities is reflected in the Consolidated Balance Sheets at trade date.

34

        On May 29, 2014, the Company entered into an agreement to purchase newly originated auto loans on a quarterly basis in future periods. For the first year, the agreement requires the purchase of a minimum of $250 million of outstanding balances to a maximum of $600 million per quarterly period. For quarterly periods after the first year, the minimum and maximum purchases are $400 million and $600 million , respectively. The agreement automatically renews until terminated by either party. The Company may cancel the agreement at will with payment of a variable termination fee. After three years, there is no termination fee.
During 2003, the Company entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania. The Company has paid $3 million on this contract for the nine months ended September 30, 2014 and $3 million for the year ended December 31, 2013 and is obligated to pay $51 million over the remainder of the contract.
Letters of Credit
Standby letters of credit, both financial and performance, are issued by the Company for its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). Commercial letters of credit are used to facilitate the import of goods. The commercial letter of credit is used as the method of payment to the Company’s customers’ suppliers. The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments, net of the value of collateral held. Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.
Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of reserves for unfunded commitments.
The Company recognizes a liability on the Consolidated Balance Sheets representing its obligation to stand ready to perform over the term of the standby letters of credit in the event that the specified triggering events occur. The liability for these guarantees at September 30, 2014 and December 31, 2013 is $3 million .

Risk Participation Agreements
RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that any and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment.
RPAs where the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer. The Company’s estimate of the credit exposure associated with its risk participations-in as of September 30, 2014 and December 31, 2013 is $16 million and $17 million , respectively. The current amount of credit exposure is spread out over 73 counterparties. RPAs generally have terms ranging from 1 - 5 years; however, certain outstanding agreements have terms as long as 11 years .

Other Guarantees
The Company has issued a guarantee to RBS, for a fee, whereby the Company will absorb credit losses related to the sale of option contracts by RBS to customers of the Company. There were outstanding option contracts with a notional value of $404 thousand and $2 million at September 30, 2014 and December 31, 2013, respectively.


35

The following is a summary of outstanding off-balance sheet arrangements:
(in millions)
September 30, 2014
 
December 31, 2013
Commitment amount:
 
 
 
Undrawn commitments to extend credit

$55,333

 

$53,987

Financial standby letters of credit
2,498

 
2,556

Performance letters of credit
94

 
149

Commercial letters of credit
74

 
64

Marketing rights
51

 
54

Risk participation agreements
16

 
17

Residential mortgage loans sold with recourse
11

 
13

Total

$58,077

 

$56,840


Contingencies
The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. It is also the subject of investigations, reviews, and regulatory matters arising out of its normal business operations, which, in some instances, relate to concerns about unfair and/or deceptive practices and mis-selling of certain products. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on an ongoing and regular basis regarding various issues, and it is possible that any issues discussed or identified may result in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.
In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question.
The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss. In each of the matters described below, the Company is unable to estimate the liability in excess of any provision accrued, if any, that might arise or its effects on the Company’s Consolidated Statements of Operations or Consolidated Cash Flows in any particular period.
Set out below are descriptions of significant legal matters involving the Company. Based on information currently available, the advice of legal and other counsel, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s unaudited interim Consolidated Financial Statements.
Consumer Products Matters
The activities of the Company’s bank subsidiaries are subject to extensive laws and regulations concerning unfair or deceptive acts or practices in connection with customer products. Certain of the bank subsidiaries’ practices with respect to overdraft protection and other consumer products have not met applicable standards. The bank subsidiaries have implemented and are continuing to implement changes to improve and bring their practices in accordance with regulatory guidance.
In April 2013, the bank subsidiaries consented to the issuance of orders by the OCC and the FDIC (the Consent Orders). In the Consent Orders (which are publicly available and will remain in effect until terminated by the regulators), the bank subsidiaries neither admitted nor denied the regulators’ findings that they had engaged in deceptive marketing and implementation of the bank’s overdraft protection program, checking rewards programs, and stop-payment process for pre-authorized recurring electronic fund transfers. Under the Consent Orders, the bank subsidiaries paid a total of $10 million in civil monetary penalties and are required to develop plans to provide restitution to affected customers (the amount of which is anticipated to be approximately $8 million ) to cease and desist any operations in violation of Section 5 of the Federal Trade Commission Act, and to submit to the regulators

36

periodic written progress reports regarding compliance with the Consent Orders. In addition, Citizens Bank, N.A. agreed to take certain remedial actions to improve its compliance risk management systems and to create a comprehensive action plan designed to achieve compliance with the Consent Orders. Restitution plans have been prepared and submitted for approval, and Citizens Bank, N.A. has submitted for approval, and is in the process of implementing, its action plan for compliance with the Consent Orders, as well as updated policies, procedures, and programs related to its compliance risk management systems.
The Company's banking subsidiaries have engaged in discussions with regulators regarding, among other things, certain identity theft and debt cancellation products, certain overdraft fees, signature debit card fees, the bank subsidiaries' policies and practices with respect to consumer complaints process, identifying and correcting errors in customer deposits, and the charging of cost-based credit card late payment fees. The banking subsidiaries have paid restitution regarding some of these practices and it is probable that there will be additional restitution to certain affected customers in connection with certain of these practices. In addition, the banking subsidiaries could face formal administrative enforcement actions from their federal supervisory agencies, including the assessment of civil monetary penalties and restitution, relating to the past practices and policies identified above and other consumer products, as well as potential civil litigation. The Company does not expect that the aggregate of amounts paid in connection with these matters will have a material adverse effect on the Company’s unaudited interim Consolidated Financial Statements.
Telephone Consumer Protection Act Litigation
The Company is a defendant in a purported class action complaint filed in December 2013 in the United States District Court for the Southern District of California pursuant to the Telephone Consumer Protection Act. The named plaintiff purports to represent a "national class" of customers who allegedly received automated calls to their cell phones from the bank or its agents, without customer consent, in violation of the Telephone Consumer Protection Act. The Company is vigorously defending this matter.
LIBOR Litigation
The Company is a defendant in lawsuits in which allegations have been made that its parent company, RBS Group, manipulated U.S. dollar LIBOR to the detriment of the Company's customers. The lawsuits include a purported class action on behalf of borrowers of the Company whose interest rates were tied to U.S. dollar LIBOR. The plaintiffs in these cases assert various theories of liability, including fraud, negligent misrepresentation, breach of contract, and unjust enrichment. The Company is vigorously defending these matters.
Foreclosure-Related Expenses
In May 2013, the civil division of the U.S. Attorney's Office for the Southern District of New York served a subpoena pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 seeking information regarding home mortgage foreclosure expenses submitted for reimbursement to the United States Department of Housing and Urban Development, FNMA, or FHLMC. The Company is cooperating with the investigation.
Mortgage Repurchase Demands
The Company is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to government-sponsored entities. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. Between the start of January 2009 and the end of September 30, 2014 , the Company has received approximately $154 million in repurchase demands and $98 million in indemnification payment requests in respect of loans originated, for the most part, since 2003. Of those claims presented, $85 million was paid to repurchase residential mortgage loans, and $33 million was incurred for indemnification costs to make investors whole. The Company repurchased mortgage loans totaling $22 million and $30 million for the nine months ended September 30, 2014 and 2013, respectively. The Company incurred indemnification costs of $7 million and $8 million for the nine months ended September 30, 2014 and 2013, respectively. The Company cannot estimate what the future level of repurchase demands will be or the Company’s ultimate exposure, and cannot give any assurance that its historical experience will continue in the future. It is possible that the volume of repurchase demands will increase. In addition to the above, the Company has since December 2013 been responding to subpoenas issued by the Office of the Inspector General for the Federal Housing Finance Agency seeking information about loans sold to FNMA and the FHLMC from 2003 through 2011.

NOTE 13 - DIVESTITURES AND BRANCH ASSETS AND LIABILITIES HELD FOR SALE
In June 2014, the Company sold 103 retail branches located in Illinois, including certain customer deposits of $4.8 billion and selected loans of $1.0 billion (primarily middle market, small business, home equity and credit card balances).  As a result of this transaction, the Company recorded a gain on sale of $288 million consisting of, $286 million related to the deposits, a gain

37

on sale of $11 million related to the loans and $9 million  loss on sale of other branch assets. For the nine months ended September 30, 2014 , the corresponding interest and fees on these loans was $20 million and interest expense on deposits was $4 million . The Company has agreed to service the credit card accounts sold to the purchaser until September 2014. At such time, the Company is expected to complete all exit activities associated with this transaction. As a result of this transaction, the related assets and liabilities were classified as held for sale as of December 31, 2013. See Note 17 "Divestitures and Branch Assets and Liabilities Held for Sale" in the Company's audited Consolidated Financial Statements for further details.

NOTE 14 - RELATED PARTY TRANSACTIONS
The Company is an indirect subsidiary of RBSG. During the period, the Company entered into certain agreements with RBS Group that will provide a framework for its ongoing relationship with the RBS Group. Specifically, the Company entered into the following agreements with RBSG or other affiliates of RBS Group: Separation and Shareholder Agreement, Registration Rights Agreement, Trade Mark License Agreement, Amended and Restated Master Services Agreement, and Transitional Services Agreements. These agreements are attached in Part II, Item 6 of this report.
The following is a summary of inter-company borrowed funds:
(dollars in millions)
Related Party
 
Interest Rate
 
Maturity Date
 
September 30,
2014
 
December 31,
2013
Subordinated debt
RBSG
 
4.023%
 
October 2024
 

$333

 

$—

 
RBSG
 
4.153%
 
July 2024
 
333

 
—

 
RBSG
 
4.691%
 
January 2024
 
334

 
334

 
RBSG
 
4.771%
 
October 2023
 
333

 
333

 
RBS
 
5.158%
 
June 2023
 
333

 
333

Total interest expense recorded on inter-company subordinated debt was $17 million and $4 million for the three months ended September 30, 2014 and 2013 , respectively, and $42 million and $6 million for the nine months ended September 30, 2014 and 2013 , respectively.
The Company maintained a $50 million revolving line of credit at December 31, 2013 with RBS. This line of credit was not drawn upon at December 31, 2013 , expired on January 31, 2014, and was not renewed. No interest expense was incurred on this revolving line of credit for the nine months ended September 30, 2013 .
The Company enters into interest rate swap agreements with RBS for the purpose of reducing the Company’s exposure to interest rate fluctuations. As of September 30, 2014 , the total notional amount of swaps outstanding was $5.0 billion which pay fixed rates ranging from 1.78% to 4.30% and receive overnight fed funds rate and one month LIBOR with maturities from 2016 through 2023 . As of December 31, 2013 , the total notional amount of swaps outstanding was $5.5 billion , all of which paid fixed rates ranging from 1.78% to 5.47% and received overnight fed funds rate with maturities from 2014 through 2023 . Included in these balances were $4.0 billion of receive-fixed swaps that had been executed as of September 30, 2014 and 2013 as part of a new hedging program implemented during the quarter ended March 31, 2013 . The Company recorded net interest expense of $1 million and $31 million for the three months ended September 30, 2014 and 2013 , respectively, and $22 million and $123 million for the nine months ended September 30, 2014 and 2013 , respectively.
In order to meet the financing needs of its customers, the Company enters into interest rate swap and cap agreements with its customers and simultaneously enters into offsetting swap and cap agreements with RBS. The Company earns a spread equal to the difference between rates charged to the customer and rates charged by RBS. The notional amount of these interest rate swap and cap agreements outstanding with RBS was $10.6 billion and $13.4 billion at September 30, 2014 and December 31, 2013 , respectively. The Company recorded income of $5 million for the three months ended September 30, 2014 and expense of $130 million for the nine months ended September 30, 2014 . For the three months ended September 30, 2013 the Company recorded expense of $44 million and income of $132 million for the nine months ended September 30, 2013 within other income.
Also to meet the financing needs of its customers, the Company enters into a variety of foreign currency denominated products, such as loans, deposits and foreign exchange contracts. To manage the foreign exchange risk associated with these products, the Company simultaneously enters into offsetting foreign exchange contracts with RBS. The Company earns a spread equal to the difference between rates charged to the customer and rates charged by RBS. The notional amount of foreign exchange contracts outstanding with RBS was $5.0 billion and $4.6 billion at September 30, 2014 and December 31, 2013 , respectively. The Company recorded income within foreign exchange and trade finance fees of $59 million and $52 million for the three and nine months ended September 30, 2014 , respectively. The Company recorded expense of $33 million and $20 million for the three and nine months ended September 30, 2013 , respectively.

38

The Company receives income for providing services and referring customers to RBS. The Company also shares office space with certain RBS entities for which rent expense and/or income is recorded in occupancy expense. The total fee income, net of occupancy expense, was $5 million and $7 million for the three months ended September 30, 2014 and 2013 , respectively, and for the nine months ended September 30, 2014 and 2013 was $13 million and $19 million , respectively.
For the three and nine months ended September 30, 2014 and 2013 , the Company paid $333 million and $666 million , respectively, of common stock dividends to RBS as part of the exchange transactions described in "MD&A - Capital" included elsewhere in this report. Additionally, the Company paid $50 million of regular dividends to RBS for the three months ended September 30, 2014 and 2013 , respectively, and $85 million and $145 million of regular dividends to RBS for the nine months ended September 30, 2014 and 2013 , respectively.
The Company, as a matter of policy and during the ordinary course of business with underwriting terms similar to those offered to the public, has made loans to directors and executive officers and their immediate families, as well as their affiliated companies. Such loans amounted to $126 million and $78 million at September 30, 2014 and December 31, 2013 , respectively.

NOTE 15 - FAIR VALUE MEASUREMENTS
As discussed in Note 1 “Significant Accounting Policies” in the Company’s audited Consolidated Financial Statements, the Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. The Company also applies the fair value measurement guidance to determine amounts reported for certain disclosures in this Note for assets and liabilities not required to be reported at fair value in the financial statements.
Fair Value Option, Residential Mortgage Loans Held for Sale
The Company elected to account for residential mortgage loans held for sale at fair value. Applying fair value accounting to the residential mortgage loans held for sale better aligns the reported results of the economic changes in the value of these loans and their related hedge instruments.
The fair value of residential loans held for sale is derived from observable mortgage security prices and includes adjustments for loan servicing value, agency guarantee fees, and other loan level attributes which are mostly observable in the marketplace. Credit risk does not significantly impact the valuation since these loans are sold shortly after origination. Therefore, the Company classifies the residential mortgage loans held for sale in Level 2 of the fair value hierarchy.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential mortgage loans held for sale measured at fair value:
 
September 30, 2014
 
December 31, 2013
(in millions)
Aggregate Fair Value
 
Aggregate Unpaid Principal
 
Aggregate Fair Value Less Aggregate Unpaid Principal
 
Aggregate Fair Value
 
Aggregate Unpaid Principal
 
Aggregate Fair Value Less Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value

$189

 

$183

 

$6

 

$176

 

$173

 

$3


The election of the fair value option for financial assets and financial liabilities is optional and irrevocable. The loans accounted for under the fair value option are initially measured at fair value (i.e., acquisition cost) when the financial asset is acquired. Subsequent changes in fair value are recognized in current earnings. The Company recognized mortgage banking noninterest income of ($2) million and $10 million for the three months ended September 30, 2014 and 2013 , respectively, and $3 million and ($26) million for the nine months ended September 30, 2014 and 2013 , respectively. Interest income on residential mortgage loans held for sale is calculated based on the contractual interest rate of the loan and is recorded in interest income.
    
Fair Value Option, Commercial and Commercial Real Estate Loans Held for Sale
The Company elected to account for certain commercial and commercial real estate loans held for sale at fair value. These loans are managed by a commercial secondary loan desk that provides liquidity to banks, finance companies and institutional

39

investors. Applying fair value accounting to this portfolio is appropriate because the Company holds these loans with the intent to sell within short term periods.
The fair value of commercial and commercial real estate loans held for sale is estimated using observable prices of identical or similar loans that transact in the marketplace. In addition, the Company uses external pricing services that provide estimates of fair values based on quotes from various dealers transacting in the market, sector curves or benchmarking techniques. Therefore, the Company classifies the commercial and commercial real estate loans managed by the commercial secondary loan desk in Level 2 of the fair value hierarchy given the observable market inputs.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for commercial and commercial real estate loans held for sale measured at fair value:
 
September 30, 2014
(in millions)
Aggregate Fair Value
 
Aggregate Unpaid Principal
 
Aggregate Fair Value Less Aggregate Unpaid Principal
Commercial and commercial real estate loans held for sale, at fair value

$16

 

$16

 

$—


There were no loans in this portfolio that were 90 days or more past due or nonaccruing as of September 30, 2014 . The loans accounted for under the fair value option are initially measured at fair value when the financial asset is recognized. Subsequent changes in fair value are recognized in current earnings. Since all loans in the Company's commercial trading portfolio consist of floating rate obligations, all changes in fair value were due to changes in credit risk. Such credit-related fair value changes may include observed changes in overall credit spreads and/or changes to the creditworthiness of an individual borrower.
Interest income on commercial and commercial real estate loans held for sale is calculated based on the contractual interest rate of the loan and is recorded in interest income.

Recurring Fair Value Measurements
The Company utilizes a variety of valuation techniques to measure its assets and liabilities at fair value. Following is a description of valuation methodologies used for significant assets and liabilities carried on the balance sheet at fair value on a recurring basis:
Securities AFS
The fair value of securities classified as AFS is based upon quoted prices, if available. Where observable quoted prices are available in an active market, securities are classified as Level 1 in the fair value hierarchy. Classes of instruments that are valued using this market approach include debt securities issued by the U.S. Treasury. If quoted market prices are not available, the fair value for the security is estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. These instruments are classified as Level 2 because they currently trade in active markets and the inputs to the valuations are observable. The pricing models used to value securities generally begin with market prices (or rates) for similar instruments and make adjustments based on the unique characteristics of the instrument being valued. These adjustments reflect assumptions made regarding the sensitivity of each security’s value to changes in interest rates and prepayment speeds. Classes of instruments that are valued using this market approach include residential and commercial CMOs, specified pool mortgage “pass-through” securities and other debt securities issued by U.S. government-sponsored entities and state and political subdivisions.
A significant majority of the Company’s Level 1 and 2 securities are priced using an external pricing service. The Company verifies the accuracy of the pricing provided by its primary outside pricing service on a quarterly basis. This process involves using a secondary external vendor to provide valuations for the Company’s securities portfolio for comparison purposes. Any securities with discrepancies beyond a certain threshold are researched and, if necessary, valued by an independent outside broker.
In certain cases where there is limited activity or less transparency around inputs to the valuation model, securities are classified as Level 3.

40

Residential loans held for sale
See the "Fair Value Option - Residential Mortgage Loans Held for Sale" discussion above.
Commercial loans held for sale
See the "Fair Value Option Commercial and Commercial Real Estate Loans Held for Sale" discussion above.
Derivatives
The majority of the Company’s derivatives portfolio is comprised of “plain vanilla” interest rate swaps, which are traded in over-the-counter markets where quoted market prices are not readily available. For these interest rate derivatives, fair value is determined utilizing models that use primarily market observable inputs, such as swap rates and yield curves. The pricing models used to value interest rate swaps calculate the sum of each instrument’s fixed and variable cash flows, which are then discounted using an appropriate yield curve (i.e., LIBOR or OIS curve) to arrive at the fair value of each swap. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgment. The Company also considers certain adjustments to the modeled price which market participants would make when pricing each instrument, including a credit valuation adjustment that reflects the credit quality of the swap counterparty. The Company incorporates the effect of exposure to a particular counterparty’s credit by netting its derivative contracts with the collateral available and calculating a credit valuation adjustment on the basis of the net position with the counterparty where permitted. The determination of this adjustment requires judgment on behalf of Company management; however, the total amount of this portfolio-level adjustment is not material to the total fair value of the interest rate swaps in their entirety . Therefore, interest rate swaps are classified as Level 2 in the valuation hierarchy.
The Company’s other derivatives include foreign exchange contracts. Fair value of foreign exchange derivatives uses the mid-point of daily quoted currency spot prices. A valuation model estimates fair value based on the quoted spot rates together with interest rate yield curves and forward currency rates. Since all of these inputs are observable in the market, foreign exchange derivatives are classified as Level 2 in the fair value hierarchy.
Venture capital investments
The Company values its venture capital private equity fund investments based on its capital invested in each fund, which is adjusted by management each quarter, if necessary, to arrive at its estimate of fair value. Adjustments for a fund’s underlying investments may be based upon comparisons to public companies, industry benchmarks, current financing round pricing, earnings multiples of comparable companies, current operating performance and future expectations, or third-party valuations. Since the inputs to the valuation are difficult to independently corroborate in the marketplace, and involve a significant degree of management judgment, venture capital investments are classified as Level 3 in the fair value hierarchy.

41

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities on a recurring basis at September 30, 2014 :
(in millions)
Total

Level 1

Level 2

Level 3

Securities available for sale:
 
 
 
 
Mortgage-backed securities

$18,616


$—


$18,616


$—

State and political subdivisions
10

—

10

—

Equity securities
25

8

17

—

U.S. Treasury
15

15

—

—

Total securities available for sale
18,666

23

18,643

—

Residential loans held for sale
189

—

189

—

Commercial and commercial real estate loans held for sale
16

—

16

—

Total loans held for sale
205

—

205

—

Derivative assets:
 
 
 
 
Interest rate swaps
563

—

563

—

Foreign exchange contracts
137

—

137

—

Other contracts
6

—

6

—

Total derivative assets
706

—

706

—

Venture capital investments
6

—

—

6

Total assets

$19,583


$23


$19,554


$6

Derivative liabilities:
 
 
 
 
Interest rate swaps

$655


$—


$655


$—

Foreign exchange contracts
132

—

132

—

Other contracts
10

—

10

—

Total derivative liabilities
797

—

797

—

Total liabilities

$797


$—


$797


$—



42

The following table presents assets and liabilities measured at fair value including gross derivative assets and liabilities on a recurring basis at December 31, 2013 :
(in millions)
Total

Level 1

Level 2

Level 3

Securities available for sale:
 
 
 
 
Mortgage-backed securities

$15,945


$—


$15,945


$—

State and political subdivisions
10

—

10

—

Equity securities
25

8

17

—

U.S. Treasury
15

15

—

—

Total securities available for sale
15,995

23

15,972

—

Residential loans held for sale
176

—

176

—

Derivative assets:




Interest rate swaps
677

—

677

—

Foreign exchange contracts
94

—

94

—

Other contracts
7

—

7

—

Total derivative assets
778

—

778

—

Venture capital investments
5

—

—

5

Total assets

$16,954


$23


$16,926


$5

Derivative liabilities:




Interest rate swaps

$970


$—


$970


$—

Foreign exchange contracts
87

—

87

—

Other contracts
10

—

10

—

Total derivative liabilities
1,067

—

1,067

—

Total liabilities

$1,067


$—


$1,067


$—


The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows:
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
Balance as of January 1,

$5

 

$6

Purchases, issuances, sales and settlements:
 
 
 
Sales
—

 
(4
)
Settlements
—

 
3

Other net gains
1

 
—

Balance as of period end

$6

 

$5

Net unrealized gain (loss) included in net income for the period relating to assets held at period end

$—

 

$—


There were no transfers among Levels 1, 2 or 3 during the nine months ended September 30, 2014 and 2013 .
Nonrecurring Fair Value Measurements
The following valuation techniques are utilized to measure significant assets for which the Company utilizes fair value on a nonrecurring basis:
Impaired Loans
The carrying amount of collateral-dependent impaired loans is compared to the appraised value of the collateral less costs to dispose and is classified as Level 2. Any excess of carrying amount over the appraised value is charged to the ALLL.
MSRs
MSRs do not trade in an active market with readily observable prices. MSRs are classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. At September 30, 2014 the fair value is calculated using the discounted cash flow model, the model which uses assumptions, including weighted average life of 5.2 years (range of 1.7 - 7.0 years ), weighted

43

average constant prepayment rate of 12.2% (range of 9.8% - 22.4% ) and weighted average discount rate of 10.3% (range of 9.6% - 12.6% ). At December 31, 2013 the fair value is calculated using the discounted cash flow model, the model which uses assumptions, including weighted average life of 5.4 years (range of 1.8 - 7.4 years ), weighted average constant prepayment rate of 13% (range of 9.4% - 41.5% ) and weighted average discount rate of 10.8% (range of 10.2% - 13.1% ). Refer to Note 6 "Mortgage Banking" in the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information as well as Note 1 "Significant Accounting Policies" and Note 9 "Mortgage Banking" in the Company’s audited Consolidated Financial Statements.
Foreclosed assets
Foreclosed assets consist primarily of residential properties. Foreclosed assets are carried at the lower of carrying value or fair value less costs to dispose. Fair value is based upon independent market prices or appraised values of the collateral and is classified as Level 2.
Goodwill
Goodwill is valued using unobservable inputs and is classified as Level 3. Fair value is calculated using the present value of estimated future earnings (discounted cash flow method). On a quarterly basis, the Company assesses whether or not impairment indicators are present.
The Company monitored events and circumstances during the first half of 2014 and did not observe any factors that would more likely than not reduce the fair value of one or more reporting units below its respective carrying value. Accordingly, goodwill was not tested for impairment during the first half of 2014. For additional information on the Company’s goodwill impairment testing and the most recent goodwill impairment test, see Note 5 "Goodwill" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information as well as Note 1 “Significant Accounting Policies” and Note 5 "Goodwill" included in the Company’s audited Consolidated Financial Statements.
The following table presents gains (losses) on assets and liabilities measured at fair value on a nonrecurring basis and recorded in earnings:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
 
2014
 
2013
Impaired collateral-dependent loans (1)

($5
)
 

($56
)
 

($99
)
 

($114
)
MSRs (2)
5

 
3

 
8

 
42

Foreclosed assets (3)
1

 
1

 
2

 
3

Goodwill impairment (4)
—

 
—

 
—

 
(4,435
)

The following tables present assets and liabilities measured at fair value on a nonrecurring basis:

September 30, 2014
(in millions)
Total

Level 1

Level 2

Level 3

Impaired collateral-dependent loans (1)

$103


$—


$103


$—

MSRs (2)
174

—

—

174

Foreclosed assets (3)
40

—

40

—

Goodwill (4)
6,876

—

—

6,876



December 31, 2013
(in millions)
Total

Level 1

Level 2

Level 3

Impaired collateral-dependent loans (1)

$74


$—


$74


$—

MSRs (2)
185

—

—

185

Foreclosed assets (3)
49

—

49

—

Goodwill (4)
6,876

—

—

6,876


(1) During the three and nine months ended September 30, 2014, the Company recorded impairment charges of $5 million and $99 million , respectively. The impairment charges included current charges from $144 million of collateral-dependent loans which have been written down to $103 million as of September 30, 2014 and other collateral-dependent loans that have been sold or refinanced and are no longer on the Company's balance sheet as of September 30,2014.

44

During the three and nine months ended September 30, 2013, the Company recorded impairment charges of $56 million and $114 million , respectively. The impairment charges include current charges from $209 million of collateral-dependent loans which have been written down to $113 million as of September 30, 2013 and other collateral-dependent loans that have been sold or refinanced and are no longer on the Company's balance sheet as of September 30, 2013.

(2) In the first nine months of 2014 , MSRs totaling $208 million were evaluated for impairment and written down to $174 million , resulting in an impairment recapture of $8 million and a total cumulative valuation allowance of $15 million . In the first nine months of 2013 , MSRs totaling $215 million were evaluated for impairment and written down to $185 million , resulting in an impairment (charge) of $42 million and a total cumulative valuation allowance of $28 million .

(3) In the first nine months of 2014 , foreclosed real estate accounted for at the lower of cost or fair value less costs to sell was written down to fair value of $40 million , resulting in impairment charges of $2 million . In the year ended 2013 , foreclosed real estate accounted for at the lower of cost or fair value less costs to sell was written down to fair value of $49 million , resulting in an impairment charge of $4 million .

(4) In the year ended 2013 , Goodwill totaling $11.3 billion was written down to its implied fair value of $6.9 billion , resulting in an impairment charge of $4.4 billion .

Disclosures about Fair Value of Financial Instruments
Following is a description of valuation methodologies used to estimate the fair value of financial instruments for disclosure purposes (these instruments are not recorded in the financial statements at fair value):
Loans and leases
For loans and leases not recorded at fair value on a recurring basis that are not accounted for as collateral-dependent impaired loans, fair value is estimated by using one of two methods: a discounted cash flow method or a securitization method. The discounted cash flow method involves discounting the expected future cash flows using current rates which a market participant would likely use to value similar pools of loans. Inputs used in this method include observable information such as contractual cash flows (net of servicing cost) and unobservable information such as estimated prepayment speeds, credit loss exposures, and discount rates. The securitization method involves utilizing market securitization data to value the assets as if a securitization transaction had been executed. Inputs used include observable market-based MBS data and pricing adjustments based on unobservable data reflecting the liquidity risk, credit loss exposure and other characteristics of the underlying loans. The internal risk-weighted balances of loans are grouped by product type for purposes of these estimated valuations. For nonaccruing loans, fair value is estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets. Fair value of collateral-dependent loans is primarily based on the appraised value of the collateral.
Loans held for sale
Balances are loans that were transferred to loans held for sale that are reported at book value.
Securities HTM
The fair value of securities classified as HTM is estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flow. The pricing models used to value these securities generally begin with market prices (or rates) for similar instruments and make adjustments based on the unique characteristics of the instrument being valued. These adjustments reflect assumptions made regarding the sensitivity of each security’s value to changes in interest rates and prepayment speeds.
Other investment securities
The cost basis carrying value of other investment securities, such as FHLB stock and FRB stock, is assumed to approximate the fair value of the securities. As a member of the FHLB and FRB, the Company is required to hold FHLB and FRB stock. The stock can be sold only to the FHLB and FRB upon termination of membership, or redeemed at the FHLB’s or FRB’s sole discretion.
Deposits
The fair value of demand deposits, checking with interest accounts, regular savings and money market accounts is the amount payable on demand at the balance sheet date. The fair value of term deposits is estimated by discounting the expected future cash flows using rates currently offered for deposits of similar remaining maturities.
Deposits held for sale
Balances are deposits that were transferred to held for sale that are reported at book value.
Federal funds purchased and securities sold under agreements to repurchase, other short-term borrowed funds, and long-term borrowed funds
Rates currently available to the Company for debt of similar terms and remaining maturities are used to discount the expected cash flows of existing debt.

45

The following table is a summary of fair value for financial instruments not recorded at fair value in the unaudited interim Consolidated Financial Statements. The carrying amounts in the following table are recorded in the Consolidated Balance Sheets under the indicated captions:
 
September 30, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
(in millions)
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
Loans and leases

$90,749


$91,227

 

$—


$—

 

$103


$103

 

$90,646


$91,124

Other loans held for sale
3

3

 
—

—

 
—

—

 
3

3

Securities held to maturity
5,289

5,278

 
—

—

 
5,289

5,278

 
—

—

Other investment securities
893

893

 
—

—

 
893

893

 
—

—

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deposits
93,463

93,791

 
—

—

 
93,463

93,791

 
—

—

Federal funds purchased and securities sold under agreements to repurchase
5,184

7,310

 
—

—

 
5,184

7,310

 
—

—

Other short-term borrowed funds
6,715

6,710

 
—

—

 
6,715

6,710

 
—

—

Long-term borrowed funds
2,062

2,060

 
—

—

 
2,062

2,060

 
—

—


 
December 31, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
(in millions)
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
Loans and leases

$85,859


$85,724

 

$—


$—

 

$74


$74

 

$85,785


$85,650

Other loans held for sale
1,078

1,078

 
—

—

 
—

—

 
1,078

1,078

Securities held to maturity
4,315

4,257

 
—

—

 
4,315

4,257

 
—

—

Other investment securities
935

935

 
—

—

 
935

935

 
—

—

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deposits
86,903

86,907

 
—

—

 
86,903

86,907

 
—

—

Deposits held for sale
5,277

5,277

 
—

—

 
5,277

5,277

 
—

—

Federal funds purchased and securities sold under agreements to repurchase
4,791

4,791

 
—

—

 
4,791

4,791

 
—

—

Other short-term borrowed funds
2,251

2,249

 
—

—

 
2,251

2,249

 
—

—

Long-term borrowed funds
1,405

1,404

 
—

—

 
1,405

1,404

 
—

—


NOTE 16 - REGULATORY MATTERS
As a BHC, the Company is subject to regulation and supervision by the FRB. The primary subsidiaries of Citizens are its two insured depository institutions CBNA, a national banking association whose primary federal regulator is the OCC, and CBPA, a Pennsylvania-chartered savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC as its primary federal regulator. Under the regulatory capital adequacy guidelines of the FDICIA, the Company and its banking subsidiaries must meet specific capital requirements. These requirements are expressed in terms of the following ratios: (1) Total Risk-Based Capital (total capital/risk-weighted on- and off-balance sheet assets); (2) Tier 1 Risk-Based Capital (Tier 1 capital/risk-weighted on- and off-balance sheet assets); and (3) Tier 1 Leverage (Tier 1 capital/adjusted average quarterly assets). To meet the regulatory capital requirements, the Company and its banking subsidiaries must maintain minimum Total Risk-Based Capital, Tier 1 Risk-Based Capital, and Tier 1 Leverage ratios. In addition, the Company must not be subject to a written agreement, order or capital directive with any of its regulators. Failure to meet minimum capital requirements can result in the initiation of certain actions that, if undertaken, could have a material effect on the Company’s Consolidated Financial Statements.

46

The following table presents capital and capital ratio information:
 
 
 
 
FDIC Requirements
 
Actual
 
Minimum Capital Adequacy
 
Classification as Well Capitalized
(dollars in millions)
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
As of September 30, 2014
 
 
 
 
 
 
 
 
Total Capital to Risk-Weighted Assets

$16,612

16.1
%
 

$8,257

8.0
%
 

$10,321

10.0
%
Tier 1 Capital to Risk-Weighted Assets
13,330

12.9

 
4,128

4.0

 
6,192

6.0

Tier 1 Capital to Average Assets (Leverage)
13,330

10.9

 
4,901

4.0

 
6,126

5.0

 
 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
 
Total Capital to Risk-Weighted Assets

$15,885

16.1
%
 

$7,891

8.0
%
 

$9,863

10.0
%
Tier 1 Capital to Risk-Weighted Assets
13,301

13.5

 
3,945

4.0

 
5,918

6.0

Tier 1 Capital to Average Assets (Leverage)
13,301

11.6

 
4,577

4.0

 
5,721

5.0


In accordance with federal and state banking regulations, dividends paid by the Company’s banking subsidiaries to the Company itself are generally limited to the retained earnings of the respective banking subsidiaries unless specifically approved by the appropriate bank regulator. The Company declared and paid RBS total common stock dividends of $751 million , $811 million and $1.2 billion as of September 30, 2014 , September 30, 2013 and December 31, 2013 , respectively.
The earnings impact of goodwill impairment recognized by CBNA has put the bank subsidiary in the position of having to request specific approval from the OCC before executing capital distributions to its parent, Citizens. This requirement will be in place through the fourth quarter of 2015 . As of September 30, 2014 , the unconsolidated BHC had liquid assets in excess of $501 million compared to an annual interest burden on existing subordinated debt of approximately $91 million on a non-consolidated basis.
The OCC recently determined that CBNA no longer meets both conditions necessary to own a financial subsidiary. CBNA must be both well capitalized and well managed to own a financial subsidiary. A financial subsidiary is permitted to engage in a broader range of activities, similar to those of a financial holding company, than those permissible for a national bank. CBNA has two financial subsidiaries, Citizens Securities, Inc., a registered broker-dealer, and RBS Citizens Insurance Agency, Inc., a dormant entity, although it continues to collect commissions on certain outstanding policies. CBNA has entered into an agreement with the OCC (the "OCC Agreement") pursuant to which it must develop a remediation plan, which must be submitted to the OCC, setting forth the specific actions it will take to bring itself back into compliance with the conditions to own a financial subsidiary and the schedule for achieving that objective. Until CBNA satisfactorily addresses the deficiencies, CBNA may not consolidate its assets and liabilities with those of the financial subsidiaries for purposes of determining and reporting regulatory capital. In addition, CBNA will be subject to restrictions on its ability to acquire control or hold an interest in any new financial subsidiary and to commence new activities in any existing financial subsidiary, without the prior consent of the OCC. If CBNA fails to remediate the deficiencies within 180 days from March 13, 2014, or such longer period as the OCC may permit, it may have to divest itself of its financial subsidiaries and comply with any additional limitations or conditions on its conduct as the OCC may impose. CBNA has implemented a comprehensive enterprise-wide program that seeks to address these deficiencies.

NOTE 17 - EXIT COSTS AND RESTRUCTURING RESERVES
In 2014, the Company began the implementation of a restructuring initiative designed to achieve operating efficiencies and reduce expense growth. As a result of this program, the Company expects to incur total restructuring costs of approximately $121 million through December 31, 2015, consisting of $41 million of employee compensation, $40 million of facilities costs and $40 million of other costs, primarily consulting and technology services. For the nine months ended September 30, 2014, the Company incurred $90 million of restructuring costs, consisting of $41 million of employee compensation reported in salaries and employee benefits, $12 million of facilities costs (including $6 million of building impairment) reported in occupancy, $26 million reported in outside services, and $11 million in other operating expenses.
In 2014, as a result of the sale of retail branches located in Illinois (see Note 13 "Divestitures and Branch Assets and Liabilities Held for Sale" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information), the Company incurred total costs of approximately $17 million for the nine months ended September 30, 2014, consisting of $3 million of employee compensation reported in salaries and employee benefits, $3

47

million of fixed assets expenses reported in equipment, $4 million reported in outside services and $7 million reported in other operating expenses.
For segment reporting all of these restructuring costs are reported within Other. See Note 19 "Business Segments" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information.
The following table includes the activity in the exit costs and restructuring reserves:
(in millions)
Salaries & Employee Benefits
Occupancy & Equipment
Other
Total
Reserve balance as of December 31, 2012
$3
$27
$—
$30
Additions
6
22
3
31
Reversals
(1)
(4)
—
(5)
Utilization
(6)
(21)
(3)
(30)
Reserve balance as of December 31, 2013
2
24
—
26
Additions
43
17
48
108
Reversals
(1)
(3)
—
(4)
Utilization
(10)
(18)
(28)
(56)
Reserve balance as of September 30, 2014
$34
$20
$20
$74



NOTE 18 - RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in the balances, net of taxes, of each component of AOCI:
(in millions)
 
Net Unrealized Gains (Losses) on Derivatives
 
Net Unrealized Gains (Losses) on Securities
 
Defined Benefit Pension Plans
 
Total AOCI

Balance at December 31, 2012
 

($240
)
 

$306

 

($378
)
 

($312
)
Other comprehensive loss before reclassifications
 
(121
)
 
(184
)
 
—

 
(305
)
Other-than-temporary impairment not recognized in earnings on securities
 
—

 
(35
)
 
—

 
(35
)
Amounts reclassified from other comprehensive income
 
79

 
(71
)
 
5

 
13

Net other comprehensive (loss) income
 
(42
)
 
(290
)
 
5

 
(327
)
Balance at September 30, 2013
 

($282
)
 

$16

 

($373
)
 

($639
)
(in millions)
 
Net Unrealized Gains (Losses) on Derivatives
 
Net Unrealized Gains (Losses) on Securities
 
Defined Benefit Pension Plans
 
Total AOCI

Balance at December 31, 2013
 

($298
)
 

($91
)
 

($259
)
 

($648
)
Other comprehensive income before reclassifications
 
137

 
127

 
—

 
264

Other-than-temporary impairment not recognized in earnings on securities
 
—

 
(22
)
 
—

 
(22
)
Amounts reclassified from other comprehensive income
 
16

 
(13
)
 
(32
)
 
(29
)
Net other comprehensive income
 
153

 
92

 
(32
)
 
213

Balance at September 30, 2014
 

($145
)
 

$1

 

($291
)
 

($435
)

48

The following table reports the amounts reclassified out of each component of OCI and into the Consolidated Statements of Operations:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
(in millions)
 
2014
 
2013
 
2014
 
2013
 
 
Details about AOCI Components
 
Amount Reclassified from AOCI
 
Affected Line Item in the Consolidated Statements of Operations
Reclassification adjustment for net derivative gains (losses) included in net income (loss):
 

$18

 

$18

 

$54

 

$38

 
Interest income
 
 
(23
)
 
(48
)
 
(79
)
 
(160
)
 
Interest expense
 
 
—

 
—

 
—

 
(2
)
 
Other income
 
 
(5
)
 
(30
)
 
(25
)
 
(124
)
 
Income (loss) before income tax expense (benefit)
 
 
(2
)
 
(11
)
 
(9
)
 
(45
)
 
Income tax expense (benefit)
 
 

($3
)
 

($19
)
 

($16
)
 

($79
)
 
Net income (loss)
Reclassification of net securities gains (losses) to net income (loss):
 

$2

 

$25

 

$27

 

$119

 
Securities gains, net
 
 
(1
)
 
(3
)
 
(7
)
 
(7
)
 
Net impairment losses recognized in earnings
 
 
1

 
22

 
20

 
112

 
Income (loss) before income tax expense (benefit)
 
 
—

 
7

 
7

 
41

 
Income tax expense (benefit)
 
 

$1

 

$15

 

$13

 

$71

 
Net income (loss)
Reclassification of changes related to the employee benefit plan:
 

$52

 

($3
)
 

$49

 

($9
)
 
Salaries and employee benefits
 
 
52

 
(3
)
 
49

 
(9
)
 
Income (loss) before income tax expense (benefit)
 
 
18

 
(1
)
 
17

 
(4
)
 
Income tax expense (benefit)
 
 

$34

 

($2
)
 

$32

 

($5
)
 
Net income (loss)
Total reclassification losses
 

$32

 

($6
)
 

$29

 

($13
)
 
Net income (loss)

The following table presents the effects to net income of the amounts reclassified out of OCI:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
 
2014
 
2013
Net interest income (includes ($5), ($30), ($25) and ($122) of AOCI reclassifications, respectively)

$820

 

$770

 

$2,461

 

$2,279

Provision for credit losses
77

 
145

 
247

 
347

Noninterest income (includes $1, $22, $20 and $110 of AOCI reclassifications, respectively)
341

 
383

 
1,339

 
1,253

Noninterest expense (includes ($52), $3, ($49) and $9 of AOCI reclassifications, respectively)
810

 
788

 
2,568

 
6,861

Income before income tax expense (benefit)
274

 
220

 
985

 
(3,676
)
Income tax expense (benefit) (includes $16, ($5), $15 and ($8) income tax net expense and (benefit) from reclassification items, respectively)
85

 
76

 
317

 
(98
)
Net income (loss)

$189

 

$144

 

$668

 

($3,578
)


NOTE 19 - BUSINESS SEGMENTS
The Company is managed by its CEO on a divisional basis. The Company’s two business segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a Vice Chairman who reports directly to the CEO. The CEO has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the CEO. Non-segment operations are classified as Other, which includes

49

corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets, Community Development, Non-Core assets, and other unallocated assets, liabilities, revenues and expenses.
Reportable Segments
Segment results are determined based upon the Company’s management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the Company’s organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. A description of each reportable segment and table of financial results is presented below:
Consumer Banking
The Consumer Banking segment focuses on retail customers and small businesses with annual revenues of up to $25 million . It offers traditional banking products and services, including checking, savings, home loans, student loans, credit cards, business loans and financial management services. It also operates an indirect auto financing business, providing financing for both new and used vehicles through auto dealerships. The segment’s distribution channels include a branch network, ATMs and a work force of experienced specialists ranging from financial consultants, mortgage loan officers and business banking officers to private bankers.
Commercial Banking
The Commercial Banking segment primarily targets companies with annual revenues from $25 million to $2.5 billion and provides a full complement of financial products and solutions, including loans, leases, trade financing, deposits, cash management, foreign exchange, interest rate risk management, corporate finance and capital markets advisory capabilities. It focuses on small and middle-market companies and has dedicated teams with industry expertise in government banking, not-for-profit, healthcare, technology, asset finance, franchise finance, asset-based lending, commercial real estate, private equity and sponsor finance. While the segment’s business development efforts are predominantly focused on the Company's twelve-state core footprint, some of its specialized industry businesses also operate selectively on a national basis (such as healthcare, asset finance and franchise finance). Commercial Banking is organized by teams that target different client segments. A key component of the segment’s growth strategy is to expand its loan portfolio by originating high-quality commercial loans, which produce revenues consistent with its financial objectives and complies with its conservative credit policies. Commercial underwriting is driven by cash flow analysis supported by collateral analysis and review. The commercial lending teams offer a wide range of commercial loan products, including commercial real estate loans; working capital loans and lines of credit; demand, term and time loans; and equipment, inventory and accounts receivable financing.
Non-segment Operations
Other
In addition to non-segment operations, Other includes certain reconciling items in order to translate the segment results that are based on management accounting practices into consolidated results. For example, Other includes goodwill and the associated pre-tax $4.4 billion goodwill impairment charge recorded in 2013.

 
As of and for the Three Months Ended September 30, 2014
(in millions)
Consumer Banking
 
Commercial Banking
 
Other
 
Consolidated
Net interest income

$532

 

$270

 

$18

 

$820

Noninterest income
226

 
104

 
11

 
341

Total revenue
758

 
374

 
29

 
1,161

Noninterest expense
609

 
162

 
39

 
810

Profit (loss) before provision for credit losses
149

 
212

 
(10
)
 
351

Provision for credit losses
66

 
—

 
11

 
77

Income (loss) before income tax expense (benefit)
83

 
212

 
(21
)
 
274

Income tax expense (benefit)
29

 
73

 
(17
)
 
85

Net income (loss)

$54

 

$139

 

($4
)
 

$189

Total Average Assets

$49,012

 

$38,854

 

$40,825

 

$128,691



50

 
As of and for the Three months ended September 30, 2013
(in millions)
Consumer Banking
 
Commercial Banking
 
Other
 
Consolidated
Net interest income (expense)

$543

 

$263

 

($36
)
 

$770

Noninterest income
246

 
93

 
44

 
383

Total revenue
789

 
356

 
8

 
1,153

Noninterest expense
622

 
156

 
10

 
788

Profit (loss) before provision for credit losses
167

 
200

 
(2
)
 
365

Provision for credit losses
87

 
3

 
55

 
145

Income (loss) before income tax expense (benefit)
80

 
197

 
(57
)
 
220

Income tax expense (benefit)
28

 
70

 
(22
)
 
76

Net income (loss)

$52

 

$127

 

($35
)
 

$144

Total Average Assets

$46,169

 

$35,019

 

$36,198

 

$117,386


 
As of and for the Nine Months Ended September 30, 2014
(in millions)
Consumer Banking
 
Commercial Banking
 
Other
 
Consolidated
Net interest income

$1,615

 

$790

 

$56

 

$2,461

Noninterest income
681

 
318

 
340

 
1,339

Total revenue
2,296

 
1,108

 
396

 
3,800

Noninterest expense
1,902

 
472

 
194

 
2,568

Profit before provision for credit losses
394

 
636

 
202

 
1,232

Provision for credit losses
195

 
(7
)
 
59

 
247

Income before income tax expense
199

 
643

 
143

 
985

Income tax expense
69

 
222

 
26

 
317

Net income

$130

 

$421

 

$117

 

$668

Total Average Assets

$48,398

 

$37,951

 

$40,249

 

$126,598


 
As of and for the Nine Months Ended September 30, 2013
(in millions)
Consumer Banking
 
Commercial Banking
 
Other
 
Consolidated
Net interest income (expense)

$1,633

 

$771

 

($125
)
 

$2,279

Noninterest income
790

 
284

 
179

 
1,253

Total revenue
2,423

 
1,055

 
54

 
3,532

Noninterest expense
1,884

 
471

 
4,506

 
6,861

Profit (loss) before provision for credit losses
539

 
584

 
(4,452
)
 
(3,329
)
Provision for credit losses
243

 
(21
)
 
125

 
347

Income (loss) before income tax expense (benefit)
296

 
605

 
(4,577
)
 
(3,676
)
Income tax expense (benefit)
104

 
214

 
(416
)
 
(98
)
Net income (loss)

$192

 

$391

 

($4,161
)
 

($3,578
)
Total Average Assets

$46,546

 

$34,938

 

$39,542

 

$121,026



51


Management accounting practices utilized by the Company as the basis for presentation for segment results include the following:

FTP adjustments

The Company utilizes an FTP system to eliminate the effect of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury function. The FTP system credits (or charges) the segments with the economic value of the funds created (or used) by the segments. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The sum of the interest income/expense and FTP charges/credits for each segment is its designated net interest income. The variance between the Company’s cumulative FTP charges and cumulative FTP credits is offset in Other.

Provision for credit losses allocations

Provision for credit losses is allocated to each business segment based on actual net charge-offs that have been recognized by the business segment. The difference between the consolidated provision for credit losses and the business segments’ net charge-offs is reflected in Other.

Income tax allocations

Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Other.

Expense allocations

Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services.

Goodwill

For impairment testing purposes, the Company allocates goodwill to its Consumer Banking and Commercial Banking reporting units. For management reporting purposes, the Company presents the goodwill balance (and any related impairment charges) in Other.

Substantially all revenues generated and long-lived assets held by the Company’s business segments are derived from clients that reside in the United States. Neither business segment earns revenue from a single external customer that represents 10 percent or more of the Company’s total revenues.

NOTE 20 - SHARE-BASED COMPENSATION
Equity Grants Prior to the IPO
Prior to the Company's IPO, RBS Group granted stock-based compensation awards to employees of the Company pursuant to its various long-term incentive plans, which are administered by the Performance and Remuneration Committee of the RBSG Board of Directors. Below is a summary of those awards. All stock-based compensation awards granted to Company employees have been historically settled in RBSG shares. Effective as of the IPO, no stock-based compensation awards in respect of RBSG shares will be granted to Company employees.  
Restricted Stock Units
A restricted stock unit is the right to receive shares of stock on a future date, which may be subject to time-based vesting conditions and/or performance-based vesting conditions. Time-based restricted stock units granted historically have generally become vested ratably over a three-year period. Performance-based restricted stock units granted historically have generally become vested at the end of a three-year performance period, depending on the level of performance achieved during such period as compared to specified RBS Group, divisional and/or functional performance guideposts and subject to the further adjustment at the discretion of the Performance and Remuneration Committee of the RBSG Board of Directors.
The fair value of each award is determined on the grant date. All awards (whether they become vested in one increment or ratable increments) are expensed on a straight-line basis over the requisite service period. With respect to performance-based

52

awards, over the performance and requisite service period (i.e., vesting period) of the award, the compensation expense and the number of shares of stock expected to be issued are adjusted upward or downward based upon the probability of achievement of performance. Once vesting has occurred, the related compensation cost recognized as expense is based on actual performance and the number of shares actually issued.
Special IPO Awards
In March 2014, RBS Group granted special IPO awards to certain Citizens employees. These awards were granted half in the form of restricted stock units in respect of RBSG shares and half as a fixed convertible bond. The special IPO awards are scheduled to vest 50% in March 2016 and 50% in March 2017, subject to certain conditions. Pursuant to their terms, upon the closing of the Company's IPO, these awards were converted into Company restricted stock units and the performance condition was met; however, following the offering these awards remain subject to the original vesting schedule ( 50% in March 2016 and 50% in March 2017) and other original terms and conditions.
Equity Award Conversion
In conjunction with the Company's IPO, any restricted stock units granted by RBS Group to Company employees that were unvested at the time of the offering and the bond portion of special IPO awards were converted into equity-based awards in respect of Company common stock. Converted awards are governed by the Citizens Financial Group, Inc. Converted Equity 2010 Deferral Plan and the Citizens Financial Group, Inc. Converted Equity 2010 Long Term Incentive Plan (collectively, the "Converted Equity Plans") and are generally subject to the same terms and conditions as prior to conversion. However, when the awards become vested and are settled in accordance with their terms, grantees will receive shares of Company common stock. Following the offering, no additional awards were granted under the Converted Equity Plans.
The number of shares of Company common stock underlying converted awards was determined by dividing (A) the product of (x) the maximum number of RBSG shares underlying the awards outstanding as of the closing of the offering and (y) the average of the closing prices of RBSG shares on each of the 30 London Stock Exchange dealing days immediately prior to the pricing date of the offering (such 30 -day period, the “Conversion Period”), converted into U.S. Dollars using the average British Pound to U.S. Dollar currency rate over the Conversion Period, by (B) the price per share of Company common stock on the pricing date of the offering. The bond portion of the special IPO awards was converted by dividing the bond value by the price per share of Company common stock on the pricing date of the offering.
The Company awarded 9,627,635 and 6,363,919 RBSG shares to employees during the nine months ended September 30, 2014 and 2013, respectively. The grant date fair value of the shares was $53 million and $30 million for the awards granted during the nine months ended September 30, 2014 and 2013, respectively. Grant date fair value for all RBSG awards is estimated using the fair value of RBSG shares on grant date. In September 2014, 19,055,349 of RBSG share awards were converted to 5,158,928 Citizens share awards.  The difference between the fair value of the RBSG restricted share units immediately preceding the conversion and the fair value of the Company equity-based awards granted was not material. The bond portions of the Special IPO awards were converted to 524,783 Citizens share awards. Total unvested share awards at September 30, 2014 were 5,706,624 ; this includes the Directors shares discussed below.
For the three months ended September 30, 2014, compensation expense related to share-based plans was $10 million compared to $9 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014, compensation expense related to share-based plans was $29 million compared to $24 million for the nine months ended September 30, 2013.
Employee Share Plans Following the IPO
Omnibus Incentive Plan
In connection with the offering, the Company adopted the Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan. This plan permits the Company to grant a variety of awards to employees and service providers. No awards have been granted under this plan to date.
Director Compensation Plan
In connection with the offering, the Company adopted the 2014 Non-Employee Directors Compensation Plan (the "Directors Plan"). Effective upon the closing of the offering, restricted stock units were granted by the Company to its non-employee directors under the Directors Plan. These grants are scheduled to vest on the earlier to occur of September 29, 2015 or the date of the 2015 annual shareholders meeting. If a dividend is paid on shares underlying the stock units prior to the date such shares are distributed, those dividends will be distributed following vesting in the same form as the dividend that has been paid to shareholders generally. In the event that a director ceases to serve on the Board of Directors prior to the vesting date for any reason other than under circumstances which would constitute cause, the restricted stock units will fully vest on the date of the director's cessation from service.

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Employee Stock Purchase Plan
In connection with the offering, the Company adopted the 2014 Employee Stock Purchase Plan, which provides eligible employees an opportunity to purchase its common stock at a 10% discount, through accumulated payroll deductions. Beginning in the fourth quarter of 2014 eligible employees may contribute up to 10% of eligible compensation to the ESPP, except that this limit is increased to 50% of eligible compensation for the first offering period during the fourth quarter of 2014; in each case, no participant may purchase shares in any year with a value exceeding $25,000 . Offering periods under the ESPP are quarterly.
Shares of Company common stock are purchased by a participant on the last day of each quarter at a 10% discount from the fair market value (fair market value under the plan is defined as the closing price on the day of purchase). Prior to the date the shares are purchased, participants do not have any rights or privileges as a stockholder with respect to shares to be purchased at the end of the offering period.

NOTE 21 - EARNINGS PER SHARE
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions, except share data)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss) from operations

$189

 

$144

 

$668

 

($3,578
)
Less: undistributed earnings allocated to participating securities
—

 
—

 
—

 
—

Net income (loss) available to common shareholders

$189

 

$144

 

$668

 

($3,578
)
Diluted:
 
 
 
 
 
 
 
Net income (loss) from operations

$189

 

$144

 

$668

 

($3,578
)
Less: undistributed earnings allocated to participating securities
—

 
—

 
—

 
—

Net income (loss) available to common shareholders

$189

 

$144

 

$668

 

($3,578
)
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic
559,998,324

 
559,998,324

 
559,998,324

 
559,998,324

Dilutive common shares
245,423

 
—

 
82,707

 
—

Weighted-average common shares outstanding - diluted
560,243,747

 
559,998,324

 
560,081,031

 
559,998,324

Earnings per common share:
 
 
 
 
 
 
 
Basic

$0.34

 

$0.26

 

$1.19

 

($6.39
)
Diluted
0.34

 
0.26

 
1.19

 
(6.39
)

Basic EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period, plus the effect of potential dilutive common shares such as share-based awards, using the treasury stock method. Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive.

Unvested restricted shares that contain non-forfeitable rights to dividends or undistributed earnings are participating securities and, therefore, are included in computing both basic and diluted EPS using the two-class method as mandated by relevant accounting guidance.

On August 22, 2014, the Company declared and made effective a 165,582 -for-1 forward stock split of common stock. As a result, all share and per share data have been restated to reflect the effect of the split.


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NOTE 22 - OTHER OPERATING EXPENSE
The following table presents the details of other operating expense:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2014
 
2013
 
2014
 
2013
Deposit insurance

$23

 

$18

 

$69

 

$67

Promotional expense
19

 
18

 
60

 
56

Settlements and operating losses
10

 
9

 
74

 
32

Postage and delivery
12

 
14

 
37

 
39

Other
58

 
64

 
199

 
190

Other operating expense

$122

 

$123

 

$439

 

$384


NOTE 23 - SUBSEQUENT EVENTS
The Company has evaluated the impacts of events that have occurred subsequent to September 30, 2014 through the date the unaudited interim Consolidated Financial Statements were filed with the United States Securities and Exchange Commission. Based on this evaluation, the Company has determined none of these events were required to be recognized or disclosed in the unaudited interim Consolidated Financial Statements and related Notes, other than that on October 8, 2014 Citizens executed a capital exchange transaction which involved the issuance of $334 million of 10 -year subordinated notes to RBSG at a rate of 4.082% and the simultaneous repurchase of 14,297,761 shares of common stock owned by RBS Group a total cost of $334 million and an average price per share of $23.36 . The purchase price per share was the average of the daily volume-weighted average price of a share of our common stock as reported by the New York Stock Exchange over the five trading days preceding the purchase date.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This document contains forward-looking statements within the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

•
negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense;

•
the rate of growth in the economy and employment levels, as well as general business and economic conditions;

•
our ability to implement our strategic plan, including the cost savings and efficiency components, and achieve our indicative performance targets;

•
our ability to remedy regulatory deficiencies and meet supervisory requirements and expectations;

•
liabilities resulting from litigation and regulatory investigations;

•
our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;

•
the effect of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;

•
changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

•
the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;

•
financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

•
a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber attacks;

•
management’s ability to identify and manage these and other risks; and

•
any failure by us to successfully replicate or replace certain functions, systems and infrastructure provided by RBS Group.

In addition to the above factors, we also caution that the amount and timing of any future common stock dividends will depend on our financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of our subsidiaries), and any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will pay any dividends to holders of our common stock, or as to the amount of any such dividends.

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In addition, the timing and manner of the sale of RBS Group’s remaining ownership of our common stock remains uncertain, and we have no control over the manner in which RBS Group may seek to divest such remaining shares. Any such sale would impact the price of our shares of common stock.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found under “Risk Factors” in our Registration Statement on Form S-1 filed with the United States Securities and Exchange Commission and declared effective on September 23, 2014.

Selected Consolidated Financial Data
    We derived the summary consolidated operating data for the three and nine months ended September 30, 2014 and 2013 and the summary Consolidated Balance Sheet data as of September 30, 2014 from our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information located elsewhere in this report. Our historical results are not necessarily indicative of the results expected for any future period.
In our opinion, the unaudited interim Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information set forth herein. Our operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of those to be expected for the year ending December 31, 2014 or for any future period. You should read the following selected consolidated financial data in conjunction with our unaudited interim Consolidated Financial Statements and the Notes thereto .

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions, except per share amounts)
2014
 
2013
 
2014
 
2013
OPERATING DATA:
 
 
 
 
 
 
 
Net interest income

$820

 

$770

 

$2,461

 

$2,279

Noninterest income
341

 
383

 
1,339

 
1,253

Total revenue
1,161

 
1,153

 
3,800

 
3,532

Provision for credit losses
77

 
145

 
247

 
347

Noninterest expense
810

 
788

 
2,568

 
6,861

Noninterest expense, excluding goodwill impairment (1)
810

 
788

 
2,568

 
2,426

Income (loss) before income tax expense (benefit)
274

 
220

 
985

 
(3,676
)
Income tax expense (benefit)
85

 
76

 
317

 
(98
)
Net income (loss)
189

 
144

 
668

 
(3,578
)
Net income, excluding goodwill impairment (1)
189

 
144

 
668

 
502

Net income (loss) per average common share - basic and diluted (2)
0.34

 
0.26

 
1.19

 
(6.39
)
Net income per average common share - basic and diluted, excluding goodwill impairment  (1) (2)
0.34

 
0.26

 
1.19

 
0.89

OTHER OPERATING DATA:
 
 
 
 
 
 
 
Return on average common equity (3) (12)
3.87
%
 
2.91
%
 
4.59
%
 
(15.04
)%
Return on average common equity, excluding goodwill impairment (1) (12)
3.87

 
2.91

 
4.59

 
2.96

Return on average tangible common equity (1) (12)
5.81

 
4.34

 
6.90

 
(25.54
)
Return on average tangible common equity, excluding goodwill impairment (1) (12)
5.81

 
4.34

 
6.90

 
5.03

Return on average total assets (4) (12)
0.58

 
0.49

 
0.71

 
(2.82
)
Return on average total assets, excluding goodwill impairment (1) (12)
0.58

 
0.49

 
0.71

 
0.55

Return on average total tangible assets (1) (12)
0.61

 
0.52

 
0.74

 
(3.05
)
Return on average total tangible assets, excluding goodwill
impairment (1) (12)
0.61

 
0.52

 
0.74

 
0.60

Efficiency ratio (1)
69.84

 
68.49

 
67.58

 
194.29

Efficiency ratio, excluding goodwill impairment (1)
69.84

 
68.49

 
67.58

 
68.70

Net interest margin (5) (12)
2.77

 
2.88

 
2.84

 
2.85





57

 
September 30,
 
December 31,
(dollars in millions)
2014
 
2013
BALANCE SHEET DATA:
 
 
 
Total assets

$131,341

 

$122,154

Loans and leases (6)
90,749

 
85,859

Allowance for loan and lease losses
1,201

 
1,221

Total securities
24,848

 
21,245

Goodwill
6,876

 
6,876

Total liabilities
111,958

 
102,958

Deposits (7)
93,463

 
86,903

Federal funds purchased and securities sold under agreements to repurchase
5,184

 
4,791

Other short-term borrowed funds
6,715

 
2,251

Long-term borrowed funds
2,062

 
1,405

Stockholders' equity
19,383

 
19,196

OTHER BALANCE SHEET DATA:
 
 
 
Asset Quality Ratios:
 
 
 
Allowance for loan and lease losses as a percentage of total loans and leases
1.32
%
 
1.42
%
Allowance for loan and lease losses as a percentage of nonperforming loans and leases
111.30

 
86.17

Nonperforming loans and leases as a percentage of total loans and leases
1.19

 
1.65

Nonperforming assets to total assets
0.85

 
1.20

Capital Ratios:
 
 
 
Tier 1 capital ratio (8)
12.9

 
13.5

Total capital ratio (9)
16.1

 
16.1

Tier 1 common equity ratio (10)
12.9

 
13.5

Leverage ratio (11)
10.9

 
11.6


(1) These measures are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”
(2) EPS information reflects a 165,582-for-1 forward stock split effective on August 22, 2014.
(3) We define “Return on average common equity” as net income (loss) divided by average common equity.
(4) We define “Return on average total assets” as net income (loss) divided by average total assets.
(5) We define “Net interest margin” as net interest income divided by average total interest-earning assets.
(6) Excludes loans held for sale of $208 million and $1.3 billion as of September 30, 2014 and December 31, 2013, respectively.
(7) Excludes deposits held for sale of $5.3 billion as of December 31, 2013.
(8) “Tier 1 capital ratio” is Tier 1 capital balance divided by total risk-weighted assets as defined under Basel I.
(9) “Total capital ratio” is total capital balance divided by total risk-weighted assets as defined under Basel I.
(10) “Tier 1 common equity ratio” is Tier 1 capital balance, minus preferred stock, divided by total risk-weighted assets as defined under Basel I.
(11) “Leverage ratio” is Tier 1 capital balance divided by quarterly average total assets as defined under Basel I.
(12) Operating ratios for the periods ended September 30, 2014 and 2013 are presented on an annualized basis.


Overview
We are the 13th largest retail bank holding company in the United States according to SNL Financial with $131.3 billion of total assets as of September 30, 2014 . Headquartered in Providence, Rhode Island, we deliver a broad range of retail and commercial banking products and services to individuals, institutions and companies. Our approximately 17,900 employees strive to meet the financial needs of customers and prospects through approximately 1,200 branches and approximately 3,200 ATMs operated in an 11 -state footprint across the New England, Mid-Atlantic and Midwest regions and through our online, telephone and mobile banking platforms. We conduct our banking operations through our two wholly-owned banking subsidiaries, CBNA and CBPA.
We operate our business through two operating segments: Consumer Banking and Commercial Banking. Consumer Banking accounted for $47.2 billion and $45.2 billion , or approximately 53% and 53% of our year-to-date average loan and lease balances (including loans held for sale) for the nine months ended September 30, 2014 and 2013, respectively. Consumer Banking serves retail customers and small businesses with annual revenues of up to $25 million with products and services that include deposit products, mortgage and home equity lending, student loans, auto financing, credit cards, business loans and wealth management and investment services.

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Commercial Banking accounted for $37.3 billion and $34.3 billion , or approximately 42% and 40% of our year-to-date average loan and lease balances (including loans held for sale) for the nine months ended September 30, 2014 and 2013, respectively. Commercial Banking offers a broad complement of financial products and solutions, including lending and leasing, trade financing, deposit and treasury management, foreign exchange and interest rate risk management, corporate finance and debt and equity capital markets capabilities.
As of September 30, 2014 and December 31, 2013, we had $3.3 billion and $3.8 billion , respectively, of non-core asset balances, which are included in Other along with our treasury function, securities portfolio, wholesale funding activities, goodwill, community development assets and other unallocated assets, liabilities, revenues, provision for credit losses and expenses not attributed to Consumer Banking or Commercial Banking. Non-core assets are primarily loans inconsistent with our strategic goals, generally as a result of geographic location, industry, product type or risk level. We have actively managed these loans down since they were designated as non-core on June 30, 2009, and the portfolio decreased a further 15% as of September 30, 2014 compared to December 31, 2013. The largest component of our non-core portfolio is our home equity products serviced by others (a portion of which we now service internally).

Recent Events
On September 29, 2014, we completed the IPO of 161,000,000 shares, or 28.8%, of our common stock, which includes the full exercise of the underwriters’ option to purchase an additional 21,000,000 shares. Our common stock began trading on the New York Stock Exchange on September 24, 2014, under the ticker symbol “CFG.” Upon completion of a capital transaction with RBS Group on October 8, 2014, RBS Group owned 70.5% of the outstanding common stock of CFG. For additional information, see “Capital” and Note 23 “Subsequent Events” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information located elsewhere in this report.

On June 20, 2014, we completed the sale of certain assets and liabilities associated with our Chicago-area retail branches, small business relationships and select middle market relationships to U.S. Bancorp. The agreement to sell these assets and liabilities to U.S. Bancorp had previously been announced in January 2014. This sale included 103 branches, including 94 full-service branches, with $4.8 billion of deposits and $1.0 billion in loans as of June 20, 2014. We recorded a gain on sale of $288 million and also incurred related expenses of $17 million. Management estimates that the Chicago Divestiture has the effect of reducing quarterly net interest income by approximately $13 million, noninterest income by approximately $12 million and noninterest expense by approximately $21 million. We intend to invest the majority of the sale proceeds over time into higher returning activities.

On May 29, 2014, we entered into an agreement with a third party to purchase predominantly prime auto loans, including an initial purchase of $150 million in principal balances of loans. On the same date, we entered into an agreement with the same party to purchase auto loans for future rolling 90-day periods that automatically renew until termination by either party. For the first year ended May 29, 2015, we are required to purchase a minimum of $250 million in principal balances of loans up to a maximum of $600 million in principal balances of loans per rolling 90-day period. After May 29, 2015, the minimum per each rolling 90-day period increases to $400 million in principal balances of loans, with a maximum of $600 million in principal balances of loans. We may cancel the agreement at any time at will; however, if we elect to cancel at any time during the first three years of the agreement, we will be charged a variable termination fee.
Key Factors Affecting Our Business
Macro-economic conditions
Our business is affected by national, regional and local economic conditions, as well as the perception of those conditions and future economic prospects. The significant macro-economic factors that impact our business are: the U.S. and global economic landscapes, unemployment rates, the housing markets and interest rates.
The U.S. economy expanded 3.5% in the three months ended September 30, 2014 , as gains in retail sales and government spending were offset by leaner inventories and slower consumer spending, resulting in slower growth from the 4.6% pace in the second quarter of 2014. This expansion followed considerable improvement in the economic landscape in 2013, with nominal GDP growth averaging 3.1% for the year. The Eurozone economy was flat in the three months ended June 30, 2014, after having emerged from recession in the second half of 2013. A slowing economy in Germany and the crisis in Ukraine added to fears of a weaker recovery in Europe. In response the European Central Bank announced additional easing measures that include the further lowering of benchmark interest rates and the purchasing of private sector credit. The U.S. unemployment rate dropped from 6.7% at year-end 2013, to 5.9% at September 30, 2014 . The overall improvement was partially driven by a decrease in the labor force

59

participation rate, which declined to its lowest level in over 35 years. After a pause in late 2013 and the first quarter of 2014, the housing market continued to strengthen in the third quarter of 2014, as demonstrated by an increase in existing home sales; however, with slowing price increases. The Federal Reserve Board maintained very accommodative monetary policy conditions through a zero to 25 basis point federal funds target at the short end of the curve, and quantitative easing programs designed to reduce longer tenor rates. Interest rates remain relatively low, and financial conditions are supportive of continued growth. See “Interest rates” below for further discussion of the impact of interest rates on our results.

Credit trends
Credit trends improved during the three months ended September 30, 2014 compared to the same period in 2013, largely driven by improving macro-economic factors as discussed above. Net charge-offs for the three months ended September 30, 2014 of $88 million decreased $43 million , or 33% , from $131 million for the three months ended September 30, 2013 . The annualized net charge-offs as a percentage of total average loans improved to 0.38% for the three months ended September 30, 2014 , compared to 0.61% for the three months ended September 30, 2013 .
Credit trends improved during the nine months ended September 30, 2014 compared to the same period in 2013, largely driven by improving macro-economic factors as discussed above. Net charge-offs for the nine months ended September 30, 2014 of $243 million decreased $143 million , or 37% , from $386 million for the nine months ended September 30, 2013 . The annualized net charge-offs as a percentage of total average loans improved to 0.37% for the nine months ended September 30, 2014 , compared to 0.61% for the nine months ended September 30, 2013 . The overall charge-off rates are expected to increase marginally in 2015 and 2016 but are expected to remain below 2013 levels as commercial recovery opportunities dissipate, home prices stabilize and non-core portfolios continue to run-off.
Interest rates
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (usually loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (usually deposits and borrowings). The level of net interest income is primarily a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities and the spread between the contractual yield on such assets and the contractual cost of such liabilities. These factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the Federal Reserve Board and market interest rates. For further discussion, refer to “Risk Governance" and "Market Risk-Non-Trading Risk.”
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are primarily driven by the Federal Reserve Board’s actions. However, the yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are set by the market or, at times, by the Federal Reserve Board’s actions. The level of net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur. In 2013 and through the nine months ended September 30, 2014 , short-term and long-term interest rates remained at very low levels by historical standards, with many benchmark rates, such as the federal funds rate and one- and three-month LIBOR, near zero. Further declines in the yield curve or a decline in longer-term yields relative to short-term yields (a flatter yield curve) would have an adverse impact on our net interest margin and net interest income. The low interest rate environment has compressed our net interest margin in recent periods.
In 2013 and through the nine months ended September 30, 2014 , the Federal Reserve Board maintained a highly accommodative monetary policy, and indicated that this policy would remain in effect for a considerable time after its asset purchase program ends and the economic recovery strengthens. As of September 30, 2014 , the Federal Reserve was purchasing $15.0 billion per month composed of $10.0 billion in Treasury securities and $5.0 billion in agency mortgage-backed securities. The Federal Reserve Board announced an end to purchases in October 2014.
Regulatory trends
We are subject to extensive regulation and supervision, which continue to evolve as the legal and regulatory framework governing our operations continues to change. The current operating environment also has heightened regulatory expectations around many regulations including consumer compliance, the Bank Secrecy Act, and anti-money laundering compliance and increased internal audit activities. As a result of these heightened expectations, we expect to incur additional costs for additional compliance personnel or professional fees associated with advisors and consultants.

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Dodd-Frank regulation
We are subject to a variety of laws and regulations, including the Dodd-Frank Act. The Dodd-Frank Act is complex, and many aspects of the Act are subject to final rulemaking that will take effect over several years. The Dodd-Frank Act will continue to impact our earnings through fee reductions, higher costs and imposition of new restrictions on us. The Dodd-Frank Act may also continue to have a material adverse impact on the value of certain assets and liabilities held on our balance sheet. The ultimate impact of the Dodd-Frank Act on our business will depend on regulatory interpretation and rulemaking as well as the success of any of our actions to mitigate the negative impacts of certain provisions. Key parts of the Dodd-Frank Act that specifically impact our business are the repeal of a previous prohibition against payment of interest on demand deposits, which became effective in July 2011, the introduction of a stress-testing and capital planning framework developed by the Federal Reserve Board, known as CCAR and the DFAST framework. The DFAST process projects net income, loan losses and capital ratios over a nine-quarter horizon under hypothetical, stressful macroeconomic and financial market scenarios developed by the Federal Reserve Board as well as certain mandated assumptions about capital distributions prescribed in the DFAST rule. During the third quarter of 2014, as part of our obligations under DFAST, we published the results of our mid-cycle severely adverse scenario. These results can be viewed on our Investor Relations website under "Regulatory Disclosures." Consistent with the purpose of the DFAST process and the assumptions used in order to assess our likely performance during hypothetical economic conditions, the projected results under the DFAST severely adverse scenarios show severe negative impacts on earnings. However, these pro forma results should not be interpreted to be management expectations in light of the current economic and operating environment.
Repeal of the prohibition on depository institutions paying interest on demand deposits
We began offering interest-bearing corporate checking accounts after the 2011 repeal of the prohibition on depository institutions paying interest on demand deposits. Currently, industrywide interest rates for this product are very low and thus far the impact of the repeal has not had a significant effect on our results. However, market rates could increase more significantly in the future. If we need to pay higher interest rates on checking accounts to maintain current clients or attract new clients, our interest expense would increase, perhaps materially. Furthermore, if we fail to offer interest rates at a sufficient level to retain demand deposits, our core deposits may be reduced, which would require us to obtain funding in other ways or limit potential future asset growth.
Comprehensive Capital Analysis and Review
CCAR is an annual exercise by the Federal Reserve Board to ensure that the largest bank holding companies have sufficient capital to continue operations throughout times of economic and financial stress and robust, forward-looking capital planning processes that account for their unique risks.
As part of CCAR, the Federal Reserve Board evaluates institutions’ capital adequacy, internal capital adequacy assessment processes and their plans to make capital distributions, such as dividend payments or stock repurchases. In March 2014, the Federal Reserve Board objected on qualitative grounds to our capital plan submitted as part of the CCAR process. In addition to modifications we may be required to make in connection with our proposed capital distributions through the CCAR process, we may incur additional expenses in connection with the CCAR process that would affect our profitability and results of operations.
Basel III final rules applicable to us and our banking subsidiaries
In July 2013, the Federal Reserve Board, OCC, and FDIC issued the U.S. Basel III final rules. The final rule implements the Basel III capital framework and certain provisions of the Dodd-Frank Act, including the Collins Amendment. Certain aspects of the final rules, such as the new minimum capital ratios, will become effective on January 1, 2015. In order to comply with the new capital requirements, we established capital ratio targets that meet or exceed U.S. regulatory expectations under fully phased-in Basel III rules, and as a result our capital requirements were increased.
 
HELOC Payment Shock
Recent attention has been given by regulators, rating agencies, and the general press regarding the potential for increased exposure to credit losses associated with HELOCs that were originated during the period of rapid home price appreciation between 2003 and 2007. Industrywide, many of the HELOCs originated during this timeframe were structured with an extended interest-only payment period followed by a requirement to convert to a higher payment amount that would begin fully amortizing both principal and interest beginning at a certain date in the future. As of September 30, 2014 , approximately 31% of our $16.1 billion HELOC portfolio, or $5.0 billion in drawn balances, and $4.1 billion in undrawn balances, were subject to a payment reset or

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balloon payment between October 1, 2014 and December 31, 2017, including $294 million in balloon balances where full payment is due at the end of a ten-year interest only draw period.
To help manage this exposure, in September 2013, we launched a comprehensive program designed to provide heightened customer outreach to inform, educate and assist customers through the reset process as well as to offer alternative financing and forbearance options. Preliminary results indicate that our efforts to assist customers at risk of default have successfully reduced delinquency and charge-off rates compared to our original expectations.
As of September 30, 2014 , for the $668 million of our HELOC portfolio that was originally structured with a reset period in 2013, 93.4% of the balances were refinanced, paid off or were current on payments, 3.5% were past due and 3.1% had been charged off. As of September 30, 2014 , for the $898 million of our HELOC portfolio that was originally structured with a reset period in 2014, 95.1% of the balances were refinanced, paid off or were current on payments, 4.1% were past due and 0.8% had been charged off. HELOC portfolio balances of $127 million are scheduled to reset in the remainder of 2014. Factors that affect our future expectations for charge-off risk for the portion of our HELOC portfolio subject to reset periods in the future include improved loan-to-value ratios resulting from continued home price appreciation, stable portfolio credit score profiles and more robust loss mitigation efforts.
Factors Affecting Comparability of Our Results
Goodwill
During the 19-year period from 1988 to 2007, we completed a series of more than 25 acquisitions of other financial institutions and financial assets and liabilities. We accounted for these types of business combinations using the acquisition method of accounting. Under this accounting method, the acquired company’s net assets are recorded at fair value at the date of acquisition, and the difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.
Under relevant accounting guidance, we are required to review goodwill for impairment annually, or more frequently if events or circumstances indicate that the fair value of any of our business units might be less than its carrying value. The valuation of goodwill is dependent on forward-looking expectations related to the performance of the U.S. economy and our associated financial performance.
The prolonged delay in the full recovery of the U.S. economy, and the impact of that delay on our earnings expectations, prompted us to record a $4.4 billion pre-tax ($4.1 billion after-tax) goodwill impairment as of June 30, 2013 related to our Consumer Banking reporting unit. For segment reporting purposes, the impairment charge is reflected in Other.
Although the U.S. economy has demonstrated signs of recovery, notably improvements in unemployment and housing, the pace and extent of recovery in these indicators, as well as in overall gross domestic product, have lagged behind previous expectations. The impact of the slow recovery is most evident in Consumer Banking. The forecasted lower economic growth for the United States, coupled with increasing costs of complying with the new regulatory framework in the financial industry, resulted in a deceleration of expected growth for Consumer Banking’s future income, which resulted in our recording of a goodwill impairment charge during the second quarter of 2013. We have recorded goodwill impairment charges in the past and any further impairment to our goodwill could materially affect our results in any given period. As of both September 30, 2014 and December 31, 2013, we had a carrying value of goodwill of $6.9 billion . For additional information regarding our goodwill impairment testing, see Note 5 “Goodwill” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report as well as Note 1 “Significant Accounting Policies” and Note 8 “Goodwill” to our audited Consolidated Financial Statements.
Investment in our business
We regularly incur expenses associated with investments in our infrastructure, and, from 2009 to year end 2013, we have invested more than $1.0 billion in infrastructure and technology, with an additional $250 million planned for each of 2014 and 2015. These investments, which are designed to lower our costs and improve our customer experience, include significant programs to enhance our resiliency, upgrade customer-facing technology and streamline operations. Recent significant investments included the 2013 launch of our new teller system, new commercial loan platform and new auto loan platform and the 2013 upgrade of the majority of our ATM network, including equipping more than 1,450 ATMs with advanced deposit-taking functionality. These investments also involved spending to prepare for the planned rollout of our new mortgage platform. We expect that these investments will increase our long-term overall efficiency and add to our capacity to increase revenue.

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Operating expenses to operate as a fully independent public company
As part of our transition to a stand-alone company, we expect to incur one-time expenditures of approximately $55 million, including capitalized costs of $18 million, as well as ongoing incremental expenses of approximately $34 million per year. We expect these ongoing costs will include higher local charges associated with exiting worldwide vendor relationships and incremental expenses to support information technology, compliance, corporate governance, regulatory, financial and risk infrastructure that are necessary to enable us to operate as a fully stand-alone public company.

Principal Components of Operations and Key Performance Metrics Used By Management
As a banking institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our balance sheet and statement of operations, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable banking institutions in our region and nationally.
The primary line items we use in our key performance metrics to manage and evaluate our statement of operations include net interest income, noninterest income, total revenue, provision for credit losses, noninterest expense and net (loss) income. The primary line items we use in our key performance metrics to manage and evaluate our balance sheet data include loans and leases, securities, allowance for credit losses, deposits, borrowed funds and derivatives.

Net interest income
Net interest income is the difference between the interest earned on interest-earning assets (usually loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (usually deposits and borrowings). The level of net interest income is primarily a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities and the spread between the contractual yield on such assets and the cost of such liabilities. Net interest income is impacted by the relative mix of interest-earning assets and interest-bearing liabilities, movements in market interest rates, levels of nonperforming assets and pricing pressure from competitors. The mix of interest-earning assets is influenced by loan demand and by management’s continual assessment of the rate of return and relative risk associated with various classes of interest-earning assets.

The mix of interest-bearing liabilities is influenced by management’s assessment of the need for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in our market and the availability and pricing of other sources of funds.

Noninterest income
The primary components of our noninterest income are service charges and fees, card fees, trust and investment services revenue and securities gains, net.

Total revenue
Total revenue is the sum of our net interest income and our noninterest income.

Provision for credit losses
The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the allowance for credit losses at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under relevant accounting guidance. The provision for credit losses includes the provision for loan and lease losses as well as the provision for unfunded commitments. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. For additional information regarding the provision for credit losses, see “Critical Accounting Estimates—Allowance for Credit Losses,” Note 4 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report as well as Note 1 “Significant Accounting Policies” and Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our audited Consolidated Financial Statements.

Noninterest expense
Noninterest expense includes salary and employee benefits, outside services, occupancy expense, equipment expense, goodwill impairment, and other operating expenses.

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Net income (loss)
We evaluate our net income based on measures including return on average common equity, return on average total assets, return on average tangible common equity and efficiency ratio.

Loans and leases
We classify our loans and leases pursuant to the following classes: commercial, commercial real estate, leases, residential (including residential mortgages and home equity loans and lines of credit), home equity products serviced by others (including certain purchased home equity loans and lines of credit), other secured retail (including automobile loans and other installment loans) and unsecured retail (including student loans and credit card).
 
Loans are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs and unamortized premiums or discounts (on purchased loans). Deferred loan origination fees and costs and purchase discounts and premiums are amortized as an adjustment of yield over the life of the loan, using the level yield interest method. Unamortized amounts remaining upon prepayment or sale are recorded as interest income or gain (loss) on sale, respectively. Credit card receivables include billed and uncollected interest and fees.
Leases are classified at the inception of the lease by type. Lease receivables, including leveraged leases, are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income, including unamortized investment credits. Lease residual values are reviewed at least annually for other-than-temporary impairment, with valuation adjustments recognized currently against noninterest income. Leveraged leases are reported net of non-recourse debt. Unearned income is recognized to yield a level rate of return on the net investment in the leases.
Mortgage loans held for sale are carried at fair value. As of December 31, 2013, other loans held for sale primarily include loans relating to our Chicago branch network and are carried at the lower of cost or fair value.

Securities
Our securities portfolio is managed to seek return while maintaining prudent levels of quality, market risk and liquidity. Investments in debt and equity securities are carried in four portfolios: AFS, HTM, trading account assets and other investment securities. We determine the appropriate classification at the time of purchase. Securities in our available for sale portfolio will be held for indefinite periods of time and may be sold in response to changes in interest rates, changes in prepayment risk or other factors relevant to our asset and liability strategy. Securities in our AFS portfolio are carried at fair value, with unrealized gains and losses reported in OCI, as a separate component of stockholders’ equity, net of taxes. Securities are classified as HTM because we have the ability and intent to hold the securities to maturity, and are carried at amortized cost. Debt and equity securities that are bought and held principally for the purpose of being sold in the near term are classified as trading account assets and are carried at fair value. Realized and unrealized gains and losses on such assets are reported in noninterest income. Other investment securities are comprised mainly of FHLB stock and Federal Reserve Bank stock, which are carried at cost.

Allowance for credit losses
Our estimate of probable losses in the loan and lease portfolios is recorded in the allowance for loan and lease losses and the reserve for unfunded lending commitments. Together these are referred to as the allowance for credit losses. We evaluate the adequacy of the allowance for credit losses using the following ratios: allowance for loan and lease losses as a percentage of total loans and leases; allowance for loan and lease losses as a percentage of nonperforming loans and leases; and nonperforming loans and leases as a percentage of total loans and leases. For additional information, see “Critical Accounting Estimates-Allowance for Credit Losses,” Note 1 “Significant Accounting Policies” and Note 5 “Allowance for Credit Losses, Nonperforming Assets and Concentrations of Credit Risk” to our audited Consolidated Financial Statements.

Deposits
Our deposits include: on demand checking, checking with interest, regular savings accounts, money market accounts and term deposits. As of September 30, 2014 and December 31, 2013, total deposits were $93.5 billion and $86.9 billion, respectively.
 
Borrowed funds
As of September 30, 2014, our total short-term borrowed funds include federal funds purchased, securities sold under agreement to repurchase and other short-term borrowed funds. As of September 30, 2014 and December 31, 2013, total short-term

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borrowed funds were $11.9 billion and $7.0 billion, respectively. Our total short-term borrowed funds are offset by $1.9 billion and $1.4 billion in excess reserves held at Federal Reserve Banks as of September 30, 2014 and December 31, 2013, respectively.
As of September 30, 2014, our long-term borrowed funds include $350 million of fixed rate subordinated debt held by external parties and $1.7 billion of subordinated debt held by the RBS Group. During the third quarter of 2014, we exchanged Tier 1 common equity for Tier 2 subordinated debt.
Subsequent to the close of the quarter, on October 8, 2014 we executed a capital exchange transaction with RBS Group which involved the issuance of $334 million of 10-year subordinated notes at a rate of 4.082% and the simultaneous repurchase of 14,297,761 shares of common stock owned by RBS Group at an average price per share of $23.36. In addition, we plan to continue our strategy of capital optimization by exchanging an additional $500 million - $750 million for a lesser form of regulatory capital in 2015 and 2016, subject to regulatory approval and market conditions.

Derivatives
Historically, we have used pay-fixed interest rate swaps to synthetically lengthen liabilities, offsetting duration in fixed-rate assets. With our material prepayment of fixed-rate mortgages and home equity loans since 2008, these swaps were no longer needed and have been terminated or allowed to run-off, resulting in a reduction in the notional balance of these swaps to $1.0 billion as of September 30, 2014 , from $1.5 billion as of December 31, 2013.
We also use receive-fixed swaps to minimize the exposure to variability in the interest cash flows on our floating rate assets. As of September 30, 2014 , a notional amount of $4.0 billion receive-fixed swaps had been executed. The assets and liabilities recorded for derivatives designated as hedges reflect the market value of these hedge instruments.
We also sell interest rate swaps and foreign exchange forwards to commercial customers. Offsetting swap and forward agreements are simultaneously transacted to minimize our market risk associated with the customer derivative products. The assets and liabilities recorded for derivatives not designated as hedges reflect the market value of these transactions.
Key Performance Metrics and Non-GAAP Financial Measures
We consider various measures when evaluating our performance and making day-to-day operating decisions, as well as evaluating capital utilization and adequacy, including:
•
Return on average common equity, which we define as net income (loss) divided by average common equity;
•
Return on average tangible common equity, which we define as net income (loss) divided by the difference of average common equity excluding average goodwill, (net of related deferred tax liability), and average other intangibles;
•
Return on average total assets, which we define as net income (loss) divided by average total assets;
•
Return on average total tangible assets, which we define as net income (loss) divided by average total assets excluding average goodwill, (net of related deferred tax liability), and average other intangibles;
•
Efficiency ratio, which we define as the ratio of our total noninterest expense to the sum of net interest income and total noninterest income. We measure our efficiency ratio to evaluate the efficiency of our operations as it helps us monitor how costs are changing compared to our income. A decrease in our efficiency ratio represents improvement; and
•
Net interest margin, which we calculate by dividing annualized net interest income for the period by average total interest-earning assets, is a key measure that we use to evaluate our net interest income.
 
Certain of the above financial measures, including return on average tangible common equity, return on average total tangible assets and the efficiency ratio are not recognized under GAAP. We also present noninterest expense, net income (loss), return on average total tangible assets, return on average tangible common equity, return on average common equity, return on average total assets, and efficiency ratio, excluding the $4.4 billion pre-tax ($4.1 billion after-tax) goodwill impairment we incurred for the three and nine months ended September 30, 2013. In addition, we present net income (loss) and return on average tangible common equity, net of goodwill impairment, restructuring charges and special items for the three and nine months ended September 30, 2014 and 2013. We believe these non-GAAP measures provide useful information to investors because these are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe goodwill impairment, restructuring charges and special items in any period does not reflect the operational performance of the business in that period and, accordingly, it is useful to consider these line items with and without goodwill impairment, restructuring charges and special items. We believe this presentation also increases comparability of period-to-period results.

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We also consider pro forma capital ratios defined by banking regulators but not effective at each period end to be non-GAAP financial measures. Since analysts and banking regulators may assess our capital adequacy using these pro forma ratios, we believe they are useful to provide investors the ability to assess our capital adequacy on the same basis.
Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies. We caution investors not to place undue reliance on such non-GAAP measures, but instead to consider them with the most directly comparable GAAP measure. Non-GAAP measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for our results reported under GAAP.

The following table reconciles non-GAAP financial measures to GAAP:
 
 
 
As of and for the Three Months Ended September 30,
 
As of and for the Nine
Months Ended September 30,  
 
(dollars in millions, except per-share amounts)
Ref.
 
2014  
 
2013
 
2014
 
2013
Noninterest expense, excluding goodwill impairment:
 
 
 
 
 
 
 
 
 
Noninterest expense (GAAP)
A
 

$810

 

$788

 

$2,568

 

$6,861

Less: Goodwill impairment (GAAP)
 
 
—

 
—

 
—

 
4,435

Noninterest expense, excluding goodwill impairment (non-GAAP)
B
 

$810

 

$788

 

$2,568

 

$2,426

Net income (loss), excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Net income (loss) (GAAP)
C
 

$189

 

$144

 

$668

 

($3,578
)
Add: Goodwill impairment, net of income tax benefit (GAAP)
 
 
—

 
—

 
—

 
4,080

Net income (loss), excluding goodwill impairment (non-GAAP)
D
 

$189

 

$144

 

$668

 

$502

Return on average common equity, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Average common equity (GAAP)
E
 

$19,411

 

$19,627

 

$19,463

 

$22,667

Return on average common equity, excluding goodwill impairment (non-GAAP) (1)
D/E
 
3.87
%
 
2.91
%
 
4.59
%
 
2.96
 %
Return on average tangible common equity, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Average common equity (GAAP)
E
 

$19,411

 

$19,627

 

$19,463

 

$22,667

Less: Average goodwill (GAAP)
 
 
6,876

 
6,876

 
6,876

 
9,800

Less: Average other intangibles (GAAP)
 
 
6

 
9

 
7

 
10

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
384

 
325

 
368

 
486

Average tangible common equity (non-GAAP)
F
 

$12,913

 

$13,067

 

$12,948

 

$13,343

Return on average tangible common equity (non-GAAP) (1)
C/F
 
5.81
%
 
4.34
%
 
6.90
%
 
(25.54
)%
Return on average tangible common equity, excluding goodwill impairment (non-GAAP) (1)
D/F
 
5.81
%
 
4.34
%
 
6.90
%
 
5.03
 %

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As of and for the Three Months Ended September 30,
 
As of and for the Nine
Months Ended September 30,  
 
(dollars in millions, except per-share amounts)
Ref.
 
2014  
 
2013
 
2014
 
2013
Noninterest expense, excluding goodwill impairment:
 
 
 
 
 
 
 
 
 
Return on average total assets, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Average total assets (GAAP)
G
 

$128,691

 

$117,386

 

$126,598

 

$121,026

Return on average total assets, excluding goodwill impairment (non-GAAP) (1)
D/G
 
0.58
%
 
0.49
%
 
0.71
%
 
0.55
 %
Return on average total tangible assets, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Average total assets (GAAP)
G
 

$128,691

 

$117,386

 

$126,598

 

$121,026

Less: Average goodwill (GAAP)
 
 
6,876

 
6,876

 
6,876

 
9,800

Less: Average other intangibles (GAAP)
 
 
6

 
9

 
7

 
10

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
384

 
325

 
368

 
486

Average tangible assets (non-GAAP)
H
 

$122,193

 

$110,826

 

$120,083

 

$111,702

Return on average total tangible assets (non-GAAP) (1)
C/H
 
0.61
%
 
0.52
%
 
0.74
%
 
(3.05
)%
Return on average total tangible assets, excluding goodwill impairment (non-GAAP) (1)
D/H
 
0.61
%
 
0.52
%
 
0.74
%
 
0.60
 %
Efficiency ratio, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Net interest income (GAAP)
 
 

$820

 

$770

 

$2,461

 

$2,279

Noninterest income (GAAP)
 
 
341

 
383

 
1,339

 
1,253

Total revenue (GAAP)
I
 

$1,161

 

$1,153

 

$3,800

 

$3,532

Efficiency ratio (non-GAAP)
A/I
 
69.84
%
 
68.49
%
 
67.58
%
 
194.29
 %
Efficiency ratio, excluding goodwill impairment (non-GAAP)
B/I
 
69.84
%
 
68.49
%
 
67.58
%
 
68.70
 %
Net income (loss) per average common share-basic and diluted, excluding goodwill impairment:
 
 
 
 
 
 
 

 
 

Average common shares outstanding - basic (GAAP)
J
 
559,998,324

 
559,998,324

 
559,998,324

 
559,998,324

Average common shares outstanding - diluted (GAAP)
K
 
560,243,747

 
559,998,324

 
560,081,031

 
559,998,324

Net income (loss) applicable to common stockholders (GAAP)
L
 

$189

 

$144

 

$668

 

($3,578
)
Net income (loss) per average common share - basic (GAAP)
L/J
 
0.34

 
0.26

 
1.19

 
(6.39
)
Net income (loss) per average common share - diluted (GAAP)
L/K
 
0.34

 
0.26

 
1.19

 
(6.39
)
Net income (loss) applicable to common stockholders, excluding goodwill impairment (non-GAAP)
M
 
189

 
144

 
668

 
502

Net income (loss) per average common share-basic, excluding goodwill impairment (non-GAAP)
M/J
 
0.34

 
0.26

 
1.19

 
0.89

Net income (loss) per average common share-diluted, excluding goodwill impairment (non-GAAP)
M/K
 
0.34

 
0.26

 
1.19

 
0.89


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As of September 30,
 
 
 
 
 
 
 
(dollars in millions, except per-share amounts)
Ref.
 
2014 
 
 
 
 
 
 
 
Pro forma Basel III common equity Tier 1 capital ratio:
 
 
 
 
 
 
 
 
 
 
Tier 1 common capital (regulatory)
 
 

$13,330

 
 
 
 
 
 
 
Less: Change in DTA and other threshold deductions (GAAP)
 
 
(5
)
 
 
 
 
 
 
 
Basel III common equity Tier 1 (non-GAAP)
N
 

$13,335

 
 
 
 
 
 
 
Risk-weighted assets (regulatory general risk weight approach)
 
 

$103,207

 
 
 
 
 
 
 
Add: Net change in credit and other risk-weighted assets (regulatory)
 
 
3,207

 
 
 
 
 
 
 
Basel III risk-weighted assets (non-GAAP)
O
 

$106,414

 
 
 
 
 
 
 
Pro forma Basel III common equity Tier 1 capital ratio (non-GAAP)
N/O
 
12.5
%
 
 
 
 
 
 
 
Pro forma Basel III Tier 1 capital ratio:
 
 
 
 
 
 
 
 
 
 
Basel III common equity Tier 1 (non-GAAP)
N
 

$13,335

 
 
 
 
 
 
 
Add: Trust preferred and minority interest (GAAP)
 
 
—

 
 
 
 
 
 
 
Basel III Tier 1 capital (non-GAAP)
P
 

$13,335

 
 
 
 
 
 
 
Pro forma Basel III Tier 1 capital ratio (non-GAAP)
P/O
 
12.5
%
 
 
 
 
 
 
 
Pro forma Basel III total capital ratio:
 
 
 
 
 
 
 
 
 
 
Total Tier 2 common capital (regulatory)
 
 

$3,282

 
 
 
 
 
 
 
Add: Excess allowance for loan and lease losses (regulatory)
 
 
—

 
 
 
 
 
 
 
Less: Reserves exceeding 1.25% of risk-weighted assets (regulatory)
 
 
—

 
 
 
 
 
 
 
Basel III common equity Tier 2 (non-GAAP)
Q
 

$3,282

 
 
 
 
 
 
 
Pro forma Basel III total capital (non-GAAP)
N+Q
 

$16,617

 
 
 
 
 
 
 
Pro forma Basel III total capital ratio (non-GAAP)
(N+Q)/O
 
15.6
%
 
 
 
 
 
 
 
Pro forma Basel III leverage ratio:
 
 
 
 
 
 
 
 
 
 
Quarterly average assets (GAAP)
 
 

$128,718

 
 
 
 
 
 
 
Less: Goodwill (GAAP)
 
 
6,876

 
 
 
 
 
 
 
Less: Restricted core capital elements (regulatory) (2)
 
 
12

 
 
 
 
 
 
 
Add: Deferred tax liability related to goodwill (GAAP)
 
 
399

 
 
 
 
 
 
 
Add: Other comprehensive income pension adjustments (GAAP)
 
 
292

 
 
 
 
 
 
 
Basel III adjusted average assets (non-GAAP)
R
 

$122,521

 
 
 
 
 
 
 
Pro forma leverage ratio (non-GAAP)
N/R
 
10.9
%
 
 
 
 
 
 
 


68

 
 
 
As of and for the Three Months Ended September 30,
 
As of and for the Nine Months Ended September 30,
(dollars in millions)
Ref.
 
2014
 
2013
 
2014
 
2013
Net income (loss), excluding goodwill impairment, restructuring charges and special items:
 
 
 
 
 
 
 
 
 
Net income (loss) (GAAP)
C
 

$189

 

$144

 

$668

 

($3,578
)
Add: Goodwill impairment (GAAP)
 
 
—

 
—

 
—

 
4,080

Add: Restructuring charges (GAAP)
 
 
—

 
—

 
64

 
—

Special items:
 
 
 
 
 
 
 
 
 
Less: Net gain on the Chicago Divestiture (GAAP)
 
 
—

 
—

 
180

 
—

Add: Regulatory charges (GAAP)
 
 
10

 
—

 
13

 
—

Add: Separation expenses / IPO related (GAAP)
 
 
3

 
—

 
8

 
—

 Net income (loss), excluding goodwill impairment, restructuring charges and special items (non-GAAP)
S
 

$202

 

$144

 

$573

 

$502

Return on average tangible common equity, excluding goodwill impairment, restructuring charges and special items:
 
 
 
 
 
 
 
 
 
Average common equity (GAAP)
E
 

$19,411

 

$19,627

 

$19,463

 

$22,667

Less: Average goodwill (GAAP)
 
 
6,876

 
6,876

 
6,876

 
9,800

Less: Average other intangibles (GAAP)
 
 
6

 
9

 
7

 
10

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
384

 
325

 
368

 
486

Average tangible common equity (non-GAAP)
F
 

$12,913

 

$13,067

 

$12,948

 

$13,343

Return on average tangible common equity (non-GAAP)
C/F
 
5.81
%
 
4.34
%
 
6.90
%
 
(25.54
)%
Return on average tangible common equity, excluding goodwill impairment, restructuring charges and special items (non-GAAP) (1)
S/F
 
6.22
%
 
4.34
%
 
5.92
%
 
5.03
 %


69

 
 
 
As of and for the Three Months Ended September 30,  
 
 
 
2014  
 
2013  
(dollars in millions)
Ref.  
 
Consumer
Banking  
 
Commercial
Banking  
 
Other  
 
Consolidated  
 
Consumer
Banking  
 
Commercial
Banking  
 
Other  
 
Consolidated  
Net income (loss), excluding goodwill impairment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) (GAAP)
T
 

$54

 

$139

 

($4
)
 

$189

 

$52

 

$127

 

($35
)
 

$144

Add: Goodwill impairment, net of income tax benefit (GAAP)
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net income (loss), excluding goodwill impairment (non-GAAP)
U
 

$54

 

$139

 

($4
)
 

$189

 

$52

 

$127

 

($35
)
 

$144

Efficiency ratio:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total revenue (GAAP)
V
 

$758

 

$374

 

$29

 

$1,161

 

$789

 

$356

 

$8

 

$1,153

Noninterest expense (GAAP)
W
 

$609

 

$162

 

$39

 

$810

 

$622

 

$156

 

$10

 

$788

Less: Goodwill impairment (GAAP)
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Noninterest expense, excluding goodwill impairment (non- GAAP)
X
 

$609

 

$162

 

$39

 

$810

 

$622

 

$156

 

$10

 

$788

Efficiency ratio (non-GAAP)
W/V
 
80.42
%
 
43.35
%
 
NM

 
69.84
%
 
78.83
%
 
43.69
%
 
NM

 
68.49
%
Efficiency ratio, excluding goodwill impairment (non-GAAP)
X/V
 
80.42
%
 
43.35
%
 
NM

 
69.84
%
 
78.83
%
 
43.69
%
 
NM

 
68.49
%
Return on average total tangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total assets (GAAP)
Y
 

$49,012

 

$38,854

 

$40,825

 

$128,691

 

$46,169

 

$35,019

 

$36,198

 

$117,386

Less: Average goodwill (GAAP)
 
 
—

 
—

 
6,876

 
6,876

 
—

 
—

 
6,876

 
6,876

Less: Average other intangibles (GAAP)
 
 
—

 
—

 
6

 
6

 
—

 
—

 
9

 
9

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
—

 
—

 
384

 
384

 
—

 
—

 
325

 
325

Average total tangible assets (non-GAAP)
Z
 

$49,012

 

$38,854

 

$34,327

 

$122,193

 

$46,169

 

$35,019

 

$29,638

 

$110,826

Return on average total tangible assets (non-GAAP) (4)
T/Z
 
0.44
%
 
1.42
%
 
NM

 
0.61
%
 
0.45
%
 
1.46
%
 
NM

 
0.52
%
Return on average total tangible assets, excluding goodwill impairment (non-GAAP) (4)
U/Z
 
0.44
%
 
1.42
%
 
NM

 
0.61
%
 
0.45
%
 
1.46
%
 
NM

 
0.52
%
Return on average tangible common equity:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average common equity (GAAP) (3)
AA
 

$4,685

 

$4,205

 

$10,521

 

$19,411

 

$4,403

 

$3,855

 

$11,369

 

$19,627

Less: Average goodwill (GAAP)
 
 
—

 
—

 
6,876

 
6,876

 
—

 
—

 
6,876

 
6,876

Less: Average other intangibles (GAAP)
 
 
—

 
—

 
6

 
6

 
—

 
—

 
9

 
9

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
—

 
—

 
384

 
384

 
—

 
—

 
325

 
325

Average tangible common equity (non-GAAP) (3)
BB
 

$4,685

 

$4,205

 

$4,023

 

$12,913

 

$4,403

 

$3,855

 

$4,809

 

$13,067

Return on average tangible common equity (non-GAAP) (3)(4)
T/BB
 
4.57
%
 
13.10
%
 
NM

 
5.81
%
 
4.69
%
 
13.24
%
 
NM

 
4.34
%
Return on average tangible common equity, excluding goodwill impairment (non-GAAP) (3)(4)
U/BB
 
4.57
%
 
13.10
%
 
NM

 
5.81
%
 
4.69
%
 
13.24
%
 
NM

 
4.34
%




70

 
 
 
As of and for the Nine Months Ended September 30,
 
 
 
2014
 
2013  
(dollars in millions)
Ref.
 
Consumer
Banking  
 
Commercial
Banking  
 
Other  
 
Consolidated  
 
Consumer
Banking  
 
Commercial
Banking  
 
Other  
 
Consolidated  
Net income (loss), excluding goodwill impairment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) (GAAP)
T
 

$130

 

$421

 

$117

 

$668

 

$192

 

$391

 

($4,161
)
 

($3,578
)
Add: Goodwill impairment, net of income tax benefit (GAAP)
 
 
—

 
—

 
—

 
—

 
—

 
—

 
4,080

 
4,080

Net income (loss), excluding goodwill impairment (non-GAAP)
U
 

$130

 

$421

 

$117

 

$668

 

$192

 

$391

 

($81
)
 

$502

Efficiency ratio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue (GAAP)
V
 

$2,296

 

$1,108

 

$396

 

$3,800

 

$2,423

 

$1,055

 

$54

 

$3,532

Noninterest expense (GAAP)
W
 

$1,902

 

$472

 

$194

 

$2,568

 

$1,884

 

$471

 

$4,506

 

$6,861

Less: Goodwill impairment (GAAP)
 
 
—

 
—

 
—

 
—

 
—

 
—

 
4,435

 
4,435

Noninterest expense, excluding goodwill impairment (non- GAAP)
X
 

$1,902

 

$472

 

$194

 

$2,568

 

$1,884

 

$471

 

$71

 

$2,426

Efficiency ratio (non-GAAP)
W/V
 
82.82
%
 
42.62
%
 
NM

 
67.58
%
 
77.78
%
 
44.64
%
 
NM

 
194.29
 %
Efficiency ratio, excluding goodwill impairment (non-GAAP)
X/V
 
82.82
%
 
42.62
%
 
NM

 
67.58
%
 
77.78
%
 
44.64
%
 
NM

 
68.70
 %
Return on average total tangible assets:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average total assets (GAAP)
Y
 

$48,398

 

$37,951

 

$40,249

 

$126,598

 

$46,546

 

$34,938

 

$39,542

 

$121,026

Less: Average goodwill (GAAP)
 
 
—

 
—

 
6,876

 
6,876

 
—

 
—

 
9,800

 
9,800

Less: Average other intangibles (GAAP)
 
 
—

 
—

 
7

 
7

 
—

 
—

 
10

 
10

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
—

 
—

 
368

 
368

 
—

 
—

 
486

 
486

Average total tangible assets (non-GAAP)
Z
 

$48,398

 

$37,951

 

$33,734

 

$120,083

 

$46,546

 

$34,938

 

$30,218

 

$111,702

Return on average total tangible assets (non-GAAP) (4)
T/Z
 
0.36
%
 
1.48
%
 
NM

 
0.74
%
 
0.55
%
 
1.51
%
 
NM

 
(3.05
)%
Return on average total tangible assets, excluding goodwill impairment (non-GAAP) (4)
U/Z
 
0.36
%
 
1.48
%
 
NM

 
0.74
%
 
0.55
%
 
1.51
%
 
NM

 
0.60
 %
Return on average tangible common equity:
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average common equity (GAAP) (3)
AA
 

$4,635

 

$4,120

 

$10,708

 

$19,463

 

$4,377

 

$3,870

 

$14,420

 

$22,667

Less: Average goodwill (GAAP)
 
 
—

 
—

 
6,876

 
6,876

 
—

 
—

 
9,800

 
9,800

Less: Average other intangibles (GAAP)
 
 
—

 
—

 
7

 
7

 
—

 
—

 
10

 
10

Add: Average deferred tax liabilities related to goodwill (GAAP)
 
 
—

 
—

 
368

 
368

 
—

 
—

 
486

 
486

Average tangible common equity (non-GAAP) (3)
BB
 

$4,635

 

$4,120

 

$4,193

 

$12,948

 

$4,377

 

$3,870

 

$5,096

 

$13,343

Return on average tangible common equity (non-GAAP) (3)(4)
T/BB
 
3.76
%
 
13.67
%
 
NM

 
6.90
%
 
5.86
%
 
13.59
%
 
NM

 
(25.54
)%
Return on average tangible common equity, excluding goodwill impairment (non-GAAP) (3)(4)
U/BB
 
3.76
%
 
13.67
%
 
NM

 
6.90
%
 
5.86
%
 
13.59
%
 
NM

 
5.03
 %

(1)  
Ratios for the periods ended September 30, 2014 and 2013 are presented on an annualized basis.

(2)  
Restricted core capital elements include other intangibles, intangible mortgage servicing assets, and disallowed mortgage servicing assets.


71

(3)  
Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital.

(4)  
Ratios are presented on an annualized basis.


Results of Operations-Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013
Highlights
For the three months ended September 30, 2014 :
•
net income increased $45 million to $189 million , compared to $144 million for the three months ended September 30, 2013 ;
•
net income for the three months ended September 30, 2014 was $189 million , and included $13 million in after-tax restructuring charges and special noninterest expense items largely related to our separation from the RBS Group and ongoing efforts to improve processes and enhance efficiencies across the organization. Excluding the restructuring charges and special noninterest expense items, net income increased $58 million , or 40% , to $202 million , compared to $144 million for the same period in 2013;
•
net interest income of $820 million increased $50 million , or 6% , compared to $770 million for the three months ended September 30, 2013 , largely reflecting the benefit of lower hedging costs and growth in loans and the investment securities portfolio. These results were partially offset by the impact of declining loan yields given the persistent low-rate environment as well as the impact of the Chicago Divestiture;
•
net interest margin was 2.77% compared to 2.88% for the three months ended September 30, 2013 , driven by the benefit of lower pay-fixed swap costs, deposit costs, and earning asset growth, which was more than offset by decreased yields on commercial and retail loans and increased long-term borrowing costs largely associated with increased levels of subordinated debt, and the impact of the Chicago Divestiture;
•
noninterest income for the three months ended September 30, 2014 decreased $42 million , or 11% , to $341 million , compared to $383 million for the three months ended September 30, 2013 as decreases in net securities gains, the impact of the Chicago Divestiture, and lower service charges and fees, and card fees were partially offset by growth in capital markets fees;
•
noninterest expense of $810 million increased $22 million , or 3% , compared to $788 million for the three months ended September 30, 2013 , driven by $21 million of restructuring charges and special items incurred in the three months ended September 30, 2014 , which are largely related to our separation from the RBS Group, ongoing efforts to improve processes and enhance efficiencies across the organization, including certain regulatory and compliance programs;
•
provision for credit losses totaled $77 million for the three months ended September 30, 2014 , and was down $68 million , or 47% , from $145 million compared to the same period in 2013. Results for the three months ended September 30, 2014 included an $11 million reserve release compared to a net reserve build of $14 million in the three months ended September 30, 2013 ;
•
our return on average tangible common equity ratio improved to 5.81% , from 4.34% for the three months ended September 30, 2013 . Excluding the impact of the restructuring charges and special items mentioned above, our return on average tangible common equity for the three months ended September 30, 2014 improved to 6.22% ;
•
average loans and leases of $89.7 billion increased $5.2 billion , or 6% , from $84.5 billion as of September 30, 2013 , as commercial loan growth and higher residential mortgages and auto loan outstandings more than offset a decrease in home equity loans and lines of credit;
•
average interest-bearing deposits of $65.8 billion decreased $1.7 billion , or 3% , from $67.5 billion as of September 30, 2013 , driven by the effect of the June 22, 2014 sale of $3.9 billion in interest-bearing deposits associated with our Chicago-area retail branches;
•
capital ratios continued to be well above regulatory requirements; our total capital ratio was unchanged at 16.1% compared to December 31, 2013, and our Tier 1 capital ratio decreased to 12.9% from 13.5% as of December 31, 2013 as a result of our plan to rebalance our capital structure;
•
net charge-offs of $88 million declined $43 million , or 33% , from $131 million for the three months ended September 30, 2013 and the allowance for credit losses totaled $1.3 billion as of September 30, 2014 and December 31, 2013; and

72

•
net income per average common share, basic and diluted, was $0.34 compared to $0.26 for the three months ended September 30, 2013 .
Results of Operations-Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
Highlights
For the nine months ended September 30, 2014 :
•
net income increased $4.2 billion to $668 million compared to a loss of $3.6 billion for the nine months ended September 30, 2013 ;
•
net income for the nine months ended September 30, 2014 was $668 million , and included a net $180 million after-tax gain related to the Chicago Divestiture and $85 million after-tax in restructuring charges and special noninterest expense items largely related to our separation from the RBS Group and ongoing efforts to improve processes and enhance efficiencies across the organization. 2013 included an after-tax goodwill impairment charge of $4.1 billion . Excluding the Chicago gain, restructuring charges and special items and the goodwill impairment charge, net income increased $71 million , or 14% , to $573 million , compared to $502 million for the same period in 2013;
•
net interest income of $2.5 billion increased $182 million , or 8% , compared to $2.3 billion for the nine months ended September 30, 2013 , largely reflecting the benefit of lower hedging costs, growth in the investment securities and loan portfolios, and a reduction in deposit costs as we continued to reduce our reliance on higher cost certificates of deposit and money market funds. These results were partially offset by the impact of declining loan yields given the relatively persistent low-rate environment;
•
net interest margin was 2.84% , compared to 2.85% for the nine months ended September 30, 2013 , driven by decreased yields on commercial and retail loans and increased long-term borrowing costs largely associated with higher levels of subordinated debt, partially offset by the benefit of lower hedging costs;
•
noninterest income for the nine months ended September 30, 2014 included a $288 million pre-tax gain related to the Chicago Divestiture, and increased $86 million , or 7% , to $1.3 billion , compared to $1.3 billion for the nine months ended September 30, 2013 . Excluding the gain, noninterest income decreased $202 million , or 16% , as decreases in mortgage banking fees, securities gains, net, and service charges and fees were partially offset by growth in trust and investment services fees and capital markets fees;
•
noninterest expense of $2.6 billion decreased $4.3 billion , or 63% , compared to $6.9 billion for the nine months ended September 30, 2013 driven by a $4.4 billion goodwill impairment charge incurred in 2013, offset by $136 million of restructuring charges and special items incurred in 2014, which are largely related to our separation from the RBS Group, ongoing efforts to improve processes and enhance efficiencies across the organization, including certain regulatory and compliance programs, and special expense items related to the Chicago Divestiture;
•
provision for credit losses totaled $247 million for the nine months ended September 30, 2014 , down $100 million , or 29% , from $347 million compared to the same period in 2013. Results for the nine months ended September 30, 2014 included a net provision build of $4 million compared with a $39 million release in the nine months ended September 30, 2013 ;
•
our return on average tangible common equity ratio improved to 6.90% , from (25.54)% for the nine months ended September 30, 2013 . Excluding the impact of the goodwill impairment, restructuring charges and special items mentioned above, our return on average tangible common equity improved to 5.92% from 5.03% for the nine months ended September 30, 2013 ;
•
average loans and leases of $88.0 billion increased $2.8 billion , or 3% , from $85.3 billion as of September 30, 2013 , as commercial loan growth and originations and purchases of residential mortgages and auto loans more than offset the decrease in home equity loans and lines of credit;
•
average interest-bearing deposits of $63.0 billion decreased $5.2 billion , or 8% , from $68.2 billion as of September 30, 2013 , driven by the effect of the June 22, 2014 sale of $3.9 billion in interest-bearing deposits associated with our Chicago-area retail branches as well as attrition of higher cost money market and term deposits;
•
net charge-offs of $243 million declined $143 million , or 37% , from $386 million for the nine months ended September 30, 2013 and the allowance for credit losses totaled $1.3 billion as of September 30, 2014 , essentially flat with December 31, 2013; and

73

•
net income (loss) per average common share, basic and diluted, was $1.19 compared to ($6.39) for the nine months ended September 30, 2013 .

Net Income (Loss)
The following table details the significant components of our net income (loss) for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
 
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Operating Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 

$820

 

$770

 

$50

 
6
 %
 

$2,461

 

$2,279

 

$182

 
8
 %
Noninterest income
 
341

 
383

 
(42
)
 
(11
)
 
1,339

 
1,253

 
86

 
7

Total revenue
 
1,161

 
1,153

 
8

 
1

 
3,800

 
3,532

 
268

 
8

Provision for credit losses
 
77

 
145

 
(68
)
 
(47
)
 
247

 
347

 
(100
)
 
(29
)
Noninterest expense
 
810

 
788

 
22

 
3

 
2,568

 
6,861

 
(4,293
)
 
(63
)
Income (loss) before income tax expense (benefit)
 
274

 
220

 
54

 
25

 
985

 
(3,676
)
 
4,661

 
127

Income tax expense (benefit)
 
85

 
76

 
9

 
12

 
317

 
(98
)
 
415

 
423

Net income (loss)
 

$189

 

$144

 

$45

 
31
 %
 

$668

 

($3,578
)
 

$4,246

 
119
 %
Net income, excluding goodwill impairment, restructuring charges and special items (1)
 

$202

 

$144

 

$58

 
40
 %
 

$573

 

$502

 

$71

 
14
 %
Return on average tangible common equity  (1) (2)
 
5.81
%
 
4.34
%
 
147
 bps
 
 
 
6.90
%
 
(25.54
%)
 
NM
 
 
Return on average tangible common equity, excluding goodwill impairment, restructuring charges and special items (1) (2)
 
6.22

 
4.34

 
188
 bps
 
 
 
5.92

 
5.03

 
89
 bps
 
 

(1)  This is a non-GAAP financial measure. For more information on the computation of this non-GAAP financial measure, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

(2) Ratios for the periods ended September 30, 2014 and 2013 are presented on an annualized basis.

Net income of $189 million for the three months ended September 30, 2014 , included $13 million of after-tax restructuring charges and special items related to our separation from the RBS Group and efforts to improve processes and enhance efficiencies across the organization. Excluding the restructuring charges and special items, net income increased $58 million , or 40% , from the three months ended September 30, 2013 , as the benefit of lower provision for credit losses and higher net interest income was partially offset by the effect of lower noninterest income and increased noninterest expenses.
Net income totaled $668 million for the nine months ended September 30, 2014 , including a $180 million after-tax gain related to the Chicago Divestiture and $85 million of after-tax of restructuring charges and special items related to our separation from the RBS Group and efforts to improve processes and enhance efficiencies across the organization. These results increased $4.2 billion from the nine months ended September 30, 2013, which included a $4.1 billion after-tax goodwill impairment charge. Excluding the gain, restructuring charges and special items and impairment charge noted above, net income increased $71 million , or 14% , from the nine months ended September 30, 2013 , as the benefit of lower provision for credit losses and higher net interest income was partially offset by the effect of lower noninterest income and increased noninterest expense.

74


Net Interest Income
The following tables show the major components of net interest income and net interest margin:
 
Three Months Ended September 30,
 
Change
2014
 
2013
 
 
 
 
(dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and due from banks and deposits in banks

$2,685

 

$2

 
0.23
%
 

$1,677

 

$2

 
0.36
%
 

$1,008

 
(13) bps
Taxable investment securities
24,648

 
155

 
2.51

 
19,300

 
120

 
2.50

 
5,348

 
1
Non-taxable investment securities
10

 
—

 
2.59

 
11

 
—

 
2.60

 
(1
)
 
(1)
Total investment securities
24,658

 
155

 
2.51

 
19,311

 
120

 
2.50

 
5,347

 
1
Commercial
30,186

 
223

 
2.89

 
28,522

 
233

 
3.20

 
1,664

 
(31)
Commercial real estate
7,216

 
46

 
2.46

 
6,435

 
43

 
2.62

 
781

 
(16)
Leases
3,789

 
25

 
2.68

 
3,505

 
26

 
3.01

 
284

 
(33)
Total commercial
41,191

 
294

 
2.80

 
38,462

 
302

 
3.08

 
2,729

 
(28)
Home equity lines of credit
16,163

 
117

 
2.87

 
16,961

 
121

 
2.83

 
(798
)
 
4
Residential mortgage
11,001

 
108

 
3.92

 
8,892

 
87

 
3.91

 
2,109

 
1
Home equity loans
5,060

 
72

 
5.65

 
6,102

 
87

 
5.64

 
(1,042
)
 
1
Automobile
11,438

 
74

 
2.57

 
8,817

 
57

 
2.56

 
2,621

 
1
Student and other retail
3,136

 
47

 
5.90

 
3,586

 
50

 
5.53

 
(450
)
 
37
Credit cards
1,661

 
42

 
9.99

 
1,670

 
44

 
10.55

 
(9
)
 
(56)
Total retail
48,459

 
460

 
3.78

 
46,028

 
446

 
3.84

 
2,431

 
(6)
Total loans and leases
89,650

 
754

 
3.33

 
84,490

 
748

 
3.50

 
5,160

 
(17)
Loans held for sale
176

 
2

 
3.46

 
379

 
3

 
3.23

 
(203
)
 
23
Other loans held for sale
27

 
—

 
5.44

 
—

 
—

 
—

 
27

 
NM
Interest-earning assets
117,196

 
913

 
3.08

 
105,857

 
873

 
3.27

 
11,339

 
(19)
Allowance for loan and lease losses
(1,202
)
 
 
 
 
 
(1,205
)
 
 
 
 
 
3

 
 
Goodwill
6,876

 
 
 
 
 
6,876

 
 
 
 
 
—

 
 
Other noninterest-earning assets
5,821

 
 
 
 
 
5,858

 
 
 
 
 
(37
)
 
 
Total noninterest-earning assets
11,495

 
 
 
 
 
11,529

 
 
 
 
 
(34
)
 
 
Total assets

$128,691

 
 
 
 
 

$117,386

 
 
 
 
 

$11,305

 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking with interest

$15,155

 

$4

 
0.09
%
 

$13,997

 

$2

 
0.06
%
 

$1,158

 
3 bps
Money market and savings
40,096

 
21

 
0.21

 
42,237

 
24

 
0.22

 
(2,141
)
 
(1)
Term deposits
10,596

 
16

 
0.61

 
11,311

 
32

 
1.13

 
(715
)
 
(52)
Total interest-bearing deposits
65,847

 
41

 
0.25

 
67,545

 
58

 
0.34

 
(1,698
)
 
(9)
Federal funds purchased and securities sold under agreements to repurchase (1)
6,305

 
9

 
0.54

 
1,634

 
35

 
8.38

 
4,671

 
NM
Other short-term borrowed funds
6,740

 
21

 
1.21

 
16

 
2

 
53.87

 
6,724

 
NM
Long-term borrowed funds
1,951

 
22

 
4.39

 
721

 
8

 
4.42

 
1,230

 
(3)
Total borrowed funds
14,996

 
52

 
1.34

 
2,371

 
45

 
7.48

 
12,625

 
NM
Total interest-bearing liabilities
80,843

 
93

 
0.45

 
69,916

 
103

 
0.57

 
10,927

 
(12)
Demand deposits
25,829

 
 
 
 
 
25,598

 
 
 
 
 
231

 
 
Other liabilities
2,608

 
 
 
 
 
2,245

 
 
 
 
 
363

 
 
Total liabilities
109,280

 
 
 
 
 
97,759

 
 
 
 
 
11,521

 
 
Stockholders' equity
19,411

 
 
 
 
 
19,627

 
 
 
 
 
(216
)
 
 
Total liabilities and stockholders' equity

$128,691

 
 
 
 
 

$117,386

 
 
 
 
 

$11,305

 
 
Interest rate spread
 
 
 
 
2.63
%
 
 
 
 
 
2.70
%
 
 
 
(7)
Net interest income
 
 

$820

 
 
 
 
 

$770

 
 
 

$50

 
 
Net interest margin
 
 
 
 
2.77
%
 
 
 
 
 
2.88
%
 
 
 
(11)
Memo: Total deposits (interest-bearing and demand)

$91,676

 

$41

 
0.18
%
 

$93,143

 

$58

 
0.25
%
 

($1,467
)
 
(7) bps
(1) Balances are net of certain short-term receivables associated with reverse repurchase agreements. Interest expense includes the full cost of the repurchase agreements and certain hedging costs. The rate on federal funds purchased is elevated due to the impact from pay-fixed interest rate swaps that are scheduled to runoff by the end of 2015. See “Analysis of Financial Condition-September 30, 2014 Compared with December 31, 2013-Derivatives” for further information.

Net interest income of $820 million for the three months ended September 30, 2014 , increased $50 million or 6.5% from $770 million for the three months ended September 30, 2013 . The increase in net interest income was driven by growth in average interest-earning assets, a reduction in pay-fixed swap costs, and lower deposit costs, partially offset by continued pressure from

75

the relatively persistent low-rate environment which compressed loan yields, the effect of the Chicago Divestiture, and higher borrowing costs related to our issuance of subordinated debt.
The net interest margin of 2.77% decreased 11 basis points from the three months ended September 30, 2013 despite the benefit of a nine basis point reduction in pay-fixed swap costs and lower deposit costs. The decrease was driven by the continued effect of the relatively persistent low-rate environment, which compressed loan yields, subordinated debt, the effect of the Chicago Divestiture and a reduction in interest recoveries on prior period charge-offs.

Average interest-earning assets increased $11.3 billion , or 11% , for the three months ended September 30, 2014 compared to the same period in 2013. This increase was driven by increases of $5.3 billion in the investment securities portfolio, $2.7 billion in total commercial loans, $2.1 billion in residential mortgage loans, and $2.6 billion in auto loans. This increase was partially offset by a decrease of $1.8 billion in home equity balances and $450 million in student and other installment loans. On June 20, 2014 we closed the sale of $1.0 billion in loans in connection with the Chicago Divestiture.
Average interest-earning asset yields of 3.08% for the three months ended September 30, 2014 declined 19 basis points compared to 3.27% for the three months ended September 30, 2013 . The resulting impact was a 17 basis point decline in the loan and lease portfolio yield including a 28 basis point decline in total commercial loans and a six basis point decline within the total retail loan category. Interest-earning asset yields continued to decline reflecting continued prepayment of higher yielding consumer real estate secured loans, as well as intense industry-wide competition for loans resulting in compressed spreads on new originations. The yield on the investment portfolio remained relatively stable 2.51% compared to prior year.

Total average interest-bearing deposits declined $1.7 billion for the three months ended September 30, 2014 compared to the same period in 2013 driven by the sale of $3.7 billion of average interest-bearing deposits related to the Chicago Divestiture. Excluding the impact of the Chicago Divestiture, average deposits increased $2.0 billion driven by organic growth. Overall declines included money market and savings of $2.1 billion , term deposits of $715 million , offset by higher checking with interest of $1.2 billion .

Total interest bearing deposit costs decreased nine basis points to 0.25% from 0.34% for the three months ended September 30, 2014 compared to the same period in 2013. Rates on term deposits of 0.61% decreased from 1.13% compared to the three months ended September 30, 2013 . Money market and savings rates of 0.21% remained relatively stable compared to the three months ended September 30, 2013 . Due to the historically low interest rate environment, many deposit products have hit pricing floors at or near zero, limiting further rate reduction and thus compressing margins.

Total average borrowed funds increased $12.6 billion for the three months ended September 30, 2014 compared to the same period in 2013 . The growth in borrowed funds was used to fund loan initiatives and investment portfolio purchases.
Total borrowed funds costs of 1.34% for the three months ended September 30, 2014 decreased from 7.48% for the three months ended September 30, 2013 . Within the federal funds purchased and securities sold under agreements to repurchase category and other short-term borrowed funds, pay-fixed swap expense declined to $23 million for the three months ended September 30, 2014 compared to $48 million for the same period in 2013 . Excluding the impact of hedging costs, the total borrowed funds rates were 0.76% and 1.58% for the three months ended September 30, 2014 and 2013 , respectively.
  

76


 
Nine Months Ended September 30,
 
Change
2014
 
2013
 
 
 
 
(dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and due from banks and deposits in banks

$2,224

 

$4

 
0.23
%
 

$2,372

 

$9

 
0.49
%
 

($148
)
 
(26) bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable investment securities
24,205

 
458

 
2.52

 
18,441

 
348

 
2.51

 
5,764

 
1
Non-taxable investment securities
11

 
—

 
2.60

 
12

 
—

 
2.68

 
(1
)
 
(8)
Total investment securities
24,216

 
458

 
2.52

 
18,453

 
348

 
2.51

 
5,763

 
1
Commercial
29,666

 
671

 
2.98

 
28,519

 
674

 
3.12

 
1,147

 
(14)
Commercial real estate
7,067

 
134

 
2.51

 
6,469

 
132

 
2.69

 
598

 
(18)
Leases
3,743

 
77

 
2.75

 
3,410

 
80

 
3.12

 
333

 
(37)
Total commercial
40,476

 
882

 
2.88

 
38,398

 
886

 
3.04

 
2,078

 
(16)
Home equity lines of credit
16,198

 
347

 
2.86

 
17,207

 
364

 
2.83

 
(1,009
)
 
3
Residential mortgage
10,420

 
312

 
3.99

 
9,024

 
270

 
3.99

 
1,396

 
—
Home equity loans
5,380

 
228

 
5.68

 
6,481

 
278

 
5.73

 
(1,101
)
 
(5)
Automobile
10,542

 
200

 
2.53

 
8,806

 
177

 
2.68

 
1,736

 
(15)
Student and other retail
3,366

 
142

 
5.64

 
3,693

 
152

 
5.51

 
(327
)
 
13
Credit cards
1,647

 
124

 
10.09

 
1,657

 
131

 
10.56

 
(10
)
 
(47)
Total retail
47,553

 
1,353

 
3.80

 
46,868

 
1,372

 
3.91

 
685

 
(11)
Total loans and leases
88,029

 
2,235

 
3.38

 
85,266

 
2,258

 
3.52

 
2,763

 
(14)
Loans held for sale
147

 
4

 
3.30

 
442

 
10

 
2.99

 
(295
)
 
31
Other loans held for sale
714

 
22

 
4.08

 
2

 
—

 
—

 
712

 
NM
Interest-earning assets
115,330

 
2,723

 
3.14

 
106,535

 
2,625

 
3.28

 
8,795

 
(14)
Allowance for loan and lease losses
(1,242
)
 
 
 
 
 
(1,217
)
 
 
 
 
 
(25
)
 
 
Goodwill
6,876

 
 
 
 
 
9,800

 
 
 
 
 
(2,924
)
 
 
Other noninterest-earning assets
5,634

 
 
 
 
 
5,908

 
 
 
 
 
(274
)
 
 
Total noninterest-earning assets
11,268

 
 
 
 
 
14,491

 
 
 
 
 
(3,223
)
 
 
Total assets

$126,598

 
 
 
 
 

$121,026

 
 
 
 
 

$5,572

 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking with interest

$14,099

 

$8

 
0.07
%
 

$14,154

 

$6

 
0.06
%
 

($55
)
 
1 bps
Money market and savings
39,149

 
54

 
0.18

 
42,823

 
85

 
0.26

 
(3,674
)
 
(8)
Term deposits
9,786

 
46

 
0.63

 
11,270

 
85

 
1.01

 
(1,484
)
 
(38)
Total interest-bearing deposits
63,034

 
108

 
0.23

 
68,247

 
176

 
0.34

 
(5,213
)
 
(11)
Interest-bearing deposits held for sale
2,621

 
4

 
0.22

 
—

 
—

 
—

 
2,621

 
22
Federal funds purchased and securities sold under agreements to repurchase (1)
5,908

 
25

 
0.55

 
1,827

 
150

 
10.83

 
4,081

 
NM
Other short-term borrowed funds
5,479

 
70

 
1.69

 
207

 
4

 
2.29

 
5,272

 
(60)
Long-term borrowed funds
1,594

 
55

 
4.51

 
635

 
16

 
3.38

 
959

 
113
Total borrowed funds
12,981

 
150

 
1.52

 
2,669

 
170

 
8.39

 
10,312

 
NM
Total interest-bearing liabilities
78,636

 
262

 
0.44

 
70,916

 
346

 
0.64

 
7,720

 
(20)
Demand deposits
25,540

 
 
 
 
 
25,140

 
 
 
 
 
400

 
 
Demand deposits held for sale
618

 
 
 
 
 
—

 
 
 
 
 
618

 
 
Other liabilities
2,341

 
 
 
 
 
2,303

 
 
 
 
 
38

 
 
Total liabilities
107,135

 
 
 
 
 
98,359

 
 
 
 
 
8,776

 
 
Stockholders' equity
19,463

 
 
 
 
 
22,667

 
 
 
 
 
(3,204
)
 
 
Total liabilities and stockholders' equity

$126,598

 
 
 
 
 

$121,026

 
 
 
 
 

$5,572

 
 
Interest rate spread
 
 
 
 
2.70
%
 
 
 
 
 
2.64
%
 
 
 
6
Net interest income
 
 

$2,461

 
 
 
 
 

$2,279

 
 
 

$182

 
 
Net interest margin
 
 
 
 
2.84
%
 
 
 
 
 
2.85
%
 
 
 
(1)
Memo: Total deposits (interest-bearing and demand)

$91,813

 

$112

 
0.16
%
 

$93,387

 

$176

 
0.25
%
 

($1,574
)
 
(9) bps

(1) Balances are net of certain short-term receivables associated with reverse repurchase agreements. Interest expense includes the full cost of the repurchase agreements and certain hedging costs. The rate on federal funds purchased is elevated due to the impact from pay-fixed interest rate swaps that are scheduled to runoff by the end of 2015. See “Analysis of Financial Condition-September 30, 2014 Compared with December 31, 2013-Derivatives” for further information.

For the nine months ended September 30, 2014 , net interest income of $2.5 billion increased $182 million or 8% from $2.3 billion for the nine months ended September 30, 2013 and reflected a one basis point decrease in net interest margin to 2.84% . The increase in net interest income was driven by growth in average interest-earning assets, the benefit of a reduction in interest

77

rate hedging costs, as well as lower funding costs on deposits partially offset by declining loan yields and increased borrowing costs related to our issuance of subordinated debt. Average interest-earning assets increased $8.8 billion for the nine months ended September 30, 2014 compared to the same period in 2013. This increase was driven by increases of $5.8 billion in the investment securities portfolio, $2.1 billion in total commercial loans, $1.4 billion in residential mortgage loans, and $1.7 billion in auto loans, while partially offset by decreases of $2.1 billion in home equity loans and lines of credit and $327 million in student and other installment loans.
The one basis point decrease in net interest margin was driven by an 11 basis point benefit from interest rate hedging activity as well as lower deposit costs as we reduced our reliance on higher cost certificates of deposit, partially offset by continued pressure from the effect of the relatively persistent low-rate environment. Interest-earning asset yields continued to decline but were essentially matched by our ability to reduce the cost of interest-bearing deposits. The decline in interest-earning asset yields reflected continued prepayment of higher yielding consumer real estate secured loans, as well as the contractual amortization of higher yield securities, and home equity loans, which were purchased and originated in higher interest rate environments. In addition, intense industrywide competition for loans compressed spreads on new originations and resulted in downward pressure on loan yields.
Average interest-earning asset yields of 3.14% for the nine months ended September 30, 2014 declined 14 basis points compared to 3.28% for the nine months ended September 30, 2013 , reflecting a 14 basis point decline in the loan and lease portfolio yield, largely as a result of prepayments of higher yielding fixed-rate assets, which were replaced by new purchases and originations with lower yields given the relatively persistent low-rate environment. Investment portfolio income of $458 million for the nine months ended September 30, 2014 increased $110 million , or 32% , compared to the nine months ended September 30, 2013 . The yield on the portfolio of 2.52% for the nine months ended September 30, 2014 remained relatively flat compared to the nine months ended September 30, 2013 . Total interest-bearing deposit costs decreased $68 million , or 39% , for the nine months ended September 30, 2014 , from $176 million for the nine months ended September 30, 2013 and reflected an 11 basis point decrease in the rate paid on deposits to 0.23% from 0.34% . Rates on term deposits were 0.63% and 1.01% for the nine months ended September 30, 2014 and 2013 , respectively, while rates on money market and savings declined from 0.26% for the nine months ended September 30, 2013 to 0.18% for the nine months ended September 30, 2014 . Due to the historically low interest rate environment, many deposit products have hit pricing floors at or near zero, limiting further rate reduction and thus compressing margins. The total cost of borrowed funds declined $20 million , or 12% , as higher rate pay-fixed rate swaps matured; the decrease was partially offset by the increased cost of long-term borrowed funds from our issuance of subordinated debt.
Total borrowed funds rates declined to 1.52% for the nine months ended September 30, 2014 from 8.39% for the nine months ended September 30, 2013 . Within the federal funds purchased and securities sold under agreement category and other short-term borrowed funds categories, pay-fixed swap expense declined to $80 million for the nine months ended September 30, 2014 compared to $160 million for the same period in 2013 . Excluding the impact of hedging costs, the total borrowed funds rates were 0.73% and 1.25% for the nine months ended September 30, 2014 and 2013 , respectively.
  
Noninterest Income
The following table details the significant components of our noninterest income for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
 
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Service charges and fees
 

$144

 

$163

 

($19
)
 
(12
)%
 

$430

 

$488

 

($58
)
 
(12
)%
Card fees
 
58

 
63

 
(5
)
 
(8
)
 
175

 
176

 
(1
)
 
(1
)
Trust and investment services fees
 
39

 
39

 
—

 
—

 
120

 
109

 
11

 
10

Foreign exchange and trade finance fees
 
26

 
25

 
1

 
4

 
70

 
73

 
(3
)
 
(4
)
Capital markets fees
 
22

 
11

 
11

 
100

 
66

 
35

 
31

 
89

Mortgage banking fees
 
21

 
20

 
1

 
5

 
55

 
133

 
(78
)
 
(59
)
Bank-owned life insurance income
 
13

 
12

 
1

 
8

 
36

 
37

 
(1
)
 
(3
)
Securities gains, net
 
2

 
25

 
(23
)
 
(92
)
 
27

 
119

 
(92
)
 
(77
)
Other income (1)
 
16

 
25

 
(9
)
 
(36
)
 
360

 
83

 
277

 
334

Noninterest income
 

$341

 

$383

 

($42
)
 
(11
)%
 

$1,339

 

$1,253

 

$86

 
7
 %

(1) Includes net impairment losses on securities AFS recognized in earnings, and other income.

78

Noninterest income of $341 million decreased $42 million , or 11% , for the three months ended September 30, 2014 , compared to $383 million for the three months ended September 30, 2013 . Third quarter results reflect a $23 million decrease in securities gains, a $19 million decrease in service charges and fees and a $5 million reduction in card fees largely reflecting lower ATM/debit card fees, partially offset by an increase in capital market fees of $11 million .
Noninterest income of $1.3 billion increased $86 million , or 7% , for the nine months ended September 30, 2014 , compared to $1.3 billion for the nine months ended September 30, 2013 . The 2014 results reflected a $288 million gain on the Chicago Divestiture, partially offset by a $92 million decrease in securities gains and a $78 million reduction in mortgage banking fees, largely reflecting lower origination volumes, lower levels of mortgage servicing rights valuation recovery and our decision to retain a larger percentage of originations on our balance sheet. Results also reflected a $58 million decrease in service charges and fees driven by a reduction in consumer service charges due to lower personal overdraft fees.
Provision for Credit Losses
For the three months ended September 30, 2014 , the provision for credit losses was $77 million , down from $145 million for the three months ended September 30, 2013 , driven by lower net charge-offs as well as improved asset quality. Current credit trends continued to improve with net charge-offs for the three months ended September 30, 2014 of $88 million compared with $131 million for the three months ended September 30, 2013 .
For the nine months ended September 30, 2014 , the provision for credit losses was $247 million , down from $347 million for the nine months ended September 30, 2013 , driven by lower net charge-offs over the same time periods partially offset by a reserve build. The provision for loan and lease losses is the result of a detailed analysis performed to estimate an appropriate and adequate ALLL. Current credit trends continued to improve with net charge-offs for the nine months ended September 30, 2014 of $243 million compared with $386 million for the nine months ended September 30, 2013 . The total provision for credit losses includes the provision for loan and lease losses as well as the provision for unfunded commitments. Refer to “Analysis of Financial Condition-Allowance for Credit Losses and Nonperforming Assets” for more information.

Noninterest Expense
The following table displays the significant components of our noninterest expense for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
 
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Salaries and employee benefits
 

$409

 

$403

 

$6

 
1
 %
 

$1,281

 

$1,261

 

$20

 
2
 %
Outside services
 
106

 
87

 
19

 
22

 
314

 
259

 
55

 
21

Occupancy
 
77

 
80

 
(3
)
 
(4
)
 
245

 
244

 
1

 
—

Equipment expense
 
58

 
69

 
(11
)
 
(16
)
 
187

 
207

 
(20
)
 
(10
)
Amortization of software
 
38

 
26

 
12

 
46

 
102

 
71

 
31

 
44

Goodwill impairment
 
—

 
—

 
—

 
—

 
—

 
4,435

 
(4,435
)
 
(100
)
Other operating expense
 
122

 
123

 
(1
)
 
(1
)
 
439

 
384

 
55

 
14

Noninterest expense
 

$810

 

$788

 

$22

 
3
 %
 

$2,568

 

$6,861

 

($4,293
)
 
(63
)%
    
Noninterest expense was $810 million for the three months ended September 30, 2014 and included $21 million of restructuring charges and special items largely related to our separation from the RBS Group as well as ongoing efforts to improve processes and enhance efficiencies across the organization. Excluding the restructuring charges and special items incurred in the third quarter, noninterest expense was flat year over year. See Note 17 "Exit Costs and Restructuring Reserves" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report.
        
Noninterest expense was $2.6 billion for the nine months ended September 30, 2014 and included $136 million of restructuring charges and special items largely related to our separation from the RBS Group as well as ongoing efforts to improve processes and enhance efficiencies across the organization. We expect to incur approximately $35 million to $45 million during the remainder of 2014 in additional restructuring and special items. During the nine months ended September 30, 2013, a $4.4 billion pre-tax goodwill impairment charge was recorded. Excluding the restructuring charges and special items in 2014 and the goodwill impairment incurred in 2013, noninterest expense was flat year over year. See Note 17 "Exit Costs and Restructuring

79

Reserves" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report.

Provision (Benefit) for Income Taxes
The provision for income taxes was $85 million and $76 million for the three months ended September 30, 2014 and 2013 , respectively. This resulted in an effective tax rate of 31% and 35% for the three months ended September 30, 2014 and 2013 , respectively.

The provision (benefit) for income taxes totaled $317 million for the nine months ended September 30, 2014 , compared to an income tax benefit of $98 million for the nine months ended September 30, 2013 . The provision represents a 32% and 3% effective tax rate for the nine months ended September 30, 2014 and 2013 , respectively. The increase in the effective rate largely reflected the tax rate impact of the goodwill impairment charge taken in the second quarter of 2013 . Goodwill not deductible for tax purposes accounted for 78.4% of the total goodwill impairment charge and generated a reduction of 33% in our effective tax rate for the nine months ended September 30, 2013 .

At September 30, 2014 , we reported a net deferred tax liability of $354 million , compared to a $199 million liability at December 31, 2013 . The increase in the net deferred tax liability was largely attributable to the utilization of net operating loss and tax credit carryforwards (which decreased the deferred tax asset), as well as a decrease in the unrealized loss reported on securities AFS, derivative instruments and hedging activities, which were both partially offset by a decrease in the deferred tax liability related to temporary differences. For further discussion, see Note 10 "Income Taxes" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information located elsewhere in this report.

Business Segments
The following tables present certain financial data of our business segments as of and for the three and nine months ended September 30, 2014:
 
As of and for the Three Months Ended September 30, 2014
(dollars in millions)
Consumer Banking
 
Commercial Banking
 
Other (5)
 
Consolidated
Net interest income

$532

 

$270

 

$18

 

$820

Noninterest income
226

 
104

 
11

 
341

Total revenue
758

 
374

 
29

 
1,161

Noninterest expense
609

 
162

 
39

 
810

Profit (loss) before provision for credit losses
149

 
212

 
(10
)
 
351

Provision for credit losses
66

 
—

 
11

 
77

Income (loss) before income tax expense (benefit)
83

 
212

 
(21
)
 
274

Income tax expense (benefit)
29

 
73

 
(17
)
 
85

Net income (loss)

$54

 

$139

 

($4
)
 

$189

Loans and leases and loans held for sale (period-end) (1)

$48,781

 

$38,046

 

$4,130

 

$90,957

Average Balances:
 
 
 
 
 
 
 
Total assets

$49,012

 

$38,854

 

$40,825

 

$128,691

Loans and leases and loans held for sale (1)
47,848

 
37,787

 
4,218

 
89,853

Deposits and deposits held for sale
65,609

 
20,985

 
5,082

 
91,676

Interest-earning assets
47,885

 
37,927

 
31,384

 
117,196

Key Metrics
 
 
 
 
 
 
 
Net interest margin (2)
4.40
%
 
2.82
%
 
NM

 
2.77
%
Efficiency ratio (3)
80.42

 
43.35

 
NM

 
69.84

Average loans to average deposits ratio
72.93

 
180.06

 
NM

 
98.01

Return on average total tangible assets (2)(3)
0.44

 
1.42

 
NM

 
0.61

Return on average tangible common equity (2)(3)(4)
4.57

 
13.10

 
NM

 
5.81


(1)  Loans held for sale refer to mortgage loans held for sale recorded in the Consumer Banking segment.

80


(2)  Ratios for the period ended September 30, 2014 are presented on an annualized basis.

(3)  These are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

(4)  Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital.

(5)  Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, revenues, provision for credit losses and expenses not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “Analysis of Financial Condition-September 30, 2014 Compared with December 31, 2013-Loans and Leases-Non-Core Assets.”

 
As of and for the Nine Months Ended September 30, 2014
(dollars in millions)
Consumer Banking
 
Commercial Banking
 
Other (5)
 
Consolidated
Net interest income

$1,615

 

$790

 

$56

 

$2,461

Noninterest income
681

 
318

 
340

 
1,339

Total revenue
2,296

 
1,108

 
396

 
3,800

Noninterest expense
1,902

 
472

 
194

 
2,568

Profit before provision for credit losses
394

 
636

 
202

 
1,232

Provision for credit losses
195

 
(7
)
 
59

 
247

Income before income tax expense
199

 
643

 
143

 
985

Income tax expense
69

 
222

 
26

 
317

Net income

$130

 

$421

 

$117

 

$668

Loans and leases and loans held for sale (period-end) (1)

$48,781

 

$38,046

 

$4,130

 

$90,957

Average Balances:
 
 
 
 
 
 
 
Total assets

$48,398

 

$37,951

 

$40,249

 

$126,598

Loans and leases and loans held for sale (1)
47,203

 
37,263

 
4,424

 
88,890

Deposits and deposits held for sale
68,834

 
18,941

 
4,038

 
91,813

Interest-earning assets
47,236

 
37,395

 
30,699

 
115,330

Key Metrics
 
 
 
 
 
 
 
Net interest margin (2)
4.57
%
 
2.82
%
 
NM

 
2.84
%
Efficiency ratio (3)
82.82

 
42.62

 
NM

 
67.58

Average loans to average deposits ratio
68.58

 
196.74

 
NM

 
96.82

Return on average total tangible assets (2)(3)
0.36

 
1.48

 
NM

 
0.74

Return on average tangible common equity (2)(3)(4)
3.76

 
13.67

 
NM

 
6.90


(1)  Loans held for sale refer to mortgage loans held for sale recorded in the Consumer Banking segment, as well as the loans relating to the sale of our Chicago branch network, which are recorded in both the Consumer Banking and Commercial Banking segments.

(2)  Ratios for the period ended September 30, 2014 are presented on an annualized basis.

(3)  These are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

(4)  Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital.

(5)  Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, revenues, provision for credit losses and expenses not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “Analysis of Financial Condition-September 30, 2014 Compared with December 31, 2013-Loans and Leases-Non-Core Assets.”
We operate our business through two operating segments: Consumer Banking and Commercial Banking. Segment results are derived from our business line profitability reporting systems by specifically attributing managed balance sheet assets, deposits, and other liabilities and their related income or expense. Residual assets and liabilities not attributed to Consumer Banking and Commercial Banking are attributed to Other.
 
Other includes our treasury function, securities portfolio, wholesale funding activities, goodwill and goodwill impairment, community development assets and other unallocated assets, liabilities, revenues, provision for credit losses and expenses not attributed to Consumer Banking or Commercial Banking. Other also includes our non-core assets. Non-core assets are primarily

81

loans inconsistent with our strategic goals, generally as a result of geographic location, industry, product type or risk level. The non-core portfolio totaled $3.3 billion as of September 30, 2014 , down 15% from December 31, 2013 . The largest component of our non-core portfolio is our home equity products currently or formerly serviced by others portfolio.

Our capital levels are evaluated and managed centrally; however, capital is allocated to the operating segments to support evaluation of business performance. Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital. Interest income and expense is determined based on the assets and liabilities managed by the business segment. Because funding and asset liability management is a central function, funds transfer-pricing methodologies are utilized to allocate a cost of funds used, or credit for the funds provided, to all business segment assets, liabilities and capital, respectively, using a matched funding concept. The residual effect on net interest income of asset/liability management, including the residual net interest income related to the funds transfer pricing process, is included in Other.
Provision for credit losses is allocated to each business segment based on actual net charge-offs that have been recognized by the business segment. The difference between the consolidated provision for credit losses and the business segments’ net charge-offs is reflected in Other.
Noninterest income and expense directly managed by each business segment, including fees, service charges, salaries and benefits, and other direct revenues and costs are accounted for within each segment’s financial results in a manner similar to the Consolidated Financial Statements. Occupancy costs are allocated based on utilization of facilities by the business segment. Generally, operating losses are charged to the business segment when the loss event is realized in a manner similar to a loan charge-off. Noninterest expenses incurred by centrally managed operations or business segments that directly support another business segment’s operations are charged to the applicable business segment based on its utilization of those services.
Income taxes are assessed to each business segment at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Other.
Developing and applying methodologies used to allocate items among the business segments is a dynamic process. Accordingly, financial results may be revised periodically as management systems are enhanced, methods of evaluating performance or product lines change, or our organizational structure changes.

82

Consumer Banking
 
As of and for the Three Months Ended September 30,
 
 
 
 
 
As of and for the Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Net interest income

$532

 

$543

 

($11
)
 
(2
%)
 

$1,615

 

$1,633

 

($18
)
 
(1
%)
Noninterest income
226

 
246

 
(20
)
 
(8
)
 
681

 
790

 
(109
)
 
(14
)
Total revenue
758

 
789

 
(31
)
 
(4
)
 
2,296

 
2,423

 
(127
)
 
(5
)
Noninterest expense
609

 
622

 
(13
)
 
(2
)
 
1,902

 
1,884

 
18

 
1

Profit before provision for credit losses
149

 
167

 
(18
)
 
(11
)
 
394

 
539

 
(145
)
 
(27
)
Provision for credit losses
66

 
87

 
(21
)
 
(24
)
 
195

 
243

 
(48
)
 
(20
)
Income before income tax expense
83

 
80

 
3

 
4

 
199

 
296

 
(97
)
 
(33
)
Income tax expense
29

 
28

 
1

 
4

 
69

 
104

 
(35
)
 
(34
)
Net income

$54

 

$52

 

$2

 
4
 %
 

$130

 

$192

 

($62
)
 
(32
)%
Loans and leases and loans held for sale (period-end) (1)

$48,781

 

$44,873

 

$3,908

 
9
%
 
$
48,781

 
$
44,873

 
$
3,908

 
9
%
Average Balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
49,012

 
$
46,169

 
$
2,843

 
6
%
 
$
48,398

 
$
46,546

 
$
1,852

 
4
%
Loans and leases and loans held for sale (1)
47,848

 
44,766

 
3,082

 
7

 
47,203

 
45,213

 
1,990

 
4

Deposits and deposits held for sale
65,609

 
72,220

 
(6,611
)
 
(9
)
 
68,834

 
72,405

 
(3,571
)
 
(5
)
Interest-earning assets
47,885

 
44,795

 
3,090

 
7

 
47,236

 
45,241

 
1,995

 
4

Key Metrics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin (2)
4.40
%
 
4.81
%
 
(41
) bps
 
—

 
4.57
%
 
4.83
%
 
(26
) bps
 
—

Efficiency ratio (3)
80.42

 
78.83

 
159
  bps
 
—

 
82.82

 
77.78

 
504
  bps
 
—

Average loans to average deposits ratio
72.93

 
61.99

 
1,094
  bps
 
—

 
68.58

 
62.44

 
614
  bps
 
—

Return on average total tangible assets (2)(3)
0.44

 
0.45

 
(1
) bps
 
—

 
0.36

 
0.55

 
(19
) bps
 
—

Return on average tangible common equity (2)(3)(4)
4.57

 
4.69

 
(12
) bps
 
—

 
3.76

 
5.86

 
(210
) bps
 
—


(1)  Loans held for sale include mortgage loans held for sale and loans relating to the sale of our Chicago branch network.

(2)  Ratios for the periods ended September 30, 2014 and 2013 are presented on an annualized basis.
(3)  These are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

(4)  Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital.

Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013
Consumer Banking segment net income of $54 million for the three months ended September 30, 2014 increased $2 million, or 4%, from $52 million for the three months ended September 30, 2013 . The increase was driven by the benefit of expense discipline and a decrease in provision for credit losses reflecting continued improvement in credit quality.
Total revenue of $758 million for the three months ended September 30, 2014 was down $31 million , or 4% , from $789 million in the three months ended September 30, 2013 , largely reflecting the impact of the Chicago Divestiture, a change in check posting order, and the effect of the relatively persistent low-rate environment.
 Noninterest expense of $609 million for the three months ended September 30, 2014 decreased by $13 million , or 2% , from the three months ended September 30, 2013 driven by the Chicago Divestiture, partially offset by continued investment in technology.
Provision for credit losses of $66 million for the three months ended September 30, 2014 decreased $21 million , or 24% , from $87 million for the three months ended September 30, 2013 , driven by continued improvement in credit quality.


83

Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
Consumer Banking segment net income of $130 million for the nine months ended September 30, 2014 decreased $62 million , or 32% , from $192 million for the nine months ended September 30, 2013 , as the benefit of lower provision for credit losses was more than offset by lower fee income and higher noninterest expense.
Total revenue was $2.3 billion for the nine months ended September 30, 2014, down $127 million , or 5% , from $2.4 billion in the prior year. Net interest income of $1.6 billion for the nine months ended September 30, 2014 remained relatively stable with the nine months ended September 30, 2013 , as the benefit of lower deposit costs and loan growth was largely offset by the effect of continued downward pressure on loan yields and deposit spreads given the relatively persistent low-rate environment. Loan growth reflected higher residential mortgage and auto loan outstandings, partially offset by lower home equity outstandings. Noninterest income of $681 million decreased $109 million , or 14% , from $790 million for the nine months ended September 30, 2013 , driven by decreases in mortgage banking fees, service charges and fees, and the impact of the Chicago Divestiture, partially offset by growth in trust and investment services and a gain on sale of portions of our Federal Family Education Loan Program portfolio.
Mortgage banking fees for the nine months ended September 30, 2014 decreased $78 million due to reduction in overall origination volume and our decision to strategically hold more loans on-balance sheet. Mortgage banking fees were also negatively impacted by lower mortgage servicing rights valuation recovery compared to the same period in 2013 as long term rates began to increase in the middle of 2013. Service charges and fees decreased $51 million, or 14%, in the nine months ended September 30, 2014 compared to a year ago, driven by the impact of prior regulatory changes and changes in check posting order. Trust and investment services fees grew $10 million in the nine months ended September 30, 2014, and a $9 million gain on sale of portions of our Federal Family Education Loan Program portfolio was recognized.
Noninterest expense of $1.9 billion for the nine months ended September 30, 2014 increased $18 million , or 1% , from the nine months ended September 30, 2013 driven by increased regulatory and litigation costs, which more than offset the benefit of across the board expense reduction and the impact of the Chicago Divestiture.
Provision for credit losses of $195 million for the nine months ended September 30, 2014 decreased $48 million , or 20% , from $243 million for the nine months ended September 30, 2013 , reflecting improved credit quality within the loan portfolios.

84

Commercial Banking
 
As of and for the Three Months Ended September 30,
 
 
 
 
 
As of and for the Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Net interest income

$270

 

$263

 

$7

 
3
%
 

$790

 

$771

 

$19

 
2
%
Noninterest income
104

 
93

 
11

 
12

 
318

 
284

 
34

 
12

Total revenue
374

 
356

 
18

 
5

 
1,108

 
1,055

 
53

 
5

Noninterest expense
162

 
156

 
6

 
4

 
472

 
471

 
1

 
—

Profit before provision for credit losses
212

 
200

 
12

 
6

 
636

 
584

 
52

 
9

Provision for credit losses
—

 
3

 
(3
)
 
(100
)
 
(7
)
 
(21
)
 
14

 
67

Income before income tax expense
212

 
197

 
15

 
8

 
643

 
605

 
38

 
6

Income tax expense
73

 
70

 
3

 
4

 
222

 
214

 
8

 
4

Net income

$139

 

$127

 

$12

 
9
 %
 

$421

 

$391

 

$30

 
8
%
Loans and leases and loans held for sale (period-end)
$
38,046

 
$
35,142

 
$
2,904

 
8
%
 
$
38,046

 
$
35,142

 
$
2,904

 
8
%
Average Balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
38,854

 
$
35,019

 
$
3,835

 
11
%
 
$
37,951

 
$
34,938

 
$
3,013

 
9
%
Loans and leases and loans held for sale (1)
37,787

 
34,510

 
3,277

 
9

 
37,263

 
34,297

 
2,966

 
9

Deposits and deposits held for sale
20,985

 
17,774

 
3,211

 
18

 
18,941

 
17,481

 
1,460

 
8

Interest-earning assets
37,927

 
34,644

 
3,283

 
9

 
37,395

 
34,418

 
2,977

 
9

Key Metrics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin (2)
2.82
%
 
3.02
%
 
(20
) bps
 
—

 
2.82
%
 
3.00
%
 
(18
) bps
 
—

Efficiency ratio (3)
43.35

 
43.69

 
(34
) bps
 
—

 
42.62

 
44.64

 
(202
) bps
 
—

Average loans to average deposits ratio
180.06

 
194.16

 
(1,410
) bps
 
—

 
196.74

 
196.20

 
54
  bps
 
—

Return on average tangible assets (2)(3)
1.42

 
1.46

 
(4
) bps
 
—

 
1.48

 
1.51

 
(3
) bps
 
—

Return on average tangible common equity (2)(3)(4)
13.10

 
13.24

 
(14
) bps
 
—

 
13.67

 
13.59

 
8
  bps
 
—


(1)  Loans held for sale include loans relating to the sale of our Chicago branch network.

(2)  Ratios for the periods ended September 30, 2014 and 2013 are presented on an annualized basis.

(3)  These are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

(4)  Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity Tier 1 and then allocate that approximation to the segments based on economic capital.
 
Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013

Commercial Banking net income of $139 million for the three months ended September 30, 2014 decreased $12 million , or 9% , from $127 million for the three months ended September 30, 2013 , driven by an $18 million increase in total revenue. The revenue improvement resulted from higher net interest income attributable to both loan and deposit growth as well as growth in noninterest income. This favorable revenue result was partially offset by increased noninterest expense attributable to increased staffing costs necessary to support business growth.

Net interest income of $270 million for the three months ended September 30, 2014 increased $7 million , or 3% , from $263 million for the three months ended September 30, 2013 , as the benefit of a $3.2 billion increase in loan balances and a $3.2 billion increase in customer deposits was partially offset by continued downward pressure on loan yields given the relatively persistent low-rate environment and increased industry-wide competition.

Noninterest income of $104 million for the three months ended September 30, 2014 increased $11 million , or 12% , from $93 million for the three months ended September 30, 2013 , as a $12 million increase in capital markets fees was partially offset by lower interest rate product, leasing fees and merchant service fee income.


85

Noninterest expenses of $162 million for the three months ended September 30, 2014 increased $6 million , or 4% , from $156 million for the three months ended September 30, 2013 , driven by increased staffing costs necessary to support business growth.

Provision for credit losses for the three months ended September 30, 2014 was net zero compared with a net charge-off of $3 million for the three months ended September 30, 2013 .

Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
Commercial Banking net income of $421 million for the nine months ended September 30, 2014 increased $30 million , or 8% from $391 million for the nine months ended September 30, 2013 , driven by a $53 million increase in total revenue. The revenue improvement resulted from higher net interest income attributable to both loan and deposit growth as well as growth in noninterest income. This favorable revenue result was partially offset by lower credit net recoveries.
Net interest income of $790 million for the nine months ended September 30, 2014 increased $19 million , or 2% , from $771 million for the nine months ended September 30, 2013 , as the benefit of both a $3.0 billion increase in interest-earning assets and a $1.5 billion increase in customer deposits was partially offset by continued downward pressure on loan yields given the relatively persistent low-rate environment and increased industry-wide competition.
Noninterest income of $318 million for the nine months ended September 30, 2014 increased $34 million , or 12% , from $284 million for the nine months ended September 30, 2013 , as a $47 million increase in leasing income and capital markets fees was partially offset by lower interest rate product, foreign exchange and trade finance fee income.
Noninterest expense of $472 million for the nine months ended September 30, 2014 increased $1 million from $471 million for the nine months ended September 30, 2013 .
Provision for credit losses for the nine months ended September 30, 2014 reflected a net recovery of $7 million compared with a net recovery of $21 million for the nine months ended September 30, 2013 , reflecting decreasing monetization of loans that had been charged off in prior periods.

Other
 
As of and for the Three Months Ended September 30,
 
 
 
 
 
As of and for the Nine Months Ended September 30,
 
 
 
 
(dollars in millions)
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Net interest income (expense)

$18

 

($36
)
 

$54

 
150
%
 

$56

 

($125
)
 

$181

 
145
%
Noninterest income
11

 
44

 
(33
)
 
(75
)
 
340

 
179

 
161

 
90

Total revenue
29

 
8

 
21

 
263

 
396

 
54

 
342

 
633

Noninterest expense
39

 
10

 
29

 
290

 
194

 
4,506

 
(4,312
)
 
(96
)
Income (loss) before provision for credit losses
(10
)
 
(2
)
 
(8
)
 
(400
)
 
202

 
(4,452
)
 
4,654

 
105

Provision for credit losses
11

 
55

 
(44
)
 
(80
)
 
59

 
125

 
(66
)
 
(53
)
Income (loss) before income tax expense (benefit)
(21
)
 
(57
)
 
36

 
63

 
143

 
(4,577
)
 
4,720

 
103

Income tax expense (benefit)
(17
)
 
(22
)
 
5

 
23

 
26

 
(416
)
 
442

 
106

Net income (loss)

($4
)
 

($35
)
 

$31

 
89
 %
 

$117

 

($4,161
)
 

$4,278

 
103
 %
Loans and leases and loans held for sale (period end)
$
4,130

 
$
5,785

 
$
(1,655
)
 
(29
%)
 
$
4,130

 
$
5,785

 
$
(1,655
)
 
(29
%)
Average Balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets

$40,825

 

$36,198

 

$4,627

 
13
%
 

$40,249

 

$39,542

 

$707

 
2
%
Loans and leases and loans held for sale
4,218

 
5,593

 
(1,375
)
 
(25
)
 
4,424

 
6,200

 
(1,776
)
 
(29
)
Deposits and deposits held for sale
5,082

 
3,149

 
1,933

 
61

 
4,038

 
3,501

 
537

 
15

Interest-earning assets
31,384

 
26,418

 
4,966

 
19

 
30,699

 
26,876

 
3,823

 
14



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Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013
Other recorded a net loss of $4 million for the three months ended September 30, 2014 compared with a net loss of $35 million for the three months ended September 30, 2013 . Net loss for the three months ended September 30, 2014 included $13 million of after-tax restructuring charges and special items. Excluding the restructuring charges and special items, net income increased $44 million driven by higher net interest income as well as lower provision for credit losses partially offset by lower noninterest income.
 
Net interest income for the three months ended September 30, 2014 increased $54 million to $18 million compared to an expense of $36 million for the three months ended September 30, 2013 . The increase was driven primarily by the benefit of a $6.3 billion increase in average investment securities, a reduction in interest rate swap costs, and an increase in residual net interest income related to funds transfer pricing, partially offset by a $1.1 billion decrease in average non-core loan balances and higher wholesale funding costs.
Noninterest income for the three months ended September 30, 2014 decreased $33 million driven by a $23 million reduction in securities gains and higher net losses on low-income housing investments, which are more than offset by increased tax credits.
Noninterest expense for the three months ended September 30, 2014 of $39 million included $21 million of pre-tax restructuring charges and special items and increased $29 million from the three months ended September 30, 2013 . Excluding the restructuring charges and special items, noninterest expense increased $8 million largely reflecting higher employee incentive costs partially offset by lower costs related to the non-core loan portfolio.
The provision for credit losses within Other mainly represents the residual change in the consolidated allowance for credit losses after attributing the respective net charge-offs to the Consumer Banking and Commercial Banking segments. It also includes net charge-offs related to the non-core portfolio. The provision for credit losses for the three months ended September 30, 2014 decreased $44 million to $11 million compared to $55 million for the three months ended September 30, 2013 reflecting continued improvement in credit quality and decreased non-core net charge-offs. On a quarterly basis, we review and refine our estimate of the allowance for credit losses, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. As of September 30, 2014 , changes in these factors led to a release of $11 million in the allowance for credit losses compared with an increase of $14 million for the three months ended September 30, 2013 . The provision also reflected an increase in overall credit exposure associated with growth in our loan portfolio.
Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
Other recorded net income of $117 million for the nine months ended September 30, 2014 compared with a net loss of $4.2 billion for the nine months ended September 30, 2013 , which included an after-tax goodwill impairment charge of $4.1 billion . Excluding the goodwill impairment, the net loss for the nine months ended September 30, 2014 was $81 million . Net income for the nine months ended September 30, 2014 included a $180 million after-tax gain related to the Chicago Divestiture partially offset by $85 million of after-tax restructuring charges and special items. Excluding these items, net income increased $103 million driven by higher net interest income as well as lower provision for credit losses partially offset by lower noninterest income.
 
Net interest income for the nine months ended September 30, 2014 increased $181 million to $56 million compared to an expense of $125 million for the nine months ended September 30, 2013 . The increase was driven primarily by the benefit of a $5.6 billion increase in average investment securities, a reduction in interest rate swap costs, partially offset by a $1.5 billion decrease in average non-core loan balances and higher wholesale funding costs.
Noninterest income for the nine months ended September 30, 2014 increased $161 million driven by the $180 million gain on the Chicago Divestiture. Excluding the gain, noninterest income decreased $127 million driven by a $92 million reduction in securities gains and higher net losses on low-income housing investments, which are more than offset by increased tax credits.
Noninterest expense for the nine months ended September 30, 2014 of $194 million included $136 million of pre-tax restructuring charges and special items and decreased $4.3 billion from the nine months ended September 30, 2013 , which included the $4.4 billion pre-tax goodwill impairment charge. Excluding the goodwill impairment, restructuring charges and special items, noninterest expense decreased $13 million largely reflecting lower employee incentive costs and lower costs related to the non-core loan portfolio. For further information about these special items, including expected additional future costs, see Note 17 "Exit

87

Costs and Restructuring Reserves" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information found elsewhere in this report.
The provision for credit losses within Other mainly represents the residual change in the consolidated allowance for credit losses after attributing the respective net charge-offs to the Consumer Banking and Commercial Banking segments. It also includes net charge-offs related to the non-core portfolio. The provision for credit losses for the nine months ended September 30, 2014 decreased $66 million to $59 million compared to $125 million for the nine months ended September 30, 2013 reflecting continued improvement in credit quality and decreased non-core net charge-offs. On a quarterly basis, we review and refine our estimate of the allowance for credit losses, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. As of September 30, 2014 , changes in these factors led to an increase of $4 million in the allowance for credit losses compared with a release of $39 million for the nine months ended September 30, 2013 . The provision also reflected an increase in overall credit exposure associated with growth in our loan portfolio.
Total assets as of September 30, 2014 included $2.1 billion and $4.7 billion of goodwill related to the Consumer Banking and Commercial Banking reporting units, respectively. For further information regarding the reconciliation of segment results to GAAP results, see Note 19 "Business Segments" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report.


Analysis of Financial Condition - September 30, 2014 Compared with December 31, 2013
Loans and Leases
The following table shows the composition of loans and leases, including non-core loans:
(dollars in millions)
September 30, 2014
 
December 31, 2013
 
Change
 
Percent
Commercial

$30,356

 

$28,667

 

$1,689

 
6
 %
Commercial real estate
7,239

 
6,948

 
291

 
4

Leases
3,875

 
3,780

 
95

 
3

Total commercial
41,470

 
39,395

 
2,075

 
5

Residential, including originated home equity products
30,458

 
29,694

 
764

 
3

Home equity products serviced by others
1,870

 
2,171

 
(301
)
 
(14
)
Other secured retail
13,206

 
10,700

 
2,506

 
23

Unsecured retail
3,745

 
3,899

 
(154
)
 
(4
)
Total retail
49,279

 
46,464

 
2,815

 
6

Total loans and leases (1) (2)

$90,749

 

$85,859

 

$4,890

 
6
 %

( 1)  Excluded from the table above are loans held for sale totaling $208 million and $1.3 billion as of September 30, 2014 and December 31, 2013, respectively. Loans held for sale as of December 31, 2013 primarily related to the Chicago divestiture. For further discussion, see Note 13 to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report.

(2) Mortgage loans serviced for others by our subsidiaries are not included above, and amounted to $18.1 billion and $18.7 billion at September 30, 2014 and December 31, 2013, respectively.

Our loans and leases are disclosed in portfolio segments and classes. Our loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial, commercial real estate, leases, residential (includes residential mortgages and home equity loans and lines of credit), home equity products serviced by others (includes certain purchased home equity loans and lines of credit), other secured retail (includes automobile loans and other installment loans), and unsecured retail (includes student loans and credit card).

As of September 30, 2014 , our loans and leases portfolio increased $4.9 billion , or 6% , to $90.8 billion compared to $85.9 billion as of December 31, 2013 , primarily reflecting increases in total retail loans and total commercial loans and leases. As of September 30, 2014 , our total commercial loans and leases grew $2.0 billion , or 5% , to $41.4 billion compared to $39.4 billion as of December 31, 2013 in large part due to growth in commercial loans. As of September 30, 2014 , our total retail loans increased $2.8 billion , or 6% , to $49.3 billion compared to $46.5 billion as of December 31, 2013 . This was primarily due to increases in our other secured retail portfolio of 23% , driven mainly by the purchase of auto loans and stronger

88

originations, and our residential, including originated home equity products of 3% , but offset by decreases in our home equity products serviced by others and unsecured retail of 14% and 4% , respectively, as of September 30, 2014 compared to December 31, 2013 . The decrease in our home equity products serviced by others is due to runoff and the decrease in our unsecured loans is due to the sale of student loans.

Non-Core Assets     
The table below shows the composition of our non-core assets as of the dates indicated:
(dollars in millions)
September 30,
2014
 
December 31,
2013
 
(Date of Designation) June 30, 2009
 
Change from 2014-2013
 
Change from 2014-2009
Commercial

$78

 

$108

 

$1,900

 
(28
)%
 
(96
)%
Commercial real estate
257

 
381

 
3,412

 
(33
)
 
(92
)
Total commercial
335

 
489

 
5,312

 
(31
)
 
(94
)
Residential, including originated home equity products
621

 
705

 
2,082

 
(12
)
 
(70
)
Home equity products serviced by others
1,881

 
2,160

 
6,180

 
(13
)
 
(70
)
Other secured retail (1)
—

 
—

 
4,037

 
—

 
(100
)
Unsecured retail
373

 
406

 
2,490

 
(8
)
 
(85
)
Total retail
2,875

 
3,271

 
14,789

 
(12
)
 
(81
)
Total non-core loans
3,210

 
3,760

 
20,101

 
(15
)
 
(84
)
Other assets
66

 
81

 
378

 
(19
)
 
(83
)
Total non-core assets

$3,276

 

$3,841

 

$20,479

 
(15
)%
 
(84
)%
(1)  Other secured retail loans were either paid down, charged off, sold or transferred to the core loan portfolio by December 31, 2011.

Non-core assets are primarily loans inconsistent with our strategic goals, generally as a result of geographic location, industry, product type or risk level. We have actively managed these loans down since they were designated as non-core on June 30, 2009. Between that time and September 30, 2014 , the portfolio has decreased $17.2 billion , including principal repayments of $9.3 billion ; charge-offs of $3.8 billion ; transfers back to the core portfolio of $2.8 billion ; and sales of $1.3 billion .

Transfers from non-core back to core are handled on an individual request basis and managed through the chief credit officer for our non-core portfolio. The rationale can vary and in the past some loan portfolio transfers have been approved after determination that the original decision to place them in non-core was not deemed appropriate. Individual loans can be reconsidered when the customer prospects change—typically related to situations where a non-strategic customer becomes a strategic customer due to growth or a new credit request that was previously considered to be unlikely.

At September 30, 2014 , the non-core portfolio totaled $3.3 billion and has declined 15% since December 31, 2013 and 84% since the designation of the non-core portfolios in 2009. Commercial non-core loan balances declined 31% compared to December 31, 2013 , ending at $335 million compared to $489 million at December 31, 2013 . Retail non-core loan balances of $2.9 billion decreased 12% or $396 million compared to December 31, 2013 .

The largest component of our non-core portfolio is our home equity products currently or formerly serviced by other firms, or SBO, portfolio. The SBO portfolio is a liquidating portfolio consisting of pools of home equity loans and lines of credit purchased between 2003 and 2007. Although our SBO portfolio consists of loans that were initially serviced by others, we now service a portion of this portfolio internally. SBO balances serviced externally totaled $1.1 billion and $1.3 billion as of September 30, 2014 and December 31, 2013 , respectively. The SBO portfolio has been closed to new purchases since the third quarter of 2007, with exposure down to $1.9 billion as of September 30, 2014 , compared to $2.2 billion as of December 31, 2013 . The SBO portfolio represented 6% of the entire real estate portfolio and 4% of the overall retail loan portfolio as of September 30, 2014 .

    The credit profile of the SBO portfolio is significantly weaker than the core real estate portfolio, with a weighted-average refreshed FICO score of 713 and combined loan to value (CLTV) of 96.6% as of September 30, 2014 . The proportion of the portfolio in a second lien (subordinated) position is 95% . The amount of the portfolio in out-of-footprint geographies is 72.4% , with 28.9% concentrated in California, Nevada, Arizona and Florida.

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Credit performance continues to improve due to portfolio liquidation (the lowest performing loans have already been charged off), more effective account servicing and collection strategies, and improvements in the real estate market. The delinquency rate of more than 90 days past due was 1.5% as of September 30, 2014 , and decreased by 24 basis points from December 31, 2013 . The SBO portfolio had a charge-off rate of 2.3% for the nine months ended September 30, 2014 and a cumulative (inception to date) charge-off rate of 26.8% as of September 30, 2014 .
Allowance for Credit Losses and Nonperforming Assets
We and our banking subsidiaries, CBNA and CBPA, maintain an allowance for credit losses, consisting of an allowance for loan and lease losses and a reserve for unfunded lending commitments. This allowance is created through charges to income, or provision for credit losses, and is maintained at an appropriate level adequate to absorb anticipated losses and is determined in accordance with GAAP. For further information on our processes to determine our allowance for credit losses, see “Critical Accounting Estimates-Allowance for Credit Losses”, Note 4 to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report and Note 1 "Significant Accounting Policies" to our audited Consolidated Financial Statements.
The allowance for credit losses totaled $1.3 billion at September 30, 2014 and December 31, 2013 . Our allowance for loan and lease losses was 1.32% of total loans and leases and 111% of nonperforming loans and leases as of September 30, 2014 compared with 1.42% and 86% as of December 31, 2013 . The total loan portfolio credit performance continued to improve across all credit measures in the nine months ended September 30, 2014 . Net charge-offs for the nine months ended September 30, 2014 of $243 million decreased 37% compared to $386 million for the nine months ended September 30, 2013 , primarily driven by decreases in the non-core, real estate secured, and unsecured retail portfolios. The portfolio annualized net charge-off rate declined to 0.37% for the nine months ended September 30, 2014 from 0.61% for the nine months ended September 30, 2013 . The delinquency rate improved to 1.4% as of September 30, 2014 from 1.9% at December 31, 2013 . Nonperforming loans and leases totaled $1.1 billion , or 1.19% , of the total portfolio as of September 30, 2014 as compared to $1.4 billion , or 1.65% , of the total loan portfolio as of December 31, 2013 . At September 30, 2014 , $638 million of nonperforming loans and leases had been designated as impaired and had no specific allowance because they had been written down to the fair value of their collateral. These loans included $551 million of retail loans and $87 million of commercial loans. Excluding impaired loans that have been written down to their net realizable value, the allowance to nonperforming loans ratio totaled 272% at September 30, 2014 as compared to 151% at December 31, 2013 .
Commercial Loan Asset Quality
Our commercial loan portfolio consists of traditional commercial and commercial real estate loans. The portfolio is focused primarily on in-footprint customers where our local delivery model provides for strong client connectivity.
For commercial loans and leases, we use regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that we believe will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness that indicates an increased probability of future loss. See Note 4 "Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk" to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report.
During the nine months ended September 30, 2014 , the quality of the commercial loan portfolio remained steady. As of September 30, 2014 , total criticized loans decreased to 4.7% , or $1.9 billion , of the commercial loan portfolio compared to 4.9% , or $1.9 billion at December 31, 2013 . Commercial real estate criticized balances decreased 36% to 5.1% , or $370 million , of the commercial real estate portfolio compared to 8.4% , or $582 million , as of December 31, 2013 . Commercial real estate accounted for 19.2% of the criticized loans as of September 30, 2014 , compared to 30.4% as of December 31, 2013 .
Nonperforming balances and charge-offs have displayed a positive trend in the first half of 2014. As of September 30, 2014 , nonperforming commercial balances decreased $89 million , or 34% , to $176 million , compared to $265 million as of December 31, 2013 , with a 51% decline in commercial real estate nonperforming loans over the same period. As of September 30, 2014 , nonperforming commercial loans stood at 0.4% of the commercial loan portfolio compared to 0.7% as of December 31, 2013 . Net charge-offs in our commercial loan portfolio for the nine months ended September 30, 2014 reflected a net recovery of $17 million compared to a net charge-off of $3 million for the nine months ended September 30, 2013. Charge-off performance continues to be positively influenced by recoveries and lower gross losses driven by improved economic conditions and a strategic focus on high quality new business; however, this favorable trend is expected to reduce as recovery opportunities dissipate. See “Key Factors Affecting Our Business--Credit Trends” for further details.

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Retail Loan Asset Quality
For retail loans, we primarily use the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators are continually updated and monitored. Our retail loan portfolio remains predominantly focused on lending across the New England, Mid-Atlantic and Midwest regions, with continued geographic expansion outside the footprint with the auto finance and student lending portfolios. Originations within the footprint are primarily initiated through the branch network, whereas out-of-footprint lending is driven by indirect auto loans in dealer networks and student loans via our online platform.
The credit composition of our retail loan portfolio at September 30, 2014 remained favorable and well positioned across all product lines with an average refreshed FICO score of 753 , down one point from December 31, 2013 . Our real estate combined loan to value ratio, or CLTV, is calculated as the mortgage amount divided by the appraised value of the property and was 66.7% as of September 30, 2014 compared to 67.8% as of December 31, 2013 . Excluding the SBO portfolio, the real estate CLTV was 64.7% as of September 30, 2014 compared to 65.1% as of December 31, 2013 . Asset quality remains stable with a net charge-off rate (core and non-core) of 0.73% for the nine months ended September 30, 2014 , a decrease of 36 basis points from the same period in 2013. The delinquency rate 90 days or more past due is trending flat to December 31, 2013 . The overall rate of delinquency more than 30 days past due showed improvement, driven by a sale of a federal student loan portfolio and a decrease in residential lending delinquency.
Nonperforming retail loans as a percentage of total retail loans were 1.8% as of September 30, 2014 ; an improvement of 64 basis points from December 31, 2013 . The improvement in nonperforming retail loans was primarily driven by transfers of loans from nonaccrual to accrual status.
Special Topics-HELOC Payment Shock
For further information regarding the possible HELOC payment shock, see “Key Factors Affecting Our Business-HELOC Payment Shock.”
Troubled Debt Restructuring
TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower that is experiencing financial hardship that we would not otherwise make. TDRs typically result from our loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship. Our loan modifications are handled on a case by case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet our borrower’s financial needs. The types of concessions include interest rate reductions, term extensions, principal forgiveness and other modifications to the structure of the loan that fall outside lending policy. Depending on the specific facts and circumstances of the customer, restructuring can involve loans moving to nonaccrual, remaining on nonaccrual or continuing on accrual status. As of September 30, 2014 , we had $1.2 billion classified as retail TDRs, of which $394 million were in nonaccrual status. Within this nonaccrual population, 53.0% were current in payment. TDRs generally return to accrual status once repayment capacity and appropriate payment history can be established. TDRs are evaluated for impairment individually. Loans are classified as TDRs until paid off, sold or refinanced at market terms.
For additional information regarding TDRs, see “Critical Accounting Estimates-Allowance for Credit Losses”, Note 4 to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information included elsewhere in this report and Note 1 "Significant Accounting Policies" to our audited Consolidated Financial Statements.
The table below presents our retail TDRs in delinquent status as of September 30, 2014 :

(in millions)
Current
 
30-89 Days
Past Due
 
90+ Days Past Due
 
Total
Recorded Investment:
 
 
 
 
 
 
 
Residential, including originated home equity products

$695

 

$39

 

$145

 

$879

Home Equity products serviced by others
91

 
10

 
5

 
106

Other secured retail
27

 
3

 
1

 
31

Unsecured retail
185

 
10

 
3

 
198

Total

$998

 

$62

 

$154

 

$1,214



91

The table below presents the accrual status of our retail TDRs as of September 30, 2014 :

(in millions)
Accruing
 
Non-accruing
 
Total
Recorded Investment:
 
 
 
 
 
Residential, including originated home equity products

$533

 

$346

 

$879

Home Equity products serviced by others
71

 
35

 
106

Other secured retail
24

 
7

 
31

Unsecured retail
192

 
6

 
198

Total

$820

 

$394

 

$1,214


Securities
Our securities portfolio is managed to seek return while maintaining prudent levels of quality, market risk and liquidity. The following table presents our AFS and HTM portfolios:
 
September 30, 2014
 
December 31, 2013
 
 
(dollars in millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
 
Change in Fair Value
Securities Available for Sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury

$15

 

$15

 

$15

 

$15

 

$—

 
—
 %
State and political subdivisions
10

 
10

 
11

 
10

 
—

 
—

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
17,759

 
17,898

 
14,970

 
14,993

 
2,905

 
19

Other/non-agency
747

 
718

 
992

 
952

 
(234
)
 
(25
)
Total mortgage-backed securities
18,506

 
18,616

 
15,962

 
15,945

 
2,671

 
17

Total debt securities
18,531

 
18,641

 
15,988

 
15,970

 
2,671

 
17

Marketable equity securities
10

 
13

 
10

 
13

 
—

 
—

Other equity securities
12

 
12

 
12

 
12

 
—

 
—

Total equity securities
22

 
25

 
22

 
25

 
—

 
—

   Total securities available for sale

$18,553

 

$18,666

 

$16,010

 

$15,995

 

$2,671

 
17
 %
Securities Held to Maturity
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities

$3,833

 

$3,796

 

$2,940

 

$2,907

 

$889

 
31
 %
Other/non-agency
1,456

 
1,482

 
1,375

 
1,350

 
132

 
10

   Total securities held to maturity

$5,289

 

$5,278

 

$4,315

 

$4,257

 

$1,021

 
24
 %
   Total securities available for sale and held to maturity

$23,842

 

$23,944

 

$20,325

 

$20,252

 

$3,692

 
18
 %

As of September 30, 2014 , the fair value of the securities AFS and HTM portfolios increased by $3.7 billion , or 18% , to $23.9 billion , compared to $20.3 billion as of December 31, 2013 . U.S. Government guaranteed notes and government sponsored entity issued mortgage-backed securities comprise the majority of the securities portfolio holdings. Reinvestments have been directed predominantly into fixed-rate MBS, and as of September 30, 2014 , the portfolio had an average expected life of 4.71 years.
The investment portfolio includes higher quality, highly liquid investments reflecting our ongoing commitment to maintaining appropriate contingent liquidity and pledging capacity. The portfolio composition has also been dominated by holdings backed by mortgages so that they can be pledged to the FHLBs. This has become increasingly important due to the enhanced liquidity requirements of the LCR.
For the nine months ended September 30, 2014 , income on the securities AFS and HTM portfolios increased $107 million , or 33% , to $431 million compared to $324 million for the nine months ended September 30, 2013 , and the yield on the fixed-income portfolio was 2.47% . The portfolio yield decreased by nine basis points, due to higher amortization and accretion on a larger sized mortgage-backed securities portfolio. For the nine months ended September 30, 2014 , mortgage-backed securities maturities, principal paydowns, and sales totaled $3.2 billion and mortgage-backed securities purchases totaled $6.8 billion .

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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Deposits

The table below represents the major components of our deposits:

(dollars in millions)
September 30,
2014
 
December 31,
2013
 
Change
 
Percent
Demand

$25,877

 

$24,931

 

$946

 
4
%
Checking with interest
15,449

 
13,630

 
1,819

 
13

Regular savings
7,655

 
7,509

 
146

 
2

Money market accounts
32,870

 
31,245

 
1,625

 
5

Term deposits
11,612

 
9,588

 
2,024

 
21

Total deposits
93,463

 
86,903

 
6,560

 
8

Deposits held for sale
—

 
5,277

 
(5,277
)
 
(100
)
Total deposits and deposits held for sale

$93,463

 

$92,180

 

$1,283

 
1
 %


Total deposits as of September 30, 2014 , increased $6.6 billion , or 8% , to $93.5 billion compared to $86.9 billion as of December 31, 2013 . All categories of deposits increased, led by term deposits which increased by $2.0 billion , or 21% .

Borrowed Funds
The tables below present our borrowed funds.

The following is a summary of our short-term borrowed funds:
(in millions)
September 30, 2014
 
December 31, 2013
Federal funds purchased

$—

 

$689

Securities sold under agreements to repurchase
5,184

 
4,102

Other short-term borrowed funds
6,715

 
2,251

Total short-term borrowed funds

$11,899

 

$7,042


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Key data related to short-term borrowed funds is presented in the following table:
(dollars in millions)
For the Nine Months Ended September 30, 2014
 
For the Year Ended December 31, 2013
 
For the Nine Months Ended September 30, 2013
Weighted-average interest rate at period end:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
0.12
%
 
0.09
%
 
0.10
%
Other short-term borrowed funds
0.25

 
0.20

 
2.25

Maximum amount outstanding at month-end during the period:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase

$7,022

 

$5,114

 

$3,709

Other short-term borrowed funds
7,702

 
2,251

 
750

Average amount outstanding during the period:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase

$5,908

 

$2,400

 

$1,827

Other short-term borrowed funds
5,479

 
259

 
207

Weighted-average interest rate during the period:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
0.08
%
 
0.31
%
 
0.03
%
Other short-term borrowed funds
0.26

 
0.44

 
0.26



The following is a summary of our long-term borrowed funds:
(dollars in millions)
September 30, 2014
 
December 31, 2013
Citizens Financial Group, Inc.:
 
 
 
4.150% fixed rate subordinated debt, due 2022

$350

 

$350

5.158% fixed-to-floating rate subordinated debt, (LIBOR + 3.56%) callable, due 2023 (1)
333

 
333

4.771% fixed rate subordinated debt, due 2023 (1)
333

 
333

4.691% fixed rate subordinated debt, due 2024 (1)
334

 
334

4.153% fixed rate subordinated debt, due 2024 (1)
333

 
—

4.023% fixed rate subordinated debt, due 2024 (1)
333

 
—

Banking Subsidiaries:
 
 
 
Federal Home Loan advances due through 2033
23

 
25

Other
23

 
30

Total long-term borrowed funds

$2,062

 

$1,405


(1)  Intercompany borrowed funds with the RBS Group. See Note 14 “Related Party Transactions” to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Information included elsewhere in this report.
Short-term unsecured borrowed funds are minimal and are offset by $1.9 billion in excess reserves held at Federal Reserve Banks as of September 30, 2014 . Other borrowed funds include capital instruments and secured FHLB advances. Additionally, asset liquidity is considered strong. As of September 30, 2014 , unencumbered high-quality securities totaled $13.1 billion , unused FHLB capacity was approximately $3.5 billion and unencumbered loans pledged at the Federal Reserve Banks of $9.4 billion , created additional contingent borrowing capacity of approximately $26.0 billion .
 
Access to additional funding through repurchase agreements, collateralized borrowed funds or asset sales is available. Additionally, there is capacity to grow deposits. While access to short-term wholesale markets is limited, we have been able to meet our funding needs for the medium term with deposits and collateralized borrowed funds.


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Derivatives
Historically, we have used pay-fixed swaps to synthetically lengthen liabilities and offset duration in fixed-rate assets. Given the material prepayment of fixed-rate mortgages and home equity loans since 2008, these swaps were no longer needed and have been terminated or allowed to runoff, resulting in a reduction in the notional balance of these swaps to $1.0 billion as of September 30, 2014 .
We use receive-fixed swaps to minimize the exposure to variability in the interest cash flows on our floating rate assets. This is reflected in the interest rate swaps line in the table below. As of September 30, 2014 , a notional amount of $4.0 billion of receive-fixed swaps had been executed. The assets and liabilities recorded for derivatives designated as hedges reflect the market value of these hedge instruments.
We also sell interest rate swaps and foreign exchange forwards to commercial customers. Offsetting swap and forward agreements are simultaneously transacted to minimize our market risk associated with the customer derivative products. The assets and liabilities recorded for derivatives not designated as hedges reflect the market value of these transactions.
The table below presents our derivative assets and liabilities. For additional information regarding our derivative instruments see Note 11 "Derivatives" in the unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information elsewhere in this report.
 
September 30, 2014
 
December 31, 2013
 
Changes in Net
Assets/
Liabilities
(dollars in millions)
Notional Amount (1)
Derivative Assets
Derivative Liabilities
 
Notional Amount (1)
Derivative Assets
Derivative Liabilities
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate swaps

$5,000


$22


$203

 

$5,500


$23


$412

 
(53
)%
Derivatives not  designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate swaps
28,940

541

452

 
29,355

654

558

 
(7
)
Foreign exchange contracts
8,278

137

132

 
7,771

94

87

 
(29
)
Other contracts
686

6

10

 
569

7

10

 
33

Total derivatives not  designated as hedging instruments
 
684

594

 
 
755

655

 
(10
)
Gross derivative fair values
 
706

797

 
 
778

1,067

 
(69
)%
Less: Gross amounts offset in the Consolidated Balance Sheets (2)  
 
(159
)
(159
)
 
 
(128
)
(128
)
 
 
Total net derivative fair values presented in the Consolidated Balance Sheets (3)
 

$547


$638

 
 

$650


$939

 
 

(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate derivatives, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk as they tend to greatly overstate the true economic risk of these contracts.

(2) Amounts represent the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions.

(3) We also offset assets and liabilities associated with repurchase agreements on our Consolidated Balance Sheets. See Note 2, “Securities,” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information elsewhere in this report.
Capital
As a bank holding company and a financial holding company, we are subject to regulation and supervision by the Federal Reserve Board. Our primary subsidiaries are our two insured depository institutions, CBNA, a national banking association whose primary federal regulator is the OCC, and CBPA, a Pennsylvania-charted savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC as its primary federal regulator.
Under current Basel I regulation, the Federal Reserve Board requires us to maintain minimum levels with respect to our total capital, Tier 1 capital and leverage ratios. The minimum standards for the total capital ratio (the ratio of our total risk-based capital, which is the sum of our Tier 1 and Tier 2 capital, as defined by Federal Reserve Board regulation, to total risk-weighted assets) and the Tier 1 capital ratio (the ratio of our Tier 1 capital to total risk-weighted assets) are 8.0% and 4.0% , respectively. The minimum Tier 1 leverage ratio (the ratio of a banking organization’s Tier 1 capital to total adjusted quarterly average total assets, as defined for regulatory purposes) is 3.0% for bank holding companies that either have the highest supervisory rating or have implemented the Federal Reserve Board’s risk-adjusted measure for market risk. The minimum Tier 1 leverage ratio for all

95

other bank holding companies, including our Company, is 4.0% , unless a different minimum is specified by the Federal Reserve Board.

In July 2013, the U.S. bank regulatory agencies approved final regulatory capital rules that implement the Basel III capital framework and certain provisions of the Dodd-Frank Act. We will be required to comply with these rules beginning on January 1, 2015, with certain aspects of the rules phasing in through 2018.
    
The table below presents our regulatory capital ratios as of September 30, 2014 . Actual Basel I ratios and pro forma Basel III ratios, which include estimated impacts of fully phased-in Basel III and U.S. standardized approach risk-weighted assets requirements, remain well above current Basel I and future Basel III minima:

 
Basel I
 
Pro Forma Basel III Standardized Approach
 
Actual
Required
Minimum
Well-Capitalized Minimum for Purposes of Prompt Corrective Action
 
Actual (1)
Required Minimum + Required Capital Conservation Buffer for Non-Leverage Ratios
Well-Capitalized Minimum for Purposes of Prompt Corrective Action
Tier 1 common equity
12.9%
Not Applicable
Not
Applicable
 
Not Applicable
Not
Applicable
Not
Applicable
Tier 1 capital
12.9%
4.0%
6.0%
 
12.5%
8.5%
8.0%
Total risk-based capital
16.1%
8.0%
10.0%
 
15.6%
10.5%
10.0%
Tier 1 leverage
10.9%
4.0%
5.0%
 
10.9%
4.0%
5.0%
Common equity Tier 1
Not Applicable
Not Applicable
Not
Applicable
 
12.5%
7.0%
6.5%

(1) These are non-GAAP financial measures. For more information on the computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”

Regulatory Capital Ratios and Capital Composition
The following table presents our capital ratios:
 
 
 
 
FDIC Requirements
 
Actual
 
Minimum Capital Adequacy
 
Classification as "Well Capitalized"
(dollars in millions)
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
September 30, 2014
 
 
 
 
 
 
 
 
Tier 1 capital

$13,330

12.9
%
 

$4,128

4.0
%
 

$6,192

6.0
%
Total risk-based capital
16,612

16.1
%
 
8,257

8.0
%
 
10,321

10.0
%
Tier 1 leverage
13,330

10.9
%
 
4,901

4.0
%
 
6,126

5.0
%
Risk-weighted assets
103,207

 
 
 
 
 
 
 
QTD adjusted average assets
122,521

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
Tier 1 capital

$13,301

13.5
%
 

$3,945

4.0
%
 

$5,918

6.0
%
Total risk-based capital
15,885

16.1
%
 
7,891

8.0
%
 
9,863

10.0
%
Tier 1 leverage
13,301

11.6
%
 
4,577

4.0
%
 
5,721

5.0
%
Risk-weighted assets
98,634

 
 
 
 
 
 
 
QTD adjusted average assets
114,422

 
 
 
 
 
 
 

Tier 1 common equity was $13.3 billion at September 30, 2014, an increase of $29 million compared to December 31, 2013. The increase was due to net income of $668 million and recognition of $57 million in share based compensation plans, largely offset by the return of $666 million of common equity in exchange for issuing Tier 2 subordinated debt to RBSG and by $85 million of quarterly dividends. For the nine months ended September 30, 2014, total risk-based capital increased $727 million to $16.6 billion primarily reflecting the same net income, share-based compensation, and quarterly dividends as Tier 1 risk-based, but unaffected by the $666 million exchange of common equity for subordinated debt. For additional information on the our capital composition and changes for the nine months ended September 30, 2014, see the capital composition table below.

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The following table presents our capital composition:
(dollars in millions)
September 30, 2014
 
December 31, 2013
Total common shareholders' equity

$19,383

 

$19,196

Goodwill
(6,876
)
 
(6,876
)
Deferred tax liability associated with goodwill
399

 
350

Other intangible assets
(6
)
 
(8
)
Net unrealized (gains) losses recorded in accumulated OCI, net of tax:
 
 
 
AFS debt and marketable equity securities
(1
)
 
91

Derivatives
145

 
298

Unamortized net periodic benefit costs
291

 
259

Disallowed deferred tax assets
—

 
—

Disallowed mortgage servicing
(5
)
 
(9
)
Total Tier 1 common equity
13,330

 
13,301

 
 
 
 
Qualifying preferred stock
—

 
—

Trust preferred securities
—

 
—

Total Tier 1 capital
13,330

 
13,301

 
 
 
 
Qualifying long-term debt securities as Tier 2
2,016

 
1,350

Allowance for loan and lease losses
1,201

 
1,221

Allowance for credit losses for off-balance sheet
63

 
39

Excess allowance for loan and lease losses
—

 
(27
)
Unrealized gains on equity securities
2

 
1

Total risk-based capital

$16,612

 

$15,885


Risk-weighted assets at September 30, 2014 were $103.2 billion, an increase of $4.6 billion as compared to December 31, 2013. The primary drivers for this increase were growth in auto and commercial loans, which increased risk-weighted assets by $2.7 billion and $1.2 billion, respectively.
Capital Adequacy
Our assessment of capital adequacy begins with our risk appetite and risk management framework, which provides for the identification, measurement and management of material risks. Required capital is determined for actual/forecasted risk portfolios using applicable regulatory capital methodologies, including estimated impacts of approved and proposed regulatory changes that will or may apply to future periods. Key analytical frameworks, which enable the comprehensive assessment of capital adequacy versus unexpected loss, supplement our base case forecast. These supplemental frameworks include Integrated Stress Testing, as well as an Internal Capital Adequacy Requirement that builds on internally assessed Economic Capital requirements. Our capital planning process is supported by a robust governance framework. This process includes: capital management policies and procedures that document capital adequacy metrics and limits, as well as our comprehensive capital contingency plan, and the active engagement of both the legal-entity boards and senior management in oversight and decision-making.
Forward-looking assessments of capital adequacy for us and for our banking subsidiaries feed development of capital plans that are submitted to the Federal Reserve Board and other bank regulators. We prepare these plans in full compliance with the Federal Reserve Board’s Capital Plan Rule and participate in the Federal Reserve Board’s annual CCAR stress-testing process. Both we and our banking subsidiaries also participate in semiannual stress tests required by the Dodd-Frank Act. The Federal Reserve Board may either object to our capital plan, in whole or in part, or provide a notice of non-objection. If the Federal Reserve Board objects to a capital plan, we may not make any capital distribution other than those with respect to which the Federal Reserve Board has indicated its non-objection.
Beginning with 2013, our annual plans have included special “exchange transactions” undertaken to produce a more-balanced capital structure without impacting our overall level of qualifying regulatory capital. From the second quarter of 2013 through the third quarter of 2014, these exchange transactions aggregated to $1.7 billion and were executed as special common

97

dividends paired with the issuance of like amounts of subordinated debt. On October 8, 2014, we executed a $334 million exchange by buying back our common shares and issuing subordinated debt. Exchanging common equity for the same amount of Tier 2 subordinated debt has no impact on either the level of total regulatory capital or the total risk-based capital ratio.
In March 2014, the Federal Reserve Board objected on qualitative grounds to our capital plan submitted as part of the CCAR process. Although we were permitted to continue capital actions at a level consistent with those executed in 2013, we are not permitted to increase our capital distributions above 2013 levels until a new capital plan is approved by the Federal Reserve Board. The deadline for our next capital plan submission is January 5, 2015.
During the first three quarters of 2014, we completed the following capital actions:
•
paid common dividends of $25 million , $10 million and $50 million in the first, second and third quarter of 2014, respectively;
•
paid a special common dividend of $333 million to RBS and issued $333 million of 10-year subordinated debt (4.153% fixed subordinated debt due July 1, 2024) to the RBSG in the second quarter of 2014.
•
paid a special common dividend of $333 million to RBS and issued $333 million of 10-year subordinated debt (4.023% fixed subordinated debt due October 1, 2024) to the RBSG in the third quarter of 2014.
Additionally, on October 8, 2014 we repurchased 14,297,761 shares of our common stock from RBS Group at $23.36 per share and issued $334 million of 10-year subordinated debt (4.082% fixed subordinated debt due January 31, 2025) to RBSG.
During 2013, we completed the following capital actions:
•
paid common dividends of $40 million, $55 million , $50 million and $40 million in the first, second, third and fourth quarters of 2013, respectively;
•
redeemed $289 million of floating rate junior subordinated deferrable interest debentures due March 4, 2034 from our special purpose subsidiary, which caused the redemption of $280 million of our trust preferred securities from the RBS Group in the second quarter of 2013;
•
through CBPA, we redeemed $10 million of floating rate junior subordinated deferrable interest debentures due April 22, 2032, which caused redemption of $10 million of our trust preferred securities from third parties in the fourth quarter of 2013;
•
paid a special common dividend of $333 million and issued $333 million of 10-year subordinated debt (5.158% fixed-to-floating rate callable subordinated debt due June 29, 2023) to RBS in the second quarter of 2013;
•
paid a special common dividend of $333 million to RBS and issued $333 million of 10-year subordinated debt (4.771% fixed rate subordinated debt due October 1, 2023) to the RBSG in the third quarter of 2013; and
•
paid a special common dividend of $334 million to RBS and issued $334 million of 10-year subordinated debt (4.691% fixed rate subordinated debt due January 2, 2024) to the RBSG in the fourth quarter of 2013.
After execution of these actions, both Common Equity Tier 1 and Tier 1 Capital, calculated using fully phased-in Basel III definitions, were 12.5% as of September 30, 2014, well above their respective Basel III minima, including the capital conservation buffer, of 7.0% and 8.5% , respectively. Our pro forma Basel III total risk-based capital ratio after giving effect to all Basel III impacts also remained strong at 15.6% versus the Basel III minimum, including the capital conservation buffer, of 10.5% . These pro forma Basel III ratios are non-GAAP financial measures. For more information on computation of these non-GAAP financial measures, see “Principal Components of Operations and Key Performance Metrics Used By Management-Key Performance Metrics and Non-GAAP Financial Measures.”


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Banking Subsidiaries' Capital
The following table presents our banking subsidiaries' capital ratios:
 
September 30, 2014
 
December 31, 2013
(dollars in millions)
Amount
Ratio
 
Amount
Ratio
Citizens Bank, N.A.
 
 
 
 
 
Tier 1 capital

$10,476

12.6
%
 

$10,401

12.9
%
Total risk-based capital
12,436

15.0
%
 
11,666

14.5
%
Tier 1 leverage
10,476

11.2
%
 
10,401

11.7
%
 
 
 
 
 
 
Citizens Bank of Pennsylvania
 
 
 
 
 
Tier 1 capital

$2,958

14.4
%
 

$3,195

17.1
%
Total risk-based capital
3,487

16.9
%
 
3,400

18.2
%
Tier 1 leverage
2,958

9.5
%
 
3,195

11.6
%

CBNA Tier 1 capital ratio declined 33 basis points to 12.6% and the total risk-based capital ratio increased 46 basis points to 15.0%. The decline in the Tier 1 capital ratio reflected an increase of $2.7 billion in risk-weighted assets for the nine months ended September 30, 2014, which was attributable to asset growth in loans and in securities. Tier 1 capital increased $75 million, reflecting $636 million of net income, partially offset by the return of $440 million of common equity to the CFG Parent Company in exchange for $440 million of Tier 2 subordinated debt and by $115 million of quarterly dividends. Total risk-based capital and the total risk-based capital ratio were unaffected by the $440 million exchange transaction and they also benefited from the issuance of $250 million of incremental Tier 2 subordinated debt to CFG during the second quarter of 2014.

CBPA Tier 1 capital ratio declined 274 basis points to 14.4% at September 30, 2014 and the total risk-based capital ratio declined 127 basis points to 16.9%. The decline in Tier 1 capital reflected $133 million of net income, which was more than offset by $105 million of quarterly dividends and by the return of $300 million of common equity to the CFG Parent Company in exchange for Tier 2 subordinated debt. Total risk-based capital declined less than Tier 1 capital because total capital was unaffected by the $300 million exchange. Both the Tier 1 and total risk-based capital ratios declined due to a $1.9 billion increase in risk-weighted assets for the nine months ended September 30, 2014.
As a result of the goodwill impairment recognized by CBNA in the second quarter of 2013, CBNA must request specific approval from the OCC before executing capital distributions. This requirement is expected to remain in place through the fourth quarter of 2015. However, as of September 30, 2014 , irrespective of the ability of our subsidiary banks to pay dividends, on a non-consolidated basis we had liquid assets in excess of $501 million compared to an annual interest burden on existing subordinated debt of approximately $90 million .

Liquidity
We define liquidity as an institution’s ability to meet its cash-flow and collateral obligations in a timely manner, at a reasonable cost. An institution must maintain current liquidity to fund its daily operations and forecasted cash-flow needs as well as contingent liquidity to deliver funding in a stress scenario. We consider the effective and prudent management of liquidity to be fundamental to our health and strength.
We manage liquidity at the consolidated enterprise level and at each material legal entity, including ourselves, CBNA and CBPA.
CFG Liquidity
Our primary sources of cash are (i) dividends and interest received from our banking subsidiaries as a result of investing in bank equity and subordinate debt and (ii) externally issued subordinated debt ( $350 million ). Our uses of liquidity include the following: (i) routine cash flow requirements as a bank holding company, including payments of dividends, interest and expenses;

99

(ii) needs of subsidiaries, including our banking subsidiaries, for additional equity and, as required, their needs for debt financing; and (iii) extraordinary requirements for cash, such as acquisitions.

     During the third quarter of 2014 and again on October 8, 2014, we exchanged Tier 1 common equity for Tier 2 subordinate debt, in the amounts of $333 million and $334 million respectively. We will continue our strategy to optimize capital, which could include additional purchases of our common stock from RBS and/or issuance of lesser capital instruments to RBS. As we increase subordinated debt in exchange for common equity, our funding costs will increase to reflect the incremental debt service. Any issuance of preferred equity would reduce net income available to common shareholders but improve ROTCE.
Our cash and cash equivalents represent a source of liquidity that can be used to meet various needs. As of September 30, 2014 , we held cash and cash equivalents of $501 million . This should be viewed as a liquidity reserve.
Our liquidity risk is low for four reasons. First, we have no material non-banking subsidiaries and our banking subsidiaries are self-funding. Second, we have no outstanding senior debt. Third, the capital structures of our banking subsidiaries are similar to our capital structure. As of September 30, 2014 , our double leverage ratio (the combined equity of our subsidiaries divided by our equity) was 101.1% . Fourth, our other cash flow requirements, such as operating expenses, are relatively small.
Banking Subsidiaries’ Liquidity
In the ordinary course of business, the liquidity of CBNA and CBPA is managed by matching sources and uses of cash. The primary sources of bank liquidity include (i) deposits from our consumer and commercial franchise customers; (ii) payments of principal and interest on loans and debt securities; and (iii) as needed and as described below under “Liquidity Risk Management and Governance,” wholesale borrowings. The primary uses of bank liquidity include (i) withdrawals and maturities of deposits; (ii) payment of interest on deposits; (iii) funding of loan commitments; and (iv) funding of securities purchases. To the extent that the banks have relied on wholesale borrowings, uses also include payments of related principal and interest.
Our banking subsidiaries’ major businesses involve taking deposits and making loans. Hence, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and loans. Liquidity management also involves maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary.
During the third quarter of 2014, CBNA issued $220 million in subordinated debt to us in exchange for common equity held by us and is expected to issue an additional $220 million in subordinated debt in exchange for common equity in the fourth quarter 2014. CBPA issued $150 million in subordinated debt to us in exchange for common equity held by us. Because of the increased proportion of subordinated debt versus common equity in the capital structure of both CBNA and CBPA, funding costs will increase to reflect the incremental debt service costs.
Liquidity Risk
We define liquidity risk as the risk that we or either of our banking subsidiaries will be unable to meet our payment obligations in a timely manner. We manage liquidity risk at the consolidated enterprise level, and for each material legal entity including us, CBNA and CBPA. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.
Asset liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.
Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity may be idiosyncratic or systemic, reflecting impediments to operations and/or undermining of market confidence.
 
Factors Affecting Liquidity
Given the composition of their assets and borrowing sources, contingent liquidity at both CBNA and CBPA would be materially affected by such events as deterioration of financing markets for high-quality securities (e.g., mortgage-backed securities and other instruments issued by the Government National Mortgage Association, or GNMA, Federal National Mortgage

100

Association, or FNMA and the Federal Home Loan Mortgage Corporation, or FHLMC), by any incapacitation of the Federal Home Loan Banks, or FHLBs, to provide collateralized advances and/or by a refusal of the Federal Reserve Board to act as lender of last resort in systemic stress. Given the quality of our free securities, the positive track record of the FHLBs in stress and the commitment of the Federal Reserve Board to continue as lender of last resort in systemic stress scenarios, we view contingent liquidity risk at our banking subsidiaries, both CBNA and CBPA, to be relatively modest.
Given the structure of their balance sheets, funding liquidity of CBNA and CBPA would be materially affected by an adverse idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or a combination of both (e.g., the financial crisis of 2008-10). However, during the financial crisis, our banking subsidiaries reduced their dependence on unsecured wholesale funding to virtually zero. Consequently, and despite ongoing exposure to a variety of idiosyncratic and systemic events, we view our funding liquidity risk to be relatively modest.
An additional variable affecting our access, and the access of our banking subsidiaries, to unsecured wholesale market funds and to large denomination (i.e., uninsured) customer deposits is the credit ratings assigned by such agencies as Moody’s, Standard & Poor’s and Fitch. The following table presents our credit ratings:
 
 
September 30, 2014  
 
 
Moody’s   
 
Standard and
Poor’s
 
 
Fitch   
 
Citizens Financial Group, Inc.:
 
 
 
 
 
Long-term issuer
NR
 
BBB+
 
BBB+
Short-term issuer
NR
 
A-2
 
F2
Subordinated debt
NR
 
BBB
 
BBB
Citizens Bank, N.A.:
 
 
 
 
 
Long-term issuer
A3
 
A-
 
BBB+
Short-term issuer
P-2
 
A-2
 
F2
Citizens Bank of Pennsylvania:
 
 
 
 
 
Long-term issuer
A3
 
A-
 
BBB+
Short-term issuer
P-2
 
A-2
 
F2
  NR = Not rated
Changes in our public credit ratings could affect both the cost and availability of our wholesale funding. Because of current credit ratings, CBNA and CBPA have limited access to unsecured wholesale funding. As a result and in order to maintain a conservative funding profile, our banking subsidiaries continue to minimize reliance on unsecured wholesale funding. At September 30, 2014 , the majority of wholesale funding consisted of secured borrowings using high-quality liquid securities sold under agreements to repurchase (repurchase agreements) and secured FHLB advances using high-quality residential loan collateral. Our dependence on unsecured and credit-sensitive funding continues to be relatively low.
Existing and evolving regulatory liquidity requirements represent another key driver of systemic liquidity conditions and liquidity management practices. The Federal Reserve Board evaluates our liquidity as part of the supervisory process, and the Federal Reserve Board recently issued regulations that will require us to conduct regular liquidity stress testing over various time horizons and to maintain a buffer of highly liquid assets sufficient to cover expected net cash outflows and projected loss or impairment of funding sources for a short-term liquidity stress scenario. In addition, the Basel Committee has developed a set of internationally-agreed upon quantitative liquidity metrics: the LCR and the NSFR.
The LCR was developed to ensure banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. In September 2014, the U.S. federal banking regulators published the final rule to implement a modified version of the LCR in the United States, which would apply to large bank holding companies. As compared to the Basel Committee’s version of the LCR, the modified version of the LCR includes a narrower definition of high-quality liquid assets, different prescribed cash inflow and outflow assumptions for certain types of instruments and transactions and a shorter phase-in schedule that begins on January 1, 2015 and ends on January 1, 2017. Achieving LCR compliance may require changes in the size and/or composition of our investment portfolio, the configuration of our discretionary wholesale funding portfolio, and our average cash position. We expect to be fully compliant with the LCR by the required implementation date.

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The NSFR was developed to provide a sustainable maturity structure of assets and liabilities and has a time horizon of one year. The Basel Committee contemplates that the NSFR, including any revisions, will be implemented as a minimum standard by January 1, 2018; however, the federal banking regulators have not yet proposed rules to implement the NSFR in the United States.
We continue to review these liquidity requirements, and to develop implementation plans and liquidity strategies. We expect to be fully compliant with the final rules on or prior to the applicable effective date.
Liquidity Risk Management and Governance
Liquidity risk is measured and managed by the Wholesale Funding and Liquidity unit within our treasury unit in accordance with policy guidelines promulgated by our Board and the Asset and Liability Management Committee. In managing liquidity risk, the Wholesale Funding and Liquidity unit delivers regular and comprehensive reporting, including current levels vs. threshold limits, for a broad set of liquidity metrics, explanatory commentary relating to emerging risk trends and, as appropriate, recommended remedial strategies.
The mission of our Wholesale Funding and Liquidity unit is to deliver prudent levels of current, projected and contingent liquidity from stable sources, in a timely manner and at a reasonable cost, without significant adverse consequences.
We seek to accomplish this mission by funding loans with stable deposits; by prudently controlling dependence on wholesale funding, particularly unsecured funding; and by maintaining ample available liquidity, including a liquidity buffer of unencumbered high-quality loans and securities. As of September 30, 2014 :
•
Core deposits continued to be our primary source of funding and our consolidated period-end loan-to-deposit ratio was 97% and includes loans and deposits held for sale;
•
Unsecured wholesale funding was relatively low, at $1.1 billion , substantially offset by excess cash balances held at the Federal Reserve Banks, defined as total reserves held less required reserves of $1.9 billion ;
•
Asset liquidity remained robust at $18.5 billion ; net overnight position, defined as federal funds sold plus excess balances held at the Federal Reserve Banks minus federal funds purchased, totaled $1.9 billion ; unencumbered liquid securities totaled $13.1 billion ; and available FHLB capacity secured by mortgage loans totaled $3.5 billion ; and
•
Available discount window capacity, defined as available total borrowing capacity from the Federal Reserve based on identified collateral, is secured by non-mortgage commercial and consumer loans and totaled $9.4 billion . Use of this borrowing capacity would likely be considered only during exigent circumstances.
The Wholesale Funding and Liquidity unit monitors a variety of liquidity and funding metrics, including specific risk threshold limits. The metrics are broadly classified as follows:
•
Current liquidity sources and capacities, including excess cash at the Federal Reserve Banks, free and liquid securities and available and secured FHLB borrowing capacity;
•
Contingent stressed liquidity, including idiosyncratic, systemic and combined stress scenarios, in addition to evolving regulatory requirements such as the Liquidity Coverage Ratio and the Net Stable Funding Ratio; and
•
Current and prospective exposures, including secured and unsecured wholesale funding and spot and cumulative cash-flow gaps across a variety of horizons.
Further, certain of these metrics are monitored for each of us, our banking subsidiaries, and for our consolidated enterprise on a daily basis, including net overnight position, free securities, internal liquidity, available FHLB borrowing capacity and total contingent liquidity. In order to identify emerging trends and risks and inform funding decisions, specific metrics are also forecasted over a one-year horizon.
For the nine months ended September 30, 2014 , our operating activities contributed $1.2 billion in net cash, including an increase in other liabilities, which added $2.3 billion , and an increase in depreciation, amortization and accretion, which added $313 million , partially offset by a decrease in other assets of $2.0 billion and a gain on sale of deposits of $286 million . For the nine months ended September 30, 2014 , net cash used by investing activities was $7.4 billion , primarily reflecting net securities AFS portfolio purchases of $5.6 billion , a net increase in loans and leases of $4.1 billion and securities HTM portfolio purchases of $1.2 billion , partially offset by proceeds from maturities, paydowns and sales of securities AFS of $3.5 billion . Cash provided by financing activities was $6.3 billion , including a net increase in other short-term borrowed funds of $4.5 billion and a net

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increase in deposits of $1.6 billion . These activities represented a cumulative increase in cash and cash equivalents of $132 million , which, when added to the cash and cash equivalents balance of $2.8 billion at the beginning of the period, resulted in an ending balance of cash and cash equivalents of $2.9 billion as of September 30, 2014 .
For the nine months ended September 30, 2013 , aggregate operating activities contributed $1.6 billion in net cash. Significant items within this category included net loss of $3.6 billion and goodwill impairment of $4.4 billion . For the nine months ended September 30, 2013 , investing activities contributed net cash of $218 million , primarily reflecting proceeds from maturities, paydowns and sales of securities AFS of $6.9 billion , a decrease in loans and leases of $1.3 billion and a decrease in interest-bearing deposits in banks of $1.0 billion offset by purchases of securities AFS of $8.8 billion . Finally, financing activities utilized net cash of $2.3 billion , primarily reflecting a decrease in deposits of $1.2 billion , a net decrease in federal funds purchased and securities sold under agreements to repurchase of $742 million and dividends declared and paid to parent of $811 million . Together, these activities resulted in a cumulative decrease in cash and cash equivalents of $481 million . When added to the cash and cash equivalents balance of $3.1 billion at the beginning of the period, the result was an ending cash and cash equivalents balance of $2.6 billion at September 30, 2013 .
 

Off Balance Sheet Commitments

The following table presents our outstanding off-balance sheet commitments. See Note 12 “Commitments and Contingencies” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information elsewhere in the report for further discussion:
(dollars in millions)
September 30,
2014
 
December 31,
2013
 
Change
 
Percent
Commitment amount:
 
 
 
 
 
 
 
Undrawn commitments to extend credit

$55,333

 

$53,987

 

$1,346

 
2
 %
Financial standby letters of credit
2,498

 
2,556

 
(58
)
 
(2
)
Performance letters of credit
94

 
149

 
(55
)
 
(37
)
Commercial letters of credit
74

 
64

 
10

 
16

Marketing rights
51

 
54

 
(3
)
 
(6
)
Risk participation agreements
16

 
17

 
(1
)
 
(6
)
Residential mortgage loans sold with recourse
11

 
13

 
(2
)
 
(15
)
Total

$58,077

 

$56,840

 

$1,237

 
2
 %

On May 29, 2014, we entered into an agreement to purchase auto loans on a quarterly basis in future periods. For the first year, the agreement requires the purchase of a minimum of $250 million of outstanding balances to a maximum of $600 million per quarterly period. For quarterly periods after the first year, the minimum and maximum purchases are $400 million and $600 million, respectively. The agreement automatically renews until terminated by either party. We may cancel the agreement at will with payment of a variable termination fee. After three years, there is no termination fee. For more information regarding this agreement, see "Recent Events.”
Critical Accounting Estimates
Our unaudited interim Consolidated Financial Statements, which are included elsewhere in this report, are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our unaudited interim Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on our unaudited interim Consolidated Financial Statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. The most significant accounting policies and estimates and their related application are discussed below.





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Allowance for Credit Losses

Management’s estimate of probable losses in our loan and lease portfolios including unfunded lending commitments is recorded in the allowance for loan and lease losses and the reserve for unfunded lending commitments, at levels that we believe to be appropriate as of the balance sheet date. Our determination of such estimates is based on a periodic evaluation of the loan and lease portfolios and unfunded credit facilities, as well as other relevant factors. This evaluation is inherently subjective and requires significant estimates and judgments of underlying factors, all of which are susceptible to change.

The allowance for loan and lease losses and reserve for unfunded lending commitments could be affected by a variety of internal and external factors. Internal factors include portfolio performance such as delinquency levels, assigned risk ratings, the mix and level of loan balances, differing economic risks associated with each loan category and the financial condition of specific borrowers. External factors include fluctuations in the general economy, unemployment rates, bankruptcy filings, developments within a particular industry, changes in collateral values and factors particular to a specific commercial credit such as competition, business and management performance. The allowance for loan and lease losses may be adjusted to reflect our current assessment of various qualitative risks, factors and events that may not be measured in our statistical procedures. There is no certainty that the allowance for loan and lease losses and reserve for unfunded lending commitments will be appropriate over time to cover losses because of unanticipated adverse changes in any of these internal, external or qualitative factors.

The evaluation of the adequacy of the commercial and commercial real estate allowance for loan and lease losses and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default, loss given default and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors may be included in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses and forward loss curve ratios.

For non-accruing commercial and commercial real estate loans with an outstanding balance of $3 million or greater and for all commercial and commercial real estate TDRs (regardless of size), we conduct specific analysis on a loan level basis to determine the probable amount of credit loss. If appropriate, a specific allowance is established for the loan through a charge to the provision for credit losses. For all classes of impaired loans, individual loan measures of impairment may result in a charge-off to the allowance for loan and lease losses, if deemed appropriate. In such cases, the provision for credit losses is not affected when a specific reserve for at least that amount already exists. Techniques utilized include comparing the loan’s carrying amount to the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. The technique applied to each impaired loan is based on the workout officer’s opinion of the most probable workout scenario. Historically this has generally led to the use of the estimated present value of future cash flows approach. The fair value of underlying collateral will be used if the loan is deemed collateral dependent. For loans that use the fair value of underlying collateral approach, a charge-off assessment is performed quarterly to write the loans down to fair value.

For most non-impaired retail loan portfolio types, the allowance for loan and lease losses is based upon the incurred loss model utilizing the PD, LGD and exposure at default on an individual loan basis. When developing these factors, we may consider the loan product and collateral type, LTV ratio, lien position, borrower’s credit, time outstanding, geographic location, delinquency status and incurred loss period. Incurred loss periods are reviewed and updated at least annually, and potentially more frequently when economic situations change rapidly, as they tend to fluctuate with economic cycles. Incurred loss periods are generally longer in good economic times and shorter in bad times.

For home equity lines and loans, a number of factors impact the PD. Specifically, the borrower’s current FICO score, the utilization rate, delinquency statistics, borrower income, current combined loan to value ratio and months on books are all used to assess the borrower’s creditworthiness. Similarly, the loss severity is also impacted by various factors, including the utilization rate, the combined loan to value ratio, the lien position, the Housing Price Index change for the location (as measured by the Case-Shiller index), months on books and current loan balance.

When we are not in a first lien position, we use delinquency information on the first lien exposures obtained from third-party credit information providers in the credit assessment. For all first liens, whether owned by a third party or by us, an additional assessment is performed on a quarterly basis. In this assessment, the most recent three months’ performance of the senior liens is reviewed for delinquency (90 days or more past due), modification, foreclosure and/or bankruptcy statuses. If any derogatory status is present, the junior lien will be placed on nonaccrual status regardless of its delinquency status on our books. This subsequent change to nonaccrual status will alter the treatment in the PD model, thus affecting the reserve calculation.


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In addition, the first lien exposure is combined with the second lien exposure to generate a combined LTV. The combined LTV is a more accurate reflection of the leverage of the borrower against the property value, as compared to the LTV from just the junior lien(s). The combined LTV is used for modeling both the junior lien PD and LGD. This also impacts the Allowance for Loan Loss rates for the junior lien HELOCs.

The above measures are all used to assess the PD and LGD for HELOC borrowers for whom we originated the loans. There is also a portfolio of home equity products that were originated and serviced by others; however, we currently service some of the loans in this portfolio. The SBO portfolio is modeled as a separate class and the reserves for this class are generated by using the delinquency roll rate models as described below.

For student loan and SBO portfolios, we estimate the allowance for loan loss by utilizing a delinquency roll rate model. For such a model, the portfolio is segmented by delinquency category (e.g., 30 days past due, 60 days past due, etc.). The purpose of this segmentation is to evaluate the probability of a loan flowing into the next delinquency stage category, within one month. The projected rate for each delinquency category is the moving average of the previous 12 months’ rates, although the number of months used could vary by loan type, with the current month from the previous two years included to adjust for seasonality. For the portfolios utilizing the incurred loss model, roll rate models are also run as challenger models and can be used to support management overlays if deemed necessary. At a macro level, retail losses for all portfolio types may be affected by factors such as collateral values, unemployment rates and local economic conditions.

For retail TDRs that are not collateral-dependent, allowances are developed using the present value of expected future cash flows, compared to the recorded investment in the loans. Expected re-default factors are considered in this analysis. Retail TDRs that are deemed collateral-dependent are written down to the fair market value of the collateral less costs to sell. The fair value of collateral is periodically monitored subsequent to the modification.

Changes in the levels of estimated losses, even if minor, can significantly affect management’s determination of an appropriate allowance for loan and lease losses. For consumer loans, losses are affected by such factors as loss severity, collateral values, economic conditions, and other factors. A 1% and 5% increase in the estimated loss rate for consumer loans at December 31, 2013 would have increased the allowance by $5 million and $25 million, respectively. The allowance for loan and lease losses for our Commercial Banking segment is sensitive to assigned credit risk ratings and inherent loss rates. If 10% and 20% of the December 31, 2013 period ending loan balances (including unfunded commitments) within each risk rating category of our Commercial Banking segment had experienced downgrades of two risk categories, the allowance for loan and lease losses would have increased by $32 million and $64 million, respectively, as of December 31, 2013.
    
Commercial loans and leases are charged off to the allowance when there is little prospect of collecting either principal or interest. Charge-offs of commercial loans and leases usually involve receipt of borrower-specific adverse information. For commercial collateral dependent loans, an appraisal or other valuation is used to quantify a shortfall between the fair value of the collateral less costs to sell and the recorded investment in the commercial loan. Retail loan charge-offs are generally based on established delinquency thresholds rather than borrower-specific adverse information. When a loan is collateral-dependent, any shortfalls between the fair value of the collateral less costs to sell and the recorded investment is promptly charged off. Placing any loan or lease on nonaccrual status does not by itself require a partial or total charge-off; however, any identified losses are charged off at that time.

For additional information regarding the allowance for loan and lease losses and reserve for unfunded lending commitments, see Note 4 “Allowance for Credit Losses, Nonperforming Assets and Concentrations of Credit Risk” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information located elsewhere in this report as well as Note 1 “Significant Accounting Policies,” and Note 5 “Allowance for Credit Losses, Nonperforming Assets and Concentrations of Credit Risk,” to our audited Consolidated Financial Statements.

Fair Value

We measure fair value using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices in an active market, where available. If quoted prices are not available, observable market-based inputs or independently sourced parameters are used to develop fair value, whenever possible. Such inputs may include prices of similar assets or liabilities, yield curves, interest rates, prepayment speeds and foreign exchange rates.

    

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We classify our assets and liabilities that are carried at fair value in accordance with the three-level valuation hierarchy:

•
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;

•
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by market data for substantially the full term of the asset or liability; and

•
Level 3. Unobservable inputs that are supported by little or no market information and that are significant to the fair value measurement.

Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Level 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data.

Significant assets measured at fair value on a recurring basis include our mortgage-backed securities AFS. These instruments are priced using an external pricing service and are classified as Level 2 within the fair value hierarchy. The service’s pricing models use predominantly observable valuation inputs to measure the fair value of these securities under both the market and income approaches. The pricing service utilizes a matrix pricing methodology to price our U.S. agency pass-through securities, which involves making adjustments to to-be-announced security prices based on a matrix of various mortgage-backed securities characteristics such as weighted-average maturities, indices and other pool-level information. Other agency and non-agency mortgage-backed securities are priced using a discounted cash flow methodology. This methodology includes estimating the cash flows expected to be received for each security using projected prepayment speeds and default rates based on historical statistics of the underlying collateral and current market conventions. These estimated cash flows are then discounted using market-based discount rates that incorporate characteristics such as average life, volatility, ratings, performance of the underlying collateral, and prevailing market conditions.

We review and update the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on period-end balances. We also verify the accuracy of the pricing provided by our primary external pricing service on a quarterly basis. This process involves using a secondary external vendor to provide valuations for our securities portfolio for comparison purposes. Any securities with discrepancies beyond a certain threshold are researched and, if necessary, valued by an independent outside broker.

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments for certain loans and goodwill.

For additional information regarding our fair value measurements, see Note 2 “Securities,” Note 6 “Mortgage Banking,” and Note 11 “Derivatives” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information found elsewhere in this report as well as Note 1 “Significant Accounting Policies,” Note 3 “Securities,” Note 9 “Mortgage Banking” and Note 15 “Derivatives” to our audited Consolidated Financial Statements.

Goodwill

Goodwill is an asset that represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is not amortized, but is subject to annual impairment tests. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. A reporting unit is a business operating segment or a component of a business operating segment. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is deemed to be not impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.


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The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangible assets as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

We review goodwill for impairment annually as of October 31 (previously as of September 30) or more often if events or circumstances indicate that it is more likely than not that the fair value of one or more reporting units is below its carrying value. We rely on the income approach (discounted cash flow method) as the primary method for determining fair value. Market-based methods are used as benchmarks to corroborate the value determined by the discounted cash flow method.

We rely on several assumptions when estimating the fair value of our reporting units using the discounted cash flow method. These assumptions include the current discount rate, as well as projected loan losses, income taxes and capital retention rates. Discount rates are estimated based on the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta and unsystematic risk and size premium adjustments specific to a particular reporting unit. The discount rates are also calibrated on the assessment of the risks related to the projected cash flows of each reporting unit. Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives, customer retention standards, market share changes, anticipated loan and deposit growth, forward interest rates, historical performance and industry and economic trends, among other considerations. The long-term growth rate used in determining the terminal value of each reporting unit was estimated based on management’s assessment of the minimum expected terminal growth rate of each reporting unit, as well as broader economic considerations such as gross domestic product and inflation.

We corroborate the fair value of our reporting units determined by the discounted cash flow method using market-based methods: a comparable company method and a comparable transaction method. The comparable company method measures fair value of a business by comparing it to publicly traded companies in similar lines of business. This involves identifying and selecting the comparable companies based on a number of factors (i.e., size, growth, profitability, risk and return on investment), calculating the market multiples (i.e., price-to-tangible book value, price-to-cash earnings and price-to-net income) of these comparable companies and then applying these multiples to our operating results to estimate the value of the reporting unit’s equity on a marketable, minority basis. A control premium is then applied to this value to estimate the fair value of the reporting unit on a marketable, controlling basis. The comparable transaction method measures fair value of a business based on exchange prices in actual transactions and on asking prices for controlling interests in public or private companies currently offered for sale. The process involves comparison and correlation of ourselves with other similar companies. Adjustments for differences in factors described earlier (i.e., size, growth, profitability, risk and return on investment) are also considered.

The valuation of goodwill is dependent on forward-looking expectations related to the performance of the U.S. economy and our associated financial performance. The prolonged delay in the full recovery of the U.S. economy, and the impact of that delay on earnings expectations, prompted a goodwill impairment test as of June 30, 2013. Although the U.S. economy has demonstrated signs of recovery, notably improvements in unemployment and housing, the pace and extent of recovery in these indicators, as well as in overall gross domestic product, have lagged previous expectations. The impact of the slow recovery is most evident in our Consumer Banking reporting unit. Accordingly, the percentage by which the estimated fair value of our Consumer Banking reporting unit exceeded its carrying value declined from 7% at December 31, 2011 to 5% at December 31, 2012.
    
During the first half of 2013, we observed further deceleration of expected growth for our Consumer Banking reporting unit’s future profits based on forecasted economic growth for the U.S. economy and the continuing impact of the new regulatory framework in the financial industry. This deceleration was incorporated into our revised earnings forecast in the second quarter of 2013, and we subsequently concluded that there was a likelihood of greater than 50% that goodwill impairment had occurred as of June 30, 2013.

An interim goodwill impairment test was subsequently performed for our Consumer Banking and Commercial Banking reporting units. Step One of these tests indicated that (1) the fair value of our Consumer Banking reporting unit was less than its carrying value by 19% and (2) the fair value of our Commercial Banking reporting unit exceeded its carrying value by 27%. Step Two of the goodwill impairment test was subsequently performed for our Consumer Banking reporting unit, which resulted in the recognition of a pre-tax $4.4 billion impairment charge in our Consolidated Statement of Operations for the period ending June

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30, 2013. The impairment charge, which was a non-cash item, had minimal impact on our Tier 1 and total capital ratios. The impairment charge had no impact on our liquidity position or tangible common equity.

We performed an annual test for impairment of goodwill for both reporting units as of October 31, 2013. As of this testing date, the percentage by which the fair value of our Consumer Banking reporting unit exceeded its carrying value was 21%, and the percentage by which the fair value of our Commercial Banking reporting unit exceeded its carrying value was 31%.

We based the fair value estimates used in our annual goodwill impairment testing on assumptions we believe to be representative of assumptions that a market participant would use in valuing the reporting units but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our reporting units. There can be no assurances that future estimates and assumptions made for purposes of goodwill testing will prove accurate predictions of the future. If the assumptions regarding business plans, competitive environments or anticipated growth rates are not achieved, we may be required to record goodwill impairment charges in future periods.
    
For additional information regarding our goodwill impairment testing, see Note 5 “Goodwill” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information found elsewhere in this report as well as Note 1 “Significant Accounting Policies” and Note 8 “Goodwill” to our audited Consolidated Financial Statements.

Income Taxes

Accrued income taxes are reported as a component of either other assets or other liabilities, as appropriate, in the audited Consolidated Balance Sheets and reflect our estimate of income taxes to be paid or that effectively have been prepaid. Deferred income tax assets and liabilities represent the amount of future income taxes to be paid or that effectively have been prepaid, and the net balance is reported as an asset or liability in the audited Consolidated Balance Sheets. We determine the realization of the deferred tax asset based upon an evaluation of the four possible sources of taxable income: (1) the future reversals of taxable temporary differences; (2) future taxable income exclusive of reversing temporary differences and carryforwards; (3) taxable income in prior carryback years; and (4) tax planning strategies. In projecting future taxable income, we utilize forecasted pre-tax earnings, adjust for the estimated book tax differences and incorporate assumptions, including the amount of income allocable to taxing jurisdictions. These assumptions require significant judgment and are consistent with the plans and estimates that we use to manage the underlying businesses. The realization of the deferred tax assets could be reduced in the future if these estimates are significantly different than forecasted.
    
We are subject to income tax in the United States and multiple state and local jurisdictions. The tax laws and regulations in each jurisdiction may be interpreted differently in certain situations, which could result in a range of outcomes. Thus, we are required to exercise judgment regarding the application of these tax laws and regulations. We evaluate and recognize tax liabilities related to any tax uncertainties. Due to the complexity of some of these uncertainties, the ultimate resolution may differ from the current estimate of tax liabilities or refunds.

Our estimate of accrued income taxes, deferred income taxes and income tax expense can also change in any period as a result of new legislative or judicial guidance impacting tax positions, as well as changes in income tax rates. Any changes, if they occur, can be significant to our audited consolidated financial position, results of operations or cash flows.

For additional information regarding income taxes, see Note 10 “Income Taxes” to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information found elsewhere in this report as well as Note 14 “Income Taxes” and Note 1 “Significant Accounting Policies” to our audited Consolidated Financial Statements.

Risk Governance
We are committed to maintaining a strong, integrated and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision making body is setting our risk appetite to ensure that the levels of risk that we are willing to accept in the attainment of our strategic business and financial objectives are clearly understood.

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To enable the Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The key committees that specifically consider risk across the enterprise are set out in the diagram below.

 
Chief Risk Officer
The CRO, directs our overall risk management function overseeing the compliance, regulatory, operational and credit risk management. In addition, the CRO has oversight of the management of market, liquidity and strategic risks. The CRO reports to our CEO and Board Risk Committee.
Risk Framework
Our risk management framework is embedded in our business through a “Three Lines of Defense” model which defines responsibilities and accountabilities.
First Line of Defense
The business lines (including their associated support functions) are the First Line of Defense and are accountable for owning and managing, within our defined risk appetite, the risks which exist in their respective business areas. The business lines are responsible for performing regular risk assessments to identify and assess the material risks that arise in their area of responsibility, complying with relevant risk policies, testing and certifying the adequacy and effectiveness of their controls on a regular basis, establishing and documenting operating procedures and establishing and owning a governance structure for identifying and managing risk.

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Second Line of Defense
The Second Line of Defense includes independent monitoring and control functions accountable for developing and ensuring implementation of risk and control frameworks, oversight of risk, financial management and valuation, and regulatory compliance. This centralized risk function is appropriately independent from the business and is accountable for overseeing and challenging our business lines on the effective management of their risks. This risk function utilizes training, communications and awareness to provide expert support and advice to the business lines. This includes interpreting the risk policy standards and risk management framework, overseeing compliance by the businesses with policies and responsibilities, including providing relevant management information and escalating concerns where appropriate.
The Executive Risk Committee, chaired by the CRO, actively considers our inherent material risks, analyzes our overall risk profile and seeks confirmation that the risks are being appropriately identified, assessed and mitigated.
Third Line of Defense
Our internal audit function is the Third Line of Defense acting as an independent appraisal and assurance function. As an independent assurance function, internal audit ensures the key business risks are being managed to an acceptable level and that the risk management and internal control framework is operating effectively. Independent assessments are provided to our Audit Committee on a monthly basis and to the Board and executive management in the form of quarterly opinions.
Risk Appetite
Risk Appetite is a strategic business and risk management tool. We define our risk appetite as the maximum limit of acceptable risk beyond which we would either be unable to achieve our strategic objectives and capital adequacy obligations or would assume an unacceptable amount of risk to do so. The Board Risk Committee advises our Board of Directors in relation to current and potential future risk strategy, including determination of risk appetite and tolerance.
 
The principal non-market risks to which we are subject are: credit risk, operational risk, liquidity risk, strategic risk and reputational risk. We are also subject to market risks. Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Market risk does not result from proprietary trading, which we prohibit. Rather, modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage both trading and non-trading market risks. We are also subject to liquidity risk, discussed above under “Liquidity.”
Our risk appetite framework and risk limit structure establishes guidelines to determine the balance between existing and desired levels of risk and supports the implementation, measurement and management of our risk appetite policy.
Credit Risk
Overview
Credit risk represents the potential for loss arising from a customer, counterparty, or issuer failing to perform in accordance with the contractual terms of the obligation. While the majority of our credit risk is associated with lending activities, we do engage with other financial counterparties for a variety of purposes including investing, asset and liability management, and trading activities. Given the financial impact of credit risk on our profit and loss and balance sheet, the assessment, approval, and management of credit risk represents a major part of our overall risk-management responsibility.
Objective
The credit risk management organization is responsible for approving credit transactions, monitoring portfolio performance, identifying problem loans, and ensuring remedial management.
Organizational Structure
Management and oversight of credit risk is the responsibility of the CCOs. Although there is substantial overlap between our consumer and commercial risk management functions and our business segments, Consumer Banking and Commercial Banking, as well as Other, the allocation of a line of business to either Consumer Banking or Commercial Banking for accounting purposes does not necessarily align with our risk management categories. The relevant CCO and their teams oversee the management of credit risk activities, under the guidance of the CRO. There are additional matrix reporting lines for the CCOs and CRO that tie

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into the segment executive management, as well as the RBS Group Credit Risk Management. From a commercial perspective, it is likely that some matrix reporting lines will continue into the RBS Group Risk functions for as long as we are majority owned by the RBS Group.
The credit risk teams operate independently from the business lines to ensure decisions are not influenced by unbalanced objectives. Each team is comprised of senior credit officers who possess extensive experience structuring and approving loans.

Governance
The primary mechanisms used to govern our credit risk function are our consumer and commercial credit policies. These policies outline the minimum acceptable lending standards that align with our desired risk appetite. Material issues or changes are identified by the individual committees and presented to the Combined Credit Risk Committee, Executive Risk Committee and the Board for approval as required.
 
Key Management Processes
To ensure credit risks are managed within our risk appetite and business and risk strategies are achieved, we employ a comprehensive and integrated control program. The program’s objective is to proactively (1) identify, (2) measure, (3) monitor, and (4) mitigate existing and emerging credit risks across the lifecycle (origination, account management/portfolio management, and loss mitigation and recovery).
On the consumer banking side of credit risk, our teams use models to evaluate consumer loans across the lifecycle of the loan. Starting at origination, credit scoring models are used to forecast the probability of default of an applicant. These models are embedded in the loan origination system, which allows for real-time scoring and automated decisions for many of our products. Periodic validations are performed on our purchased and proprietary scores to ensure fit for purpose. When approving customers for a new loan or extension of an existing credit line, credit scores are used in conjunction with other credit risk variables such as affordability, length of term, collateral value, collateral type, and lien subordination.
The origination process is supported by dedicated underwriting teams that reside in the business line. The size of each team depends on the intensity of the approval process as the number of handoffs, documentation, and verification requirements differ substantially depending on the loan product.
To ensure proper oversight of the underwriting teams, lending authority is granted by credit risk to each underwriter. The amount of delegated authority depends on the experience of the individual. We periodically evaluate the performance of each underwriter and annually reauthorize their delegated authority. Only senior members of the credit risk team are authorized to grant significant exceptions to credit policies. It is not uncommon to make exceptions to established policies when compensating factors are present. These exceptions are capped at 5% of origination volume and tracked separately to ensure performance expectations are achieved.
Once an account is established, credit scores and collateral values are refreshed at regular intervals to allow for proactive identification of increasing or decreasing levels of credit risk. For accounts with contingent liability (revolving feature), credit policies have been developed that leverage the refreshed customer data to determine if a credit line should be increased, decreased, frozen, or closed. Lastly, behavioral modeling, segmentation, and loan modifications are used to cure delinquency, reduce the severity of loss, and maximize recoveries. Our approach to managing credit risk is highly analytical and, where appropriate, is automated, to ensure consistency and efficiency.
One of the central tools used to manage credit risk is the Consumer and Small Business Credit Risk Dashboard. This dashboard is refreshed monthly and evaluates key dimensions of credit risk against predefined parameters, commonly referred to as triggers and limits. Triggers are designed to alert senior management of unfavorable performance deviations from current risk profile and provide sufficient lead time to address and implement corrective actions before the risk increases in materiality. Where appropriate, triggers are aligned to budget expectations and operational targets. Limits, conversely, are designed to represent the maximum risk tolerance or appetite we are willing to accept in any given year.
The credit risk team is constantly evaluating current and projected economic conditions, internal credit performance in relation to budget and predefined risk tolerances, and current and expected regulatory guidance to determine the optimal balance of expansion and contraction policies. All policy change proposals receive intense scrutiny and syndication prior to approval and implementation. This process ensures decisions are made based on profit based analytics with full consideration to operational and regulatory risks.
 

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On the commercial banking side of credit risk, the structure is broken into C&I loans and leases and CRE. Within C&I there are separate verticals established for certain specialty products (e.g., asset based lending, leasing, franchise finance, health care, technology, mid-corporate). A “specialty vertical” is a stand-alone team of industry or product specialists. Substantially all activity that falls under the ambit of the defined industry or product is managed through a specialty vertical when one exists. CRE also operates as a specialty vertical.
Commercial credit risk management begins with defined credit products and policies. New credit products and material changes to existing credit products require multiple levels of review and approval. The initial level of review involves the engagement of risk disciplines from across the enterprise for a New Product Risk Assessment. This assessment process reviews the product description, strategic rationale and financial impact and considers the risk impact from multiple perspectives (Reputation, Operational, Regulatory, Market, Legal as well as Credit). Credit risk approval then involves the determination and development of credit policy which includes the approval of the appropriate credit risk acceptance criteria beyond the general credit underwritings standards that already exist.
Commercial transactions are subject to individual analysis and approval at origination and thereafter are subject to formal annual reviews. The underwriting process includes the establishment and approval of Credit Grades that confirm the PD and LGD. Approval then requires both a business line approver and an independent Credit Approver. The approval level is determined by the size of the credit relationship as well as the PD with larger relationships and weaker PD’s requiring more senior individuals. The checks and balances in the credit process and the independence of the credit approver function are designed to appropriately assess and sanction the level of credit risk being accepted, facilitate the early recognition of credit problems when they occur, and to provide for effective problem asset management and resolution. All authority to grant credit is delegated through the independent credit administration function and is closely monitored and regularly updated.
The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. In addition to the credit analysis conducted during the approval process at origination and annual review, our Credit Quality Assurance group performs testing to provide an independent review and assessment of the quality and/or risk of new loan originations. This group is part of our Risk Management area, and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate risk ratings, as well as test the consistency of the credit processes.
The maximum level of credit exposure to individual credit borrowers is limited by policy guidelines based on the perceived risk of each borrower or related group of borrowers. Concentration risk is managed through limits on industry (sector), loan type (asset class), and loan quality factors. We focus predominantly on extending credit to commercial customers with existing or expandable relationships within our primary banking markets, although we will consider lending opportunities outside our primary markets if we believe that the associated risks are acceptable and aligned with strategic initiatives. Geographic considerations occur at both the transactional level as well as the product level, as certain specialties operate on a national basis.
Our management of risk concentrations includes the establishment of Sector and Asset Class limits which track and report correlated risk exposures. We established limits for 29 separate Sectors. These Sector Limits are approved annually by the Concentration Risk Management Committee. Exposure against these limits is tracked on a monthly basis. The two largest sector concentrations are Industrials and CRE.
 
Apart from Industrials and CRE (which together make up 29% of the commercial utilization as of September 30, 2014), we do not have any major sector concentrations. The Industrial sector includes basic C&I lending focused on general manufacturing. The sector is diversified and not managed as a specialized vertical. Our customers are local to our market and present no significant concentration. We have a smaller concentration in CRE than our peer banks based on industry data obtained from SNL Financial. As of June 30, 2014, our CRE outstandings amounted to 11% of total outstanding loans. According to SNL Financial, the corresponding ratio for peer banks was 18%.
We have also established, through the Concentration Risk Management Committee, Asset Class Limits to further measure and manage concentration risks. Asset classes include Leveraged Lending, Franchise Finance and Loan Underwriting Risk. These asset class limits are expressed as either a percentage of capital or by specific dollar thresholds. Exposure against these limits is tracked quarterly.
Our standardized credit grading system considers many components that directly correlate to loan quality and likelihood of repayment. Our assessment of a borrower’s credit strength, or lack thereof, is reflected in our risk ratings for such loans, which

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are directly tied to, and an integral component of, our allowance for loan and lease losses methodology. When deterioration in credit strength is noted, a loan becomes subject to Watch Review. The Watch Review process evaluates the weaknesses and recommends corrective strategy. The Watch Review process involves senior representatives from the business line portfolio management team, credit and our GRG. If a viable corrective action strategy is not achieved, the credit is subject to classification as either Criticized or Classified which triggers a risk rating downgrade. As such, the loan would attract a higher allowance for loan and lease losses requirement, be subject to more frequent review (including continued inclusion in the Watch Review process), and be reported as a “non-pass” credit to our regulators. In addition, all classified assets are transferred to GRG.
Substantially all loans categorized as Classified are managed by GRG. GRG is a specialized group of credit professionals that handles the day-to-day management of workouts, commercial recoveries, and problem loan sales. Its responsibilities include developing and implementing action plans, assessing risk ratings, and determining the appropriateness of the allowance, the accrual status, and the ultimate collectability of the Classified loan portfolio.

Market Risk
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Market risk does not result from proprietary trading, which we prohibit. Rather, modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit-gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage both trading and non-trading market risks.
Non-Trading Risk
We are exposed to market risk as a result of non-trading banking activities. This market risk is comprised entirely of interest rate risk, as we have no direct currency, equity or commodity risk. This interest rate risk emerges from the balance sheet after the aggregation of our assets, liabilities and equity. We refer to this non-trading risk embedded in the balance sheet as “structural interest rate risk” or “interest rate risk in the banking book.” Our mortgage servicing rights assets also contain interest rate risk as the value of the fee stream is impacted by the level of long-term interest rates.
A major source of structural interest rate risk is a difference in the repricing of assets, on the one hand, and liabilities and equity, on the other. First, there are differences in the timing of rate changes reflecting the maturity and/or repricing of assets and liabilities. For example, the rate earned on a residential mortgage may be fixed for 30 years; the rate paid on a certificate of deposit may be fixed only for a few months. Due to these timing differences, net interest income is sensitive to changes in the level and shape of the yield curve. Second, there are differences in the drivers of rate changes of various assets and liabilities. For example, commercial loans may reprice based on one-month LIBOR or prime; the rate paid on retail money market demand accounts may be only loosely correlated with LIBOR and depend on competitive demand for funds. Due to these basis differences, net interest income is sensitive to changes in spreads between certain indices or repricing rates.
Another important source of structural interest rate risk relates to the potential exercise of explicit or embedded options. For example, most consumer loans can be prepaid without penalty; and most consumer deposits can be withdrawn without penalty. The exercise of such options by customers can exacerbate the timing differences discussed above.
A primary source of our structural interest rate risk relates to faster repricing of floating rate loans relative to the retail deposit funding. This source of asset sensitivity is concentrated at the short end of the yield curve. Given the very low level of short-term interest rates, this risk is asymmetrical with significantly more upside benefit than potential exposure. The secondary source of our interest rate risk is driven by longer term rates comprising the rollover or reinvestment risk on fixed rate loans as well as the prepayment risk on mortgage related loans and securities funded by non-rate sensitive deposits and equity.
The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by the Board. These limits and guidelines reflect our tolerance for interest rate risk over both short-term and long-term horizons. To ensure that exposure to interest rate risk is managed within this risk appetite, we must both measure the exposure and, as necessary, hedge it. The Treasury Asset and Liability Management team is responsible for measuring, monitoring and reporting on the structural interest rate risk position. These exposures are reported on a monthly basis to the Asset and Liability Committee and at Board meetings.
We measure structural interest rate risk through a variety of metrics intended to quantify both short-term and long-term exposures. The primary method that we use to quantify interest rate risk is simulation analysis in which we model net interest income from assets,

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liabilities and hedge derivative positions under various interest rate scenarios over a three-year horizon. Exposure to interest rate risk is reflected in the variation of forecasted net interest income across scenarios.
Key assumptions in this simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit clients in different rate environments. The most material of these behavioral assumptions relate to the repricing characteristics and balance fluctuations of deposits with indeterminate (i.e., non-contractual) maturities as well as the pace of mortgage prepayments.
As the future path of interest rates cannot be known in advance, we use simulation analysis to project net interest income under various interest rate scenarios including a “most likely” (implied forward) scenario as well as a variety of deliberately extreme and perhaps unlikely scenarios. These scenarios may assume gradual ramping of the overall level of interest rates, immediate shocks to the level of rates and various yield curve twists in which movements in short- or long-term rates predominate. Generally, projected net interest income in any interest rate scenarios is compared to net interest income in a base case where market forward rates are realized.
The table below reports net interest income exposures against a variety of interest rate scenarios. Exposures are measured as a percentage change in net interest income over the next year due to either instantaneous, or gradual parallel +/- 200 basis point moves in benchmark interest rates. The net interest income simulation analyses do not include possible future actions that management might undertake to mitigate this risk. The current limit is an adverse change of 10% related to an instantaneous +/- 200 basis point move. As the table illustrates, our balance sheet is asset-sensitive: net interest income would benefit from an increase in interest rates. Exposure to a decline in interest rates is well within limit. It should be noted that the magnitude of any possible decline in interest rates is constrained by the low absolute starting levels of rates. While an instantaneous and severe shift in interest rates was used in this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.
The table below summarizes our positioning in various parallel yield curve shifts:
 
 
Estimated % Change in
Net Interest Income over 12 Months
Basis points
Tolerance
Level  
 
September 30,
2014  
 
December 31,
2013
Instantaneous Change in Interest Rates
 
 
 
 
 
+200
(10)%
 
12.3%
 
16.1%
+100
 
 
6.3
 
8.0
-100
 
 
(3.0)
 
(3.7)
-200
(10)
 
(3.7)
 
(5.7)
Gradual Change in Interest Rates
 
 
 
 
 
+200
 
 
6.3
 
6.8
+100
 
 
3.1
 
3.2
-100
 
 
(1.7)
 
(2.0)
-200
 
 
(2.3)
 
(3.0)
As part of the routine risk management process, a wide variety of similar analyses are reported for each of the next three rolling years.
As recommended by bank regulators, CBPA also uses a valuation measure of exposure to structural interest rate risk, Economic Value of Equity, as a supplement to net interest income simulations. Nevertheless, multi-year net interest income simulation is the main tool for managing structural interest rate risk.
As noted, the balance sheet is asset-sensitive, positioned to benefit from an increase in interest rates. The magnitude of this asset-sensitivity has been reduced from more elevated levels at the end of 2012. At that time, the extremely low levels of medium- to long-term interest rates presented a poor risk-to-reward trade-off for transactions that would add asset duration. As a result, the investment portfolio was reduced in size, increasing asset-sensitivity. Subsequently, intermediate- and long-term interest rates have risen and we resumed portfolio investment, moderating the aggregate asset-sensitivity of the balance sheet.
We also had market risk associated with the value of the mortgage servicing right assets, which are impacted by the level of interest rates. As of September 30, 2014 and December 31, 2013 , our mortgage servicing rights had a book value of $174 million and

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$185 million , respectively, and were carried at the lower of cost or market value. As of September 30, 2014 , and December 31, 2013 , the fair value of the mortgage servicing rights was $187 million and $195 million , respectively. Given low interest rates over recent years, there is a valuation allowance of $15 million and $23 million on the asset as of September 30, 2014 and December 31, 2013 , respectively. Depending on the interest rate environment, hedges may be used to stabilize the market value of the mortgage servicing right asset.

Trading Risk
We are exposed to market risk primarily through client facilitation activities including derivatives and foreign exchange products. Exposure is created as a result of the implied volatility and spreads of a select range of interest rates, foreign exchange rates and secondary loans. These trading activities are conducted through our two banking subsidiaries, CBNA and CBPA.
Client facilitation activities consist primarily of interest rate derivatives and foreign exchange contracts where we enter into offsetting trades with a separate counterparty or exchange to manage our exposure to the customer. Historically, the majority of these offsetting trades have been with the RBS. We will occasionally execute hedges against the spread that exists across the client facing trade and its offset in the market to maintain a low risk profile. Additionally, we have commenced this reporting period a secondary loan trading desk with the objective to meet secondary liquidity needs of our issuing clients’ transactions and investor clients. We do not engage in any proprietary trading to benefit from price differences between financial instruments and markets.
We record interest rate derivatives and foreign exchange contracts as derivative assets and liabilities on our audited Consolidated Balance Sheets. Trading assets and liabilities are carried at fair value with income earned related to these activities included in net interest income. Changes in fair value of trading assets and liabilities are reflected in other income, a component of noninterest income on the audited Consolidated Statements of Operations.
Market Risk Governance
Our market risk framework currently leverages the RBSG technology platform to aggregate, measure and monitor exposure against market risk limits. As part of our separation from the RBS Group, we have entered into a Transitional Services Agreement pursuant to which RBSG will continue to provide us with all necessary VaR and other risk measurements required for regulatory reporting related to interest rate derivatives and foreign exchange trading activities, as well as internal market risk reporting and general consultative services related to our market risk framework until the end of the Transitional Services Agreement. During the term of the Transitional Services Agreement, we intend to build out our own market risk organization and framework in order to gradually migrate away from reliance on services provided by the RBSG. As part of this process, we hired a new head of market risk management to begin building out our stand-alone capabilities with respect to market risk management.
Given the low level of market risk and substantial market risk expertise at our parent, we have received the support of our U.S. banking regulators for relying on the RBS Group’s market risk expertise. In managing our market risk, dealing authorities represent a key control in the management of market risk by setting the scope within which the business is permitted to operate. Dealing authorities are established jointly by designated senior business line and senior risk manager, and are reviewed at least annually. Dealing authorities are structured to accommodate the client facing trades, market offset trades and sets of hedges needed to maintain a low risk profile. Primary responsibility for keeping within established tolerances resides with the business. Key risk indicators, including a combined VaR for interest rate and foreign exchange rate risk, are monitored on a daily basis and reported against tolerances consistent with our risk appetite and business strategy to relevant business line management and risk counterparts.
Market Risk Measurement
We use VaR metrics, complemented with sensitivity analysis, market value and stress testing in measuring market risk. During the term of the Transition Services Agreement, we will continue to leverage the RBSG market risk measurement models, which are described further below, that capture correlation effects and allow for aggregation of market risk across risk types, business lines and legal entities. We measure and monitor market risk for both management and regulatory capital purposes.
Value-at-Risk Overview
    The RBSG market risk measurement model is based on historical simulation. The VaR measure estimates the extent of any fair value losses on trading positions that may occur due to broad market movements (General VaR) such as changes in the level of interest rates, foreign exchange rates, equity prices and commodity prices. It is calculated on the basis that current positions remain broadly unaltered over the course of a given holding period. It is assumed that markets are sufficiently liquid to allow the business to close its positions, if required, within this holding period. VaR’s benefit is that it captures the historic correlations of a portfolio. Based on the composition of our “covered positions,” we also use a standardized add-on approach for the loan trading desk’s Specific Risk capital

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which estimates the extent of any losses that may occur from factors other than broad market movements. The RBSG General VaR approach is expressed in terms of a confidence level over the past 500 trading days. The internal VaR measure (used as the basis of the main VaR trading limits) is a 99% confidence level with a one day holding period, meaning that a loss greater than the VaR is expected to occur, on average, on only one day in 100 trading days (i.e., 1% of the time). Theoretically, there should be a loss event greater than VaR two to three times per year. The regulatory measure of VaR is done at a 99% confidence level with a 10-day holding period. The historical market data applied to calculate the VaR is updated on a 10 business day lag. Refer to “Market Risk Regulatory Capital” below for details of our 10-day VAR metrics for the quarters ended September 30, 2014 , June 30, 2014 and March 31, 2014, including high, low, average and period end VaR for interest rate and foreign exchange rate risks, as well as total VaR. We began measuring the high, low, and average VaR for interest rate and foreign exchange currency rate risk during the fourth quarter of 2013, in conjunction with incorporating trade-level detail for foreign exchange risk in our market risk measurement models. Prior to that time, VaR for foreign exchange exposure was calculated using a manual process that did not capture potential interest rate risk from any forward transactions.
Market Risk Regulatory Capital
Effective January 1, 2013, the U.S. banking regulators adopted “Risk-Based Capital Guidelines: Market Risk” as the regulations covering the calculation of market risk capital (the Market Risk Rule). The Market Risk Rule, commonly known as Basel 2.5, substantially modified the determination of market risk-weighted assets and implemented a more risk sensitive methodology for the risk inherent in certain trading positions categorized as “covered positions.” For the purposes of the market risk rule, all of our client facing trades, market offset trades and sets of hedges needed to maintain a low risk profile qualify as “covered positions.” The internal VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR. The following table shows the results of our modeled and non-modeled measures for regulatory capital calculations:
 
(in millions)
 
For the Quarter Ended September 30, 2014   
Market Risk Category  
 
  Period End     
 
  Average     
 
  High     
 
  Low     
Interest Rate
 

$—

 

$—

 

$—

 

$—

Foreign Exchange Currency Rate
 
—

 
—

 
1

 
—

Diversification Benefit
 
—

 
—

 
NM (1)

 
NM (1)

General VaR
 
—

 
—

 
1

 
—

Specific Risk VaR
 
—

 
—

 
—

 
—

Total VaR
 

$—

 

$—

 

$1

 

$—

Stressed General VaR
 

$2

 

$2

 

$3

 

$2

Stressed Specific Risk VaR
 
—

 
—

 
—

 
—

Total Stressed VaR
 

$2

 

$2

 

$3

 

$2

CFG Market Risk Regulatory Capital
 

$7

 
 

 
 

 
 

CFG Specific Risk Not Modeled Add-on
 
3

 
 
 
 
 
 
CFG Total Market Risk Regulatory Capital
 

$10

 
 
 
 
 
 
CFG Market Risk-Weighted Assets
 

$126

 
 

 
 

 
 

 
(1)  The high and low for the portfolio may have occurred on different trading days than the high and low for the components. Therefore, there is no diversification benefit shown for the high and low columns.
Stress VaR
SVaR is an extension of VaR, but uses a longer historical look back horizon that is fixed from January 1, 2005. This is done not only to identify headline risks from more volatile periods, but also to provide a counter balance to VaR which may be low during periods of low volatility. The holding period for profit and loss determination is 10 days. SVaR is also a component of market risk regulatory capital. SVaR for us is calculated under its own dynamic window regime as compared to the RBSG’s static SVaR window. In a dynamic window regime, values of the 10-day, 99% VaR are calculated over all possible 260-day periods that can be obtained from the complete historical data set. Refer to “Market Risk Regulatory Capital” above for details of SVaR metrics, including high, low, average and period end SVaR for the combined portfolio. We began measuring the high, low, and average SVaR for our combined portfolio during the fourth quarter of 2013 in conjunction with the incorporation of trade-level detail for foreign exchange risk, in our market risk measurement models. Prior to that time, our SVaR measure did not include foreign exchange risk given low levels of materiality.


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Sensitivity Analysis
Sensitivity analysis is the measure of exposure to a single risk factor, such as a one basis point change in rates or credit spread. We conduct and monitor sensitivity on interest rates, basis spreads, foreign exchange exposures and option prices. Whereas VaR is based on previous moves in market risk factors over recent periods, it may not be an accurate predictor of future market moves. Sensitivity analysis complements VaR as it provides an indication of risk relative to each factor irrespective of historical market moves and is an effective tool in evaluating the appropriateness of hedging strategies.
Stress Testing
Conducting a stress test of a portfolio consists of running risk models with the inclusion of key variables that simulate various historical or hypothetical scenarios. For historical stress tests, profit and loss results are simulated for selected time periods corresponding to the most volatile underlying returns while hypothetical stress tests aim to consider concentration risk, illiquidity under stressed market conditions and risk arising from the bank’s trading activities that may not be fully captured by its other models. Hypothetical scenarios also assume that the market moves happen simultaneously and that no repositioning or hedging activity takes place to mitigate losses as events unfold. We generate stress tests of our trading positions on a regular basis. For example, we currently include a stress test that simulates a Lehman-type crisis scenario by taking the worst, 10-day peak to trough moves for the various risk factors that go into VaR from that period, and assuming they occurred simultaneously.
VaR Model Review and Validation
Market risk measurement models used within the RBSG, including VaR models, are subject to ongoing and independent review and validation that focuses on the model methodology. Independent review of market risk measurement models is the responsibility of RBS Group Risk Analytics (GRA). Aspects covered include challenging the assumptions used, the quantitative techniques employed and the theoretical justification underpinning them, and an assessment of the soundness of the required data over time. Where possible, the quantitative impact of the major underlying modeling assumptions will be estimated (e.g., through developing alternative models). Results of such reviews are shared with U.S. regulators. For the term of the Transitional Services Agreement, we and the RBSG expect to utilize the same independently validated VaR model for both management and regulatory reporting purposes. The RBS market risk teams, including those providing consultative services to us under the Transitional Services Agreement, will conduct internal validation before a new or changed model element is implemented and before a change is made to a market data mapping. For example, the RBS market risk teams also perform regular reviews of key risk factors that are used in the market risk measurement models to produce profit and loss vectors used in the VaR calculations. These internal validations are subject to independent re-validation by GRA and, depending on the results of the impact assessment, notification to the appropriate regulatory authorities for the RBSG and us may be required.

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VaR Backtesting
Backtesting is one form of validation of the VaR model. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes. We perform sub-portfolio backtesting as required under the Market Risk Rule, and as approved by its U.S. banking regulators, for interest rate and foreign exchange positions. The following table shows our daily net trading revenue and total internal, modeled VaR for the quarters ending September 30, 2014 , June 30, 2014, March 31, 2014 and December 31, 2013. Prior to the time shown below, we did not perform our own portfolio specific backtesting, relying instead on the RBS backtesting results until we accumulated 250 business days of backtesting results.  We continue to utilize a multiplication factor derived from the RBS backtesting results, as agreed with our banking regulators.
Daily VaR Backtesting: Sub-portfolio Level Backtesting

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented in the “Market Risk” section of the Management’s Discussion & Analysis of Financial Condition & Results of Operations is incorporated herein by reference.


ITEM 4. CONTROLS AND PROCEDURES
Management, with the participation of the CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no material changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

In addition to the matters described in the Company's Registration Statement, information required by this item is set forth in Note 12 “Commitments and Contingencies” in the Notes to the unaudited Consolidated Financial Statements in Part I, Item 1 — Financial Information of this report, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should consider the risks described under the caption “Risk Factors” in the Company’s Registration Statement declared effective on September 23, 2014. There have been no material changes in the Company’s risk factors as described in the Company’s Registration Statement declared effective on September 23, 2014.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period
Total Number of Shares Repurchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs
October 8, 2014
14,297,761
$23.36
Not Applicable
Not Applicable


See Note 23 “Subsequent Events” in the Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Information of this report for further information.

ITEM 5. OTHER INFORMATION

Shareholder Proposals

We intend to hold our first Annual Meeting of Shareholders (the “Annual Meeting”) no earlier than May 1, 2015 and no later than May 29, 2015, with the exact date, time and location to be determined and specified in our proxy statement related to the Annual Meeting.

Under the Securities and Exchange Commission’s proxy rules, we have set the deadline for submission of proposals and director nominations to be included in our proxy materials for the Annual Meeting as the close of business on December 15, 2014, assuming the outer date of May 29, 2015. Accordingly, in order for a shareholder proposal or director nomination to be considered for inclusion in our proxy materials for the Annual Meeting, the proposal or director nomination must be received by our Corporate Secretary, Citizens Financial Group, Inc., 600 Washington Boulevard, Stamford, Connecticut 06901, on or before the close of business on December 15, 2014, and must comply with the rules and regulations promulgated by the Securities and Exchange Commission. These shareholder notices also must comply with the requirements of our amended and restated bylaws and will not be effective otherwise.

ITEM 6. EXHIBITS

3.1    Amended and Restated Certificate of Incorporation of the Registrant as in effect on the date hereof

3.2    Amended and Restated Bylaws of the Registrant as in effect as of the date hereof

10.1    Separation and Shareholder Agreement between the Registrant and The Royal Bank of Scotland Group plc

10.2    Transitional Services Agreement between the Registrant and The Royal Bank of Scotland Group plc

10.3    Trademark License Agreement between the Registrant and The Royal Bank of Scotland Group plc


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10.4    Registration Rights Agreement between the Registrant and The Royal Bank of Scotland Group plc

10.5    Amended and Restated Master Service Agreement between Citizens Bank, N.A. and RBS Business Services Private LTD

10.6    Transitional Services Agreement between Citizens Bank, N.A. and RBS Global Trade Service Centre Private Limited

10.7    Citizens Financial Group, Inc. Converted Equity 2010 Deferral Plan

10.8    Citizens Financial Group, Inc. Converted Equity 2010 Long Term Incentive Plan

10.9    Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy

10.10    Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan Award Agreement

10.11    Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan

31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101
The following materials from the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2014, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Other Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements


121

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2014.

                                    

CITIZENS FINANCIAL GROUP, INC.
(Registrant)
 
 
By:
/s/ Ronald S. Ohsberg
 
Name: Ronald S. Ohsberg
 
Title: Executive Vice President & Controller
 
(Principal Accounting Officer and Authorized Officer)







122

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

CITIZENS FINANCIAL GROUP, INC.
Pursuant to the provisions of §242 and §245 of the
General Corporation Law of the State of Delaware
FIRST: The present name of the corporation is Citizens Financial Group, Inc. (the “ Corporation ”). The date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was November 21, 1984.
SECOND: The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended in its entirety as set forth in the Amended and Restated Certificate of Incorporation hereinafter provided for (the “ Certificate of Incorporation ”).
THIRD: The Certificate of Incorporation herein certified has been duly adopted by the stockholders in accordance with the provisions of §228, 242 and 245 of the General Corporation Law of the State of Delaware.
FOURTH: This Certificate shall become effective as of August 22, 2014 (the “ Effective Time ”).
Article 1
NAME
Section 1.01.      Name . The name of the corporation is Citizens Financial Group, Inc. (the “ Corporation ”).
ARTICLE 2     
REGISTERED OFFICE AND AGENT
Section 2.01.      Address and Name . The address of its registered office in the State of Delaware is 2711 Centerville Road, Ste. 400, City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is The Corporation Service Company.
ARTICLE 3     
PURPOSE AND POWERS
Section 3.01.      Purpose and Powers . The purpose for which the Corporation is organized is to act as a bank holding company, to act as a savings and loan holding


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company, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (“ Delaware Law ”).
ARTICLE 4     
CAPITAL STOCK
Section 4.01.      Authorized Shares .
(a)      Classes of Stock . The total number of shares of stock that the Corporation shall have authority to issue is 1,100,000,000, consisting of 1,000,000,000 shares of Common Stock, par value $0.01 per share (the “ Common Stock ”), and 100,000,000 shares of Preferred Stock, par value $25.00 per share (the “ Preferred Stock ”).
Upon this Certificate of Incorporation becoming effective pursuant to Delaware Law at the Effective Time, each share of Common Stock of the Corporation issued immediately prior to the Effective Time will be reclassified into 165,582 issued, fully paid and nonassessable shares of Common Stock, without any action required on the part of the Corporation or the holders of such Common Stock. No fractional shares of Common Stock will be issued in connection with the reclassification of shares of Common Stock provided herein. In lieu of fractional shares, holders of such Common Stock will receive a cash payment equal to the fair value of such fractional shares, as determined in good faith by the Board of Directors of the Corporation (the “ Board of Directors ”). From and after the Effective Time, stock certificates representing the Common Stock issued immediately prior to the Effective Time, if any, shall represent the number of whole shares of Common Stock into which such Common Stock shall have been reclassified pursuant to this Certificate of Incorporation.
(b)      Preferred Stock . The Board of Directors is hereby empowered, without any action or vote by the Corporation’s stockholders (except as may otherwise be provided by the terms of any class or series of Preferred Stock then outstanding), to authorize by resolution or resolutions from time to time the issuance of one or more classes or series of Preferred Stock and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemptions, redemption prices and liquidation preferences with respect to each such class or series of Preferred Stock and the number of shares constituting each such class or series, and to increase or decrease the number of shares of any such class or series to the extent permitted by Delaware Law.
Section 4.02.      Voting Rights . Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided , however , that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any class or series of Preferred Stock) that relates solely to the terms of one or more outstanding classes or series of Preferred Stock if the

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holders of such affected class or series are entitled, either separately or together with the holders of one or more other such classes or series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any class or series of Preferred Stock) or pursuant to Delaware Law.
Except as otherwise required by law, holders of any class or series of Preferred Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any certificate of designations relating to such series of Preferred Stock).
Section 4.03.      Dividends and Distributions . Subject to applicable law and the rights, if any, of the holders of any outstanding class or series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends and other distributions in cash, property of the Corporation or shares of stock of the Corporation, such dividends and other distributions may be declared and paid on the Common Stock out of the assets of the Corporation that are by law available therefor at such times and in such amounts as the Board of Directors in its discretion shall determine.
Section 4.04.      Liquidation, Dissolution or Winding Up . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder.
ARTICLE 5     
BYLAWS
Section 5.01.      Bylaws . The Board of Directors shall have the power to adopt, amend or repeal the bylaws of the Corporation (the “ Bylaws ”).
ARTICLE 6     
BOARD OF DIRECTORS
Section 6.01.      Power of the Board of Directors . The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors.
Section 6.02.      Number of Directors . The number of directors that shall constitute the Board of Directors shall, as of the Effective Time, consist of not less than five nor more than twenty-five persons. The exact number of directors that shall constitute the Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time solely by the affirmative vote of a majority of the Board of Directors.

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Section 6.03.      Election of Directors . There shall be no cumulative voting in the election of directors. Election of directors need not be by written ballot unless the Bylaws so provide.
Section 6.04.      Vacancies . Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors shall, except as otherwise required by law, be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office until the next election of directors.
Section 6.05.      Removal . Any director may be removed, with or without cause, by an affirmative vote of the holders of not less than a majority of the total voting power of all outstanding securities of the Corporation generally entitled to vote in the election of directors, voting together as a single class.
Section 6.06.      Preferred Stock Directors . Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of such class or series of Preferred Stock adopted by resolution or resolutions adopted by the Board of Directors pursuant to Section 4.01 hereto, and such directors so elected shall not be subject to the provisions of this Article 6 unless otherwise provided therein.
ARTICLE 7     
MEETINGS OF STOCKHOLDERS
Section 7.01.      Annual Meetings . An annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such place, on such date, and at such time as the Board of Directors shall determine.
Section 7.02.      Special Meetings . For so long as The Royal Bank of Scotland Group plc (“ Parent ”) continues to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, special meetings of the stockholders may be called by a majority of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class. From and after the date on which Parent ceases to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, special meetings of the stockholders may be called only by or at the direction of the chairman of the Board of Directors, the chief executive officer of the Corporation or the Board of Directors acting pursuant to a resolution adopted by a

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majority of the Board of Directors. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, such holders may call, pursuant to the terms of such class or series of Preferred Stock adopted by resolution or resolutions of the Board of Directors pursuant to Section 4.01 hereto, special meetings of holders of such Preferred Stock.
Section 7.03.      Action by Written Consent . For so long as Parent continues to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, any action required or permitted to be taken at any annual or special meeting of stockholders may be effected by written consent without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all securities entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. From and after the date on which Parent ceases to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, any action required or permitted to be taken at any annual or special meeting of stockholders may be effected only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with Delaware Law, as amended from time to time, and this Article 7 and may not be taken by written consent of stockholders without a meeting. Notwithstanding the foregoing, holders of one or more classes or series of Preferred Stock may, to the extent permitted by and pursuant to the terms of such class or series of Preferred Stock adopted by resolution or resolutions of the Board of Directors pursuant to Section 4.01 hereto, take action by written consent.
ARTICLE 8     
INDEMNIFICATION
Section 8.01.      Limited Liability . A director or officer of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware Law. Neither the amendment nor the repeal of this Article 8 shall eliminate or reduce the effect thereof in respect of any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article 8, would accrue or arise, prior to such amendment or repeal.
Section 8.02.      Right to Indemnification .

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(a)      Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred in this Article 8 shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law.
(b)      The Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law.
Section 8.03.      Insurance . The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under Delaware Law.
Section 8.04.      Nonexclusivity of Rights . The rights and authority conferred in this Article 8 shall not be exclusive of any other right that any person may otherwise have or hereafter acquire.
Section 8.05.      Preservation of Rights . Neither the amendment nor repeal of this Article 8, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall adversely affect any right or protection of any person granted pursuant hereto existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, adoption or modification (regardless of when any proceeding (or part thereof) relating to such event, act or omission arises or is first threatened, commenced or completed).
ARTICLE 9     
MISCELLANEOUS
Section 9.01.      Certain Acknowledgement . In recognition and anticipation that (a) certain directors, principals, officers, employees and/or other representatives affiliated with Parent and its Affiliates (as defined below) may serve as directors, officers or agents of the Corporation and (b) Parent and its Affiliates may now engage and may co

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ntinue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, the provisions of this Article 9 are set forth to regulate and define the conduct of certain affairs of the Corporation with respect to certain classes or categories of business opportunities as they may involve any of Parent or its Affiliates and the powers, rights, duties and liabilities of the Corporation and its directors, officers and stockholders in connection therewith.
Section 9.02.      Competition and Corporate Opportunities; Renouncement . None of (a) Parent or any of its Affiliates (the Persons (as defined below) identified above being referred to, collectively, as “ Identified Persons ” and, individually, as an “ Identified Person ”) shall, to the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, have any duty to refrain from directly or indirectly (i) engaging in the same or similar business activities or lines of business in which the Corporation or any of its Affiliates now engages or proposes to engage or (ii) otherwise competing with the Corporation or any of its Affiliates, and, to the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, no Identified Person shall be liable to the Corporation or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty solely by reason of the fact that such Identified Person engages in any such activities. To the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, the Corporation hereby renounces any interest or expectancy in, or right to be offered an opportunity to participate in, any business opportunity which may be a corporate opportunity for an Identified Person and the Corporation or any of its Affiliates, except as provided in Section 9.03 hereof. Subject to Section 9.03, in the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself, herself or himself and the Corporation or any of its Affiliates, such Identified Person shall, to the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, have no duty to communicate or offer such transaction or other business opportunity to the Corporation or any of its Affiliates and, to the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, shall not be liable to the Corporation or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty as a stockholder, director or officer of the Corporation solely by reason of the fact that such Identified Person pursues or acquires such corporate opportunity for itself, herself or himself, or offers or directs such corporate opportunity to another Person or does not provide notice of such corporate opportunity to the Corporation.
Section 9.03.      Allocation of Corporate Opportunities . The Corporation does not renounce its interest in any corporate opportunity offered to any director affiliated with Parent if such opportunity is offered to such person in his or her capacity as a director or

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officer of the Corporation, and the provisions of Section 9.02 hereof shall not apply to any such corporate opportunity.
Section 9.04.      Certain Matters Deemed Not Corporate Opportunities . In addition to and notwithstanding the foregoing provisions of this Article 9, a corporate opportunity shall not be deemed to be a potential corporate opportunity for the Corporation if it is a business opportunity that (a)  the Corporation is neither financially or legally able, nor contractually permitted to undertake, (b) from its nature, is not in the line of the Corporation’s business or is of no practical advantage to the Corporation or (c) is one in which the Corporation has no interest or reasonable expectancy.
Section 9.05.      Certain Definitions . For purposes of this Article 9, (a) “ Affiliate ” shall mean (i) in respect of Parent, any Person that, directly or indirectly, is controlled by Parent, controls Parent or is under common control with Parent and shall include any principal, member, director, partner, stockholder, officer, employee or other representative of any of the foregoing (other than the Corporation and any entity that is controlled by the Corporation) and (ii) in respect of the Corporation, any Person that, directly or indirectly, is controlled by the Corporation; and (b) “ Person ” shall mean any individual, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other entity.
Section 9.06.      Notice of this Article . To the fullest extent permitted by law or regulation, including the rules of any exchange on which the Company’s securities are listed, any Person purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article 9.
ARTICLE 10     
SEVERABILITY
Section 10.01.      Severability . If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby.
ARTICLE 11     
FORUM
Section 11.01.      Forum . Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law or regulation, including the rules of any exchange on

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which the Company’s securities are listed, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware Law, this Certificate of Incorporation (as it may be amended or restated) or the Bylaws or (d) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article 11.
ARTICLE 12     
AMENDMENTS
Section 12.01.      Amendments . The Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by the Delaware Law and all rights and powers conferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, from and after the date on which Parent ceases to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, the provisions set forth in Section 4.02 and Articles 6, 7, 8, 9 and Article 12 may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed which would have the effect of modifying or permitting the circumvention of the provisions set forth in any of Section 4.02 and Articles 6, 7, 8, 9 and 12, unless such action is approved by the affirmative vote of the holders of not less than 75% of the total voting power of all outstanding securities of the Corporation generally entitled to vote in the election of directors, voting together as a single class.

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation this 22nd day of August, 2014.
CITIZENS FINANCIAL GROUP, INC.
By:
/s/ Robin S. Elkowitz
 
Name: Robin S. Elkowitz
 
Title: Executive Vice President & Secretary


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BYLAWS

OF

CITIZENS FINANCIAL GROUP, INC.
As Amended and Restated August 22, 2014

* * * * *  
Article 1
OFFICES
Section 1.01 . Registered Office. The registered office of Citizens Financial Group, Inc. (the “ Corporation ”) is Corporation Service Company, 2711 Centerville Road, Ste. 400, City of Wilmington, County of New Castle, Delaware 19808.
Section 1.02 . Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the “ Board of Directors ”) may from time to time determine or the business of the Corporation may require.
Section 1.03 . Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE 2     
MEETINGS OF STOCKHOLDERS
Section 2.01 . Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the chairman of the Board of Directors in the absence of a designation by the Board of Directors).
Section 2.02 . Annual Meetings. The annual meeting of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place, if any, within or without the State of Delaware as may be designated from time to time by the Board of Directors. The Corporation may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled.


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Section 2.03 . Special Meetings. Except as otherwise provided by law or the Amended and Restated Certificate of Incorporation of the Corporation (the “ Certificate of Incorporation ”), and subject to the rights of the holders of one or more series of Preferred Stock (as defined in the Certificate of Incorporation), special meetings of the stockholders of the Corporation may be called only by or at the direction of the Board of Directors, the chairman of the Board of Directors or the chief executive officer of the Corporation.
Section 2.04 . Notice of Meetings and Adjourned Meetings; Waivers of Notice.
(a)      Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (“ Delaware Law ”), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. The Board of Directors or the chairman of the meeting may adjourn the meeting to another time or place (whether or not a quorum is present), and notice need not be given of the adjourned meeting if the time, place, if any, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, are announced at the meeting at which such adjournment is made. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
(b)      A written waiver of any such notice signed by the person entitled thereto, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 2.05 . Quorum. Unless otherwise provided under the Certificate of Incorporation or these Amended and Restated Bylaws (the “ Bylaws ”) and subject to Delaware Law, the presence, in person or by proxy, of the holders of a m


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ajority of the total voting power of all outstanding securities of the Corporation generally entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority in voting interest of the stockholders present in person or represented by proxy may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted that might have been transacted at the meeting as originally notified.
Section 2.06 . Voting.
(a)      Unless otherwise provided in the Certificate of Incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Any share of capital stock of the Corporation held by the Corporation shall have no voting rights. Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of a majority of the votes cast at the meeting on the subject matter shall be the act of the stockholders. Abstentions and broker non-votes shall not be counted as votes cast. Subject to the rights of the holders of any class or series of Preferred Stock to elect additional directors under specific circumstances, as may be set forth in the certificate of designations for such class or series of Preferred Stock, directors shall be elected by a plurality of the votes of the shares of capital stock of the Corporation present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
(b)      Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized, or by proxy sent by cable, telegram or by any means of electronic communication permitted by law, which results in a writing from such stockholder or by his attorney, and delivered to the secretary of the meeting. No proxy shall be voted after three (3) years from its date, unless said proxy provides for a longer period.
Section 2.07 . Action by Written Consent. Except as otherwise provided by law or the Certificate of Incorporation, and subject to the rights of the holders of one or more series of Preferred Stock, any action required or permitted to be taken at any annual or special meeting of stockholders may be effected only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with Delaware Law, and this Article 2 and may not be taken by written consent of stockholders without a meeting.


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Section 2.08 . Organization. At each meeting of stockholders, the chairman of the Board of Directors, if one shall have been elected, or in the chairman of the Board of Director’s absence or if one shall not have been elected, the Lead Director, or in the Lead Director’s absence or if one shall not have been elected, the director designated by the vote of the majority of the directors present at such meeting, shall act as chairman of the meeting. The Secretary of the Corporation (the “ Secretary ”) (or in the Secretary’s absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof.
Section 2.09 . Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting.
Section 2.10. Nomination of Directors and Proposal of Other Business.
(a)      Annual Meetings of Stockholders .
(i)      Nominations of persons for election to the Board of Directors or the proposal of other business to be transacted by the stockholders at an annual meeting of stockholders may be made only (A) as provided in the Separation and Shareholder Agreement, dated September 26, 2014 (the “ Separation Agreement ”), between the Corporation and The Royal Bank of Scotland Group plc (“ Parent ”), as may be amended from time to time, (B) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (C) by or at the direction of the Board of Directors or any committee thereof, (D) as may be provided in the certificate of designations for any class or series of Preferred Stock, and (E) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in paragraph (ii) of this Section 2.10(a) and at the time of the annual meeting, who shall be entitled to vote at the meeting and who complies with the procedures set forth in this Section 2.10(a), and, except as otherwise required by law, any failure to comply with these procedures shall result in the nullification of such nomination or proposal.
(ii)      For nominations or other business to be properly brought before an annual meeting of stockholders by a stockholder pursuant to clause (E) of paragraph (i) of this Section 2.10(a), the stockholder must have given timely notice thereof in writing to the Secretary and any such proposed business (other than the nominations of persons for election to the Board of Directors) must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the preceding year’s annual meeting of stockholders; provided, however , that in the event that the date of the annual meeting is


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advanced more than 30 days prior to such anniversary date or delayed more than 70 days after such anniversary date then to be timely such notice must be received by the Corporation no earlier than 120 days prior to such annual meeting and no later than the later of 70 days prior to the date of the meeting or the 10 th day following the day on which public announcement of the date of the meeting was first made by the Corporation. In no event shall the adjournment or postponement of any meeting, or any announcement thereof, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(iii)      A stockholder’s notice to the Secretary shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (as amended (together with the rules and regulations promulgated thereunder), the “ Exchange Act ”)) including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected, (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the text of the proposed amendment), the reasons for conducting such business and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made:
(1)      the name and address of such stockholder (as they appear on the Corporation’s books) and any such beneficial owner;
(2)      for each class or series, the number of shares of capital stock of the Corporation that are held of record or are beneficially owned by such stockholder and by any such beneficial owner;
(3)      a description of any agreement, arrangement or understanding between or among such stockholder and any such beneficial owner, any of their respective affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such nomination or other business;
(4)      a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any


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derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions and borrowed or loaned shares) that has been entered into by or on behalf of, or any other agreement, arrangement or understanding that has been made, the effect or intent of which is to create or mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or any such beneficial owner or any such nominee with respect to the Corporation’s securities;
(5)      a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to bring such nomination or other business before the meeting;
(6)      a representation as to whether such stockholder or any such beneficial owner intends or is part of a group that intends to (i) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Corporation’s outstanding capital stock required to approve or adopt the proposal or to elect each such nominee and/or (ii) otherwise to solicit proxies from stockholders in support of such proposal or nomination;
(7)      any other information relating to such stockholder, beneficial owner, if any, or director nominee or proposed business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies in support of such nominee or proposal pursuant to Section 14 of the Exchange Act; and
(8)      such other information relating to any proposed item of business as the Corporation may reasonably require to determine whether such proposed item of business is a proper matter for stockholder action.
If requested by the Corporation, the information required under clauses 2.10(a)(iii)(C)(2), (3) and (4) of the preceding sentence of this Section 2.10 shall be supplemented by such stockholder and any such beneficial owner not later than 10 days after the record date for the meeting to disclose such information as of the record date.
(b)      Special Meetings of Stockholders . If the election of directors is included as business to be brought before a special meeting in the Corporation’s notice of meeting, then nominations of persons for election to the Board of


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Directors at a special meeting of stockholders may be made by any stockholder who is a stockholder of record at the time of giving of notice provided for in this Section 2.10(b) and at the time of the special meeting, who shall be entitled to vote at the meeting and who complies with the procedures set forth in this Section 2.10(b). For nominations to be properly brought by a stockholder before a special meeting of stockholders pursuant to this Section 2.10(b), the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (A) not earlier than 150 days prior to the date of the special meeting nor (B) later than the later of 120 days prior to the date of the special meeting or the 10 th day following the day on which public announcement of the date of the special meeting was first made. A stockholder’s notice to the Secretary shall comply with the notice requirements of Section 2.10(a)(iii).
(c)      General .
(i)      Other than a director nominated by Parent pursuant to the terms of the Separation Agreement, to be eligible to be a nominee for election as a director, the proposed nominee must provide to the Secretary in accordance with the applicable time periods prescribed for delivery of notice under Section 2.10(a)(ii) or Section 2.10(b): (1) a completed director’s and officer’s (“D&O”) questionnaire (in the form provided by the Secretary at the request of the nominating stockholder) containing information regarding the nominee’s background and qualifications and such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation or to serve as an independent director of the Corporation, (2) a representation that, unless previously disclosed to the Corporation, the nominee is not and will not become a party to any voting agreement, arrangement or understanding with any person or entity as to how such nominee, if elected as a director, will vote on any issue or that could interfere with such person’s ability to comply, if elected as a director, with his/her fiduciary duties under applicable law and (3) a representation that, if elected as a director, such nominee would be in compliance and will continue to comply with the Corporation’s corporate governance guidelines as disclosed on the Corporation’s website, as amended from time to time. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary the information that is required to be set forth in a stockholder’s notice of nomination that pertains to the nominee.
(ii)      No person shall be eligible to be nominated by a stockholder to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.10 (or, in the


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case of Parent, pursuant to the terms of the Separation Agreement). No business proposed by a stockholder shall be conducted at a stockholder meeting except in accordance with this Section 2.10
(iii)      The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws or that business was not properly brought before the meeting, and if he/she should so determine, he/she shall so declare to the meeting and the defective nomination shall be disregarded or such business shall not be transacted, as the case may be. Notwithstanding the foregoing provisions of this Section 2.10, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder), other than Parent in respect of a nomination made pursuant to the terms of the Separation Agreement, does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or other proposed business, such nomination shall be disregarded or such proposed business shall not be transacted, as the case may be, notwithstanding that proxies in respect of such vote may have been received by the Corporation and counted for purposes of determining a quorum. For purposes of this Section 2.10, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(iv)      Without limiting the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to the matters set forth in this Section 2.10; provided , however , that any references in these Bylaws to the Exchange Act are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 2.10, and compliance with paragraphs (a)(i)(C) and (b) of this Section 2.10 shall be the exclusive means for a stockholder to make nominations or submit other business (other than as provided in Section 2.10(c)(v)).
(v)      Notwithstanding anything to the contrary, the notice requirements set forth herein with respect to the proposal of any business pursuant to this Section 2.10 shall be deemed satisfied by a stockholder if such stockholder has submitted a proposal to the Corporation in compliance with Rule 14a-8 under the Exchange Act, and such stockholder’s proposal has been included in a proxy statement that has


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been prepared by the Corporation to solicit proxies for the meeting of stockholders.
ARTICLE 3     
DIRECTORS
Section 3.01 . General Powers. Except as otherwise provided in Delaware Law or the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 3.02 . Number, Election and Term Of Office. The Board of Directors shall consist, subject to the Certificate of Incorporation, of such number of directors as shall from time to time be fixed exclusively by resolution adopted by the Board of Directors. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships and except as otherwise expressly provided in the Certificate of Incorporation) be elected by a plurality of the votes of the shares of capital stock of the Corporation present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Directors need not be stockholders.
Section 3.03 . Quorum and Manner of Acting. Unless the Certificate of Incorporation or these Bylaws require a greater number, a majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise expressly required by law or by the Certificate of Incorporation, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat shall adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 3.04 . Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the chairman of the Board of Directors in the absence of a determination by the Board of Directors).
Section 3.05 . Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice o


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f such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 3.07 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.
Section 3.06 . Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given.
Section 3.07 . Special Meetings. Special meetings of the Board of Directors may be called by the chairman of the Board of Directors and shall be called by the chairman of the Board of Directors or the Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director at least 48 hours before the date of the meeting in such manner as is determined by the Board of Directors.
Section 3.08 . Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware Law to be submitted to the stockholders for approval or (b) adopting, amending or repealing any Bylaw of the Corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 3.09 . Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or t


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ransmissions, are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 3.10 . Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
Section 3.11 . Resignation. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Secretary. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3.12 . Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors shall, except as otherwise required by law, be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office for a term that shall coincide with the term to which such director shall have been elected. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of the other vacancies.
Section 3.13 . Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.
Section 3.14 . Preferred Stock Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolutions a


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pplicable thereto adopted by the Board of Directors pursuant to the Certificate of Incorporation, and such directors so elected shall not be subject to the provisions of Sections 3.02 and 3.12 of this Article 3 unless otherwise provided therein.
ARTICLE 4     
OFFICERS
Section 4.01 . Principal Officers. The principal officers of the Corporation shall be a chief executive officer, a chief financial officer, one or more vice chairpersons, a chief risk officer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more chief accounting officer or controllers, as the Board of Directors may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of chief executive officer and Secretary.
Section 4.02 . Appointment, Term of Office and Remuneration. The principal officers of the Corporation shall be appointed by the Board of Directors in the manner determined by the Board of Directors. Each such officer shall hold office until his or her successor is appointed, or until his or her earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine.
Section 4.03 . Subordinate Officers. In addition to the principal officers enumerated in Section 4.01 herein, the Corporation may have one or more subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees.
Section 4.04 . Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors.
Section 4.05 . Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.


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Section 4.06 . Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors.
ARTICLE 5     
CAPITAL STOCK
Section 5.01 . Certificates for Stock; Uncertificated Shares . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares or a combination of certificated and uncertificated shares. Any such resolution that shares of a class or series will only be uncertificated shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Except as otherwise required by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of shares represented by certificates of the same class and series shall be identical. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by the (i) chairman of the Board of Directors, or the chief executive officer or vice chairman and (ii) treasurer or an assistant treasurer or the Secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Corporation shall not have power to issue a certificate in bearer form.
Section 5.02 . Transfer of Shares. Shares of the stock of the Corporation may be transferred on the record of stockholders of the Corporation by the holder thereof or by such holder’s duly authorized attorney upon surrender of a certificate therefor properly endorsed or upon receipt of proper transfer instructions from the registered holder of uncertificated shares or by such holder’s duly authorized attorney and upon compliance with appropriate procedures for transferring shares in uncertificated form, unless waived by the Corporation.
Section 5.03 . Authority for Additional Rules Regarding Transfer. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of the stock of the Corporation, as well as for the issuance of new certificates in lieu of those which may be lost or destroyed, and may require of any stockholder requesting replacement of lost or destroyed certificates, bond in such amount and in such form as they may deem e


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xpedient to indemnify the Corporation, and/or the transfer agents, and/or the registrars of its stock against any claims arising in connection therewith.
ARTICLE 6     
GENERAL PROVISIONS
Section 6.01 . Fixing the Record Date.
(a)      In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may in its discretion or as required by law fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall fix the same date or an earlier date as the record date for stockholders entitled to notice of such adjourned meeting.
(b)      In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 6.02 . Dividends. Subject to limitations contained in Delaware Law, other applicable law and regulations and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation.


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Section 6.03 . Year. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year.
Section 6.04 . Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “ Corporate Seal, Delaware ”. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 6.05 . Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.
Section 6.06 . Amendments. These Bylaws or any of them, may be altered, amended or repealed, or new Bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. Unless a higher percentage is required by the Certificate of Incorporation as to any matter that is the subject of these Bylaws, all such amendments must be approved by the affirmative vote of the holders of a majority of the total voting power of all outstanding securities of the Corporation, generally entitled to vote in the election of directors, voting together as a single class, or by a majority of the Board of Directors; provided that from and after the date on which Parent ceases to beneficially own, directly or indirectly, securities representing at least 50% of the total voting power of all the then outstanding securities of the Corporation entitled to vote generally in the election of directors, voting together as a single class, the provisions set forth in Articles 2, 3 and 4 and this Section 6.06 may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed which would have the effect of modifying or permitting the circumvention of the provisions set forth in any of Articles 2, 3 and 4 and this Section 6.06, unless such action is approved by the affirmative vote of the holders of not less than 75% of the total voting power of all outstanding securities of the Corporation generally entitled to vote in the election of directors, voting together as a single class.



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EXECUTION VERSION


SEPARATION AND SHAREHOLDER AGREEMENT

dated as of September 26, 2014,

by and between

THE ROYAL BANK OF SCOTLAND GROUP PLC,
a public limited company,
and
CITIZENS FINANCIAL GROUP, INC.,
a Delaware corporation






TABLE OF CONTENTS

PAGE
ARTICLE 1
DEFINITIONS

Section 1.01. Certain Definitions                                 1
Section 1.02. Rules of Construction                             12

ARTICLE 2
THE IPO AND ACTIONS PENDING THE IPO; OTHER TRANSACTIONS

Section 2.01. The IPO                                     13
Section 2.02. Termination of IPO Process                             13
Section 2.03. Subsequent Dispositions                             13

ARTICLE 3
THE SEPARATION

Section 3.01. Termination of Agreements                             14
Section 3.02. Bank Accounts; Cash Balances                         15
Section 3.03. Transfer of Intellectual Property Rights; Licenses                 15
Section 3.04. Other Ancillary Agreements                             16
Section 3.05. Guarantees                                     16

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

Section 4.01. Organization and Authority                            17
Section 4.02. No Conflict                                    18
Section 4.03. No Other Representations or Warranties                     18

ARTICLE 5
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

Section 5.01. Charter                                     18
Section 5.02. By-Laws                                     18
Section 5.03. Company Board                                 18
Section 5.04. Board and Other Committees                             20
Section 5.05. Significant Actions                                 21
Section 5.06. EU Control Period                                 24
Section 5.07. Implementation                                 25

ARTICLE 6
COMPLIANCE, INFORMATION AND CONTROLS

Section 6.01. Policy Compliance and Compliance with Prudential Supervisory Requirements     25
Section 6.02. RBS Information Rights                             26
Section 6.03. RBS Access Rights                                 27
Section 6.04. Access by Governmental Authorities                         28

i


Section 6.05. Remuneration Governance Procedures, Compensation, Tax Responsibility and In-Scope Arrangements                                         28
Section 6.06. Cooperation on Public Filings                             29
Section 6.07. Conformance of Information                             30
Section 6.08. Disclosure Controls                                 31
Section 6.09. Special Reports of Deficiencies, Violations or Unscheduled Events             32
Section 6.10. Company Information Rights                             32
Section 6.11. Access to Historical Records                             33
Section 6.12. Expenses                                     33
Section 6.13. Additional Matters                                 33

ARTICLE 7
CERTAIN BUSINESS MATTERS

Section 7.01. Insurance Matters                                 34
Section 7.02. No Restriction on Competition                             35
Section 7.03. No Solicitation of Employees                             35
Section 7.04. Company Capital Reduction                             35
Section 7.05. Non-Control Determination                             36
Section 7.06. Deconsolidation Date Determination                         36
Section 7.07. Mutual Agreement Procedure Claim                         36

ARTICLE 8
CONFIDENTIALITY; PRESERVATION OF PRIVILEGE

Section 8.01. Confidentiality                                 36
Section 8.02. Protective Arrangements                             37
Section 8.03. Preservation of Legal Privileges                         38

ARTICLE 9
MUTUAL RELEASES; INDEMNIFICATION; COOPERATION

Section 9.01. Release of Pre-Closing Claims                         39
Section 9.02. Pending, Threatened and Unasserted Claims                     41
Section 9.03. Indemnification by the Company                         42
Section 9.04. Indemnification by RBS                             42
Section 9.05. Indemnification Obligations Net of Insurance Proceeds and Other Amounts         43
Section 9.06. Procedures for Indemnification of Third Party Claims                 44
Section 9.07. Additional Matters                                 45
Section 9.08. Remedies Cumulative                             46
Section 9.09. Special Damages                                 46
Section 9.10. Production of Witnesses; Records; Cooperation                     47
Section 9.11. Company Warranty in respect of Pre-Closing Claims                 48
Section 9.12. RBS Warranty in respect of Pre-Closing Claims                     48

ARTICLE 10
DISPUTE RESOLUTION

Section 10.01. Disputes                                     48
Section 10.02. Escalation; Mediation                             48
Section 10.03. Court Actions                                 49

ARTICLE 11
FURTHER ASSURANCES

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Section 11.01. Further Assurances                                 49

ARTICLE 12
TERMINATION

Section 12.01. Termination                                 50
Section 12.02. Effect of Termination; Survival                         50

ARTICLE 13
MISCELLANEOUS

Section 13.01. Counterparts; Entire Agreement; Conflicting Agreements             50
Section 13.02. No Construction Against Drafter                         51
Section 13.03. Governing Law                                 51
Section 13.04. Transferability; Assignability                             51
Section 13.05. Third Party Beneficiaries                             51
Section 13.06. Notices                                     51
Section 13.07. Severability                                 52
Section 13.08. Force Majeure                                 53
Section 13.09. Late Payments                                 53
Section 13.10. Expenses                                     53
Section 13.11. Headings                                     53
Section 13.12. Waivers of Default                                 53
Section 13.13. Remedies                                     53
Section 13.14. Amendments                                 54
Section 13.15. Interpretation                                 54
Section 13.16. Waiver of Jury Trial                                 54
Section 13.17. Submission to Jurisdiction; Waivers                         55

Exhibit A
Form of Registration Rights Agreement
Exhibit B
Amended and Restated Certificate of Incorporation
Exhibit C
Amended and Restated Bylaws
Exhibit D
Form of RBS Non-Voting Attendee Confidentiality Agreement
Schedule 1.01(a)
Company Group Policy Framework
Schedule 1.01(b)
Remuneration Governance Procedures
Schedule 1.01(c)
Transferred Intellectual Property Rights
Schedule 1.01(d)
Retained RBS Domain Names
Schedule 3.01(b)(iii)
Surviving Contracts
Schedule 5.05(d)
Nontransferable Securities
Schedule 6.01(a)(i)(B)
Functional Requirements
Schedule 7.01
Company Insurance Policies
Schedule 7.07
Mutual Agreement Procedure Claim
Schedule 13.10
Expenses



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SEPARATION AND SHAREHOLDER AGREEMENT
THIS SEPARATION AND SHAREHOLDER AGREEMENT, dated as of September 26, 2014, is by and between THE ROYAL BANK OF SCOTLAND GROUP PLC, a public limited company organized under the laws of Scotland (Company Number SC045551) (“ RBS ”), and CITIZENS FINANCIAL GROUP, INC., a Delaware corporation (the “ Company ”). Capitalized terms used herein shall have the respective meanings assigned to them in Article 1 hereof.
R E C I T A L S
WHEREAS, RBS is the indirect owner of all of the issued and outstanding Common Stock of the Company on the date hereof;
WHEREAS, immediately following the Effective Date, RBS will continue to own a majority of the outstanding Common Stock, which it intends to fully divest over time; and
WHEREAS, the Parties wish to set forth certain agreements that will govern certain matters between them following the Effective Date.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:



Article 1
DEFINITIONS
Section 1.01.      Certain Definitions . For the purpose of this Agreement the following terms shall have the following meanings:
“ Action ” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any federal, state, local, foreign or international arbitration or mediation tribunal.
“ Additional Shares ” means any shares of Common Stock as to which RBS acquires beneficial ownership on or after the Effective Date other than (i) any such shares issued to RBS by the Company, including in connection with rights offerings, capital raisings and similar transactions, or (ii) any such shares otherwise acquired by RBS after the Effective Date in order to (x) comply with its legal, regulatory, divestment, compliance, tax and risk management obligations or (y) meet the requirements of any Governmental Authority or securities exchange to which it is subject.
“ Affiliate ” of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.
“ Agreement ” means this Separation and Shareholder Agreement, including all of the schedules and exhibits hereto.
“ Ancillary Agreements ” means, collectively, the Transitional Services Agreement, the Trademark License Agreement, the Registration Rights Agreement, the Underwriting Agreement, the Commercial Services Agreement, the India Transitional Services Agreements and other agreements related thereto.  
“ Audit Committee ” means the Audit Committee of the Company Board.
“ Bank Boards ” means the Board of Directors of CBNA and the Board of Directors of CBPA, collectively.
“ Business Day ” means any day other than a Saturday, Sunday or a day on which banking institutions are authorized or obligated by Law to be closed in New York, New York or London, United Kingdom.
“ Capital Stock ” means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person’s capital stock, and any rights, warrants or options exercisable or exchangeable for or convertible into such capital stock.

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“ Cause ” means, with respect to the removal of any RBS Designee from the Company Board, any removal by reason of such RBS Designee’s malfeasance in office, conviction of, or plea of guilty or nolo contendere to, a felony, gross misconduct, willful conversion of corporate funds or moral turpitude.
“ CBNA ” means Citizens Bank, N.A.
“ CBPA ” means Citizens Bank of Pennsylvania.
“ Closing ” means the closing of the IPO.
“ Commercial Services Agreement ” means the Commercial Services Agreement, dated as of the Closing, by and between RBS and the Company.
“ Commission ” means the U.S. Securities and Exchange Commission.
“ Common Stock ” shall mean the shares of common stock, $0.01 par value per share, of the Company.
“ Company ” has the meaning set forth in the preamble hereto.
“ Company Accounts ” has the meaning set forth in Section 3.02(a).
“ Company ALCO ” means the Asset-Liability Committee of the Company.
“ Company Auditors ” means the Company’s independent certified public accountants, which, as of the date hereof, is Deloitte & Touche LLP.
“ Company Board ” means the Board of Directors of the Company.
“ Company Business ” means any business or operations of the Company Group (whether conducted independently or in association with one or more third parties through a partnership, joint venture or other mutual enterprise) as carried out by the Company Group from time to time.
“ Company Funding and Liquidity Metrics ” means the funding and liquidity metrics and supplemental monitoring information set forth in the document dated August 20, 2014 provided under cover of an email dated September 3, 2014 from David Lindenauer of the Company to Mark McLellan of RBS.
“ Company Group ” means the Company, each Subsidiary of the Company and each other Person that either (x) is controlled directly or indirectly by the Company immediately as of the Effective Date or (y) becomes directly or indirectly controlled by the Company following the Effective Date.
“ Company Group Policy Framework ” means the policies adopted by the Company, as agreed by RBS, identified on Schedule 1.01(a) hereto, as such policies may

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be amended from time to time by mutual consent of the Parties or pursuant to Section 5.05(c).
“ Company Indemnitees ” has the meaning set forth in Section 9.04.
“ CompCo ” means the Compensation and Human Resources Committee of the Company Board established pursuant to Section 5.04(a).
“ Company Warrantors ” has the meaning set forth in Section 9.11.
“ Confidential Information ” means information in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, Contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models (financial or otherwise), flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including Privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
“ Consents ” means any consents, waivers or approvals from any Person other than a member of either Group.
“ Contract ” means any written or oral commitment, contract, subcontract, agreement, lease, sublease, license, understanding, sales order, purchase order, instrument, indenture, note or other commitment that is binding on any Person or any part of its property under applicable Law.
“ Covered Claims ” has the meaning set forth in Section 7.01(b).
“ Deconsolidation Date ” means the date on which RBS ceases to consolidate the Company Group’s financial statements with its financial statements under IFRS.
“ Director ” means a member of the Company Board.
“ Disclosing Party ” has the meaning set forth in Section 8.01(a).
“ Disclosure Documents ” shall mean (i) any form, statement, schedule or other material filed with or furnished to the Commission, any other Governmental Authority or any securities exchange by or on behalf of any Party or any of its Affiliates, including the IPO Registration Statement, and (ii) any information statement, prospectus, offering memorandum, offering circular or similar disclosure document, free writing prospectus, roadshow and any schedule thereto or amendment thereof or document incorporated by reference therein, whether or not filed with or furnished to the Commission, any other Governmental Authority or any securities exchange by or on behalf of any Party or any of its Affiliates.

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“ Effective Date ” means the Business Day immediately preceding the date of the Closing.
“ Escalation Notice ” has the meaning set forth in Section 10.02(a).
“ EU Acquisition ” has the meaning set forth in Section 5.06.
“ EU Acquisition Notice ” has the meaning set forth in Section 5.06.
“ EU Control Period ” has the meaning set forth in Section 5.05(b)(iv)(A).
“ Exchange ” means the New York Stock Exchange.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“ Exchange Manual ” means the Listed Company Manual of the Exchange.
“ Federal Reserve Board ” means the Board of Governors of the United States Federal Reserve System or any successor thereto.
“ Final Withdrawal Date ” means the earlier of (i) the first date on which RBS ceases to directly or indirectly own (within the meaning of Section 2 of the Bank Holding Company Act of 1956, as amended) such number of shares of Common Stock representing at least 4.99% of the voting power of all outstanding shares of Common Stock and (ii) the date on which RBS receives written notice from the Federal Reserve Board that RBS is not deemed to control the Company for purposes of the Bank Holding Company Act of 1956, as amended.
“ Financial Institution ” means any company whose principal activities include the supply of loans, credit cards, current accounts, savings accounts or mortgages, whether the product is supplied through a branch or direct (but excluding any specialist products (including insurance, investment, pensions and protection products)). It also includes any company whose principal activities include broking or investment advice.
“ First Threshold Date ” means the first date on which RBS ceases to beneficially own such number of shares of Common Stock (excluding (x) any Additional Shares and (y) any Third Party Shares) representing at least 50% of the voting power of all outstanding shares of Common Stock.
“ Functional Requirements ” means the information, access, and controls requirements as agreed to by the Parties prior to the Effective Date and set forth on Schedule 6.01(a)(i)(B) hereto.
“ Governmental Approvals ” means any notices, reports or other filings to be made, or any consents, registrations, approvals, licenses, permits or authorizations to be obtained from, any Governmental Authority.

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“ Governmental Authority ” means any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.
“ Group ” means either the Company Group or the RBS Group, as the context requires.
“ Guarantee ” has the meaning set forth in Section 3.05(a).
“ IFRS ” means the International Financial Reporting Standards issued by the International Accounting Standards Board and interpretations issued by the IFRS Interpretation Committee of the IASB and adopted by the RBS Group.
“ India Transitional Services Agreements ” means, collectively, the Amended and Restated Master Services Agreement by and between RBS Business Services Private Ltd and Citizens Bank, N.A., dated as of the Closing, and the Transitional Services Agreement by and between RBS Global Trade Service Centre Private Limited and Citizens Bank, N.A., dated as of the Closing.
“ Indemnifying Party ” has the meaning set forth in Section 9.05(a).
“ Indemnitee ” has the meaning set forth in Section 9.05(a).
“ Indemnity Payment ” has the meaning set forth in Section 9.05(a).
“ Independent Director ” means a Director who is “independent” within the meaning of that term as used in Rule 303A.02 of the Listed Company Manual of the New York Stock Exchange, as amended.
“ In-Scope Arrangements ” means any options or other incentive awards granted to, or other remuneration arrangements implemented in respect of, current new, or former officers, directors, employees or consultants of the Company or any member of the Company Group, prior to the Remuneration Governance Termination Date (including, for the avoidance of doubt, any In-Scope Arrangements that are converted into equity awards in respect of shares of Common Stock at Closing).
“ Insurance Policies ” or “ Insurance Policy ” shall mean insurance policies and insurance contracts of any kind, including primary, excess and umbrella, comprehensive general liability, directors and officers, automobile, products, workers’ compensation, employee dishonesty, property and crime insurance policies and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder.
“ Insurance Proceeds ” means those monies:

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(a)    received by an insured (or its successor-in-interest) from an insurance carrier;
(b)    paid by an insurance carrier on behalf of the insured (or its successor-in-interest); or
(c)    received (including by way of setoff) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability;
in each such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof and including, for the avoidance of doubt, proceeds from any self-insurance, captive insurance or similar program.
“ Insurance Separation Date ” means June 30, 2014.
“ Intellectual Property Rights ” means all intellectual property rights throughout the world, including all U.S. and foreign (i) Patents, (ii) Trademarks, (iii) copyrights and copyrightable subject matter and all applications and registrations therefor and (iv) any and all trade secrets and know-how.
“ Intercompany Accounts ” has the meaning set forth in Section 3.01(a).
“ IPO ” means the initial public offering of shares of Common Stock pursuant to the IPO Registration Statement.
“ IPO Registration Statement ” means the registration statement on Form S-l (File No. 333-195900) filed under the Securities Act, pursuant to which the Common Stock to be sold by the Selling Stockholders in the IPO will be registered, together with all amendments thereto (including post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act).
“ Law ” means any federal, national, supranational, state, provincial, local or similar law (including common law), statute, ordinance, regulation, rule, code, order, treaty, license, permit, authorization, registration, approval, consent, decree, injunction, judgment, notice of liability, request for information, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued, entered or otherwise put into effect by a Governmental Authority.
“ Liabilities ” means any and all indebtedness, claims, debts, taxes, liabilities, demands, causes of action, and obligations, whether accrued, fixed or contingent, mature or inchoate, known or unknown, reflected on a balance sheet or otherwise, including, without limitation, those arising under any Law, Action or any judgment of any court of any kind or any award of any arbitrator of any kind, and those arising under any Contract, commitment or undertaking.

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“ Licensable ” means, with respect to any Intellectual Property Rights, that the Licensing Party and/or any its Subsidiaries, as applicable, has the power and authority to grant a license, sublicense or covenant as to such Intellectual Property Rights to the Licensed Party as provided for herein without (i) violating the terms of any agreement or other arrangement with any third party, (ii) requiring any consent, approval or waiver from any third party, (iii) materially impairing any of the existing rights in respect of such Intellectual Property Rights of the Licensing Party and/or any of its Subsidiaries, (iv) imposing any additional material obligations on the Licensing Party and/or any of its Subsidiaries relating to such Intellectual Property Rights, and/or (v) requiring the payment of any compensation to any third party.
“ Licensable Company Intellectual Property Rights ” means (i) any and all Intellectual Property Rights (other than Trademarks) of the Company and its Subsidiaries but solely to the extent such Intellectual Property Rights (A) are Licensable to RBS and its Subsidiaries and (B) are or have been used or held for use by RBS and its Subsidiaries at any time in the twelve month period immediately prior to the Effective Date (but in each case excluding any Transferred Intellectual Property Rights) and (ii) the Licensable Company Patents.
“ Licensable Company Patents ” means any and all Patents which are now or hereafter Licensable by the Company or any of its Subsidiaries that have a first effective filing date during the Patent Capture Period.
“ Licensable RBS Intellectual Property Rights ” means (i) any and all Intellectual Property Rights (other than Trademarks) of RBS and its Subsidiaries but solely to the extent such Intellectual Property Rights (A) are Licensable to the Company and its Subsidiaries and (B) are or have been used or held for use by the Company and its Subsidiaries at any time in the twelve month period immediately prior to the Effective Date (but in each case excluding any Transferred Intellectual Property Rights) and (ii) the Licensable RBS Patents.
“ Licensable RBS Patents ” means any and all Patents which are now or hereafter Licensable by RBS or any of its Subsidiaries that have a first effective filing date during the Patent Capture Period.
“ Licensed Party ” means (i) RBS in its capacity as a licensee for the purposes of the licenses granted in Section 3.03(c) and (ii) the Company in its capacity as a licensee for the purposes of the licenses granted in Section 3.03(d).
“ Licensing Party ” means (i) RBS in its capacity as a licensor for the purposes of the licenses granted in Section 3.03(d) and (ii) the Company in its capacity as a licensor for the purposes of the licenses granted in Section 3.03(c).
“ Losses ” means any and all damages, losses, deficiencies, taxes, obligations, penalties, judgments, settlements, claims, payments, fines, charges, interest, costs and expenses, whether or not resulting from third party claims, including the costs and

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expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder.
“ Material Risk Takers ” means persons identified as meeting the criteria of “material risk takers” as set out in the European Banking Authority regulatory technical standard and consequently subject to the requirements of the Remuneration Code.
“ Nominating and Governance Committee ” means the Nominating and Corporate Governance Committee of the Company Board.
“ Notice ” means any obligation to deliver a notification to any Person other than a member of either Group.
“ Party ” means each of RBS and the Company.
“ Patent Capture Period ” means any time on or prior to the second anniversary of the Effective Date.
“ Patents ” means any and all U.S. and foreign patents, invention disclosures and all related continuations, continuations-in-part, divisionals, provisionals, renewals, reissues, re-examinations, additions and extensions (including all supplementary protection certificates), and all applications and registrations therefor.
“ Person ” means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.
“ Policy Representative ” means, as of the Effective Date, each of the Chief Operating Officer and Head of Risk Policy and Governance of the Company, and each of the Head of Enterprise Wide Risk Management and Head of Enterprise Policy and Framework of RBS, and in each case, their successors as appointed by the Company or RBS, as applicable.
“ PRA ” means the Prudential Regulation Authority of the United Kingdom.
“ Prime Rate ” shall mean the Wall Street Journal Published Prime (if published in a range, the lowest number in the range will be used) in effect on the fourth (4 th ) Tuesday of the month prior to the beginning of each calendar quarter.
“ Privilege ” has the meaning set forth in Section 8.03(a).
“ Prudential Supervisory Requirements ” means applicable Law, regulation, regulatory constraint, obligation or rule (including any binding code of conduct and binding statement of principle incorporated and contained in such rules) as promulgated or enforced by or through the PRA, the Financial Conduct Authority, the Federal Reserve

9


Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, in each case, which has jurisdiction over RBS or other members of the RBS Group or the Company or other members of the Company Group, as may be amended from time to time, other than as set out in the Remuneration Governance Procedures..
“ Public Filings ” has the meaning set forth in Section 6.06(a).
“ RBS ” has the meaning set forth in the preamble hereto.
“ RBS Accounts ” has the meaning set forth in Section 3.02(a).
“ RBS Board ” means the Board of Directors of RBS.
“ RBS Business ” means any business or operations of the RBS Group (whether conducted independently or in association with one or more third parties through a partnership, joint venture or other mutual enterprise) other than the Company Business.
“ RBS Designee ” means the Director designated by RBS pursuant to its nomination rights set forth in Section 5.03.
“ RBS Group ” means RBS, each Subsidiary of RBS and each other Person that either (x) is controlled directly or indirectly by RBS immediately after the Effective Date or (y) becomes directly or indirectly controlled by RBS following the Effective Date; provided, however , that neither the Company nor any other member of the Company Group shall be members of the RBS Group.
“ RBS Group Policy Framework ” means the policy framework as implemented and enforced by RBS from time to time.
“ RBS Indemnitees ” has the meaning set forth in Section 9.03.
“ RBS Intellectual Property Rights ” means any Intellectual Property Rights owned by RBS or any of its Subsidiaries.
“ RBS Non-Voting Attendee ” means the non-voting, participating observer in all functions of the Company Board designated at any time and from time to time by RBS pursuant to its nomination rights set forth in Section 5.03.
“ RBS Principals ” has the meaning set forth in Section 5.07.
“ RBS Warrantors ” has the meaning set forth in Section 9.12.
“ Receiving Party ” has the meaning set forth in Section 8.01(a).
“ Registration Rights Agreement ” means the Registration Rights Agreement to be entered into by and between RBS and the Company in the form of Exhibit A hereto.

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“ RemCo ” means the RBS Group Performance and Remuneration Committee.
“ Remuneration Code ” means the Remuneration Code of the PRA and the Financial Conduct Authority (SYSC 19A).
“ Remuneration Governance Procedures ” means the procedures agreed upon by RemCo and CompCo, as summarized in Schedule 1.01(b) hereto, to ensure compliance with the Remuneration Code.
“ Remuneration Governance Termination Date ” means the date from which the Company will no longer be under the supervision of the PRA for future remuneration matters. The Company shall be promptly notified of such date by RBS in writing following consultation with the PRA, with such consultation to be initiated around the First Threshold Date, unless RBS determines, using its reasonable discretion, that it would adversely impact on RBS to do so.
“ Retained RBS Domain Names ” means those domain names set forth on Schedule 1.01(d) to the extent recorded in the name of the Company and its Subsidiaries as of the Effective Date.
“ Second Threshold Date ” means the first date on which RBS ceases to beneficially own such number of shares of Common Stock (excluding (x) any Additional Shares and (y) any Third Party Shares) representing at least 20% of the voting power of all outstanding shares of Common Stock.
“ Securities Act ” means the Securities Act of 1933.
“ Selling Stockholders ” means RBSG International Holdings Limited, a private limited company organized under the laws of Scotland, and RBS CBFM North America Corp., a Delaware corporation.
“ Shared Insurance Policies ” shall mean Insurance Policies in existence prior to the Insurance Separation Date where both the Company Business and the RBS Business and/or where the employees, directors or agents of both the Company Business and the RBS Business are eligible for coverage.
“ Significant Stockholder ” means any Person, other than a member of the RBS Group, who together with its Affiliates (other than members of the RBS Group) beneficially owns such number of shares of Common Stock representing at least 20% of the voting power of all outstanding shares of Common Stock.
“ Subsequent Disposition ” has the meaning set forth in Section 2.03.
“ Subsidiary ” means, when used with respect to any Person, (a) a corporation in which such Person or one or more Subsidiaries of such Person, directly or indirectly, owns capital stock having a majority of the total voting power in the election of directors of all outstanding shares of all classes and series of capital stock of such corporation

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entitled generally to vote in such election; and (b) any other Person (other than a corporation) in which such Person or one or more Subsidiaries of such Person, directly or indirectly, has (i) a majority ownership interest or (ii) the power to elect or direct the election of a majority of the members of the governing body of such first-named Person.
“ Surviving Contracts ” has the meaning set forth in Section 3.01(b).
“ Third Party Claim ” has the meaning set forth in Section 9.06(a).
“ Third Party Shares ” means any shares of Common Stock with regard to which RBS has beneficial ownership pursuant to an investment advisory arrangement under which RBS provides investment advisory services to a non-related third party in connection with such shares and does not derive a benefit from such shares other than customary advisory fees.
“ Trademark License Agreement ” means the Trade Mark License Agreement (RBS as Licensor), dated as of the Closing, by and between RBS and the Company.
“ Trademarks ” means any and all U.S. and foreign trademarks, service marks, corporate names, trade names, domain names, logos, slogans, trade dress, design rights, and other similar designations of source or origin, and all applications and registrations therefor, together with the goodwill symbolized by any of the foregoing.
“ Transferred Intellectual Property Rights ” means (a) RBS Intellectual Property Rights (other than Patents and Trademarks) as of the Effective Date which are or have been used or held for use exclusively by the Company and its Subsidiaries, including any such RBS Intellectual Property Rights set forth on Schedule 1.01(c) and (b) those Trademarks set forth on Schedule 1.01(c) to the extent owned by RBS and its Subsidiaries as of the Effective Date, including, in the case of each of clause (a) and (b) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing.
“ Transitional Services Agreement ” means the Transitional Services Agreement, dated as of the Closing, by and between RBS and the Company.
“ Underwriters ” means the underwriters for the IPO set forth in the Underwriting Agreement.
“ Underwriting Agreement ” means the underwriting agreement to be entered into among the representatives of the Underwriters, the Company and the Selling Stockholders with respect to the IPO.
“ U.S. GAAP ” means accounting principles generally accepted in the United States of America, applied on a consistent basis.
Section 1.02.      Rules of Construction . Unless the context otherwise requires or except as otherwise expressly provided,

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(a)      “herein,” “hereof” and other words of similar import refer to the Agreement as a whole and not to any particular Section, Article or other subdivision;
(b)      all references to Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of or to the Agreement unless otherwise indicated;
(c)      references to statutes include the rules and regulations thereunder;
(d)      references to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations);
(e)      references to any Person include the successors and permitted assigns of that Person;
(f)      RBS shall:
(i)      Be deemed to beneficially own securities which are beneficially owned by RBS’s Subsidiaries; and
(ii)      Be deemed to be acting on behalf of the Selling Stockholders in its capacity as holder of legal and economic interests, respectively, in Common Stock; and
(g)      Unless otherwise noted, the Company makes the representations, warranties, undertakings and covenants contained herein on behalf of itself and each other applicable member of the Company Group that may be required to take any action necessary for the accuracy of such representations and warranties or compliance with the obligations undertaken by the Company hereunder.
ARTICLE 2     
THE IPO AND ACTIONS PENDING THE IPO; OTHER TRANSACTIONS
Section 2.01.      The IPO . The Company shall cooperate with, and take all actions reasonably requested by, RBS in connection with the IPO. In furtherance thereof, to the extent not undertaken and completed prior to the execution of this Agreement:
(a)      The Company shall file such amendments or supplements to the IPO Registration Statement as may be necessary in order to cause the same to remain effective as required by the Underwriting Agreement. The Company shall also prepare, file with the Commission and cause to become effective any registration statements or amendments thereof that are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the IPO or the other transactions contemplated by this Agreement and the Ancillary Agreements.

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(b)      The Company shall comply with its obligations under the Underwriting Agreement.
(c)      The Company shall use its best efforts to take all such action as may be necessary or appropriate under state securities and blue sky laws of the United States (and any comparable Laws under any foreign jurisdictions) in connection with the IPO; provided that the Company shall not be required to qualify as a foreign corporation in any state or jurisdiction or consent to service of process in any state or jurisdiction other than with respect to claims arising out of the IPO.
Section 2.02.      Termination of IPO Process . Notwithstanding anything to the contrary contained herein, prior to the Closing, as between the Company and RBS, RBS may in its sole discretion terminate or abandon any aspect of the IPO and the other transactions contemplated hereby or by an Ancillary Agreement in connection with the IPO and the Company shall, subject to compliance with its obligations under the Underwriting Agreement, take all actions directed by RBS in that regard.
Section 2.03.      Subsequent Dispositions . The Parties shall execute and deliver, concurrently with the execution and delivery of this Agreement, the Registration Rights Agreement. In addition to any obligations of the Company pursuant to the Registration Rights Agreement, the Company agrees that it will, and will cause each other member of the Company Group to, provide such cooperation, information and assistance as RBS may reasonably request to ensure that dispositions by RBS or any other member of the RBS Group of any remaining beneficially owned shares of Common Stock are achieved in a timely and efficient manner, including any dispositions pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act (any such disposition, a “ Subsequent Disposition ”); provided that such cooperation and assistance shall not include any obligation to enter into agreements with any acquiror of Common Stock in any such disposition by RBS or any other member of the RBS Group that are to be performed after such disposition other than any agreements that (i) are contemplated by the Registration Rights Agreement or (ii) are of the nature of agreements customarily included in underwriting agreements (e.g., standstill or lockup obligations) entered into in connection with follow-on stock offerings by publicly traded companies.
ARTICLE 3     
THE SEPARATION
Section 3.01.      Termination of Agreements . (a) Except as set forth in Section 3.01, in furtherance of the releases and other provisions of Section 9.01 hereof, the Company and each Person in the Company Group, on the one hand, and RBS and each Person in the RBS Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among the Company and any Person in the Company Group, on the one hand, and RBS and any Person in the RBS Group, on the other hand, effective as of the Effective Date and no such terminated agreement, arrangement, commitment or understanding

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(including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Date. The Parties agree that all intercompany accounts receivable, accounts payable and balances arising on or prior to the Effective Date (collectively, “ Intercompany Accounts ”) between any member of the Company Group and any member of the RBS Group shall be invoiced promptly after the Effective Date and paid within forty-five (45) days of receipt of invoice. Each Party shall, at the reasonable request of any other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
(b)      The provisions of the first sentence of Section 3.01(a) shall not apply to any of the following agreements, arrangements, commitments, understandings or Intercompany Accounts (or to any of the provisions thereof): (i) this Agreement; (ii) the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement, or any Ancillary Agreement to be entered into by any of the Parties or any Person in their respective Groups); (iii) any agreements, arrangements, commitments or understandings set forth or described on Schedule 3.01(b)(iii); (iv) any In-Scope Arrangements; and (v) any other agreements, arrangements, commitments, understandings or Intercompany Accounts that this Agreement or any Ancillary Agreement expressly contemplates will survive the Effective Date (collectively, the “ Surviving Contracts ”).
(c)      Notwithstanding anything in this Agreement to the contrary, in the event the Parties agree in writing that an agreement, arrangement, commitment or understanding terminated pursuant to Section 3.01(a) should have remained in force or effect after the Effective Date, such agreement, arrangement, commitment or understanding shall pursuant to this Section 3.01(c) be deemed a Surviving Contract and each Party shall, at the reasonable request of any other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
Section 3.02.      Bank Accounts; Cash Balances . (a) To the extent not completed prior to the Effective Date, RBS and the Company each agrees to take, or cause the respective members of their respective Groups to take, at or as soon as practicable after the Effective Date, all actions necessary to amend all Contracts governing each bank and brokerage account owned by the Company or any other member of the Company Group (collectively, the “ Company Accounts ”) so that such Company Accounts, if linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter “linked”) to any bank or brokerage account owned by RBS or any other member of the RBS Group (collectively, the “ RBS Accounts ”) are de-linked from the RBS Accounts.
(b)      It is intended that, following consummation of the actions contemplated by Section 3.02(a), the Company and RBS will maintain separate bank accounts and separate cash management processes.
(c)      With respect to any outstanding checks issued by RBS, the Company, or any of their respective Subsidiaries prior to the Effective Date, such outstanding checks

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shall be honored following the Effective Date by the Person or Group owning the account on which the check is drawn.
(d)      Other than in connection with the Surviving Contracts, as between RBS and the Company (and the members of their respective Groups), all payments made and reimbursements received after the Effective Date by either Party (or member of its Group) that relate to a business, asset or Liability of the other Party (or member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto and, promptly upon receipt by such Party of any such payment or reimbursement, such Party shall pay over, or shall cause the applicable member of its Group to pay over to the other Party the amount of such payment or reimbursement without right of set-off.
Section 3.03.      Transfer of Intellectual Property Rights; Licenses . (a) Subject to the terms and conditions set forth in this Agreement, as of the Effective Date, RBS, on behalf of itself and its Subsidiaries, hereby transfers, conveys and assigns to the Company, and the Company hereby accepts from RBS and its Subsidiaries, all right, title and interest of RBS and its Subsidiaries in and to the Transferred Intellectual Property Rights. With respect to any domain names included in the Transferred Intellectual Property Rights (as set forth on Schedule 1.01(c)), RBS shall promptly take or cause to be taken (and shall cause its Subsidiaries to promptly take or cause to be taken) all steps necessary to update the records of the applicable domain name registrar to ensure that such transfer, conveyance and assignment has been recorded and that the Company is the sole and exclusive owner of such domain names.
(b)      Notwithstanding anything in this Agreement to the contrary, the Parties acknowledge and agree that all RBS Intellectual Property Rights (other than the Transferred Intellectual Property Rights) which are or have been used or held for use by the Company and its Subsidiaries at any time prior to or as of the Effective Date shall vest and remain vested in RBS or the relevant Subsidiary of RBS.
(c)      With respect to the Licensable Company Intellectual Property Rights, the Company, on behalf of itself and its Subsidiaries, hereby grants to RBS and its Subsidiaries a perpetual, non-exclusive, world-wide, royalty-free, irrevocable license (with the right to sub-license) to use solely in connection with the business of RBS and its Subsidiaries (or any part of it).
(d)      With respect to the Licensable RBS Intellectual Property Rights, RBS, on behalf of itself and its Subsidiaries, hereby grants to the Company and its Subsidiaries a perpetual, non-exclusive, world-wide, royalty-free, irrevocable license (with the right to sub-license) to use solely in connection with the business of the Company and its Subsidiaries (or any part of it).
(e)      Except as provided in (i) Section 3.03(d) and/or (ii) the Trademark License Agreement and any licenses of Intellectual Property Rights entered into between the Parties or any of their respective Subsidiaries pursuant to any other Ancillary Agreement, the Company, on behalf of itself and its Subsidiaries, hereby acknowledges and agrees

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that any and all licenses granted by RBS or any of its Subsidiaries to the Company or any of its Subsidiaries in respect of any Intellectual Property Rights shall terminate as of the Effective Date.
(f)      Except as provided in (i) Section 3.03(c) and/or (ii) any licenses of Intellectual Property Rights entered into between the Parties or any of their respective Subsidiaries pursuant to any Ancillary Agreement, RBS, on behalf of itself and its Subsidiaries, hereby acknowledges and agrees that any and all licenses granted by the Company or any of its Subsidiaries to RBS or any of its Subsidiaries in respect of any Intellectual Property Rights shall terminate as of the Effective Date.
(g)      Subject to the terms and conditions set forth in this Agreement, as of the Effective Date, the Company, on behalf of itself and its Subsidiaries, hereby transfers, conveys and assigns to RBS, and RBS hereby accepts from the Company and its Subsidiaries, all right, title and interest of the Company and its Subsidiaries in and to the Retained RBS Domain Names. The Company shall promptly take or cause to be taken (and shall cause its Subsidiaries to promptly take or cause to be taken) all steps necessary to update the records of the applicable domain name registrar to ensure that such transfer, conveyance and assignment has been recorded and that RBS is the sole and exclusive owner of the Retained RBS Domain Names.
Section 3.04.      Other Ancillary Agreements . Each of RBS and the Company will execute and deliver, and cause each of their applicable Subsidiaries to execute and deliver, as applicable, all Ancillary Agreements to which it is a party, in each case to be effective as of the Effective Date.
Section 3.05.      Guarantees . (a) RBS and the Company shall each use their reasonable best efforts to cause a member of the Company Group to be substituted in all respects for a member of the RBS Group, as applicable, and for the members of the RBS Group, as applicable, to be otherwise removed or released, effective as of the Effective Date, in respect of all obligations of any member of the Company Group under each guarantee, indemnity, surety bond, letter of credit and letter of comfort (each, a “ Guarantee ”), given or obtained by any member of the RBS Group for the benefit of any member of the Company Group or the Company Business. If RBS and the Company have been unable to effect any such substitution, removal, release and termination with respect to any such Guarantee as of the Effective Date then, following the Effective Date, the Company shall effect such substitution, removal, release and termination as soon as reasonably practicable after the Effective Date; provided that from and after Effective Date, the Company shall indemnify against, hold harmless and promptly reimburse the members of the RBS Group for any payments made by members of the RBS Group and for any and all Liabilities of the members of the RBS Group arising out of, or in performing, in whole or in part, any performance obligation in accordance with the underlying obligation under any such Guarantee (except to the extent the performance obligation under any such Guarantee shall have been triggered solely by an act or failure to act of the applicable guarantor (rather than the underlying obligor)).

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(b)      RBS and the Company shall each use their reasonable best efforts to cause a member of the RBS Group to be substituted in all respects for a member of the Company Group, as applicable, and for the members of the Company Group, as applicable, to be otherwise removed or released, effective as of the Effective Date, in respect of all obligations of any member of the RBS Group under each Guarantee, given or obtained by any member of the Company Group for the benefit of any member of the RBS Group or the RBS Business. If RBS and the Company have been unable to effect any such substitution, removal, release and termination with respect to any such Guarantee as of the Effective Date then, following the Effective Date, RBS shall effect such substitution, removal, release and termination as soon as reasonably practicable after the Effective Date; provided that from and after Effective Date, RBS shall indemnify against, hold harmless and promptly reimburse the members of the Company Group for any payments made by members of the Company Group and for any and all Liabilities of the members of the Company Group arising out of, or in performing, in whole or in part, any performance obligation in accordance with the underlying obligation under any such Guarantee (except to the extent the performance obligation under any such Guarantee shall have been triggered solely by an act or failure to act of the applicable guarantor (rather than the underlying obligor)).
ARTICLE 4     
REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other Party that, as of the date hereof and as of the Effective Date:
Section 4.01.      Organization and Authority . (a) It is duly constituted, organized and validly existing under the laws of the jurisdiction of its incorporation;
(a)      It has the legal right and full power and authority to execute and deliver, and it and the members of its respective Group, as applicable, have the legal right and full power and authority to exercise its and their rights and perform its and their obligations under this Agreement, the Ancillary Agreements and any documents or agreements expressly contemplated by this Agreement or the Ancillary Agreements;
(b)      This Agreement has been, and each of the Ancillary Agreements will be, duly authorized, executed and delivered by each Party and each other member of its respective Group that is a party thereto and, assuming due authorization, execution and delivery by all other parties to such agreement, each of this Agreement and such Ancillary Agreements constitutes or will constitute, as the case may be, the valid and legally binding obligations of each Party and such members of their respective Groups who are parties thereto, enforceable in accordance with its or their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

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Section 4.02.      No Conflict . The authorization, execution, delivery and performance of this Agreement and the Ancillary Agreements by each Party and such members of their respective Groups that are parties thereto do not (i) violate, conflict with or result in the breach of any provision of the certificate of incorporation, the memorandum or association or by-laws (or similar organizational documents) of such Party or member of its respective Group or (ii) conflict with or violate in any material respect any Law applicable to such Party or member of its respective Group or any of their respective assets or businesses.
Section 4.03.      No Other Representations or Warranties . Except for the representations and warranties contained in this Agreement and the Ancillary Agreements, neither Party nor any other Person makes any express or implied representation or warranty on behalf of such Party or any other member of its respective Group, and each Party hereby disclaims any representation or warranty not contained herein or therein.
ARTICLE 5     
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Section 5.01.      Charter . Prior to the Effective Date, the Company shall file with the Secretary of the State of Delaware, and cause to become effective, the amended and restated certificate of incorporation of the Company attached hereto as Exhibit B.
Section 5.02.      By-Laws . Prior to the Effective Date, the Company Board shall adopt the amended and restated by-laws of the Company attached hereto as Exhibit C.
Section 5.03.      Company Board . (a) From the Effective Date until the Second Threshold Date, the Company and RBS shall (i) use their best efforts to cause the Company Chief Executive Officer and the RBS Designee (who may, at the sole discretion of RBS, be an Independent Director) to be members of the Company Board and (ii) cause the RBS Designee to be a member of each of the Bank Boards.
(b)      Until the Second Threshold Date, RBS shall have the right (i) to designate for nomination by the Company Board (or any nominating committee thereof) for election to the Company Board the RBS Designee and (ii) to appoint, at any time and from time to time, one RBS Non-Voting Attendee who shall be entitled to receive notice of, and, subject to such person’s execution of a confidentiality agreement substantially in the form attached as Exhibit D hereto, attend all meetings of, the Company Board, the Bank Boards and committees thereof, and shall be entitled to receive and review all materials, reports, notifications, papers and agendas related thereto that directors receive (but only to the extent not contrary to applicable Law); provided that (x) the RBS Non-Voting Attendee shall not have the right to vote on any matters presented to the Company Board, the Bank Boards or committees thereof for a vote, (y) the RBS Non-Voting Attendee shall recuse himself or herself from any matter presented to the Company Board, the Bank Boards or any committee thereof if the RBS Designee recuses himself or herself from such matter and (z) the RBS Non-Voting Attendee shall not attend any

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meetings of the Audit Committee, the CompCo or the Nominating and Governance Committee. In addition, in the event that the RBS Non-Voting Attendee attends a meeting of the Company Board, any Bank Board or any committee thereof at which the RBS Designee is not present, the RBS Non-Voting Attendee shall recuse himself or herself with respect to any matter presented to such meeting with respect to which the RBS Designee, if he or she were attending such meeting, would have an obligation to recuse himself or herself. The Company shall reimburse RBS for all travel and lodging expenses in connection with any RBS Non-Voting Attendee attending any Board meeting on the same terms, and subject to the same policies, as shall apply to directors of the Company Board. RBS may appoint a different person as RBS Non-Voting Attendee with respect to any meeting of the Company Board, the Bank Boards or any committees thereof, it being understood that any obligation hereunder of the Company to provide notice to the RBS Non-Voting Attendee shall be satisfied by delivery of notice to the person who was the RBS Non-Voting Attendee at the time of the most recent such meeting.
(c)      Until the Second Threshold Date, the Company shall at all times exercise all authority under applicable Law to cause the RBS Designee to be nominated for election as a Company Board member by the Company Board (or any nominating committee thereof). Until the Second Threshold Date, the Company shall cause the RBS Designee to be included in the slate of nominees recommended by the Company Board to holders of Common Stock (including at any special meeting of stockholders held for the election of directors) and shall use best efforts to cause the election of each such RBS Designee, including soliciting proxies in favor of the election of such persons. The Company further agrees that, until the Second Threshold Date, it shall (i) fill any vacancy on the Company Board or the Bank Boards created by the resignation, removal or incapacity of the RBS Designee with another RBS Designee identified by RBS, to the extent RBS would at such time have nomination rights (or appointment rights, in the case of the Bank Boards) for such RBS Designee pursuant this Section 5.03, and (ii) except for the removal of an RBS Designee for Cause, use its best efforts not to permit the removal from the Company Board or the Bank Boards of any RBS Designee without RBS’s consent to the extent RBS would at such time have nomination rights (or appointment rights, in the case of the Bank Boards) for such RBS Designee pursuant to this Section 5.03.
(d)      On the Second Threshold Date, the RBS Designee shall submit his or her resignation from the Company Board in accordance with any applicable Corporate Governance Guidelines of the Company in effect at such time. Unless otherwise specified in such resignation, the acceptance by the Company Board of such resignation shall not be required for such resignation to take effect.
Section 5.04.      Board and Other Committees . (a) As of the Effective Date and through the Final Withdrawal Date, the Company Board shall (i) without taking advantage of any of the exemptions available to a “controlled company” under the Exchange Manual, have established and shall maintain committees of the Board meeting

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the requirements of, and having the responsibilities and authority consistent with the applicable requirements of, the Exchange Act and the Exchange Manual, and such additional responsibilities and authority not inconsistent with this Agreement (including, for the avoidance of doubt, the Remuneration Governance Procedures), as shall be delegated to it by the Company Board from time to time and (ii) maintain a risk committee that shall consist of at least 5 members and that shall operate pursuant to the charter approved by the Company Board and RBS prior to the date hereof, with such changes as may be approved by RBS from time to time, provided that, after the First Threshold Date, the approval of RBS shall not be required for any de minimis change to such charter, provided , further , that the Company shall deliver written notice to RBS of any proposed change to such charter at least seven (7) Business Days before such change is sought to be adopted, such notice to specify whether or not the Company considers such change to be de minimis .
(b)      As of the Effective Date and through the Second Threshold Date, to the extent the Company Board or any of the Bank Boards has a standing committee that is functionally equivalent to the existing Executive Committee of the Company Board, the RBS Designee shall be a member of such committee and shall be entitled to receive notice of, and attend any meetings of, such committee, provided that the attendance of the RBS Designee at any meeting of such committee shall not be required for a quorum.
(c)      Until the Second Threshold Date, the Company shall cause to be delivered to the RBS Designee and the RBS Non-Voting Attendee all communications, notices (including notices of meetings) and other materials delivered to members of the Company Board, the Bank Boards and any committees of the Company Board and the Bank Boards in such members’ capacities as such no later than such communications, notices and other materials are delivered to such other members; provided that communications, notices and other materials that relate to a matter with respect to which recusal of the RBS Designee is applicable shall not be delivered pursuant to this Section 5.04(c).
(d)      Until the Deconsolidation Date, the Company shall cause an individual designated by RBS from time to time to be a member of the Company ALCO.
Section 5.05.      Significant Actions. (a) Until the First Threshold Date, neither the Company nor any member of the Company Group shall take, or be permitted to take, any of the following actions without the written approval of RBS:
(i)      establish, adopt or approve any annual budget of the Company for any fiscal year;
(ii)      approve or adopt any amendment or modification to any approved annual budget of the Company to the extent presented to the Company Board, or any committee thereof, for approval;

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(iii)      (A) terminate the Company’s Chief Executive Officer, Chief Financial Officer or Chief Risk Officer or (B) appoint a new Chief Executive Officer, Chief Financial Officer or Chief Risk Officer of the Company; or
(iv)      enter into any agreement to do any of the foregoing in Section 5.05(a)(i)-(iii).
(b)      Until the Second Threshold Date, neither the Company nor any member of the Company Group shall take, or be permitted to take, any of the following actions without the written approval of RBS:
(i)      make material changes to the scope or nature of the Company Business;
(ii)      enter into any direct or indirect transactions between, on the one hand, the Company or any Subsidiary of the Company and, on the other hand, (A) any Significant Stockholder or Affiliate or related Person of any Significant Stockholder (except for any transactions with such persons as clients or customers of the Company in the ordinary course of business of the Company Business on terms that are substantially the same as those prevailing at the time for comparable ordinary course transactions with or involving unaffiliated clients or customers of the Company or any Subsidiary), (B) any Affiliate of the Company (other than any wholly owned Subsidiary of the Company) or any joint venture (whether or not such joint venture is subject to RBS approval pursuant to Section 5.05(b)(v)) (except for any transactions where any such Affiliate or such joint ventures are clients or customers of the Company in the ordinary course of business of the Company Business on terms that are substantially the same as those prevailing at the time for comparable ordinary course transactions with or involving unaffiliated clients or customers of the Company or any Subsidiary); provided that any transaction to which clause (C) below is applicable shall be reviewed under that clause, or (C) any officer or director of the Company or any Subsidiary of the Company, including the modification or amendment of any existing agreement or arrangement (other than ordinary course remuneration or benefit matters, including the making of any loans to officers or directors in accordance with applicable Law, including Regulation O of the Federal Reserve Board (12 C.F.R. Part 215));
(iii)      any merger, consolidation, business combination or similar transaction (or any amendment to or termination of an agreement to enter into such a transaction) involving the Company, CBNA or CBPA, on the one hand, and any other Person, on the other hand; provided that any transaction to which clause (iv) or (v) below is applicable shall be reviewed under that clause;
(iv)      any acquisition, transfer or disposition by the Company or any Subsidiary of the Company of securities, assets or liabilities, whether in a single transaction or series of related transactions (and whether effected by way of

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merger, consolidation, purchase, sale or other form of transfer) with a purchase price (in excess of book value) of above $500 million or where the book value of securities, assets or liabilities so acquired, transferred or disposed exceeds $4 billion; provided that:
(A)      subject to Section 5.06, during the period beginning on the Effective Date and ending on the first date on which RBS would no longer be considered to exercise control over the Company for EU regulatory purposes (with control being as defined in Article 3(2) of Council Regulation 139/2004/EC of 20 January 2004 on the control of concentrations between undertakings) (the “ EU Control Period ”), in addition to any other approval of RBS required under this Section 5.05(b)(iv), RBS’s written approval shall be required for (i) any acquisition by the Company or any of its Subsidiaries of any Financial Institution or any package of assets and liabilities that together constitutes a business equivalent to a Financial Institution or (ii) any other acquisitions by the Company or any of its Subsidiaries the purpose of which is to expand its activities outside of its business model, if the aggregate purchase price (in excess of book value) of all acquisitions described in (i) and (ii) above during the EU Control Period exceeds $125 million in the aggregate for all such acquisitions; and
(B)      (x) any acquisition by the Company or any wholly owned Subsidiary of the Company of securities, assets or liabilities of the Company or any wholly owned Subsidiary of the Company and (y) any disposition of securities, assets or liabilities by the Company or any wholly owned Subsidiary of the Company to the Company or any wholly owned Subsidiary of the Company shall not require such written approval of RBS;
(v)      entry into any joint venture or similar transaction with any Person (other than the Company or a wholly owned Subsidiary of the Company) where any such joint venture or other entity formed by such transaction has assets or liabilities with a book value in excess of $4 billion;
(vi)      the issuance of any Capital Stock of the Company or of any Subsidiary of the Company, other than (A) issuances to the Company or any of the Company’s wholly owned Subsidiaries, (B) issuances of the capital stock of a newly formed joint venture entity or the entity in a similar transaction otherwise permitted pursuant to Section 5.05(b)(v) to the parties to the joint venture or similar transaction; or (C) (1) any proposed issuance further to the grants of incentive- or equity-based awards in respect of Common Stock or (2) issuances of Common Stock upon the exercise of stock options or stock appreciation rights or the vesting, delivery or settlement of any equity-based awards in respect of Capital Stock of the Company (including Common Stock) or any Subsidiary of

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the Company (including issuances pursuant to sales to satisfy taxes relating to the exercise, vesting, delivery or settlement thereof), in each case under these sub-clauses (C)(1) and (C)(2), to a current, new, or former officer, director, employee or consultant of the Company or any member of the Company Group pursuant to any incentive or equity compensation plan, employment agreement or other arrangement approved by the Company Board or a duly authorized committee thereof and provided that (x) the aggregate number of shares of Common Stock of the Company underlying any such equity-based awards shall not exceed the number of shares of Common Stock equal to 12 percent of the number of shares of Common Stock of the Company issued and outstanding as of the pricing date of the IPO (such number of shares of Common Stock shall be inclusive of any “substitute awards” (as defined under the terms of any applicable plan) and shall be subject to adjustment, if any, under the terms of the applicable plan) and (y) any such grants or issuances shall be in compliance with the Remuneration Governance Procedures;
(vii)      any increase in the limits under, or changes in the metrics relating to, the Company Funding and Liquidity Metrics, provided that, notwithstanding Section 5.07, for so long as an individual designated by RBS is a member of the Company ALCO pursuant to Section 5.04(d), any approval of RBS required under this Section 5.05(b)(vii) shall be evidenced in a writing signed by such member of the Company ALCO;
(viii)      the commencement of any liquidation, dissolution or voluntary bankruptcy, administration, recapitalization or reorganization of the Company or any of its Subsidiaries in any form of transaction, making arrangements with creditors, or consenting to the entry of an order for relief in any involuntary case, or taking the conversion of an involuntary case to a voluntary case, or consenting to the appointment or taking possession by a receiver, trustee or other custodian for all or substantially all of its property, or seeking the protection of any applicable bankruptcy or insolvency law, other than any such actions with respect to a non-material Subsidiary where, in the good faith judgment of the Board, the maintenance or preservation of such Subsidiary is no longer desirable in the conduct of the Company Business; or
(ix)      the entering into of any agreement to do any of the foregoing in Section 5.05(b)(i)-(viii).
(c)      Until the Final Withdrawal Date, the Company Group Policy Framework shall be amended only upon the mutual consent of the Parties (with the written consent of one Policy Representative of each of the Company and RBS evidencing the consent of the Company and RBS, respectively); provided that, after the First Threshold Date, the consent of RBS shall not be required for any de minimis amendment to a policy within the Company Group Policy Framework, provided , further , that the Company shall deliver written notice to each of RBS’s Policy Representatives of any proposed amendment to

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any policy within the Company Group Policy Framework at least seven (7) Business Days before such amendment is sought to be adopted, such notice to specify whether or not the Company considers such amendment to be de minimis .
(d)      Until the Deconsolidation Date, neither the Company nor any member of the Company Group shall sell, assign, dispose of or otherwise transfer the economic interest in the securities described on Schedule 5.05(d) hereto or any participation or interest therein (whether legal, beneficial or otherwise), whether directly or indirectly (including pursuant to a derivative transaction), or agree or commit to do any of the foregoing, unless the Company delivers written notice to RBS of any such transaction at least five (5) Business Days before consummating such transaction or agreeing to consummate such transaction.
(e)      Neither the Company nor any member of the Company Group shall sell, assign, dispose of or otherwise transfer the economic interest in any securities classified in the consolidated financial statements of the Company as held-to-maturity securities or any participation or interest therein (whether legal, beneficial or otherwise), whether directly or indirectly (including pursuant to a derivative transaction) unless the Company delivers written notice to RBS of any such transaction at least five (5) Business Days before consummating such transaction or agreeing to consummate such transaction, such notice to include a confirmation from the Company Auditors that such transaction will not require the reclassification of the Company’s portfolio of held-to-maturity securities under U.S. GAAP or IFRS.
Section 5.06.      EU Control Period . During the EU Control Period, at least twelve (12) Business Days before the Company or any of its Subsidiaries enters into any definitive agreement to acquire any securities, assets or liabilities that could (whether or not the Company believes that (i) the securities, assets or liabilities constitute a Financial Institution or any package of assets and liabilities that together constitutes a business equivalent to a Financial Institution or (ii) such acquisition has a purpose of expanding the Company’s activities outside of its business model) require approval of RBS pursuant to Section 5.05(b)(iv)(A) (without giving effect to the aggregate monetary threshold set forth therein) (an “ EU Acquisition ”), the Company shall deliver a written notice (an “ EU Acquisition Notice ”) to the RBS Principals setting forth in detail (i) if the Company has determined that the consummation of the relevant EU Acquisition does not require RBS’s prior written approval under Section 5.05(b)(iv)(A), the Company’s basis for such determination (including the Company’s calculation of the purchase price (in excess of book value) of (x) the relevant EU Acquisition and (y) all acquisitions described in clauses (i) and (ii) of Section 5.05(b)(iv)(A) consummated during the EU Control Period as of the date of the EU Acquisition Notice), or (ii) if the Company has determined that the consummation of the relevant EU Acquisition requires RBS’s prior written approval under Section 5.05(b)(iv)(A), the Company’s calculation of the purchase price (in excess of book value) of (x) the relevant EU Acquisition and (y) all acquisitions described in clauses (i) and (ii) of Section 5.05(b)(iv)(A) consummated during the EU Control Period as of the date of the EU Acquisition Notice.  The Company shall promptly provide RBS

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with any other information relating to the EU Acquisition that is reasonably requested by RBS. If RBS, acting reasonably and in accordance with RBS’s state aid obligations, disagrees with a determination by the Company pursuant to clause (i) of the preceding sentence, then the relevant EU Acquisition shall be deemed to require RBS’s prior written approval under Section 5.05(b)(iv)(A).  At the request of RBS from time to time, the Company shall cause an appropriate executive officer of the Company to certify to RBS that the Company and its Subsidiaries have not entered into any definitive agreement during any specified period to acquire any securities, assets or liabilities that should have been the subject of an EU Acquisition Notice pursuant to this Section 5.06.
Section 5.07.      Implementation . The consent or approval of RBS (or the determination of RBS not to provide such consent or approval) for any action for which RBS has consent or approval rights under this Article 5 (other than any such rights set forth in Section 5.05(c)) shall be evidenced in a writing signed by any of the Chief Executive Officer of RBS, the Group Finance Director of RBS or the Chief Executive of the Capital Resolution Group of RBS (collectively, the “ RBS Principals ”), which writing shall be delivered to the Company within twelve (12) Business Days following receipt of a written request for such consent or approval from the Company by each of the RBS Principals; provided that if no response is received from an RBS Principal within such period, such consent or approval shall be deemed to have been given. Any written request for consent or approval delivered to the RBS Principals hereunder shall be delivered in writing and by email in a manner in which each RBS Principal shall have notice that such request has been concurrently delivered to the other RBS Principals.
ARTICLE 6     
COMPLIANCE, INFORMATION AND CONTROLS
Section 6.01.      Policy Compliance and Compliance with Prudential Supervisory Requirements . (a) Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to:
(i)      comply with (A) the Company Group Policy Framework (unless the Company Group Policy Framework expressly contemplates a termination date other than the Final Withdrawal Date, in which case such specified date shall apply), and (B) the Functional Requirements; and
(ii)      at RBS’s reasonable written request, take, or refrain from taking, any actions to the extent necessary to enable RBS and each other member of the RBS Group to comply with the Prudential Supervisory Requirements or other Law applicable to RBS and each other member of the RBS Group.
(b)      Until the Deconsolidation Date, the Company agrees that it will, and will cause each other member of the Company Group to, comply with the Audit / Non Audit Services Policy Standard set forth in the RBS Group Policy on Corporate Governance as in effect from time to time.

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Section 6.02.      RBS Information Rights . (a) Until the Final Withdrawal Date (or, with respect to the matters set forth in Section 6.02(b), the Deconsolidation Date), the Company agrees that it will, and will cause each other member of the Company Group to, promptly, but in any case within five (5) Business Days (subject to any provision of this Agreement that requires that information be provided more promptly) of any request from RBS (unless not practicably available within such time, in which case as soon as practicable thereafter), provide to RBS (including its agents, accountants, advisors, counsel and other representatives) any information with respect to the Company Group, the Company Business and the Company Group’s properties, and the financial position, results of operations and prospects of the Company or any other member of the Company Group requested by RBS to: (a) account for the beneficial ownership of the Company by the RBS Group (or any member thereof) in such Person’s accounts, financial records and statements, forecasts and planning materials; (b) satisfy the legal, regulatory, compliance, tax, audit (internal and external), risk management, financial management, budgeting and accounting requirements of the RBS Group (or any member thereof); or (c) meet the requirements of any Governmental Authority or securities exchange to which RBS or any other member of the RBS Group is subject, including any Prudential Supervisory Requirements.
(b)      Until the Deconsolidation Date the Company agrees that it will, and will cause each other member of the Company Group to, promptly, but in any case within five (5) Business Days (subject to any provision of this Agreement that requires that information be provided more promptly) of any request from RBS (unless not practicably available within such time, in which case as soon as practicable thereafter), provide to RBS (including its agents, accountants, advisors, counsel and other representatives) such information it may request from time to time, including, without limitation:
(i)      evidence of the adequate and effective operation of internal control over financial reporting consistent with the level of information (including certification) received by RBS prior to the Effective Date and including providing appropriate Company executive confirmation to RBS in the manner provided prior to the Effective Date of compliance with RBS’s requirements in relation to the Sarbanes-Oxley Act of 2002;
(ii)      material communications between the Company Auditors and the Audit Committee, including (1) the Company Auditor’s annual management letter and management responses thereto, (2) communications by the Company Auditor pursuant to Statement of Auditing Standards Nos. 114 and 115 and AU Sections 380/AU-C260 and 325 AU-C26J (or applicable successor rules), (3) letters from the auditors required by PCAOB Rule 3526 to be delivered to the Audit Committee regarding the independent auditor’s communications with the Audit Committee concerning independence, (4) communications to the Audit Committee required by Rule 2-07 of Regulation S-X regarding critical accounting policies and practices to be used, alternative U.S. GAAP treatments for policies and practices related to material items that have been discussed with management

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of the Company, management letters and the schedule of unadjusted differences, and (5) non-publicly filed internal control reports prepared by management (including reports regarding the status of remediation efforts with respect to significant deficiencies and material weaknesses) and the Company Auditor and related documents;
(iii)      certifications of each of the Company’s principal executive and principal financial officers addressed to RBS consistent with certifications required to be included in the Company’s periodic reports to be filed with the Commission pursuant to Exchange Act Rule 13a-14 and Item 601 of Regulation S-K;
(iv)      Control Environment Certifications provided to RBS in the manner undertaken prior to the Effective Date; and
(v)      any certifications or letters requested by RBS’s independent certified public accountants.
(c)      Subject to Section 8.03(b), if the Company reasonably determines that any provision of information pursuant to this Article 6 (including any information provided pursuant to the Functional Requirements) could be commercially detrimental to the Company Business, violate any Law or Contract or result in the waiver of any Privilege, the Parties shall take all reasonable measures to permit the provision of such information in a manner that avoids any such detriment, violation or waiver. If, after the Parties have taken all such measures, the Company is unable to provide any such information other than in a manner that could violate any Law or Contract, the Company shall not be required to provide such information. Any information owned by the Company that is provided to RBS pursuant to this Section 6.02 shall be deemed to remain the property of the Company.
Section 6.03.      RBS Access Rights . Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to, provide RBS (including its agents, accountants, advisors, counsel and other representatives) with, during regular business hours, full and prompt access to the Company’s management and the Company’s advisors, external auditors (including the Company Auditors), personnel (including its risk, legal, financial and compliance personnel), data, systems and internal audit function (through the Company’s head of internal audit), including access to work papers and any personnel or agents of the Company and the external auditors responsible for conducting the Company’s quarterly reviews and annual audit requested by RBS to: (A) account for the beneficial ownership of the Company by the RBS Group (or any member thereof) in such Person’s accounts, financial records and statements, forecasts and planning materials; (B) satisfy the legal, regulatory, compliance, tax, audit (internal and external), risk management, financial management, budgeting and accounting requirements of the RBS Group (or any member thereof); or (C) meet the requirements of any Governmental Authority or securities exchange to which the RBS Group (or any member thereof) is subject, including any Prudential Supervisory Requirements; provided

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that, with respect to access to external auditors and the internal audit function, following the Deconsolidation Date, the Company shall only be required to provide RBS with reasonable access to such auditors (including the Company Auditor) and the Company’s internal audit function (through the Company’s head of internal audit) and shall extend all reasonably requested cooperation in connection with the RBS Group’s internal and external audit functions.
Section 6.04.      Access by Governmental Authorities . (a) Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to:
(i)      provide, as promptly as reasonably practicable but in any case within five (5) Business Days of any request from RBS (unless not practicably available within such time, in which case as soon as practicable thereafter) (subject to (i) any provision of applicable Law or this Agreement, (ii) any request of a Governmental Authority, or (iii) any requirement of a national securities exchange in each case that requires that information, records or documents be provided more promptly), any information, records or documents (x) requested or demanded by any Governmental Authority having jurisdiction or oversight authority over RBS or any member of the RBS Group or (y) deemed necessary or advisable by RBS in connection with any filing, report, response or communication made by RBS or any member of the RBS Group with or to any Governmental Authority (whether made pursuant to specific request from such authority or in the ordinary course); and
(ii)      upon reasonable notice, provide access to any Governmental Authority having jurisdiction or oversight authority over any member of the RBS Group to its offices, employees and management in a reasonable manner where requested or demanded by such Governmental Authority or as required under applicable Law.
Section 6.05.      Remuneration Governance Procedures, Compensation, Tax Responsibility and In-Scope Arrangements . (a) The Company agrees and acknowledges that (i) RBS shall have oversight authority as provided under the Remuneration Governance Procedures, (ii) the Company shall, and shall cause each other member of the Company Group to, comply with the Remuneration Governance Procedures and (iii) for the avoidance of doubt, CompCo shall exercise its authority in compliance with the Remuneration Governance Procedures.
(b)      The Company agrees and acknowledges that it shall be responsible for the administration, conversion and satisfaction of all contractual obligations relating to, and costs incurred in connection with, the In-Scope Arrangements, and that RBS shall have no liability with respect thereto.
(c)      Each of RBS and the Company agree and acknowledge that they shall cooperate, and shall cause their respective certified public accountants to cooperate, with

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the other Party, with respect to tax withholding and reporting obligations relating to the In-Scope Arrangements.
Section 6.06.      Cooperation on Public Filings . (a) Subject to Section 6.06(f), until the Final Withdrawal Date, each of RBS and the Company shall cooperate, and shall cause their respective independent certified public accountants to cooperate, with the other Party to the extent requested by such Party in connection with the preparation of such Party’s public earnings or other press releases, quarterly and annual reports to shareholders, annual reports on Form 10-K or 20-F, any current reports on Form 8-K or Form 6-K, any reports pursuant to Section 16 of the Exchange Act and any other proxy, information and registration statements, reports, notices, prospectuses and any other filings made by either Party with any Governmental Authority, any national securities exchange or otherwise made publicly available (collectively, the “ Public Filings ”). The Company agrees that it will, and will cause each other member of the Company Group to:
(i)      provide to RBS all information that RBS reasonably requests in connection with any RBS Public Filings or that, in the judgment of RBS, is required to be disclosed or incorporated by reference therein under any Law, rule or regulation;
(ii)      use its reasonable best efforts to cause the Company Auditors to consent to any reference to them as experts in any RBS Public Filings required under any Law, rule or regulation;
(iii)      notify RBS in a timely manner of its intention to make any Public Filing, provide RBS a reasonable opportunity to review and comment on such Public Filing prior to such Public Filing being made and use its reasonable efforts to incorporate any such comments of RBS; provided that the Company shall not be required to take any action that will result in a violation of its disclosure or other obligations under applicable Law;
(iv)      if and to the extent requested by RBS, diligently and promptly review and comment on all drafts of any RBS Public Filings or other Disclosure Documents of RBS (including to ensure that any portion of such RBS Public Filing or such Disclosure Document pertaining to the Company Group does not include any information that contains an untrue statement of a material fact or omits to state a material fact necessary to make such information not misleading) and prepare in a diligent and timely fashion any portion of such RBS Public Filing or such Disclosure Document pertaining to the Company Group; and
(v)      prior to any printing or public release of any RBS Public Filing, cause an appropriate executive officer of the Company to, if timely requested by RBS, certify that the information relating to any Company Group member in such RBS Public Filing is accurate, true, complete and correct in all material respects.

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(b)      The Company will, and will cause each other member of the Company Group to, provide any information requested by RBS pursuant to this Section 6.06 in a timely manner on the dates requested by RBS (which may be earlier than the dates on which the Company otherwise would be required under the provisions of this Agreement to have such information available; provided, however, that where practicable, RBS shall make its request for such information no later than five (5) Business Days prior to the date that RBS expects the Company to provide such information).
(c)      With respect to any information provided by one Party to the other Party that is contained in, or used in the preparation of, any public disclosure or Disclosure Document of such other Party, neither Party shall provide any such information that contains an untrue statement of a material fact, or omits to state a material fact necessary to make such information not misleading.
(d)      In the event that any member of the Company Group is required by applicable Law to publicly release information concerning such Person’s financial information for a period for which RBS has yet to publicly release financial information or that otherwise conflicts with the information with respect to any Company Group member that is included in any RBS Public Filing, the Company shall provide RBS notice of such release of such information, including a copy of such intended release, as soon as practicable prior to such release of such information and in any event within five (5) Business Days prior to such release.
(e)      Subject to Section 6.06(f), the Company and RBS shall consult and agree on the timing of their respective Public Filings. Prior to making any Public Filing, each Party shall give the other Party an opportunity to review such Public Filing and to comment thereon and each Party shall use reasonable efforts to incorporate any such comments of the other Party; provided that neither Party shall be required to take an action that will result in a violation of its disclosure or other obligations under applicable Law.
(f)      Notwithstanding anything to the contrary in this Section 6.06, RBS shall not be required to consult or cooperate with the Company, or otherwise have any obligations under this Section 6.06, with respect to any RBS Public Filing or any portion of any RBS Public Filing that (x) does not contain information relating to the Company or the Company Business or (y) contains information relating to its ownership of Common Stock but does not otherwise contain any other information relating to the Company or the Company Business.
Section 6.07.      Conformance of Information . Until the Final Withdrawal Date, all information provided by any Company Group member to RBS will be consistent in terms of format and detail and otherwise with RBS’s policies with respect to the application of IFRS and U.S. GAAP, as applicable, and practices in effect on the Effective Date with respect to the provision of such information by such Company Group member to RBS (and, where appropriate, as presently presented in financial reports to the RBS Board),

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with such changes therein as may be requested by RBS from time to time consistent with changes in such accounting principles and practices.
Section 6.08.      Disclosure Controls . (a) Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to:
(i)      maintain, as of and after the Effective Date, disclosure controls and procedures and internal control over financial reporting as defined in Exchange Act Rule 13a-15;
(ii)      cause each of its principal executive and principal financial officers to sign and deliver certifications to the Company’s periodic reports and will include the certifications in the Company’s periodic reports, as and when required pursuant to Exchange Act Rule 13a-14 and Item 601 of Regulation S-K;
(iii)      cause its management to evaluate the Company’s disclosure controls and procedures and internal control over financial reporting (including any change in internal control over financial reporting) as and when required pursuant to Exchange Act Rule 13a-15; and
(iv)      disclose in its periodic reports filed with the Commission information concerning the Company management’s responsibilities for and evaluation of the Company’s disclosure controls and procedures and internal control over financial reporting (including, without limitation, the annual management report and attestation report of the Company Auditors relating to internal control over financial reporting) as and when required under Items 307 and 308 of Regulation S-K and other applicable Commission rules.
(b)      Without limiting the generality of Section 6.08(a), until the Deconsolidation Date, the Company agrees that it will, and will cause each other member of the Company Group to, maintain as of and after the Effective Date internal systems and procedures that will provide reasonable assurance that:
(i)      the Company’s consolidated financial statements are reliable and timely prepared in accordance with U.S. GAAP and applicable Law;
(ii)      all transactions of members of the Company Group are recorded as necessary to permit the preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP and applicable Law;
(iii)      the receipts and expenditures of members of the Company Group are authorized at the appropriate level within the Company; and
(iv)      unauthorized use or disposition of the assets of any member of the Company Group that could have a material effect on the Company’s consolidated financial statements is prevented or detected in a timely manner.

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Section 6.09.      Special Reports of Deficiencies, Violations or Unscheduled Events . (a) Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to, report in reasonable detail to RBS the following events or circumstances promptly after any executive officer of the Company or any member of the Company Board becomes aware of such matter: (A) all significant deficiencies and material weaknesses in the design or operation of internal controls, whether over financial reporting or otherwise; (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting; (C) any illegal act within the meaning of Section 10A(b) and (f) of the Exchange Act and (D) any material violation of Law, including for the avoidance of doubt, any report of a violation that an attorney representing any Company Group member has formally made to any officers or directors of the Company pursuant to the SEC’s attorney conduct rules (17 C.F.R. Part 205), or the Company Group Policy Framework.
(b)      Until the Final Withdrawal Date, the Company agrees that it will, and will cause each other member of the Company Group to, report in reasonable detail to RBS promptly after any executive officer of the Company or any member of the Company Board becomes aware of any material change, or any development involving a prospective material change, in or affecting the general affairs, management, financial position, stockholders’ equity or results of operations of the Company Group on a consolidated basis.
Section 6.10.      Company Information Rights . (a) Until the Final Withdrawal Date, RBS will, and will cause each other member of the RBS Group to, as promptly as reasonably practicable but in any case within five (5) Business Days (subject to any provision of this Agreement that requires that such action be taken more promptly) of any request from the Company (unless not practicably available within such time, in which case as soon as practicable thereafter), provide to the Company (including its agents, accountants, advisors, counsel and other representatives):
(i)      Financial, accounting, taxation and other information and records of, or confirmations from, RBS and each member of the RBS Group;
(ii)      Audit documents and papers of RBS’s auditors as may be reasonably required by the Company from time to time; and
(iii)      Access to relevant personnel of RBS and each member of the RBS Group,
in each case to the extent such information or access is necessary for the Company or any other member of the Company Group to comply with any applicable Law or to meet the requirements of any Governmental Authority or securities exchange to which the Company is subject.

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(b)      Subject to Section 8.03(b), if RBS reasonably determines that any provision of information pursuant to this Article 6 (including any information provided pursuant to the Functional Requirements) could be commercially detrimental to the RBS Business, violate any Law or Contract or result in the waiver of any Privilege, the Parties shall take all reasonable measures to permit the provision of such information in a manner that avoids any such detriment, violation or waiver. If, after the Parties have taken all such measures, RBS is unable to provide any such information other than in a manner that could violate any Law or Contract, RBS shall not be required to provide such information. Any information owned by RBS that is provided to the Company pursuant to this Section 6.10 shall be deemed to remain the property of RBS.
Section 6.11.      Access to Historical Records . For a period of five years following the Final Withdrawal Date, subject to an extension of up to ten years upon the demonstration of a legal, tax or regulatory requirement for such extension by the requesting Party, RBS and the Company shall retain the right to access such records of the other which exist as a result of RBS’s control or ownership of all or a portion of the Company. Upon reasonable notice and at each Party’s own expense, RBS (and its authorized representatives) and the Company (and its authorized representatives) shall be afforded access to such records at reasonable times and during normal business hours and each Party (and its authorized representatives) shall be permitted, at its own expense, to make abstracts from, or copies of, any such records; provided , access to such records may be denied if (i) RBS or the Company, as the case may be, cannot demonstrate a legitimate business need (during the five year period following the Final Withdrawal Date), or a legal, tax or regulatory requirement (during the extension period described above), for such access to the records; (ii) the information contained in the records is subject to any applicable confidentiality commitment to a third party; (iii) a bona fide competitive reason exists to deny such access; (iv) the records are to be used for the initiation of, or as part of, a suit or claim against the other Party; (v) such access would serve as a waiver of any Privilege afforded to such record; or (vi) such access would unreasonably disrupt the normal operations of RBS or the Company, as the case may be. Notwithstanding the foregoing, nothing in this Section 6.11 shall require either Party to modify its record retention policy as may be in effect from time to time to retain or preserve any records that in the absence of this Section 6.11 would otherwise be exempt from such retention requirement.
Section 6.12.      Expenses . Except as expressly provided in Section 6.11, the Company shall be responsible for any expenses it incurs in connection with the fulfillment of its obligations under Article 5 and this Article 6, except (i) out-of-pocket expenses reasonably incurred with respect to any specific request by RBS for information or access in excess of information or access historically provided by the Company to RBS prior to the Effective Date, unless such request relates to any action by, or inaction of, any member of the Company Group that is inconsistent with such past practice; and (ii) to the extent expressly agreed between RBS and the Company prior to the incurrence of any specific expenses.

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Section 6.13.      Additional Matters. (a) For the avoidance of doubt, the rights and obligations set out in this Article 6 shall be deemed to include, but are not intended to limit, or be limited by, the rights and obligations of RBS and the Company pursuant to the Functional Requirements.
(b)      For the avoidance of doubt, the rights and obligations granted under this Article 6 are subject to any specific provisions on the retention, rights to use or confidential treatment of information set forth in any Ancillary Agreement.
(c)      For the avoidance of doubt, each obligation of either Party to provide information and access to information pursuant to this Article 6 shall include the obligation to provide information and access to information in any form, including, without limitation, in written, oral, electronic or other tangible or intangible forms and stored in any medium, whether in existence now or in the future.
ARTICLE 7     
CERTAIN BUSINESS MATTERS
Section 7.01.      Insurance Matters . (a) The Company has since the Insurance Separation Date and shall until the Final Withdrawal Date maintain in effect the Insurance Policies set forth on Schedule 7.01. Since the Insurance Separation Date, the coverage under all Shared Insurance Policies has and shall continue in force only for the benefit of RBS and other members of the RBS Group and not for the benefit of the Company or any other member of the Company Group. Effective from and after the Insurance Separation Date, the Company has and shall continue to arrange for its own Insurance Policies with respect to the Company Business covering all periods (whether prior to or following the Insurance Separation Date) and agrees not to seek, through any means, benefit from any of RBS’s or its Affiliates’ Insurance Policies that may provide coverage for claims relating in any way to the Company Business following the Insurance Separation Date.
(b)      Where Shared Insurance Policies with an insurer cover Liabilities related to the Company Business reported after the Insurance Separation Date with respect to an occurrence prior to the Insurance Separation Date under an occurrence-based Shared Insurance Policy (collectively, “ Covered Claims ”), then the members of the Company Group may notify RBS of such claim and RBS shall seek coverage for such Covered Claims under such Shared Insurance Policies, control the prosecution and defense of such Covered Claims and forward any insurance proceeds recoverable with respect thereto pursuant to Section 3.02(d) hereof, without any prejudice or limitation to RBS seeking insurance under the Shared Insurance Policies for its own claims. After the Insurance Separation Date, RBS has and shall continue to procure and administer the Shared Insurance Policies, provided that such administration shall not limit, inhibit or preclude the right of the members of the Company Group to insurance coverage thereunder in accordance with this Section 7.01(b), in each case, with respect to Covered Claims. The Company shall promptly notify RBS of any Covered Claims, and RBS agrees to

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reasonably cooperate with the Company concerning the pursuit by the Company of any such Covered Claim, in each case at the expense of the Company (to the extent such expenses are not covered by the applicable Shared Insurance Policies).
(c)      In the event that Covered Claims relate to the same occurrences for which RBS is seeking coverage under such Shared Insurance Policies and for which the Parties have a shared defense, the Company and RBS shall jointly defend any such claim and waive any conflict of interest necessary to conduct a joint defense, and shall bear any expenses in connection therewith on a pro rata basis in proportion to the assessed value of the claim or claims against such Party (to the extent such expenses are not covered by the applicable Shared Insurance Policies), including self-insured retentions or deductibles. In the event that policy limits under an applicable Shared Insurance Policy are not sufficient to fund all claims of RBS and members of the RBS Group and the Company and members of the Company Group, and any amounts simultaneously due shall be paid to the respective entities in proportion to the assessed value of each respective entity’s claim or claims.
Section 7.02.      No Restriction on Competition . It is the explicit intent of each of the Parties hereto that the provisions of this Agreement shall not include any non-competition or other similar restrictive arrangements with respect to the range of business activities which may be conducted by the Parties. Accordingly, each of the Parties acknowledges and agrees that, subject to Section 5.05(b)(i), nothing set forth in this Agreement shall be construed to create any explicit or implied restriction or other limitation on (i) the ability of any Party to engage in any business or other activity which competes with the business of any other Party or (ii) the ability of any Party to engage in any specific line of business or engage in any business activity in any specific geographic area.
Section 7.03.      No Solicitation of Employees . For and during the 12 month period following the Effective Date, none of RBS, the Company or any member of their respective Groups will, without the prior written consent of the other applicable Party, either directly or indirectly, on their own behalf or in the service or on behalf of others, solicit, aid, induce or encourage any employee at the level of Senior Vice President or higher of any other Party’s respective Group to leave his or her employment; provided, however , that nothing in this Section 7.03 shall restrict or preclude the rights of RBS, the Company or any member of their respective Groups from soliciting or hiring (i) any employee who responds to a general solicitation or advertisement that is not specifically targeted or focused on the employees employed by any other Party’s respective Group (and nothing shall prohibit such generalized searches for employees through various means, including, but not limited to, the use of advertisements in the media (including trade media) or the engagement of search firms to engage in such searches); provided that the applicable Party has not encouraged or advised such firm to approach any such employee; (ii) any employee whose employment has been terminated by the other Party’s respective Group; or (iii) any employee who voluntarily terminated his or her

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employment more than sixty (60) days prior to any act of solicitation referred to in this Section 7.03.
Section 7.04.      Company Capital Reduction . Subject to obtaining any required Governmental Approvals, the Company agrees to consummate the capitalization reduction transaction(s) described in the IPO Registration Statement under the heading “Our Relationship with the RBS Group and Certain Other Related Party Transactions—Relationship with the RBS Group—Other.”
Section 7.05.      Non-Control Determination . Within thirty (30) days following the first date on which RBS ceases to beneficially own such number of shares of Common Stock representing at least 10% of the voting power of all outstanding shares of Common Stock, RBS shall assess based on the facts and circumstances (including the extent of business relationships among RBS and the Company) whether RBS has a reasonable basis on which to seek a non-control determination with respect to the Company from the Federal Reserve Board and if such reasonable basis exists, RBS shall use commercially reasonable efforts to seek written confirmation from the Federal Reserve Board that RBS is not deemed to control the Company by the Federal Reserve Board.
Section 7.06.      Deconsolidation Date Determination. RBS shall provide written confirmation informing the Company that the Deconsolidation Date has occurred. RBS shall provide such written confirmation promptly, but in any case within five (5) Business Days after the Deconsolidation Date.
Section 7.07.      Mutual Agreement Procedure Claim . With respect to certain tax matters, each of the Company and RBS agrees to comply with the provisions of Schedule 7.07 hereto.
ARTICLE 8     
CONFIDENTIALITY; PRESERVATION OF PRIVILEGE
Section 8.01.      Confidentiality . (a) Subject to Section 8.02, each of RBS and the Company (each, a “ Receiving Party ”), on behalf of itself and each Person in its respective Group, agree to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, all Confidential Information received from a Disclosing Party (as defined below) in confidence with at least the same degree of care that applies to its own confidential and proprietary information pursuant to (x) with respect to the Company, the Company Group Policy Framework and (y) with respect to RBS, the RBS Group Policy Framework, in each case as in effect as of the Effective Date. As used in this Article 8, “Confidential Information” shall include all information with respect to the Company, solely concerning the Company Business (for which the Company shall be the “ Disclosing Party ”) and with respect to RBS, concerning the RBS Business (for which RBS shall be the “Disclosing Party”) that is accessible to it, in its possession (including Confidential Information in its possession prior to the Effective Date) or furnished by the Disclosing Party or any Person in its respective Group, or accessible to, in the possession of, or

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furnished to such Receiving Party’s respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement or otherwise (including, for the avoidance of doubt, any Confidential Information provided by the RBS Designee or the RBS Non-Voting Attendee to any member of the RBS Group or any of such member’s directors, officers, employees, agents, accountants, counsel and other advisors or representatives), except, in each case, to the extent that such Confidential Information (i) is or becomes part of the public domain through no breach of this Agreement by the Receiving Party or any of its Group, its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) Confidential Information that was independently developed following the Effective Date by employees or agents of the Receiving Party or any Person in its respective Group, its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who have not accessed or otherwise received the applicable Confidential Information; provided that such independent development can be demonstrated by competent, contemporaneous written records of the Receiving Party or any Person in its respective Group, or (iii) becomes available to the Receiving Party or any Person in its respective Group following the Effective Date on a non-confidential basis from a third party who is not bound directly or indirectly by a duty of confidentiality to the Disclosing Party. Notwithstanding the foregoing, this Section 8.01(a) shall not limit the ability of the Receiving Party to disclose information of the Disclosing Party (i) to its directors, officers, employees, agents, accountants, counsel and other advisors or representatives in accordance with this Agreement, (ii) to the extent a Receiving Party discloses such information in any Public Filings or filings with Governmental Authorities pursuant to its reasonable determination that it must make such disclosure or (iii) as required by applicable Law or by any Governmental Authority.
(d)      Each Party acknowledges that it and the other members of its Group may have in their possession confidential or proprietary information of third parties that was received under confidentiality or non-disclosure agreements with such third party prior to the Effective Date. Such Party will hold, and will cause the other members of its Group and their respective representatives to hold, in strict confidence the confidential and proprietary information of third parties to which they or any other member of their respective Groups has access, in accordance with the terms of any agreements entered into prior to the Effective Date between one or more members of such Party’s Group and such third parties.
(e)      Notwithstanding anything to the contrary in this Article 8, (i) to the extent that an Ancillary Agreement or other Contract pursuant to which a Party hereto or a Person in its respective Group is bound or its confidential information is subject provides that certain information shall be maintained confidential on a basis that is more protective of such information or for a longer period of time than provided for herein, then the applicable provisions contained in such Ancillary Agreement or other Contract shall control with respect thereto and (ii) a Party and the Persons in its respective Group shall have no right to use any information of the Disclosing Party unless otherwise provided

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for in this Agreement, an Ancillary Agreement or Contract between the Parties or a Person in its respective Group.
Section 8.02.      Protective Arrangements . In the event that Confidential Information is required to be kept confidential pursuant to Section 8.01 and the Receiving Party or any Person in its Group either determines on the advice of its counsel that it is required to disclose any Confidential Information pursuant to applicable Law (including the rules and regulations of the Commission or any national securities exchange) or receives any request or demand from any Governmental Authority to disclose or provide Confidential Information of the Disclosing Party (or any Person in the Disclosing Party’s Group) that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing or providing such Confidential Information and shall cooperate at the expense of such other Party in seeking any reasonable protective arrangements (including by seeking confidential treatment of such Confidential Information) requested by such other Party. Subject to the foregoing, the Person that received such a request or determined that it is required to disclose Confidential Information may thereafter disclose or provide Confidential Information to the extent required by such Law (including the rules and regulations of the Commission or any national securities exchange) (as so advised by counsel) or requested or required by such Governmental Authority; provided, however , that such Person provides the other Party, to the extent legally permissible, upon request with a copy of the Confidential Information so disclosed.
Section 8.03.      Preservation of Legal Privileges . (a) RBS and the Company recognize that the members of their respective Groups possess and will possess information and advice that has been previously developed but is legally protected from disclosure under legal privileges, such as the attorney-client privilege or work product exemption and other concepts of legal protection (“ Privilege ”). Neither Party will knowingly waive or compromise any Privilege associated with such information and advice without the prior written consent of the other Party. In the event that Privileged information is required to be disclosed to any arbitrator or mediator in connection with a dispute between the Parties, such disclosure shall not be deemed a waiver of Privilege with respect to such information, and any party receiving it in connection with a proceeding shall be informed of its nature and shall be required to safeguard and protect it.
(b)      If the Disclosing Party required to deliver information pursuant to this Agreement believes in good faith (from internal or external counsel), that the delivery of such information would cause the loss of any Privileges (or create a risk of such loss), then both Parties will work in good faith to determine an alternate means of delivering the requested information, or the substance thereof, that does not result in the loss of such Privilege. If needed to preserve a Privilege, the Company and RBS agree to enter into a common interest agreement, in a form to be agreed to by the Parties, in advance of, and as a condition to, such delivery. Notwithstanding the foregoing, if no alternate means can be agreed by the Parties and external counsel to the Disclosing Party informs the

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Receiving Party in writing that a common interest cannot be established, or with sufficient confidence be asserted, to preserve the Privilege with respect to the information in question, even if a common interest agreement were to be entered into, or that for any other reason the information cannot be delivered without loss of the Privilege (such counsel to explain the reasons for its conclusion briefly but in reasonable detail so that the Receiving Party can review the legal analysis with its own counsel), then the Disclosing Party is excused from providing such information but only to the extent and for the time necessary to preserve the Privileged character thereof.
(c)      Upon receipt by either Party of any subpoena, discovery or other request that may call for the production or disclosure of information that is the subject of a Privilege, or if a Party obtains knowledge that any current or former employee of a Party has received any subpoena, discovery or other request that may call for the production or disclosure of such information, such Party shall provide the other Party a reasonable opportunity to review the information and to assert any rights it may have under this Section 8.03 or otherwise to prevent the production or disclosure of such information. Absent receipt of written consent from the other Party to the production or disclosure of information that may be covered by a Privilege, each Party agrees that it will not produce or disclose any information that may be covered by a Privilege unless a court of competent jurisdiction has entered a final, nonappealable order finding that the information is not entitled to protection under any applicable Privilege.
(d)      The Parties’ agreement to exchange information contained herein are made in reliance on RBS’s and the Company’s respective agreements, as set forth in Section 8.01, Section 8.02 and this Section 8.03, to maintain the confidentiality of such information and to take the steps provided herein for the preservation of all Privileges that may belong to or be asserted by RBS or the Company, as the case may be. As between the Parties, the access to information being granted pursuant to Article 6 hereof, the agreement to provide witnesses and individuals pursuant to Section 9.10 hereof and the disclosure to RBS and the Company of Privileged information relating to the Company Business or RBS Business (if any) pursuant to this Agreement shall not be asserted by RBS or the Company to constitute, or otherwise deemed, a waiver of any Privilege that has been or may be asserted under this Section 8.03 or otherwise. Nothing in this Agreement shall operate to reduce, minimize or condition the rights granted to RBS and the Company in, or the obligations imposed upon the Parties by, this Section 8.03.
ARTICLE 9     
MUTUAL RELEASES; INDEMNIFICATION; COOPERATION
Section 9.01.      Release of Pre-Closing Claims . (a) Except as provided in Section 9.01(c) and Section 9.04, effective as of the Effective Date, the Company does hereby, for itself and for each member of the Company Group as of the Effective Date and their respective successors and assigns and all Persons who at any time prior to the Effective Date, have been directors, officers, agents or employees of any member of the Company

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Group (in each case, in their respective capacities as such), release and forever discharge RBS and each member of the RBS Group, and all Persons who at any time prior to the Effective Date have been stockholders, directors, officers, managers, members, agents or employees of any Person in the RBS Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever between or among the Company or any Person in the Company Group, on the one hand, and RBS or any Person in the RBS Group, on the other hand, whether at law or in equity (including any rights of contribution or recovery), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed in each case on or before the Effective Date.
(b)      Except as provided in Section 9.01(c) and Section 9.03, effective as of the Effective Date, RBS does hereby, for itself and for each member of the RBS Group as of the Effective Date and their respective successors and assigns and all Persons who at any time prior to the Effective Date, have been directors, officers, agents or employees of any member of the RBS Group (in each case, in their respective capacities as such), release and forever discharge the Company and each member of the Company Group, and all Persons who at any time prior to the Effective Date have been stockholders, directors, officers, managers, members, agents or employees of any Person in the Company Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators successors and assigns, from any and all Liabilities whatsoever between or among the Company or any Person in the Company Group, on the one hand, and RBS or any Person in the RBS Group, on the other hand, whether at law or in equity (including any rights of contribution or recovery), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed in each case on or before the Effective Date; provided , however , that nothing contained in this Section 9.01(b) shall be construed to include the release by RBS of any rights it may have had in connection with Third Party Shares.
(c)      Nothing contained in Section 9.01(a) or (b) shall (x) impair any right of any Person to enforce any Surviving Contract in accordance with its terms or (y) release any Person from:
(i)      any Liability provided in or resulting from any Surviving Contract;
(ii)      any Liability assumed or retained by, or transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any Person in any Group under, this Agreement or any Ancillary Agreement;
(iii)      any Liability provided in or resulting from any Contract or understanding that is entered into after the Effective Date between a member of

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the RBS Group, on the one hand, and a member of the Company Group, on the other hand;
(iv)      any Liability that the Parties may have with respect to claim for indemnification, recovery or contribution brought pursuant to this Agreement or any Ancillary Agreement, which Liability shall be governed by the provisions of this Article 9 or, if applicable, the appropriate provisions of the Ancillary Agreements; or
(v)      any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 9.01.
In addition, nothing contained in Section 9.01(a) shall release RBS from indemnifying any director, officer or employee of the Company or any of its Subsidiaries who was a director, officer or employee of RBS or any of its Affiliates on or prior to the Effective Date, to the extent such director, officer or employee is or becomes a named defendant in any Action with respect to which he or she was entitled to such indemnification pursuant to obligations existing prior to the Effective Date, it being understood that if the underlying obligation giving rise to such Action is a liability of the Company, the Company shall indemnify RBS for such Liability (including RBS’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article 9.
(d)      The Company shall not make, and shall not permit any Person in the Company Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution, recovery or any indemnification, against RBS or any Person in the RBS Group, or any other Person released pursuant to Section 9.01(a), with respect to any Liabilities released pursuant to Section 9.01(a). RBS shall not make, and shall not permit any Person in the RBS Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution, recovery or any indemnification against the Company or any Person in the Company Group, or any other Person released pursuant to Section 9.01(b), with respect to any Liabilities released pursuant to Section 9.01(b).
(e)      It is the intent of each of RBS and the Company, by virtue of the provisions of this Section 9.01, to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed in each case on or before the Effective Date, between or among the Company or any Person in the Company Group, on the one hand, and RBS or any Person in the RBS Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such Persons on or before the Effective Date), except as expressly set forth in Section 9.01(c). At any time, at the request of the other Party, each Party shall cause each Person in its respective Group and to the extent practicable each other Person to execute and deliver releases reflecting the provisions hereof.

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(f)      If any current or former director, officer, agent or employee of either RBS or the Company initiates an Action with respect to claims released by this Section 9.01, the Party for whom such Person served as a director, officer, agent or employee at the time the Action arose shall indemnify the other Party against such Action in accordance with the provisions set forth in this Article 9.
Section 9.02.      Pending, Threatened and Unasserted Claims . The Company shall assume liability for all claims, including pending, threatened and unasserted claims, relating to actions or omissions relating to the Company Business and RBS shall assume liability for all pending, threatened and unasserted claims relating to actions or omissions relating to the RBS Business. In the event of any third-party claims that name both Parties as defendants, each Party will cooperate with the other Party to defend against such claims.
Section 9.03.      Indemnification by the Company . Except as provided in Sections 9.05 and 9.09, the Company shall indemnify, defend and hold harmless each member of the RBS Group and each of their Affiliates and each member of the RBS Group’s and their respective Affiliates’ directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ RBS Indemnitees ”), from and against any and all Losses of the RBS Indemnitees relating to, arising out of or resulting from (without duplication and including any such Losses arising by way of setoff, counterclaim or defense or enforcement of any lien):
(a)      any untrue statement or alleged untrue statement of a material fact contained in any Disclosure Document of any member of the Company Group or any omission or alleged omission to state a material fact in any such Disclosure Document required to be stated therein or necessary to make the statements therein not misleading, except insofar as any such Losses are caused by any untrue statement or alleged untrue statement of a material fact in such Disclosure Document or any omission or alleged omission to state a material fact in such Disclosure Document required to be stated therein or necessary to make the statements therein not misleading based upon information relating to RBS furnished to the Company in writing by RBS expressly for use therein;
(b)      the Company Business, including the failure of the Company or any other member of the Company Group to pay, perform or otherwise promptly discharge any Liability relating to, arising out of or resulting from the Company Business in accordance with its terms, whether prior to or after the Effective Date or the date hereof; and
(c)      any breach by the Company or any Person in the Company Group of this Agreement or any Ancillary Agreement, unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case, any such indemnification claims may be made thereunder (without duplication and including any such Losses arising by way of setoff, counterclaim or defense or enforcement of any lien).

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Section 9.04.      Indemnification by RBS . Except as provided in Sections 9.05 and 9.09, RBS shall indemnify, defend and hold harmless each member of the Company Group and each of their Affiliates and each member of the Company Group’s and their respective Affiliates’ directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ Company Indemnitees ”), from and against any and all Losses of the Company Indemnitees relating to, arising out of or resulting from (without duplication and including any such Losses arising by way of setoff, counterclaim or defense or enforcement of any lien):
(a)      any untrue statement or alleged untrue statement of a material fact contained in any Disclosure Document of any member of the Company Group or any omission or alleged omission to state a material fact in any such Disclosure Document required to be stated therein or necessary to make the statements therein not misleading that is based upon information relating to RBS furnished to the Company in writing by RBS expressly for use in such Disclosure Document;
(b)      the RBS Business, including the failure of RBS or any other member of the RBS Group to pay, perform or otherwise promptly discharge any Liability relating to, arising out of or resulting from the RBS Business in accordance with its terms, whether prior to or after the Effective Date or the date hereof; and
(c)      any breach by RBS or any Person in the RBS Group of this Agreement or any Ancillary Agreement, unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case, any such indemnification claims may be made thereunder (without duplication and including any such Losses arising by way of setoff, counterclaim or defense or enforcement of any lien).
Section 9.05.      Indemnification Obligations Net of Insurance Proceeds and Other Amounts . (a) The Parties intend that any Loss subject to indemnification or reimbursement pursuant to this Article 9 will be net of Insurance Proceeds that actually reduce the amount of the Loss. Accordingly, the amount which any Party (an “ Indemnifying Party ”) is required to pay to any Person entitled to indemnification hereunder (an “ Indemnitee ”) will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnitee in respect of the related Loss. If an Indemnitee receives a payment (an “ Indemnity Payment ”) required by this Agreement from an Indemnifying Party in respect of any Loss and subsequently receives Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds had been received, realized or recovered before the Indemnity Payment was made.
(b)      An insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a “ wind-fall ” (i.e., a benefit such insurer or other third party would not be

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entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Nothing contained in this Agreement or any Ancillary Agreement shall obligate any Person in any Group to seek to collect or recover any Insurance Proceeds.
(c)      Any Indemnity Payment made by the Company shall be (i) increased as necessary so that after making all payments in respect to taxes imposed on or attributable to such Indemnity Payment, each RBS Indemnitee receives a net amount equal to the sum it would have received had no such taxes been imposed and (ii) reduced to take account of any net Tax benefit actually realized by an RBS Indemnitee arising from the incurrence or payment of the Loss to which the Indemnity Payment relates. Any Indemnity Payment made by RBS shall be (i) increased as necessary so that after making all payments in respect to taxes imposed on or attributable to such Indemnity Payment, each Company Indemnitee receives a net amount equal to the sum it would have received had no such taxes been imposed and (ii) reduced to take account of any net Tax benefit actually realized by a Company Indemnitee arising from the incurrence or payment of the Loss to which the Indemnity Payment relates.
(d)      If an indemnification claim is covered by the indemnification provisions of an Ancillary Agreement, the claim shall be made under the Ancillary Agreement to the extent applicable and the provisions thereof shall govern such claim. In no event shall any Party be entitled to double recovery from the indemnification provisions of this Agreement and any Ancillary Agreement.
Section 9.06.      Procedures for Indemnification of Third Party Claims . (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a Person in the RBS Group or the Company Group of any claim or of the commencement by any such Person of any Action with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 9.02, Section 9.03 or Section 9.04, or any other Section of this Agreement (collectively, a “ Third Party Claim ”), such Indemnitee shall give such Indemnifying Party written notice thereof as promptly as practicable (and in any event within thirty (30) days) after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 9.06(a) shall not relieve the related Indemnifying Party of its obligations under this Article 9, except to the extent, and only to the extent, that such Indemnifying Party is actually prejudiced by such failure to give notice.
(b)      An Indemnifying Party may elect (but shall not be required) to defend, at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel (which counsel shall be reasonably satisfactory to the Indemnitee), any Third Party Claim if such Indemnifying Party acknowledges that it would have an indemnity obligation for the Liability resulting from such Third Party Claim as provided for under this Article 9 within forty-five (45) days after the receipt of notice from an Indemnitee in accordance

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with Section 9.06(a); provided that the Indemnifying Party shall not be entitled to defend and shall pay the reasonable fees and expenses of one separate counsel (in addition to local counsel or counsel with specialized expertise) for all Indemnitees if the claim for indemnification relates to or arises in connection with any criminal action, indictment or allegation; and provided , further , that if an Indemnifying Party elects to defend a Third Party Claim pursuant to this Section 9.06(b), such defense shall be carried out in consultation with the applicable Indemnitees. Within forty-five (45) days after the receipt of notice from an Indemnitee in accordance with Section 9.06(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions to its defense. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee; provided, however , that (i) if the Indemnifying Party has elected to assume the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice or (ii) if the Third Party Claim involves injunctive or equitable relief, then, in any such case, the reasonable fees and expenses of one separate counsel (in addition to local counsel or counsel with specialized expertise) for all Indemnitees shall be borne by the Indemnifying Party.
(c)      If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 9.06(b), and for any period during which an Indemnifying Party has not assumed the defense of a Third Party Claim (other than during any period in which the Indemnitee shall have failed to give notice of the Third Party Claim in accordance with Section 9.06(a)), such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party. Any legal fees and expenses incurred by the Indemnitee in connection with defending such claim shall be paid by the Indemnifying Party at the then applicable regular rates charged by counsel, without regard to any flat fee or special fee arrangement otherwise in effect between such counsel and the Indemnitee.
(d)      Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party. If an Indemnifying Party has failed to assume the defense of the Third Party Claim within the time period specified in clause (b) above, it shall not be a defense to any obligation to pay any amount in respect of such Third Party Claim that the Indemnifying Party was not consulted in the defense thereof, that such Indemnifying Party’s views or opinions as to the conduct of such defense were not accepted or adopted, that such Indemnifying Party does not approve of the quality or manner of the defense thereof or that such Third Party Claim was incurred by reason of a settlement rather than by a judgment or other determination of liability.

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(e)      In the case of a Third Party Claim, no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the consent of the Indemnitee if the effect thereof is (i) to permit any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee or (ii) to ascribe any fault on any Indemnitee in connection with such defense.
(f)      Notwithstanding the foregoing, the Indemnifying Party shall not, without the prior written consent of the Indemnitee, settle or compromise any Third Party Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnitee of a written release from all Liability in respect of such Third Party Claim.
Section 9.07.      Additional Matters . (a) Any claim on account of a Loss which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Indemnitee as contemplated by this Agreement and the Ancillary Agreements.
(b)      In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(c)      In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant or otherwise hold the Indemnifying Party as party thereto, if at all practicable. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section, and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts fees and all other external expenses), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement with respect to such Third Party Claim.

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Section 9.08.      Remedies Cumulative . The remedies provided in this Article 9 shall be cumulative and, subject to the provisions of Article 8, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
Section 9.09.      Special Damages . NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT TO THE CONTRARY, IN NO EVENT WILL EITHER PARTY OR ANY OF ITS GROUP MEMBERS BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS SUFFERED BY AN INDEMNITEE, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, IN CONNECTION WITH ANY DAMAGES ARISING HEREUNDER OR THEREUNDER (INCLUDING ANY LOSS IN THE VALUE OF COMMON STOCK BENEFICIALLY OWNED BY AN INDEMNITEE); PROVIDED, HOWEVER , THAT TO THE EXTENT AN INDEMNITEE IS REQUIRED TO PAY ANY SPECIAL, INCIDENTAL, INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS (INCLUDING IN RESPECT OF ANY LOSS IN THE VALUE OF COMMON STOCK, INCLUDING THIRD PARTY SHARES) TO A PERSON WHO IS NOT A MEMBER OF THE INDEMNITEE’S GROUP IN CONNECTION WITH A THIRD PARTY CLAIM, SUCH DAMAGES WILL CONSTITUTE DIRECT DAMAGES AND NOT BE SUBJECT TO THE LIMITATION SET FORTH IN THIS SECTION 9.09.
Section 9.10.      Production of Witnesses; Records; Cooperation . (a) After the Effective Date, except in the case of any Action involving or relating to a conflict or dispute between any member of the RBS Group, on the one hand, and any member of the Company Group, on the other hand, each Party hereto will use its commercially reasonable efforts to make available to each other Party, upon written request, the then current directors, officers, employees, other personnel and agents of the Person in its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which indemnification is or may reasonably be expected to be sought that the requesting Party may from time to time be involved. The requesting Party shall bear all costs and expenses in connection therewith.
(b)      If an Indemnifying Party or Indemnitee chooses to defend or to seek to compromise or settle any Third Party Claim, the other Party shall make available to such Indemnifying Party or Indemnitee, as applicable, upon written request then current directors, officers, employees, other personnel and agents of the Persons in its respective Group as witnesses and any information within its control or possession, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or

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such prosecution, evaluation or pursuit, as the case may be, and shall otherwise reasonably cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be.
(c)      Without limiting the foregoing, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions in which indemnification is or may reasonably be expected to be sought.
(c)      The obligation of the Parties to provide witnesses pursuant to this Section 9.10 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses employees and other officers without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 9.10(a)).
(d)      In connection with any matter contemplated by this Section 9.10 the Parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any Person in any Group.
Section 9.11.      Company Warranty in respect of Pre-Closing Claims . As of the Effective Date the Company does hereby, for itself and for each member of the Company Group and their respective successors and assigns and all Persons who at any time prior to the Effective Date have been directors, officers, agents or employees of any member of the Company Group (in each case, in their respective capacities as such) (collectively, the “ Company Warrantors ”), warrant and represent that none of the Company Warrantors has sold, transferred, assigned or otherwise disposed of any interest any of them have, had or may have had in relation to those claims released in Section 9.01(a).
Section 9.12.      RBS Warranty in respect of Pre-Closing Claims . As of the Effective Date RBS does hereby, for itself and for each member of the RBS Group and their respective successors and assigns and all Persons who at any time prior to the Effective Date have been directors, officers, agents or employees of any member of the RBS Group (in each case, in their respective capacities as such) (collectively, the “ RBS Warrantors ”), warrant and represent that none of the RBS Warrantors has sold, transferred, assigned or otherwise disposed of any interest any of them have, had or may have had in relation to those claims released in Section 9.01(b).
ARTICLE 10     
DISPUTE RESOLUTION
Section 10.01.      Disputes . Except as otherwise specifically provided in any Ancillary Agreement, the procedures for discussion, negotiation and mediation set forth in this Article 10 shall apply to all disputes, controversies or claims (whether arising in contract, tort or otherwise) between or among any Person in the RBS Group and the Company Group that may arise out of or relate to, or arise under or in connection with

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this Agreement, or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby on or prior to the Effective Date).
Section 10.02.      Escalation; Mediation . (a) It is the intent of the Parties to use their respective commercially reasonable efforts to resolve expeditiously any dispute, controversy or claim between or among them with respect to the matters covered by this Agreement or any Ancillary Agreement that may arise from time to time on a mutually acceptable negotiated basis. In furtherance of the foregoing, any Party involved in a dispute, controversy or claim with respect to such matters (except any matters covered by the Trademark License Agreement and the Transitional Services Agreement) may deliver a notice (an “ Escalation Notice ”) demanding an in person meeting involving representatives of the Parties at a senior level of management of the Parties (or if the Parties agree, of the appropriate strategic business unit or division within such entity). A copy of any such Escalation Notice shall be given to the General Counsel, or like officer or official, of each Party involved in the dispute, controversy or claim (which copy shall state that it is an Escalation Notice pursuant to this Agreement). Any agenda, location or procedures for such discussions or negotiations between the Parties may be established by the Parties from time to time; provided, however , that the Parties shall use their commercially reasonable efforts to meet within thirty (30) days of the Escalation Notice.
(b)      If the Parties are not able to resolve the dispute, controversy or claim through the escalation process referred to above, then the matter shall be referred to mediation. The Parties shall retain a mediator to aid the Parties in their discussions and negotiations by informally providing advice to the Parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the Parties, nor shall any opinion expressed by the mediator be admissible in any other proceeding. The mediator may be chosen from a list of mediators previously selected by the Parties or by other agreement of the Parties. Costs of the mediation shall be borne equally by the Parties involved in the matter, except that each Party shall be responsible for its own expenses. Mediation shall be a prerequisite to the commencement of any Action by either Party.
Section 10.03.      Court Actions . (a) In the event that any Party, after complying with the provisions set forth in Section 10.02 above, desires to commence an Action, such Party, subject to Section 13.17, may submit the dispute, controversy or claim (or such series of related disputes, controversies or claims) to any court of competent jurisdiction as set forth in Section 13.17.
(b)      Unless otherwise agreed in writing, the Parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article 10, except to the extent such commitments are the subject of such dispute, controversy or claim.
ARTICLE 11     
FURTHER ASSURANCES

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Section 11.01.      Further Assurances . (a) In addition to the actions specifically provided for elsewhere in this Agreement, including, without limitation, the actions set forth in Section 6.02, 6.03 and 6.09, each of the Parties hereto will cooperate with each other and shall use its (and will cause their respective Subsidiaries and Affiliates to use) commercially reasonable efforts, prior to, on and after the Effective Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b)      Without limiting the foregoing, prior to, on and after the Effective Date, each Party shall cooperate with the other Party, and without any further consideration, at the expense of such Party, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture, order, decree, financial assurance (including letter of credit) or other instrument (including any Consents, Notices or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by such other Party hereto from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the other transactions contemplated hereby and thereby.
(c)      On or prior to the Effective Date, RBS and the Company in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions which are reasonably necessary or desirable to be taken by RBS, the Company or any other Subsidiary of the Company or RBS, as the case may be, to effectuate the transactions contemplated by this Agreement.
ARTICLE 12     
TERMINATION
Section 12.01.      Termination . Except as expressly set forth in Section 12.02, this Agreement shall terminate and be of no further force or effect on the Final Withdrawal Date.
Section 12.02.      Effect of Termination; Survival . In the event of any termination of this Agreement, no Party (or any of its directors, officers, members or managers) shall have any Liability or further obligation to any other Party; provided that the terms, provisions and agreements contained in Article 3, Section 6.11, Article 8, Article 9, Article 10 and Sections 11.01(a) and (b) shall survive indefinitely and remain operative and in full force and effect, including (in respect of Article 9) regardless of (i) any investigation made by or on behalf of any Indemnitee; and (ii) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification or contribution

51


hereunder; and provided , further , that the terms, provisions and agreements contained in Schedule 1.01(b) hereto shall survive to the extent contemplated therein. For the avoidance of doubt, the rights and obligations of each of RBS and the Company (including their respective Indemnitees) under this Agreement shall survive the merger or consolidation of any Party, the sale or other transfer by any Party of any assets or businesses or the assignment by it of any Liabilities, or the change of form, change of control or corporate reorganization of any Party.
ARTICLE 13     
MISCELLANEOUS
Section 13.01.      Counterparts; Entire Agreement; Conflicting Agreements . (a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Execution of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as, executed by an original signature.
(b)      This Agreement, the Ancillary Agreements, the exhibits, the schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Parties with respect to such subject matter other than those set forth or referred to herein or therein.
(c)      In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. Subject to Section 9.05(d), in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any Ancillary Agreement, the Ancillary Agreement shall control with respect to the subject matter thereof, and this Agreement shall control with respect to all other matters.
Section 13.02.      No Construction Against Drafter . The Parties acknowledge that this Agreement and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties. Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of this Agreement.
Section 13.03.      Governing Law . This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of New York, without regard to the conflict of laws principles thereof that would result in the application of any Law other than the Laws of the State of New York.

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Section 13.04.      Transferability; Assignability . This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided, however , that no Party hereto may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the other Party hereto.
Section 13.05.      Third Party Beneficiaries . Except for the indemnification rights under this Agreement of any RBS Indemnitee or Company Indemnitee in their respective capacities as such (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person (including employees of the Parties hereto) except the Parties any rights or remedies hereunder, and (b) there are no third party beneficiaries of this Agreement and this Agreement shall not provide any third person (including employees of the Parties hereto) with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 13.06.      Notices . Except as otherwise provided in Section 5.07, all notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:
If to RBS, to:
The Royal Bank of Scotland Group plc
Business House G, First Floor
RBS Gogarburn
175 Glasgow Road
Edinburgh EH12 1HQ
Scotland
Attention: Group General Counsel
with a copy to:
General Counsel, Corporate / M&A
chris.campbell@rbs.com
rushad.abadan@rbs.com
If to the Company to:
Citizens Financial Group, Inc.
One Citizens Plaza
Providence, RI 02903
Attention: John J. Fawcett, Chief Financial Officer
and

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Citizens Financial Group, Inc.
28 State Street, 38th Floor
Boston, MA 02109
Attention: Stephen T. Gannon, General Counsel and Chief Legal Officer

with a copy to:
Citizens Financial Group, Inc.
28 State Street, 12th Floor, MS 1225
Boston, MA 02109
Attention: David A. Bright, Senior Vice President and Senior Counsel

Any Party may, by notice to the other Party, change the address to which such notices are to be given.
Section 13.07.      Severability . If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 13.08.      Force Majeure . No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay; provided that if any Party experiences such a delay or failure, it shall immediately provide a written notice to the other Party of such delay or failure, including a reasonably detailed description of the cause.
Section 13.09.      Late Payments. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus 2.5%.

54


Section 13.10.      Expenses . Except as otherwise specified in this Agreement or the Ancillary Agreements, and except as set forth on Schedule 13.10 or as otherwise agreed in writing between RBS and the Company, RBS and the Company shall each be responsible for its own fees, costs and expenses paid or incurred in connection with the IPO.
Section 13.11.      Headings . The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 13.12.      Waivers of Default . Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.
Section 13.13.      Remedies . The Parties hereby expressly recognize and acknowledge that immediate, extensive and irreparable damage would result, no adequate remedy at law would exist and damages would be difficult to determine in the event that any provision of this Agreement is not performed in accordance with its specific terms or otherwise breached. Therefore, in addition to, and not in limitation of, any other remedy available to any Party, except as otherwise expressly provided herein, an aggrieved Party under this Agreement would be entitled to specific performance of the terms hereof and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy. Neither Party shall be required to obtain or furnish any bond or similar instrument in connection with or as a condition to obtaining or seeking any such remedy. For the avoidance of doubt, nothing in this Agreement shall diminish the availability of specific performance of the obligations under this Agreement or any other injunctive relief. Such remedies, and any and all other remedies provided for in this Agreement, shall be cumulative in nature and not exclusive and shall be in addition to any other remedies whatsoever which any Party may otherwise have. Each of the Parties hereby acknowledges and agrees that it may be difficult to prove damages with reasonable certainty, that it may be difficult to procure suitable substitute performance, and that injunctive relief and/or specific performance will not cause an undue hardship to the Parties. Each Party hereby further agrees that in the event of any action by the other Party for specific performance or injunctive relief, it will not assert that a remedy at law or other remedy would be adequate or that specific performance or injunctive relief in respect of such breach or violation should not be available on the grounds that money damages are adequate or any other grounds
Section 13.14.      Amendments . No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

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Section 13.15.      Interpretation . Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms “hereof”, “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the schedules, exhibits and appendices hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise specified. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”, unless the context otherwise requires or unless otherwise specified.
Section 13.16.      Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.16.
Section 13.17.      Submission to Jurisdiction; Waivers . With respect to any Action relating to or arising out of this Agreement, subject to the provisions of Article 10, each Party to this Agreement irrevocably (a) consents and submits to the exclusive jurisdiction of the courts of the State of New York and any court of the United States located in the Borough of Manhattan in New York City; (b) waives any objection which such Party may have at any time to the laying of venue of any Action brought in any such court, waives any claim that such Action has been brought in an inconvenient forum and further waives the right to object, with respect to such Action, that such court does not have jurisdiction over such Party; and (c) consents to the service of process at the address set forth for notices in Section 13.06 herein; provided, however , that such manner of service of process shall not preclude the service of process in any other manner permitted under applicable Law.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date set forth above.

56


THE ROYAL BANK OF SCOTLAND GROUP PLC
By:
/s/ Ewen Stevenson

 
Name: Ewen Stevenson
 
Title: Chief Financial Officer



CITIZENS FINANCIAL GROUP, INC.
By:
/s/ John Fawcett

 
Name: John Fawcett
 
Title: Chief Financial Officer



1

EXECUTION VERSION

Dated September 29, 2014
THE ROYAL BANK OF SCOTLAND GROUP PLC
and
CITIZENS FINANCIAL GROUP, INC.
TRANSITIONAL SERVICES AGREEMENT







TABLE OF CONTENTS

PAGE
1 Definition and Rules of Construction     2
1.1 Definitions     2
1.2 Rules of Construction     9
2 Performance of Services     11
2.1 Provision of Services and Relief     11
2.2 Incidental and Omitted Services     13
2.3 Standard of Service     14
2.4 Recipient Dependencies     16
2.5 Service Reporting     17
3 Third Party Suppliers     18
3.1 Termination, Expiry or Renewal of Third Party Agreements     18
3.2 Changes in Third Party Supplier Costs     19
3.3 Relationship with Third Party Suppliers     20
3.4 Liability for Third Party Suppliers     20
4 Price and Payment     21
4.1 Charges     21
4.2 Invoicing Procedures and Payment Due     22
4.3 Payments Gross     23
4.4 Interest     23
4.5 Value Added Tax and Sales or Use Tax     23
5 Representations, Warranties and Mutual Obligations     24
5.1 Representations and Warranties     24
5.2 General Obligations     25
6 Term and Termination     26
6.1 TSA Term     26
6.2 Service Term     26
6.3 Service Term Extension     26
6.4 Termination on Notice     27
6.5 Termination for Insolvency     27
6.6 Termination for Regulatory Reasons     27
6.7 Termination for Breach     28
6.8 Termination Charges     28
6.9 Delivery of Data on Termination or Expiry     28
6.10 Survival of Rights on Termination or Expiry     29
7 Migration     29
7.1 Migration and the Migration Plans     29

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7.2 Failure to Timely Migrate     29
8 Limitation of Liability and Indemnification     29
8.1 Exclusions from Liability     29
8.2 Cap on Damages and Exclusions     30
8.3 Indemnification     31
9 Governance     32
9.1 TSA Committee     32
10 Changes and Change Control     32
10.1 Changes     32
10.2 Mandatory Change     33
10.3 Discretionary Changes     33
10.4 Emergency Change     34
11 Dispute Resolution     34
11.1 Dispute Resolution Process     34
12 Intellectual Property Rights     35
12.1 Provider Ownership and License     35
12.2 Recipient Ownership and License     35
13 Data Protection, Confidential Information and Record-keeping     36
13.1 Data Protection     36
13.2 Confidential Information     37
13.3 Record-keeping     39
14 Force Majeure     40
14.1 Force Majeure Events     40
14.2 No Liability for Force Majeure     40
14.3 Delay Owing to Force Majeure     40
15 Employee Provisions     40
15.1 No Obligation to Transfer Employees     40
15.2 Pre-employment Screening     41
16 Communications with Competent Authorities     42
17 Audit     43
17.1 Regulatory Audit Rights     43
17.2 General Audit Rights     43
18 Sanctions     44
18.1 Compliance with Sanctions Laws and Regulations     44
19 Information Security     45
19.1 Information Security     45
20 Other Provisions     46
20.1 Whole Agreement     46
20.2 No Construction Against Drafter     47
20.3 Publicity and Public Announcements     47
20.4 Further Assurances     47

ii



20.5 Assignment     47
20.6 Third Party Rights     47
20.7 Amendment and Waiver     48
20.8 Notices     48
20.9 Severability     49
20.10 Counterparts     49
20.11 Independent Contractor     49
20.12 Governing Law and Submission to Jurisdiction     49
20.13 Anti-Bribery Provisions     50
Schedule 1 – Service Schedules    1-1
Schedule 2 – Forms of Invoice    2-1
Schedule 3 – Migration Principles    3-1
Schedule 4 – TSA Committee Terms of Reference    4-1
Schedule 5 – Policies    5-1




iii



TRANSITIONAL SERVICES AGREEMENT
THIS TRANSITIONAL SERVICES AGREEMENT (“ TSA ”), dated as of September 29, 2014, is by and among THE ROYAL BANK OF SCOTLAND GROUP PLC (“ RBSG ”), a public limited company organized under the laws of Scotland (Company Number SC045551); and CITIZENS FINANCIAL GROUP, INC . (“ CFG ”), a Delaware corporation with its principal place of business in Providence, Rhode Island. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Section 1 hereof.
RECITALS
WHEREAS, RBSG is the indirect owner of all the issued and outstanding common stock of CFG immediately prior to the date hereof;
WHEREAS, shares of CFG are being sold to the public pursuant to the IPO and CFG will cease to be a wholly owned indirect subsidiary of RBSG upon the closing of the IPO;
WHEREAS, after the closing of the IPO, RBSG will remain the majority shareholder of CFG, subject to future sales to the public (and ultimately the contemplated complete disposition on or before December 31, 2016) by RBSG;
WHEREAS, immediately prior to the date hereof, each Provider specified in a Service Schedule was providing services (“ Existing Services ”) to the respective Recipient under such Service Schedule which were the same as, or substantially similar to, the Services to be provided thereunder to such Recipient;
WHEREAS, as of the date hereof and pursuant to the terms of (and except as otherwise provided in) the Separation Agreement, all master agreements, statements of work, service schedules and similar agreements, instruments, documents, arrangements, commitments or understandings relating to the Existing Services are terminated;
WHEREAS, Services will be provided to each Recipient to facilitate its ongoing operations during a transitional period following the IPO during which the applicable Provider will also provide assistance to such Recipient relating to Migration as contemplated by this TSA;
WHEREAS, each Provider has agreed to procure and provide the Services to the applicable Recipient, and each Party has agreed to receive and pay for the Services it or its Affiliates receives pursuant to the Service Schedules, subject to the terms of this TSA; and
NOW, THEREFORE, in consideration of the rights and duties set forth herein, and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, RBSG and CFG hereby agree as follows:

1
    

1
Definition and Rules of Construction
1.1
Definitions
For the purposes of this TSA, the following terms shall have the following meanings:
“ Adverse Policy Change ” has the meaning given in Section 2.3.4;
“ Affiliate ” means, in relation to any company, such company’s holding companies and direct or indirect subsidiaries and the direct or indirect subsidiaries of such holding companies from time to time; however, for purposes of this TSA, the Parties shall not be considered Affiliates of each other. For the avoidance of doubt, in respect of RBSG, Affiliates shall not include CFG or its direct or indirect subsidiaries; and, in respect of CFG, Affiliates shall not include RBSG or its direct or indirect subsidiaries and “ Affiliates ” shall be construed accordingly;
“ Anti-Bribery and Corruption Policy ” means each policy that a Party shall put in place to comply with its own anti-bribery and corruption policy and obligations, and with Anti-Corruption Laws;
“ Anti-Corruption Laws ” means any anti-bribery or anti-corruption-related provisions in criminal and anti-competition laws and/or anti-bribery or anti-corruption laws of the jurisdiction in which, for the Provider, the Provider provides the Services and, for the Recipient, the Recipient receives the Services, together with any amending, consolidating or successor legislation or case law which has effect from time to time in the relevant jurisdiction;
“ ARD ” has the meaning given in Section 15.1.1;
“ Business Day ” means a day which is not a Saturday, Sunday or public holiday in London, New York or Boston;
“ CC Laws ” means all laws relating to the handling of customer complaints that are applicable to the Services;
“ CFG ” means Citizens Financial Group, Inc.;
“ CFG Policies ” means the policies and procedures of CFG listed in Schedule 5B (as may be amended from time to time in accordance with Sections 2.3.3 and 2.3.4);
“ CFG Recipient ” means any of CFG and its Affiliates that is a Recipient under any of the Service Schedules;
“ Change ” means any modification, addition or amendment to any Service (including any change to any part of any Service Schedule) including any Mandatory Change or Discretionary Change;
“ Change Control Procedure ” means the procedure set out in Section 10.1.1;
“ Change Control Request ” has the meaning given in Section 10.1.1(ii);
“ Charges ” means the charges imposed on a Recipient in exchange for receiving Services in the relevant Service Schedules;
“ Competent Authority ” means any local, state, national, supranational, governmental or nongovernmental authority, statutory undertaking, agency or public or regulatory body (including the Prudential Regulation Authority, the Financial Conduct Authority, the Board of Governors of

2
    

the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau) which has jurisdiction over RBSG (and/or its Affiliates) and/or CFG (and/or its Affiliates);
“ Confidential Information ” has the meaning given in Section 13.2.1;
“ Day 2 ” means, with respect to a Service, the date on which CFG ceases to be treated as a subsidiary of, a group company of, an affiliate of or controlled by RBSG, pursuant to the terms of a Third Party Agreement necessary for the provision of such Service;
“ Defaulting Party ” has the meaning given to it in Section 6.7.1;
“ Disabling Device ” means any device, method, token, code, program or subprogram that can disable, interfere with or adversely affect all or any part of a Service, a Party’s equipment, and/or their operation, or destroy any of a Party’s data or other software or hardware, or damage, destroy or interfere with a Party’s information technology network or any of a Party’s data or other software or hardware, or permit any person to circumvent the normal security of a Party’s software, systems or networks;
“ Discretionary Change ” means any Change which is not a Mandatory Change or an Emergency;
“ Dispute ” has the meaning given in Section 11.1.1;
“ Emergency ” has the meaning given in Section 10.4.2;
“ Excluded Service ” means a service or element of a service that, prior to the Service Commencement Date, a Party or its Affiliate, as Recipient with respect to such Service or service element, has expressly notified to the other Party or Affiliate in writing as not being required by the notifying Party or Affiliate whether in relation to its business or the business of its Affiliates or specifically in relation to this TSA;
“ Existing Services ” means services provided by the Parties or their Affiliates to each other immediately prior to the date hereof;
“ Existing Third Party Agreement ” means any Third Party Agreement in force as at the Service Commencement Date, as the same may be amended from time to time, and any extension, replacement or renewal of such agreement;
“ Fairness Laws ” means all applicable federal, state and local fair lending, fair housing, Unfair or Deceptive Acts or Practices and Unfair, Deceptive or Abusive Acts or Practices statutes;
“ FAM ” means felony and misdemeanor in the context of a county and lower court-level search;
“ FIM ” means felony including misdemeanor in the context of a county-level search;
“ Force Majeure ” has the meaning given in Section 14.1;
“ Fraud Prevention Policy ” means anti-fraud measures or policies that a Party’s Group shall have in place whenever it possesses, stores, processes or has access to the other Party’s Group’s Personal Data, as listed in Schedule 5;
“ GLB Act ” means the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq.;

3
    

“ Group ” means, in relation to (i) a Party, that Party and its Affiliates, (ii) a Provider, that Provider and its Affiliates, and (iii) a Recipient, that Recipient and its Affiliates;
“ Incidental Services ” has the meaning given in Section 2.2.1;
“ Indemnitees ” has the meaning given in Section 8.3.1;
“ Intellectual Property Rights ” means (i) copyrights (including copyrights in any software), patents, database rights and rights in trademarks, designs, know-how and confidential information (whether registered or unregistered), (ii) applications for registration, and rights to apply for registration, of any of the foregoing rights and (iii) all other intellectual property rights and equivalent or similar forms of protection existing anywhere in the world;
“ IPO ” means the initial public offering of CFG’s shares;
“ IS Requirements ” means the information security policies that a Party’s Group shall have in place whenever it possesses, stores, processes or has access to the other Party’s Group’s Confidential Information (inclusive of Personal Data), as listed in Schedule 5;
“ Level 1 Clearance ” means individuals who will have no unaccompanied access to any Recipient facility, and no access to the Recipient's information technology network or the Recipient's Confidential Information;
“ Level 2+ Clearance ” means individuals who may have unaccompanied access to any Recipient facility, or any access to the Recipient's information technology network or the Recipient's Confidential Information;
“ LIBOR ” means the ICE Benchmark Administration Limited rate for deposits in £ (Sterling) (or its replacement) for a period of one month which appears on the relevant Reuters Screen rounded upwards to four decimal places at 11:00 a.m. (London Time) on the day specified for the determination of an interest rate (or, if such day is not a Business Day, such rate from the immediately preceding Business Day) and, if no such screen rate is available, the replacement rate or service selected by the TSA Committee;
“ Licensable ” means, with respect to any Intellectual Property Rights, that the Licensing Party, as applicable, has the power and authority to grant a license, sublicense or covenant as to such Intellectual Property Rights to the Licensed Party as provided for herein without (i) violating the terms of any agreement or other arrangement with any third party, (ii) requiring any consent, approval or waiver from any third party, (iii) materially impairing any of the existing rights in respect of such Intellectual Property Rights of the Licensing Party, (iv) imposing any additional material obligations on the Licensing Party relating to such Intellectual Property Rights, and/or (v) requiring the payment of any compensation to any third party.
“ Licensed Party ” means (i) the Provider in its capacity as a licensee for the purposes of the licenses granted in Section 12.2 and (ii) the Recipient in its capacity as a licensee for the purposes of the licenses granted in Section 12.1.
“ Licensing Party ” means (i) the Provider in its capacity as a licensor for the purposes of the licenses granted in Section 12.1 and (ii) the Recipient in its capacity as a licensor for the purposes of the licenses granted in Section 12.2.

4
    

“ Losses ” means losses, claims, damages, costs, charges and liabilities (including reasonable legal fees and disbursements) and “ Loss ” shall be construed accordingly;
“ Mandatory Change ” means a Change which is required as a consequence of any change in Regulation on or subsequent to the date hereof in order for (i) a Recipient to receive Services or to perform Recipient Dependencies and/or (ii) a Provider to provide (or procure the provision of) Services or to perform any of its other obligations under this TSA, in each case in compliance with Regulation;
“ Migration ” means the migration of Services in whole or part from the personnel and information technology systems or other facilities of a Provider, its Affiliates or Third Party Suppliers to the personnel and information technology systems or other facilities of a Recipient, and/or its Affiliates and/or Successor Providers, provided, however , that Migration does not require or otherwise give rise to an obligation on the part of a Provider, its Affiliates or Third Party Suppliers to grant any Successor Provider access to the Provider Systems;
“ Migration Plan ” shall have the meaning given in paragraph 2 of Schedule 3;
“ Migration Principles ” means the principles relating to Migration set out in Schedule 3;
“ Monthly Charge ” has the meaning given in Section 8.2.1;
“ Non-Defaulting Party ” has the meaning given in Section 6.7.1;
“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury;
“ Omitted Service ” has the meaning given in Section 2.2.2;
“ Party ” means RBSG or CFG;
“ Personal Data ” of a disclosing Party means any data, information and/or records of or pertaining to the disclosing Party’s or an Affiliate’s customers (current, former or prospective) and employees (current, former or prospective) or its customers’ customers (current, former or prospective) or employees (current, former or prospective), including but not limited to names, addresses, telephone numbers, account numbers, account and transaction information and any other “Nonpublic Personal Information” as defined in the GLB Act relating to such individuals;
“ Policies ” means the policies and procedures listed in Schedule 5 (as may be amended from time to time in accordance with Sections 2.3.3 and 2.3.4), as applicable to RBSG or CFG;
“ Provider ” means each provider specified in the Service Schedule for the relevant Service;
“ Provider Data ” means all Confidential Information provided in relation to the Services to the Recipient, any member of the Recipient’s Group, or any Successor Provider, by or on behalf of the Provider or any member of the Provider’s Group or any Third Party Supplier;
“ Provider’s Derivative IP ” has the meaning given in Section 12.1.2(ii);
“ Provider’s Existing IP ” has the meaning given in Section 12.1.2(i);
“ Provider’s Intellectual Property ” means all Intellectual Property Rights owned by the Provider and shall include software in the Provider’s information technology infrastructure and systems

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that is owned by the Provider (such as scripts and batch tools) as is needed by the Recipient to receive the Services (in whole or part) or in relation to Migration;
“ Provider’s New IP ” has the meaning given in Section 12.1.2(iii);
“ Provider Systems ” means the information technology systems made available to the Recipient and its Affiliates pursuant to this TSA by or on behalf of the Provider, any member of its Group or any Third Party Supplier, which are supported and maintained by or on behalf of the Provider, any member of its Group or any Third Party Supplier;
“ RBSG ” means The Royal Bank of Scotland Group plc;
“ RBSG Policies ” means the policies and procedures of RBSG listed in Schedule 5A (as may be amended from time to time in accordance with Sections 2.3.3 and 2.3.4), including but not limited to RBSG’s Policy Framework, Information Security and policies on records management and retention;
“ RBSG Recipient ” means any of RBSG and its Affiliates that is a Recipient under any of the Service Schedules;
“ Recipient ” means each Recipient specified in the Service Schedule for the relevant Service;
“ Recipient CHS ” has the meaning given in Section 2.1.8;
“ Recipient Data ” means all Confidential Information:
(i)
including, without limitation, all Personal Data provided in relation to the Services to a Provider, any member of the Provider’s Group, or any Third Party Supplier, by or on behalf of the Recipient or any member of the Recipient’s Group; or
(ii)
generated by the Provider, any member of the Provider’s Group, or any Third Party Supplier in the course of providing the Services;
“ Recipient Dependencies ” means the obligations of a Recipient under this TSA including (i) those expressly identified as Recipient Dependencies in the Service Schedules and any other obligations of the Recipient otherwise set out in the description of the Services in the Service Schedules and (ii) any Recipient Dependencies added in accordance with Sections 2.2.2 and 2.2.3;
“ Recipient’s Derivative IP ” has the meaning given in Section 12.2.2(ii);
“ Recipient’s Existing IP ” has the meaning given in Section 12.2.2(i);
“ Recipient’s Intellectual Property ” means all Intellectual Property Rights owned by the Recipient and shall include software in the Recipient’s information technology infrastructure and systems that is owned by the Recipient (such as scripts and batch tools) as is needed by the Provider to provide the Services (in whole or part) or in relation to Migration;
“ Recipient’s New IP ” has the meaning given in Section 12.2.2(iii);
“ Regulation ” means any applicable law, regulation, regulatory constraint, obligation or rule (including any binding code of conduct and binding statement of principle incorporated and contained in such rules) applicable to the existence or operation of this TSA, the Recipient, the

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Provider, any Affiliate of the Provider, any Affiliate of the Recipient or the provision or receipt of the Services, the performance of any Recipient Dependency or the performance of either Party’s other obligations under this TSA from time to time;
“ Report ” means a Service Organization Control (SOC) 1 Type II Report (or substantially similar report in the event the SOC 1 Type II Report is no longer the industry standard) issued by an accounting firm which will cover, at a minimum, the policies, procedures and controls required by this TSA and the relevant Service Schedule;
“ Revised Migration Date ” means, for the relevant Service, the date that results from adding to that Service’s Scheduled End Date the period equal to the period of delay to the completion of Migration to the extent directly attributable to the material fault of the Provider for such Service, provided, however , that in no event shall any Revised Migration Date extend beyond December 31, 2016. For the avoidance of doubt, regardless of the length of the period of delay or whether Migration of a Service is complete as of December 31, 2016, a Revised Migration Date shall not be any date after December 31, 2016;
“ Sales or Use Tax ” means any sales or use tax or any similar tax imposed at the point of sale or on the use/consumption of goods and services;
“ Scheduled End Date ” means December 31, 2016 or, if an earlier date for cessation of services is specified in a Service Schedule with respect to a Service, then such sooner date as is specified for such Service. For the avoidance of doubt, a Scheduled End Date shall not be any date after December 31, 2016;
“ Senior Nominees ” means the senior individuals nominated by each Party;
“ Separation Agreement ” means the Separation and Shareholder Agreement between RBSG and CFG dated on or about the date of this TSA;
“ Service Commencement Date ” means the date hereof;
“ Service Level ” means the level of performance set out in Section 2.3.1;
“ Service Provider CHP ” means a Provider’s complaints handling policy for the relevant Service;
“ Service Records ” means complete and accurate records of, and supporting documentation for, all Services provided pursuant to this TSA;
“ Service Schedule ” means any of the Service Schedules in Schedule 1 of this TSA, each of which describes the terms and obligations of a Provider and a Recipient in relation to a particular Service;
“ Service Term ” means the period of provision of a Service which period shall start on the Service Commencement Date and expire (unless terminated earlier in accordance with this TSA) in accordance with the provisions of Section 6.2;
“ Services ” means:
(i)
the services (or any element of the services) specified in the Service Schedules;
(ii)
any Incidental Services provided pursuant to Section 2.2.1; and

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(iii)
any Omitted Services added to the Service Schedules pursuant to Section 2.2.2; and
in each case as more specifically described in the Service Schedule for that Service and “ Service ” means any one of the Services;
“ Staff ” has the meaning given in Section 15.1.3;
“ Successor Provider ” means the entity or entities (which may include a Recipient or any member of its Group) succeeding a Provider in the provision or operation of services the same as or substantially similar to all or part of the Services;
“ Tax ” includes all forms of taxation and social security contributions and all statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions, levies and withholdings of any nature whatsoever, in each case whether imposed in the United Kingdom, the United States or elsewhere in the world, whenever imposed and whether chargeable directly or primarily or solely against or attributable directly or primarily or solely to the Recipient or any other person, together with all penalties, charges and interest relating to any of the foregoing;
“ Tax Authority ” means any body or organization in any jurisdiction having authority over a Party in relation to Tax;
“ Third Party Agreements ” means any agreements entered into between a Provider (or any member of its Group) and any third party for the provision of a service, goods, lease or license relating to, or necessary for, the provision of the Services or performance of any of the Provider’s other obligations under this TSA whether entered into before or after the date of this TSA;
“ Third Party Consent ” means any permission, consent, license, agreement, authorization or “right to use” required, from a third party (whether under a Third Party Agreement or otherwise):
(i)
by the Provider, to the extent necessary to allow the provision of the Services or performance of the Provider’s other obligations under this TSA by the Provider to or for the benefit of the Recipient or receipt of the Services by the Recipient; or
(ii)
by the Recipient, to the extent necessary for the Recipient to receive the benefit of the Services provided by the Provider under this TSA;
“ Third Party Supplier ” means any third party providing a service, goods, lease or license under a Third Party Agreement;
“ TSA ” means this transitional services agreement;
“ TSA Committee ” shall have the meaning set out in Section 9.1.1; and
“ VAT ” means United Kingdom value added tax imposed in compliance with EC Council Directive 2006/112 or any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax, or imposed elsewhere. Any reference in this TSA to any Party shall, at any time when such Party is treated as a member of a group for VAT purposes, include (where appropriate and unless the context otherwise requires) a

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reference to the representative member of such group at such time (the term “representative member” to have the same meaning as in the Value Added Tax Act 1994).
1.2
Rules of Construction
Unless the context otherwise requires or except as otherwise expressly provided the following rules of construction shall apply to this TSA.
1.2.1
Singular, Plural, Gender
References to one gender include all genders and references to the singular include the plural and vice versa.
1.2.2
References to Persons and Companies
References to:
(i)
a person shall include any company, partnership, trust, joint venture, firm, association, unincorporated association, organization, or any government, state or local body or authority (whether or not having separate legal personality); and
(ii)
a company shall include any company, corporation or any body corporate, wherever incorporated.
1.2.3
Schedules, Sections, Appendices, Paragraphs
References to this TSA shall include any Schedules to it and references to Sections and Schedules are to Sections of, and Schedules to, this TSA. References to paragraphs and appendices are to paragraphs and appendices of the Schedules. All Schedules are an integral part of this TSA.
1.2.4
Headings
The article, Section and paragraph headings contained in this TSA are for reference purposes only and shall not affect in any way the meaning or interpretation of this TSA.
1.2.5
Includes, in writing
The words “ includes ” and “ including ” shall mean “include without limitation” and “including without limitation”, respectively. The words “ in writing ” means any communication made by letter (but not, for avoidance of doubt, electronic mail) and “ written ” shall be interpreted accordingly.
1.2.6
Agreed
References to “ agreed ” mean, in relation to any document, that document in the form agreed and, for the purposes of identification, signed or initialed by or on behalf of each Party by a duly authorized representative, with such alterations as the Parties agree in writing.
1.2.7
Information

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References to books, records or other information mean books, records or other information in any form, including paper, electronically stored data, magnetic media, film and microfilm.
1.2.8
References to Law
References to a statute or statutory provision include:
(i)
that statute or provision as modified or amended from time to time, whether before or after the date of this TSA; and
(ii)
any subordinate legislation or regulation made from time to time under that statute or statutory provision, including (where applicable) that statute or statutory provision as modified or amended.
1.2.9
Precedence
If there is any conflict, apparent conflict or ambiguity in or between any of the sections of this TSA set out below, the sections will be applied in the following order of precedence with the sections higher in the order of precedence prevailing over the Parties:
(i)
the Sections of this TSA;
(ii)
the Schedules to this TSA; and
(iii)
any other document referred to in this TSA.
1.2.10
Costs
Any reference to “costs” shall mean costs (including internal costs arising in respect of personnel and other related costs) and expenses (including charges, fees and other amounts payable to third parties).
2
Performance of Services
2.1
Provision of Services and Relief
2.1.1
Each Provider specified in a Service Schedule shall provide the Services to the relevant Recipient specified in that Service Schedule for the relevant Service Term in accordance with the terms of this TSA. CFG shall timely pay for all Services provided to a CFG Recipient (regardless of whether it is the Recipient, its Affiliate or any of their respective third party service providers who receive the Services) and RBSG shall timely pay for all Services provided to an RBSG Recipient (regardless of whether it is the Recipient, its Affiliate or any of their respective third party service providers who receive the Services), in each case in accordance with the terms of this TSA.

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2.1.2
A Provider shall provide the Services only to the Recipient specified in the relevant Service Schedule. If a Recipient wishes to add or substitute an Affiliate as a Recipient, such addition or substitution must be agreed in accordance with the Change Control Procedure. The applicable Provider shall not unreasonably withhold or delay its consent to add such requested Affiliate as a Recipient.
2.1.3
If the Provider wishes to provide Services to the Recipient via any additional Affiliate or substitute an Affiliate as Provider, such addition or substitution must be agreed in accordance with the Change Control Procedure. The applicable Recipient shall not unreasonably withhold or delay its consent to add such requested Affiliate as a Provider.
2.1.4
Without prejudice to the Mandatory Change provisions set out in Section 10.2, a Provider shall not be in breach of this TSA to the extent that it is unable to provide any of the Services or perform any of its other obligations under this TSA, in each case to the extent that to do so would result in a breach of Regulation, so long as, if and to the extent commercially practicable, such Provider has promptly notified the applicable Recipient of such prohibition, has consulted with the applicable Recipient to explain why the Provider reasonably believes such prohibition applies, and has worked together with the Recipient in good faith to either arrange for modification of the relevant Service(s) at issue or a transition of such Service(s) to a Successor Provider. For the avoidance of doubt, the transition of any Service(s) to a Successor Provider pursuant to this Section 2.1.4 terminates the applicable Service(s) and related Service Schedule(s) under this TSA and does not create a Third Party Agreement for which the Provider is responsible for the remainder of the Service Term(s) with respect to the affected Service(s).
2.1.5
Subject to the requirements set forth below, a Provider may subcontract the provision of any or all of the Services or any of the Provider’s other obligations under this TSA. Except in relation to an Existing Third Party Agreement:
(i)
in selecting the subcontractor in question, the Provider shall have followed its applicable Policies on vendor procurement and approval;
(ii)
the Provider will notify the Recipient in advance of entering into any subcontract at a meeting of the TSA Committee;
(iii)
the Provider shall ensure any Third Party Consent that is required for the Recipient to receive the Services (and to sublicense to the extent necessary to receive the full benefit of the Services) is obtained and maintained for the duration of the applicable Service Term;
(iv)
the Provider shall not be entitled to increase the Charges to reflect any increase in the costs incurred by the Provider under that subcontract, compared to the costs previously incurred by the Provider, other than to the extent it would have been permitted to do so, had it not entered into the subcontract; and

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(v)
the Provider shall furnish the Recipient with information about the subcontractor in question which is reasonable for diligence purposes, and the Recipient approves of the use of the subcontractor via the Change Control Procedure, with such approval not to be unreasonably withheld or delayed.
2.1.6
Each Party shall be primarily liable under this TSA for any default in the performance of obligations under this TSA by any Provider in such Party’s Group, as well as any such default by any subcontractor of such Provider.
2.1.7
In the event that the Provider is to participate in any credit or other business decision with respect to the Recipient's customers or potential customers under a Service Schedule, then prior to commencing any Services under such Service Schedule, the Provider shall distribute to each of its personnel who may have such interaction or make such a decision the following Fairness Statement:
FAIRNESS STATEMENT
The fair and equal treatment of [SERVICE RECIPIENT'S] customers, without regard to race, sex, sexual orientation, color, national origin, religion, age, marital status, disability, or any other prohibited basis, is an integral part of [SERVICE RECIPIENT'S] fundamental mission of providing quality financial services to existing and prospective customers. Denying any segment of society equal access to basic economic opportunities is morally repugnant and has no place in our society. Only through all of our efforts can we ensure that every bank customer and credit applicant receives fair and equal treatment and that we have helped each member of the communities that [RECIPIENT] serves reach his or her full potential.
The Provider shall be responsible for ensuring that it and its personnel have reviewed and understand the above Fairness Statement as well as its and their obligations thereunder, and shall comply therewith as well as, subject to the Change Control Procedure with respect to any changes in Regulation occurring after the date hereof, with Fairness Laws. In the event that the Provider detects any incident or activity which constitutes or results in a violation of Fairness Laws with respect to any matter relating to this TSA, the Provider will immediately notify the Recipient.
2.1.8
In the event that the Provider interacts directly with the Recipient’s customers or potential customers in the course of providing Services hereunder, then the Provider agrees that, subject to the Change Control Procedure with respect to any changes in Regulation subsequent to the date hereof:
(i)
the Services will be performed in accordance with any and all laws relating to the handling of customer complaints that are applicable to the Services (“ CC Laws ”),

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(ii)
the Provider shall not take, or omit to take, any act that could reasonably be expected to lead to the Recipient being in breach of any CC Law, and
(iii)
it shall have in place and comply with its own complaints handling policy (the “ Service Provider CHP ”) to ensure that the Provider complies with all CC Laws.
The Provider further agrees that the Services shall be performed in accordance with the Recipient’s complaint handling standard (as in effect on the date hereof and listed in Schedule 5, the “ Recipient CHS ”); provided that for the purposes of this Section 2.1.8, the Provider shall be deemed to be in compliance with the Recipient CHS if the applicable Service Schedule contains agreed terms relating to complaint monitoring, investigations, escalation procedures, expected timescales and Service Level and Provider complies with such requirements. The Provider shall immediately notify the Recipient in writing of any suspected or known breach of the Service Provider CHP or any CC Law.
2.2
Incidental and Omitted Services
2.2.1
From the Service Commencement Date:
(i)
each Provider shall provide, with no change to the Charges, in addition to the Services, any other services, functions and responsibilities which are reasonably necessary for or incidental to, or which otherwise constitute an integral part of, the provision of the Services provided by such Provider, provided that no such service, function or responsibility that was not provided during the six months (or, if applicable, such shorter period) prior to the Service Commencement Date shall be required to be provided pursuant to this provision; and
(ii)
each Recipient shall provide, with no change to the Charges, in addition to the applicable Recipient Dependencies set out in the Service Schedules, any information, cooperation and assistance and undertake any other responsibilities which are reasonably necessary for or incidental to, or which otherwise constitute an integral part of, the performance of the Recipient Dependencies or the receipt of the Services set out in the Service Schedules, provided that no such information, cooperation and assistance or any other responsibility that was not provided during the six months (or, if applicable, such shorter period) prior to the Service Commencement Date shall be required to be provided pursuant to this provision,
these being “ Incidental Services ”.
2.2.2
Without limiting Section 2.2.1, if, during the six months immediately following the Service Commencement Date, either Party identifies any Service or any element of a Service (including any Recipient Dependency) that:
(i)
was provided by or on behalf of a Provider to a Recipient or any of its Affiliates (or, in the case of a Recipient Dependency, was a dependency in respect of such

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provision) during the six months (or, if applicable, such shorter period) prior to the Service Commencement Date;
(ii)
is not included in the Services set out in the Service Schedules or is not appropriately documented within the relevant Service Schedule; and
(iii)
is not an Excluded Service
(an “ Omitted Service ”), such Omitted Service shall, upon the relevant Party’s request, be deemed to form part of the Services and the Parties shall amend or create the relevant Service Schedule accordingly, including by adding (i)(a) an additional Charge to reflect the additional cost and appropriate margin, if any, to the Provider of the Omitted Services, to the extent that such cost and margin were not taken into account when calculating (and accordingly were not a constituent part of) the Charges for the Services excluding the Omitted Service, and (b) any Recipient Dependency that such Omitted Service is dependent upon; or (ii) any Recipient Dependency that was omitted from an existing Service Schedule. The Parties shall act reasonably and in good faith in agreeing whether and to what extent an additional Charge is payable pursuant to this Section 2.2.2. Disagreement on the Charge for an Omitted Service shall be resolved in accordance with Section 11.
2.2.3
If at any time more than six months after the Service Commencement Date an Omitted Service is identified, such Omitted Service may be added to the relevant Service Schedule only via the Change Control Procedure.
2.3
Standard of Service
2.3.1
Each Provider shall provide each of the Services:
(i)
in the same manner and with the same skill and care as they were provided to the applicable Recipient during the six-month period (or, if applicable, such shorter period) prior to the Service Commencement Date;
(ii)
if so specified for a Service, in accordance with any specified Service Level within a Service Schedule for the relevant Service; and
(iii)
if no Service Level is specified within a Service Schedule for the relevant Service, with the same priority and with the same level of service as they were provided to the applicable Recipient during the six-month period (or, if applicable, such shorter period) prior to the Service Commencement Date.
2.3.2
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in compliance with the Regulation applicable to the Provider.

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2.3.3
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in accordance with the Policies applicable to the Provider.
2.3.4
Without prejudice to Section 2.3.3, each Party shall ensure that, as part of the meetings of the TSA Committee, it notifies the other Party of any changes it has made to the Policies (and, to the extent reasonably practicable, of any proposed changes to the Policies). Notwithstanding the foregoing, if and to the extent that any proposed change to the Policies would materially increase the risk or reduce the operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or materially increase the cost or reduce the benefit to the Recipient in receiving the Services or the Provider in providing the Services (an “ Adverse Policy Change ”), the relevant Party shall undertake an impact assessment in advance of the change being implemented and involve the other Party in that impact assessment. In respect of any Adverse Policy Change the Parties shall, acting reasonably and in good faith, develop, agree and implement a remedial plan with the objective of mitigating any material increase in risk or reduction in operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or material increase in the cost or reduction in the benefit to the Recipient or Provider in receiving or providing the Services. Any obligations set out in the Service Schedules which require compliance with policies shall be construed as referring to the Policies.
2.3.5
If and to the extent a Provider is aware of any material failure, or any circumstances that, in the Provider’s reasonable opinion, would be reasonably likely to result in a material failure, to provide any material part of the Services in accordance with Section 2.3.1, 2.3.2 or 2.3.3, then, without prejudice to the Recipient’s other rights and remedies, the Provider shall as soon as reasonably practicable:
(i)
inform the Recipient (and the TSA Committee) of such failure or potential failure (and, if known, what the Provider considers to be the cause of the problem);
(ii)
advise the Recipient of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure; and
(iii)
subject to any duty of confidentiality owed by the Provider, provide the Recipient with further information in relation to the failure or potential failure if and to the extent that information has been produced by, or is otherwise in the possession or control of, the Provider or any of its Affiliates for its own purposes and the Recipient reasonably requires that information at the time in order to manage communications with its customers, employees, investors, suppliers and any Competent Authority.
2.4
Recipient Dependencies
2.4.1
Each Service Schedule shall specify any “ Recipient Dependencies ” for the relevant Service, which are, above and beyond a Recipient’s general obligations under Section

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2.2.1(ii) with respect to such Services, specific obligations to be performed by the Recipient under that Service Schedule in order for the Provider under that Service Schedule to be able to provide the relevant Service to the Recipient.
2.4.2
If and to the extent a Recipient is aware of any material failure, or any circumstances that, in the Recipient’s reasonable opinion, would be reasonably likely to result in a material failure, to perform any material part of the Recipient Dependencies that are set out in a Service Schedule in accordance with this TSA, then, without prejudice to the applicable Provider’s other rights and remedies, the Recipient shall, as soon as reasonably practicable:
(i)
inform the Provider of such failure or potential failure and, if known, what the Recipient considers to be the cause of the problem; and
(ii)
undertake appropriate remedial efforts and promptly advise the Provider of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure.
2.4.3
Without prejudice to any right or remedy of a Provider under this TSA in respect of any other obligations of the Recipient (including in relation to any Recipient Dependency or any Incidental Service performed by a Recipient which is not set out in a Service Schedule), if and to the extent the Recipient fails to perform a Recipient Dependency that is set out in a Service Schedule, Section 2.4.4 sets out the Provider’s sole and exclusive remedy in respect of the failure by the Recipient to meet that Recipient Dependency other than with respect to:
(i)
any such failure which causes unauthorized or unlawful access by a third party to the Provider’s computing systems or loss or corruption of the Provider’s data; or
(ii)
any obligation of the Recipient to pay any amount (including any Charges) to the Provider under this TSA.
2.4.4
Each Party recognizes that each Provider is reliant and dependent on the performance of the Recipient Dependencies in order to provide the Services and to perform its other obligations under this TSA. A Provider shall not be in breach of this TSA to the extent that its failure to provide the Services or perform its other obligations under this TSA is a result of a breach by the Recipient of a Recipient Dependency ( provided that such relief shall not prejudice any rights or remedies of the Recipient in respect of any prior breach by the Provider, to the extent that such prior breach caused the Recipient’s breach of the relevant Recipient Dependency and was not itself caused by a breach by the Recipient of a Recipient Dependency). Any disputes relating to the Provider’s relief from a breach by the Recipient of a Recipient Dependency shall be resolved in accordance with Section 11. Nothing in this Section 2.4.4 shall exclude or limit the liability of the Provider in relation to any failure to provide the Services or perform its other obligations

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under this TSA to the extent that such failure is not the result of a breach by the Recipient of a Recipient Dependency.
2.4.5
A Recipient shall not be in breach of this TSA to the extent that its failure to perform a Recipient Dependency is a result of a breach by the applicable Provider of an obligation of the Provider ( provided that such relief shall not prejudice any rights or remedies of the Provider in respect of any prior breach by the Recipient, to the extent that such prior breach caused the Provider’s breach of the relevant obligation and was not itself caused by a breach of the Provider’s obligations under this TSA). Nothing in this Section 2.4.5 shall exclude or limit the liability of the Recipient in relation to any failure to perform a Recipient Dependency to the extent that such failure is not the result of a breach by the Provider of its obligations under this TSA.
2.5
Service Reporting
2.5.1
From the Service Commencement Date and thereafter until the Scheduled End Date, each Provider shall, with respect to each Service for which the Service Schedule requires a certain Service Level:
(i)
record the actual service level achieved for such Service in each calendar month against the relevant Service Level; and
(ii)
on a quarterly basis (or such alternate frequency if so specified in the relevant Service Schedule) report its performance in respect of the applicable Service Level.
2.5.2
At the TSA Committee, the Parties will review each Provider’s performance against the Service Levels for the previous reporting period. In the event that a Provider has failed to meet any Service Level, that Provider shall present an appropriate action plan detailing steps to remedy the situation.
3
Third Party Suppliers
3.1
Termination, Expiry or Renewal of Third Party Agreements
3.1.1
If, during a Service Term:
(i)
a Third Party Agreement is terminated by a Provider (or any member of its Group) or by the Third Party Supplier (for any reason other than Force Majeure (for which Section 14.2 shall apply) or for insolvency of the Third Party Supplier (for which Section 3.1.7 shall apply));
(ii)
a Third Party Agreement expires or is terminated other than as provided in Section 3.1.1(i); or

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(iii)
a Third Party Agreement otherwise ceases to be available to a Provider for the provisions of Services to a Recipient (for example, by virtue of application of a change of control or similar provision),
and that Third Party Agreement is required for the provision or receipt of any Service or the performance of any obligation of the Provider or the applicable Recipient, then subject to the provisions of Section 3.1, the Provider shall use commercially reasonable efforts to implement such arrangements as are necessary to ensure continuity of the relevant Service on the same terms of the relevant Service Schedule and this TSA, unless otherwise agreed by the Parties in advance through the TSA Committee.
3.1.2
Each Provider shall, acting reasonably and in good faith, involve the applicable Recipient to the extent within its reasonable control in any negotiations with any Third Party Supplier in relation to any material change to, or extension, renewal or replacement of, a Third Party Agreement and migration to an alternative Third Party Supplier if and to the extent such change, extension, renewal or replacement would be reasonably likely to materially impact the relevant Service or the Charges for such Service provided under a relevant Service Schedule and this TSA, in each case in respect of the period from the date hereof until the end of the Service Term (and in such event shall to the extent within its reasonable control permit the Recipient to negotiate with the relevant Third Party Supplier in respect of any increase in the Provider’s costs of implementing such change, extension, renewal, replacement or migration unless the Provider agrees to bear such increased costs and not change the Charges for the Service).
3.1.3
The Recipient shall not unreasonably withhold or delay its approval of the costs referred to in Section 3.1.2. Any disputes as to the Recipient’s payment of such costs shall be resolved by the TSA Committee.
3.1.4
Each Party shall use commercially reasonable efforts to mitigate to the extent within its reasonable control any costs required to be incurred in respect of the negotiation and implementation of any change to, or extension, renewal or replacement of, a Third Party Agreement and migration to an alternative Third Party Supplier.
3.1.5
Each Provider shall ensure that, to the extent reasonably practicable, as part of the meetings of the TSA Committee, it gives the Recipient reasonable advance notice of any Third Party Agreements which are expected to be breached or due to expire, terminate or be renewed.
3.1.6
Notwithstanding the provisions of Section 3.1.1, prior to any termination or expiry or renewal of a Third Party Agreement, the Parties shall consult with each other to determine whether, upon termination or expiry of the relevant Third Party Agreement, the applicable Recipient wishes to establish independent arrangements for the Service to which such Third Party Agreement relates. The applicable Provider shall, to the extent reasonably practicable, give the Recipient reasonable advance notice of that termination, expiry or renewal. If the Recipient elects to terminate the affected Service and migrate to a

18
    

Successor Provider, then the Parties shall agree the changes (if any) that need to be made to the relevant Service Schedules and related Charges.
3.1.7
In the event of the insolvency of a Third Party Supplier required for the provision or receipt of a Service or the performance of any obligation of the Provider or the applicable Recipient for such Service, the Provider may discontinue (which, for the avoidance of doubt, shall include electing not to replace) such Service without the discontinuance being a breach or causing any liability of the Provider to the relevant Recipient.
3.1.8
For the avoidance of doubt, the provisions of Section 3.1.1 through Section 3.1.7, inclusive, shall not affect the rights of a Provider to terminate a Service, or for a Service to terminate, pursuant to Section 6 hereof.
3.2
Changes in Third Party Supplier Costs
3.2.1
Except as provided in Section 3.1, in the event that a Third Party Supplier increases or decreases its fees in relation to a Service during a Service Term:
(i)
the affected Provider shall promptly notify the TSA Committee of the change in fees, with such notice to include supporting documentation as might reasonably be expected to explain the change in fees to the affected Recipient; and
(ii)
the Charges for the relevant Service shall be adjusted accordingly.
3.2.2
In the event that a Third Party Supplier increases or decreases its fees (including but not limited to a change in fees owing to a material change in volume or usage by the Recipient) in relation to a Service (or portion of a Service) for which, pursuant to the applicable Service Schedule, the Third Party Supplier directly invoices the Recipient, the applicable Recipient shall promptly inform the TSA Committee of such change in fees.
3.3
Relationship with Third Party Suppliers
3.3.1
So far as it relates to the provision of a Service or the performance of a Provider’s other obligations under this TSA, the Provider shall manage exclusively its relationship with Third Party Suppliers and the applicable Recipient shall not discuss with any Third Party Supplier the provision of the Services or the performance of the Provider’s other obligations under this TSA, except:
(i)
to the extent required to do so by a court, competent judicial authority and/or a Competent Authority;
(ii)
as agreed by the TSA Committee;
(iii)
as may be necessary to pay invoices for a Service for which, pursuant to the applicable Service Schedule, a Third Party Supplier directly invoices the Recipient or to make a query about such an invoice;

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(iv)
as may otherwise be expressly permitted by a Service Schedule or otherwise by this TSA (including the Migration Principles); or
(v)
if in the Provider’s opinion and only to the extent reasonably necessary in order for the Recipient to be able to receive the Services under the applicable Service Schedule,
provided in each case that the applicable Recipient has notified the Provider in advance (if and to the extent permitted to do so under Regulation) through the TSA Committee.
3.4
Liability for Third Party Suppliers
3.4.1
If a Provider breaches this TSA as a result of the acts or omissions of a Third Party Supplier, the Provider’s liability is subject to the Section 8.2 limitations and caps on liability.
3.4.2
Notwithstanding the limitations in Section 3.4.1, any amounts recovered by a Provider from a Third Party Supplier which are in relation to Losses incurred as a result of the acts or omissions of the Third Party Supplier shall be divided among the Provider and Recipient in proportion to their Losses, provided , however , that any amounts paid over to the Recipient shall not exceed the amount of the Recipient’s Losses. For the avoidance of any doubt:
(i)
any amounts paid over to a Recipient pursuant to this Section 3.4.2 are independent of and not to be part of any limitations or caps on the liability of the Parties as set forth in Section 8.2; and
(ii)
if a Provider’s commercially reasonable efforts to recover such amounts from a Third Party Supplier are unsuccessful, such a failure to recover any amounts is not a breach and is not a liability of the Provider.
3.4.3
Without prejudice to the Parties’ rights and obligations in relation to mitigation of losses at law or in equity, each Provider and Recipient shall use commercially reasonable efforts to mitigate the quantum of Losses and/or any other adverse consequences incurred or suffered by the Recipient and members of the Recipient’s Group as a result of the breach of a Third Party Agreement by a Third Party Supplier (to the extent a Party is aware of such breach).
4
Price and Payment
4.1
Charges
4.1.1
In relation to a Service for which, pursuant to the applicable Service Schedule, the Provider issues an invoice, each Party shall pay on behalf of the Recipients in its Group to the applicable Provider the Charges as set forth in the relevant Service Schedule in respect of the provision of the relevant Services and the performance of other obligations

20
    

of the Provider under this TSA, provided that a relevant invoice has been rendered in accordance with Section 4.2.
4.1.2
In relation to a Service (or portion of a Service) for which, pursuant to the applicable Service Schedule, a Third Party Supplier directly invoices the Recipient, each Party shall ensure that the Recipients in its Group make timely payments directly to the applicable Third Party Supplier.
4.1.3
Without prejudice to the rights and remedies of either Party, if a Recipient is unable to undertake an activity on the date allocated to it in the Migration Plan owing to the material fault of the other Party and as a consequence the date of completion of Migration of a Service is after the Scheduled End Date then:
(i)
the Parties shall submit the matter to the TSA Committee and, acting reasonably and in good faith, work together to reschedule such activity in a manner that minimizes any delay to completion of Migration and agree to an adjustment of Charges as is appropriate to reflect the extent and materiality of the fault;
(ii)
the Recipient shall continue to pay Charges (subject to any adjustments made pursuant to Section 4.1.3(i)) until the Revised Migration Date; and
(iii)
the Scheduled End Date in the relevant Service Schedule shall be construed as a reference to the Revised Migration Date.
4.1.4
Unless otherwise expressly stated in or contemplated by this TSA, the Charges are the only amounts payable by the Recipient in respect of the Services.
4.2
Invoicing Procedures and Payment Due
4.2.1
The Charges for any Service shall be invoiced by RBSG or CFG as the Provider of that Service in accordance with this Section 4.2 and each invoice shall be substantially in the form of the template attached in Schedule 2 applicable to the relevant Provider. Invoices shall be sent to the address for invoices specified in the Service Schedule to which the relevant invoice relates.
4.2.2
The Charges with respect to any month shall be invoiced by the Provider:
(i)
if CFG or an Affiliate of CFG is the Provider, within 30 days following the end of the month after which the relevant Services are provided or obligations are performed, or in respect of which the Charges are otherwise due or the relevant costs incurred by the Provider. To the extent applicable, a true-up of Charges for a Service shall be invoiced as indicated in the Service Schedule to which the true-up relates;
(ii)
if an Affiliate of RBSG within the United States is the Provider, within 30 days following the end of the month after which the relevant Services are provided or obligations are performed, or in respect of which the Charges are otherwise due

21
    

or the relevant costs incurred by the Provider. To the extent applicable, a true-up of Charges for a Service shall be invoiced as indicated in the Service Schedule to which the true-up relates; or
(iii)
if RBSG or an Affiliate of RBSG outside the United States is the Provider, within 30 days following the end of the quarter after which the relevant Services are provided or obligations are performed, or in respect of which the Charges are otherwise due or the relevant costs incurred by the Provider. To the extent applicable, a true-up of Charges for a Service shall be invoiced on an annual basis in the month of February.
Payment on all invoices shall be due to the applicable Party within 30 days of receipt of the relevant invoice.
4.2.3
If any part of the Charges is subject to a bona fide dispute, then that part of the Charges subject to dispute shall be referred to the TSA Committee and any part of the Charges that is not subject to dispute is to be paid pursuant to this Section 4.
4.2.4
Any amount due under this TSA for which a time for payment is not otherwise specified shall be due and payable within 30 days of the receipt of a valid invoice for such amount.
4.2.5
Payments due in respect of a Service pursuant to this TSA shall be made to the account specified in the relevant Service Schedule or such other account as the Provider may notify the Recipient from time to time.
4.3
Payments Gross
All sums payable by a Party under this TSA, including any payment pursuant to an indemnity, compensation or reimbursement provision, shall be invoiced and paid in U.S. dollars, British pounds sterling or Euros, free and clear of any deductions, withholdings, set-offs or counterclaims, save only as may be required by law. If any deductions or withholdings are required by law (including with respect to any payment made pursuant to this Section 4.3), the Party making the payment shall be obliged to pay to the other Party 50% of the amount deducted or withheld with respect to the payment. The Parties shall claim from the appropriate Tax Authority any exemption, rate reduction, refund, credit or similar benefit (including pursuant to any relevant tax treaty) to which they are entitled in respect of any deduction or withholding in respect of which a payment has been made pursuant to this Section 4.3 and, for such purposes shall, within any applicable time limits, submit any claims, notices, returns or applications and send a copy thereof to the payer. If the recipient of a payment to which this Section 4.3 applies receives a credit for or refund of any Tax payable or actually realizes a similar benefit by reason of any deduction or withholding for or on account of Tax, then it shall reimburse to the other Party an amount equal to 50% of such credit, refund or benefit. The Parties shall cooperate and use commercially reasonable efforts to mitigate any deduction or withholding determined to be required by law.
4.4
Interest

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If any Party defaults in the payment when due of any sum payable under this TSA (howsoever determined), the liability of that Party shall be increased to include interest on such sum from the date when such payment is due until the date of actual payment at a rate per annum of 250 basis points above LIBOR.
4.5
Value Added Tax and Sales or Use Tax
All amounts payable under this TSA shall be deemed to be exclusive of any applicable VAT, Sales or Use Tax. If any amount falling due under this TSA (from whatever cause) is subject to VAT, Sales or Use Tax, then the applicable Recipient shall bear the cost of such taxes in the manner described below.
In the case of VAT, if any amount falling due under this TSA constitutes the consideration for a taxable supply of goods and/or services for VAT purposes, the applicable Recipient shall, where the Provider is the person liable to account for the applicable VAT to the relevant Tax Authority, pay VAT in addition to and at the same time as the amount so falling due, against delivery of a valid VAT invoice. Where the applicable Recipient is the person liable to account for the applicable VAT to the relevant Tax Authority, such Recipient shall pay such VAT directly to the Tax Authority.
In the case of Sales or Use Tax, if any amount falling due under this TSA is subject to Sales or Use Tax, the applicable Recipient shall, where the Provider is the person liable to account for the applicable Sales or Use Tax to the relevant Tax Authority, pay amounts equal to such Sales or Use Tax in addition to and at the same time as the amounts so falling due, against delivery of an invoice itemizing the computed tax. Where the applicable Recipient is the person liable to account for the applicable Sales or Use Tax to the relevant Tax Authority, such Recipient shall pay such Sales or Use Tax directly to the Tax Authority.
Where under the terms of this TSA one Party is liable to indemnify or reimburse the other Party in respect of any costs, such payment shall, to the extent required by the preceding sentences of this Section 4.5, be increased to include any applicable Sales or Use Tax or VAT, but in the case of VAT shall exclude the amount of any recoverable input tax of the other Party (or the representative member of any group of which that Party is a member for VAT purposes in respect of such costs), and that other Party shall use commercially reasonable efforts (and shall procure that any such relevant representative member shall use commercially reasonable efforts) to recover such amount of VAT as may be practicable.
The Parties agree to cooperate and to use commercially reasonable efforts to reduce or mitigate liability for, or to obtain available refunds of, any applicable Sales or Use Tax or VAT.
5
Representations, Warranties and Mutual Obligations
5.1
Representations and Warranties
5.1.1
Each Party represents and warrants to the other that as at the date hereof:

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(i)
it is duly constituted, organized and validly existing under the laws of the jurisdiction of its incorporation;
(ii)
it has the legal right and full power and authority to execute and deliver, and it and its Affiliates, as applicable, have the legal right and full power and authority to exercise its and their rights and perform its and their obligations under, this TSA, the Service Schedules and any documents which are to be executed by it or any of them pursuant to this TSA;
(iii)
its and its Affiliates’ contemplated provision or receipt, as applicable, of Services in the Service Schedules does not conflict with any other contract to which it is a Party;
(iv)
this TSA and the contemplated provision of the Services by it or any Affiliate pursuant to the Service Schedules is compliant in all material respects with all Regulation applicable to it and them, including, for the avoidance of any doubt and to the extent applicable, Regulation W of the Board of Governors of the Federal Reserve System;
(v)
this TSA and the contemplated receipt of the Services by it or any Affiliate pursuant to the Service Schedules is compliant in all material respects with all Regulation applicable to it and them, including, for the avoidance of any doubt and to the extent applicable, Regulation W of the Board of Governors of the Federal Reserve System;
(vi)
it is satisfied that all Charges for the Services provided hereunder were negotiated and determined on an arm’s-length basis;
(vii)
its and its Affiliates’ contemplated provision or receipt, as applicable, of Services in the Service Schedules is compliant in all material respects with the Policies applicable to it and them;
(viii)
the manner, priority and level of service (including any applicable Service Levels), skill and care as provided by each Provider of services to it or its Affiliates in respect of the Existing Services during the six-month period (or, if applicable, such shorter period) prior to the date hereof is adequate and sufficient for its needs;
(ix)
its provision or receipt, as applicable of Existing Services by it and its Affiliates during the six-month period (or, if applicable, such shorter period) prior to the date hereof was compliant with all Regulation applicable to it and them;
(x)
its and its Affiliates’ possession, storage, processing or access to the other Party’s and its Affiliates’ Personal Data during the six-month period (or, if applicable, such shorter period) prior to the date hereof was compliant in all material respects with the applicable Fraud Prevention Policy;

24
    

(xi)
its and its Affiliates’ possession, storage, processing or access to the other Party’s and its Affiliates’ Confidential Information during the six-month period (or, if applicable, such shorter period) prior to the date hereof was compliant in all material respects with the applicable Fraud Prevention Policy;
(xii)
its and its Affiliates’ provision or receipt, as applicable, of Existing Services during the six-month period (or, if applicable, such shorter period) prior to the date hereof was compliant in all material respects with the Policies applicable to it and them; and
(xiii)
its and its Affiliates’ provision or receipt, as applicable, of Existing Services during the six-month period (or, if applicable, such shorter period) prior to the date hereof complied with the requirements, including any specified Service Level, for the corresponding Services as set forth in the Service Schedules hereto.
5.2
General Obligations
5.2.1
Each Party shall and shall cause its Affiliates to:
(i)
subject to the Change Control Procedure with respect to any change in Regulation after the Service Commencement Date, comply with Regulation in connection with the performance of its obligations under this TSA including (in the case of a Provider) its provision of the Services and (in the case of a Recipient) its receipt of the Services;
(ii)
perform its obligations under this TSA, including (in the case of a Provider) its provision of the Services and (in the case of a Recipient) its receipt of the Services;
(iii)
provide on a timely basis such information and data as the other Party may reasonably require for the purposes of the provision of the Services; and
(iv)
participate in discussions regarding the provision or receipt of the Services (as applicable) to the extent reasonably required by the other Party in order to enable the Services to be properly provided or received.
5.2.2
Without prejudice to the Mandatory Change provisions set out in Section 10.2, each Party shall promptly notify the other upon becoming aware of any proposed changes to a Regulation or new Regulation which will or are likely to impact the provision or receipt of the Services.
5.2.3
If a Party or any of its Affiliates or, to its knowledge, any Third Party Supplier is subject to any investigation by any Competent Authority and such investigation is relevant to the performance of the obligations under this TSA, then, to the extent permitted by Regulation and the Competent Authority, the Party shall as soon as reasonably practicable notify the other Party of such investigation (such notice to contain reasonable detail relating to the reason for the investigation and why it is relevant to the provision or receipt of the

25
    

Services). The Parties agree to cooperate to the extent reasonable in the event of any such investigation.
6
Term and Termination
6.1
TSA Term
This TSA shall come into effect on the date of its execution and, subject to earlier termination in accordance with its terms, automatically terminate without the need for further action by either Party on the earlier of (i) the date of expiry of the last Service Term and (ii) the Scheduled End Date (both being subject to any extensions pursuant to Section 4.1.3).
6.2
Service Term
Subject to Sections 6.3 to 6.7 (inclusive) each Service Term shall automatically expire without the need for further action by either Party on the date specified in the applicable Service Schedule or, if none is specified, the Scheduled End Date (subject to any extensions pursuant to Section 4.1.3).
6.3
Service Term Extension
6.3.1
If the Recipient wishes to continue to receive a Service after the expiry of the relevant Service Term (or any period previously specified by the Recipient in accordance with this Section) owing to the material fault of the Provider pursuant to Section 4.1.3, it must give, together with an explanation as to why such extension is attributable to the material fault of the Provider, notice to specify the period for which the Recipient wishes to continue to receive the Service; provided , however , that such extension period shall not extend beyond December 31, 2016.
6.3.2
Promptly upon receipt of such notice, the relevant Provider shall indicate if it:
(i)
agrees, in which case the Service Term shall be extended until the Revised Migration Date; or
(ii)
disagrees, as to either the degree of fault attributed to it or the period for which the relevant Service should be extended, in which case such dispute shall be resolved pursuant to Section 11.
6.4
Termination on Notice
6.4.1
Notwithstanding any other provision of this TSA, the Recipient may terminate any of the Services, or any separable part of the Services, by providing the Provider with mailed notice of such termination, such notice to be:
(i)
at least the period of notice specified in the relevant Service Schedule for the termination of that Service; or
(ii)
if no such notice period is specified, at least three months’ notice.

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6.4.2
The Recipient is not responsible or liable for any Provider costs incurred as a result of an early termination notice made in compliance herewith; provided, however, that a Recipient shall reimburse the Provider for any costs incurred by the Provider as a result of a Service being terminated early by the Recipient where such Service is provided pursuant to a Third Party Agreement which was renewed, extended or replaced after the Service Commencement Date.
6.4.3
If a Service Schedule expressly permits the Provider to terminate the relevant Service upon notice, then, notwithstanding any other provisions of this TSA, such Provider may terminate the relevant Service pursuant to the applicable termination procedures, and such Provider is not responsible or liable for any Recipient costs incurred as a result of an early termination in compliance herewith.
6.5
Termination for Insolvency
Each Party may terminate this TSA immediately by notice to the other Party if the other Party becomes unable to pay its debts, enters into liquidation, a receiver or administrative receiver is appointed over all or any of its assets, it ceases trading or is dissolved, or any procedure equivalent to any of the preceding matters occurs in any other jurisdiction with respect to that other Party.
6.6
Termination for Regulatory Reasons
6.6.1
Each Party shall have a right to terminate this TSA if directed in writing by a Competent Authority. A Party may exercise such right upon 90 days’ prior notice, or such shorter timeframe as required by a Competent Authority or to comply with Regulation.
6.6.2
In the event of a termination of this TSA pursuant to this Section 6.6, the Parties acknowledge and agree that Migration of the Services may not be fully implemented as of such termination and, to the extent required by a Competent Authority, neither Party will have any obligation to assist in the Migration of the Services after such termination.
6.7
Termination for Breach
6.7.1
Subject to Section 6.7.2, each Party (the “ Non-Defaulting Party ”) may terminate a Service immediately by notice to the other Party (the “ Defaulting Party ”) if the Defaulting Party or any Affiliate commits a material breach of its obligations with respect to that Service under this TSA and the applicable Service Schedule and (where the breach is capable of being remedied) that breach has not been remedied within 30 days after receipt of a written request to do so from the Non-Defaulting Party.
6.7.2
In the event that a Party elects to terminate a Service pursuant to Section 6.7.1, the TSA shall be deemed to continue in full force and effect in accordance with its terms, except with respect to such terminated Service.
6.7.3
Unless otherwise specified, any breach in respect of any individual Service Schedule shall not constitute a breach of this TSA or a breach of any other Service Schedule, and unless otherwise agreed in writing, the Parties will continue to provide Services and honor all other commitments under this TSA during the course of dispute resolution

27
    

pursuant to Section 11, except to the extent such commitments are the subject of such dispute, controversy or claim.
6.8
Termination Charges
In the event of termination or expiry of a Service pursuant to this TSA or the termination or expiry of all or part of this TSA, the Recipient shall pay the Provider the applicable termination charges, if any, for that Service as set forth in the relevant Service Schedule.
6.9
Delivery of Data on Termination or Expiry
6.9.1
Except if and to the extent otherwise agreed in the relevant Service Schedule or Migration Plan, and subject always to Regulation, in the event of the termination or expiry of a Service pursuant to this TSA:
(i)
to the extent that:
(a)
any Recipient Data is in the possession or reasonable control of the Provider or its Affiliates, the Provider shall provide to the Recipient such Recipient Data in its then-current format; and
(b)
any Provider Data is in the possession or reasonable control of the Recipient or its Affiliates, the Recipient shall provide to the Provider such Provider Data in its then-current format;
(ii)
once the Provider has provided the Recipient Data in accordance with Section 6.9.1(i)(a), the Provider will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Recipient Data also relates to the Provider’s Group’s business; and
(iii)
once the Recipient has provided the Provider Data in accordance with Section 6.9.1(i)(b) the Recipient will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Provider Data also relates to the Recipient’s Group’s business.
6.9.2
Each Party will bear its own costs in complying with its obligations under this Section 6.9.
6.9.3
Any Recipient Data retained by Provider and any Provider Data retained by Recipient pursuant to Section 6.9.1 shall be subject to the Data Protection requirements set forth in Section 13 and the Confidentiality requirements set forth in Section 13 for as long as such data is retained.
6.10
Survival of Rights on Termination or Expiry
Termination or expiry of this TSA shall not affect any rights or obligations which may have accrued prior to termination or expiry. The obligations of each Party set out in any Section intended to

28
    

survive such termination or expiry, including this Section 6.10 and Section 4, Section 8, Section 12, Section 13, Section 16, Section 17 and Section 20 shall continue in full force and effect notwithstanding termination or expiry of this TSA.
7
Migration
7.1
Migration and the Migration Plans
7.1.1
The Parties shall act reasonably and in good faith in accordance with the Migration Principles as set forth in Schedule 3 and perform their respective obligations in relation to Migration (including those obligations agreed as part of a Migration Plan).
7.2
Failure to Timely Migrate
7.2.1
Failure to timely complete Migration of a Service is not a breach of this TSA.
8
Limitation of Liability and Indemnification
8.1
Exclusions from Liability
Notwithstanding anything herein to the contrary, no Party shall be liable for any special, indirect, incidental, consequential or punitive damages of any kind whatsoever in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform Provider’s or Recipient’s obligations under this TSA, as applicable, including to the extent that such liability is:
(i)
for or in respect of any loss of profit, loss of revenue, loss of goodwill or indirect or consequential losses, punitive, special or consequential damages; or
(ii)
for the value of any lost or corrupted data; or
(iii)
for the costs of reconstituting, restoring or rectifying lost or corrupted data (in each case, other than to the extent arising from a breach of Section 19.1),
in each case of whatever nature regardless of whether such damages are foreseeable or whether the Provider or Recipient, as applicable, or any of its Affiliates has been advised of the possibility of such damages.
8.2
Cap on Damages and Exclusions
8.2.1
Except in the case of death or personal injury, willful misconduct, fraud or fraudulent misrepresentation, criminal liability, intentional tort, intentional breach of a Service Schedule or of this TSA, or Charges that have been paid or come due in connection with the Services, each of the RBSG Group’s and the CFG Group’s aggregate liability to members of the other Group in respect of any individual Service shall be limited to an amount equal to 12 times the Monthly Charge for such Service, where “ Monthly Charge ”

29
    

means the amount of Charges paid for the first full calendar month (which shall include any amounts invoiced directly to a Recipient by a Third Party Supplier in that month) of the relevant Service giving rise to the claim. If the Charges for a Service are a lump sum or an amount that is otherwise not charged on a monthly basis then the Monthly Charge for such Service shall be the total amount of Charges for that Service divided by the number of months during which the Service has been provided.
8.2.2
Except in the case of death or personal injury, willful misconduct, fraud or fraudulent misrepresentation, criminal liability, intentional tort, intentional breach of a Service Schedule or of this TSA, or Charges that have been paid or come due in connection with the Services, each such Group’s aggregate liability to the members of the other Group in connection with this TSA in respect of any given calendar year shall be limited to the amounts set forth below:
 
Calendar year of the relevant Service(s)
 
2014
2015
2016
RBS Group maximum aggregate liability to members of CFG Group
$12.7 million
$13.8 million
$2.5 million
CFG Group maximum aggregate liability to members of RBS Group
$15.8 million
$20.3 million
$4.2 million

For the avoidance of doubt, subject to the exceptions noted above in this Section 8.2.2, the sum total of all amounts paid by a Group in respect of any given calendar year pursuant to Section 8.2.1, together with any other liability under this TSA, shall not exceed the amount set forth above for that calendar year.
8.2.3
The limits on, and exclusions of, liability set out in this Section 8 shall not apply in respect of:
(i)
any liability for death or personal injury;
(ii)
any liability for willful misconduct;
(iii)
any liability for fraud or fraudulent misrepresentation;
(iv)
any criminal liability;
(v)
any liability for intentional tort;
(vi)
intentional breach of a Service Schedule or of this TSA;
(vii)
any other liability that cannot be lawfully excluded; and

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(viii)
the obligation of any Party to pay Charges with respect to Services that have been provided.
8.3
Indemnification
8.3.1
Subject to the exclusions from liability in Section 8.1, RBSG and CFG agree to indemnify and hold harmless each other and each of their respective (and their respective Affiliates’) Affiliates, and each of their and their respective Affiliates’ directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ Indemnitees ”), from and against any and all Losses of the Indemnitees relating to, arising out of or resulting from any of the following by such indemnifying Party or by any person in such indemnifying Party’s Group:
(i)
breach of its obligations under this TSA;
(ii)
breach of its representations and warranties under this TSA;
(iii)
violations of Regulation in connection with this TSA; or
(iv)
infringement, misappropriation or violation of Intellectual Property Rights of a third party in connection with the provision or receipt of Services under this TSA;
provided that:
(i)
the aggregate liability pursuant to this Section 8.3 shall not exceed the cap on damages in Section 8.2 (subject to the exclusions from the cap set forth therein); and
(ii)
a Provider shall have no liability under this Section 8.3 with respect to any infringement, misappropriation or violation of Intellectual Property Rights of a third party to the extent that such claim is based upon or related to:
(a)
Services that have been modified by the Recipient;
(b)
use of the Services in conjunction or combination with any software, data or other materials not provided by the Provider of the Services; or
(c)
use of the Services in a manner or for any purpose other than as directed by the Provider or as expressly permitted by this TSA.
9
Governance
9.1
TSA Committee
9.1.1
The Parties will establish a TSA Management and Change Control Committee (the “ TSA Committee ”) to monitor overall performance and trends in performance of all Services

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in accordance with this TSA. The terms of reference of the TSA Committee shall be as set forth in Schedule 4.
10
Changes and Change Control
10.1
Changes
10.1.1
Subject to Sections 10.2 to 10.4 (inclusive), in the event that a Party wishes to make any Change it shall be managed by way of the “ Change Control Procedure ” as set forth in this Section 10.1.1.
(i)
At each meeting of the TSA Committee (or, with respect to any proposed action of the TSA Committee in the absence of a meeting, by notice to each TSA Committee member) each Party shall, acting reasonably and in good faith, provide the other with an indicative forecast of any Changes it proposes making to the Services.
(ii)
Upon realization of the need for a Change, either Party shall provide prompt notice to the other Party of a Change request (“ Change Control Request ”) in writing, specifying in as much detail as is reasonably practicable the nature of the proposed Change. Within four weeks of receipt of a Change Control Request, the Party that received such notice shall provide a response indicating whether it can make the proposed Change, its estimated costs of making the proposed Change and an estimated schedule for implementing the proposed Change.
(iii)
The timing of implementation of any Change will be determined by the TSA Committee.
10.2
Mandatory Change
10.2.1
Where a Change Control Request is in respect of a Mandatory Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss and agree the terms on which, and the time frame in which, each Party shall implement that Mandatory Change (which shall be within the time frame required to comply with the relevant Regulation, except where it would not be reasonable for each Party to implement such Mandatory Change within such time frame, in which case each Party shall implement such Mandatory Change as soon as reasonably practicable thereafter). The Parties shall work together in good faith to mitigate the consequences of any delay in implementing the Mandatory Change beyond the date required to comply with the Regulation.
10.2.2
To the extent that a Mandatory Change requested by a Party increases the cost to the other Party of providing or receiving the Services (including, for the avoidance of doubt, the costs and appropriate margin of implementing the Mandatory Change and incremental running costs and appropriate margin incurred by the other Party arising as a result of that Mandatory Change), then the increased cost and margin to the other Party will be added to the Charges paid by the Party for the relevant Service.

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10.3
Discretionary Changes
10.3.1
Where a Change Control Request submitted by a Party is in respect of a Discretionary Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss the terms of the Discretionary Change.
10.3.2
To the extent that a Discretionary Change requested by a Party increases the cost to the other Party or any of its Affiliates in providing or receiving the relevant Service (including, for the avoidance of doubt, the costs and appropriate margin of implementing the Discretionary Change and incremental running costs and appropriate margin arising as a result of that Discretionary Change), then:
(i)
if the Party that requested the Discretionary Change or any Affiliate is the Recipient of the applicable Service, the increased cost and margin to the Provider of the Service will be added to the Charges paid by the Party for the relevant Service; or
(ii)
if the Party that requested the Discretionary Change or any Affiliate is the Provider of the applicable Service, the increased cost to the Recipient of the Service will be deducted from the Charges paid by the Recipient for the relevant Service.
10.3.3
For the avoidance of doubt, the Party being requested to implement a Discretionary Change may refuse to implement any Discretionary Change.
10.4
Emergency Change
10.4.1
If a Change is required to respond to an Emergency, the affected Party shall use commercially reasonable efforts to notify the other Party and obtain the other Party’s prior consent for the Change but if the notifying Party is the Provider and the Provider is not able to notify the Recipient and obtain consent, the Provider shall be entitled, without limiting any rights and remedies of the Recipient in respect of any breach of this TSA (as if such Change had not been made), to nevertheless make the minimum necessary temporary Change as necessary to respond to the Emergency in accordance with the terms of any applicable disaster recovery plans. As soon as practicable following the implementation of any temporary Change, the Provider shall notify the Recipient of the temporary Change and the nature of the Emergency and shall then retroactively comply with the terms of the Change Control Procedure.
10.4.2
“ Emergency ” means a Change that is required to ensure (i) continued provision of, or the continued operation and integrity of, the Services; or (ii) the continued operation and integrity of the Provider Systems, in each case the implementation of which cannot wait (including for reasons of stability and performance) for authorization through the Change Control Procedure.
11
Dispute Resolution

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11.1
Dispute Resolution Process
11.1.1
The Parties shall in the first instance attempt to resolve any dispute in relation to any aspect of, or failure to agree any matter arising in relation to, this TSA or any document agreed or contemplated as being agreed pursuant to this TSA (a “ Dispute ”) informally through discussion as follows:
(i)
the TSA Committee will meet to resolve the Dispute, and if the TSA Committee cannot resolve the Dispute unanimously within 10 Business Days of the Dispute being referred to them, then;
(ii)
the Dispute shall promptly be referred by the TSA Committee to a nominated senior individual of each Party (the “ Senior Nominees ”), and if the Senior Nominees cannot resolve the Dispute unanimously within 10 Business Days of the Dispute being referred to them (unless a longer period is mutually agreed), then;
(iii)
the dispute resolution process shall be deemed to have been exhausted in respect of the Dispute, and each Party shall be free to pursue its rights at law in respect of such Dispute without further reference to the dispute procedure under this Section 11.1.
This Section 11.1 does not limit the right of either Party to: (i) exercise any self-help remedies provided for herein; or (ii) file an action in a court of law, before, during, or after the dispute resolution process to obtain a provisional or interim remedy, and/or any ancillary, additional or supplementary remedy, provided that any such action shall be heard and determined exclusively in any court of competent jurisdiction sitting in New York County, New York.
11.1.2
The Parties will discuss in good faith, at either Party’s request, measures to shorten the time contemplated by this Section 11 to complete the Dispute resolution process.
12
Intellectual Property Rights
12.1
Provider Ownership and License
12.1.1
Each Provider hereby grants to the applicable Recipient a non-exclusive, worldwide, royalty-free, fully paid-up license during the Service Term to use all Intellectual Property Rights (other than trademarks and domain names) Licensable by the Provider and utilized by the Provider in the provision of the Services solely to the extent necessary to receive and use the Services or complete Migration (and with a right to sublicense to customers of the Recipient to the extent necessary to enable such customers to benefit from the provision of the Services).
12.1.2
Each Recipient hereby acknowledges and agrees that, as between the Recipient and the applicable Provider:

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(i)
the Provider’s Intellectual Property existing as of the date hereof (“ Provider’s Existing IP ”) will remain the sole and exclusive property of the Provider;
(ii)
the Provider shall own all Intellectual Property Rights subsisting in any and all adaptations of, modifications and enhancements to and works derived from Provider’s Existing IP that are created, developed, conceived or reduced to practice by or on behalf of the Provider or the Recipient during the Service Term (“ Provider’s Derivative IP ”); and
(iii)
the Provider shall own all Intellectual Property Rights, other than Recipient’s Derivative IP and Recipient’s New IP (as defined below), that are created, developed, conceived or reduced to practice by or on behalf of the Provider during the Service Term (“ Provider’s New IP ”).
12.1.3
Each Recipient hereby irrevocably assigns and agrees to assign to the applicable Provider all right, title and interest in and to Provider’s Derivative IP and Provider’s New IP.
12.2
Recipient Ownership and License
12.2.1
Each Recipient hereby grants the applicable Provider a non-exclusive, worldwide, royalty-free, fully paid-up license during the Service Term to use all Intellectual Property Rights (other than trademarks and domain names) Licensable by the Recipient solely to the extent necessary to provide the Services.
12.2.2
Without prejudice to Section 12.1, each Provider hereby acknowledges and agrees that, as between the Provider and the applicable Recipient:
(i)
the Recipient’s Intellectual Property existing as of the date hereof (“ Recipient’s Existing IP ”) will remain the sole and exclusive property of the Recipient; and
(ii)
the Recipient shall own all Intellectual Property Rights subsisting in any and all adaptations of, modifications and enhancements to and works derived from Recipient’s Existing IP that are created, developed, conceived or reduced to practice by or on behalf of the Provider or the Recipient during the Service Term (“ Recipient’s Derivative IP ”); and
(iii)
the Recipient shall own all Intellectual Property Rights, other than Provider’s Derivative IP, that are, at the Recipient’s expense, created, developed, conceived or reduced to practice by or on behalf of the Provider specifically at the written direction of, and solely for, the Recipient during the Service Term (“ Recipient’s New IP ”). Notwithstanding the foregoing, the applicable Recipient shall hereby grant such Provider a perpetual, irrevocable, non-exclusive, worldwide, royalty-free, fully paid-up and unrestricted license to use and reproduce software included in Recipient’s New IP, including any and all object code, source code, information and/or documentation related thereto.

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12.2.3
Each Provider hereby irrevocably assigns and agrees to assign to the applicable Recipient all right, title and interest in and to Recipient’s Derivative IP and Recipient’s New IP.
13
Data Protection, Confidential Information and Record-keeping
13.1
Data Protection
13.1.1
Each Party acknowledges and agrees that, solely to permit it or its Affiliates to perform its obligations pursuant to this TSA and the Service Schedules, the other Party’s Group may provide it with Confidential Information, including Personal Data. Each Party further acknowledges and agrees that it and its Affiliates shall have the right to use the other Party’s Group’s Confidential Information, including Personal Data, solely to fulfill and perform its obligations under this TSA and otherwise comply with Regulation. Regulation in respect of Personal Data may include U.S. federal data privacy laws and regulations such as the GLB Act, the Federal “Privacy of Consumer Financial Information” Regulation (12 CFR Part 30), as amended from time to time, issued pursuant to Section 504 of the GLB Act, and the Health and Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d), U.S. state data privacy laws such as the Massachusetts Data Protection Act (201 CMR 17) and, if applicable, international data privacy laws such as The Data Protection Act 1998 and Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and the free movement of such data. Each Party may provide guidelines to help the other Party comply with such Regulation, but each Party using its own legal advisors will remain fully responsible, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, for interpreting and complying with such Regulation with respect to its own business. A Party shall have no right to use, reuse or disclose any Personal Data to any person or entity for any reason not specifically permitted under this TSA or a Service Schedule.
13.1.2
Each Party confirms that, when it or its Affiliate is processing data, it or the Affiliate shall:
(i)
only process Personal Data in accordance with the other Party’s instructions; and
(ii)
take appropriate technical and organizational measures to protect Personal Data against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access and against all other unlawful forms of processing.
13.1.3
The Parties shall respectively comply with all Regulation, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, in respect of Confidential Information, including Personal Data, including securing such consents, registrations and notifications as may be required to enable the Provider and any Third

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Party Suppliers to provide the Services and to enable the Recipient to receive the Services.
(i)
If requested by RBSG, CFG will enter into an agreement with RBSG on the terms of the Commission Decision of February 15, 2010 on standard contractual clauses for the transfer of Personal Data to processors established in third countries (2010/87/EC) or the Commission Decision of 27 December 2004 on an alternative set of standard contractual clauses for the transfer of Personal Data to third countries (2004/915/EC), as appropriate.
13.2
Confidential Information
13.2.1
The Parties hereby covenant and agree to keep confidential all Confidential Information relating to the other Party’s Group. Without limiting the generality of the foregoing, each Party’s Group shall cause its employees and agents to exercise the same level of care with respect to Confidential Information relating to the other Party’s Group as it would with respect to proprietary information, materials and processes relating to itself. “ Confidential Information ” shall mean all information, materials and processes relating to a Party’s Group or its employees, third party vendors, counterparties or customers obtained by the other Party’s Group at any time (whether prior to or after the date hereof) in any format whatsoever (whether orally, visually, in writing, electronically or in any other form) arising out of the rendering or receipt of Services hereunder (or preparations for the same or for the termination thereof) and shall include, but not be limited to, economic and business information or data, business plans, software and information relating to personnel, products, financial performance and projections, processes, strategies and systems but shall not include information which:
(i)
is or becomes generally available to the public other than by release in violation of the provisions of this Section 13;
(ii)
is or becomes available on a non-confidential basis to a Party from a source other than the other Party to this TSA, provided that the Party in question reasonably believes that such source is not or was not bound by an obligation to the other Party to hold such information confidential; and
(iii)
is acquired or developed independently by a Party without use or reference to otherwise Confidential Information of the other Party.
Except with the prior written consent of the other Party, each Party will use the other Party’s Group’s Confidential Information only in connection with the performance of its obligations hereunder and each Party shall use commercially reasonable efforts to restrict access to the other Party’s Group’s Confidential Information to those employees of such Party’s Group requiring access for the purpose of providing or receiving Services hereunder.
13.2.2
The provisions of Section 13.2.1 shall not prohibit a Party’s disclosure or use of the other Party’s Group’s Confidential Information if and to the extent such Confidential Information

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is made available to or used by the professional advisers or Third Party Suppliers of each Party for the provision or receipt of the Services; provided , however , that in each case such professional advisors or Third Party Suppliers are subject to written confidentiality obligations in a form approved by the other Party (such approval not to be unreasonably withheld or delayed).
13.2.3
Each Party shall notify the other Party immediately of any suspected or known fraud relevant to its activities under this TSA or any Service Schedule, or of any unauthorized access, possession, use, or knowledge, or attempt thereof, of the other Party’s Group's Confidential Information, or of the occurrence of any other incident relating to the Services that could cause financial, customer or reputational loss to another Party, and agrees to cooperate with the other Party to investigate the occurrence and mitigate the impact of such an event. Each Party shall promptly provide the other Party with full details of any such event and use all available efforts to prevent a recurrence of any such event.
13.2.4
Notwithstanding any provision of this Section 13 to the contrary, a receiving Party’s Group may disclose such portion of the Confidential Information relating to the disclosing Party’s Group to the extent, but only to the extent, the receiving Party reasonably believes that such disclosure is required under Regulation or the rules of a Competent Authority, or under a subpoena or other legal process; provided that if practicable and permissible under Regulation or rules, the receiving Party shall first notify the disclosing Party of such requirement and allow such Party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure and cooperate with the disclosing Party in any lawful effort by the disclosing Party to contest the legal validity of such requirement and prevent such disclosure.
13.2.5
The Parties agree that monetary damages will not be an adequate remedy if this Section 13 regarding Data Protection and Confidential Information is breached, and therefore, a disclosing Party shall, in addition to any other legal or equitable remedies, be entitled to seek injunctive relief against any breach or threatened breach of this Section 13 by the receiving Party with respect to the disclosing Party’s Group’s Confidential Information.
13.3
Record-keeping
13.3.1
The Provider shall maintain complete and accurate records of, and supporting documentation for, all Services provided pursuant to this TSA (“ Service Records ”). Until the later of:
(i)
seven years after the termination of this TSA or in the case of invoices eight years after their issuance;
(ii)
all pending matters relating to this TSA (e.g., disputes) between the Parties are closed;
(iii)
all pending audits relating to this TSA are closed, provided, however , that notice of any such audit was received within seven years after the termination of this TSA;

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(iv)
the information is no longer required to meet the Provider’s records retention policy as disclosed by the Provider to the Recipient and as such policy may be adjusted from time to time; or
(v)
any periods as required by Regulation have expired,
the Provider shall maintain and provide access upon request to the Service Records.
13.3.2
The Provider’s records management program shall be reasonably consistent with such industry frameworks as ISO 15489 or DoD5015.2 as in effect on the date hereof. Before the Provider destroys or otherwise disposes of any Service Records, the Recipient shall have the right to request that the Provider return such Service Records by giving notice at least sixty days prior to the applicable record retention expiration date, and the Provider shall deliver such information to the Recipient.
14
Force Majeure
14.1
Force Majeure Events
For purposes of this TSA, “ Force Majeure ” means an event beyond the reasonable control of either Party, which by its nature was not foreseen by such Party, or, if it was foreseen, was not reasonably avoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, threat, declaration, continuation, escalation or acts of war (declared or undeclared) or acts of terrorism, any unauthorized, unlawful access by a third party to either Party’s computing systems other than as a result of such Party’s fault, failure or shortage of energy sources, strike, walkout, lockout or other labor trouble or shortage, delays by unaffiliated suppliers, and acts, omissions or delays in acting by any Competent Authority.
14.2
No Liability for Force Majeure
Without limiting the generality of Section 8.3, neither Party shall be under any liability for failure to fulfill any obligation under this TSA or a Service Schedule, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure; provided that (i) such Party shall have used commercially reasonable efforts to minimize to the extent practicable the effect of Force Majeure on its obligations hereunder and (ii) nothing in this Section 14.2 shall be construed to require the settlement of any strike, walkout, lockout or other labor dispute on terms which, in the reasonable judgment of the affected Party, are contrary to its interests. It is understood that the settlement of a strike, walkout, lockout or other labor dispute will be entirely within the discretion of the affected Party. The Party affected by the Force Majeure event shall notify the other Party of that fact as soon as practicable.
14.3
Delay Owing to Force Majeure

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In the event of any such delay as a consequence of circumstances of Force Majeure, the Recipient of any affected Service may elect to either:
(i)
submit a Change Control Request to extend the time for performance of the affected Service for a period equal to the time lost by reason of the delay, provided , however, that such extension period shall not extend beyond December 31, 2016; or
(ii)
terminate this TSA in relation to those Services which are affected by the Force Majeure event.
15
Employee Provisions
15.1
No Obligation to Transfer Employees
15.1.1
The Parties agree that the Acquired Rights Directive (Council Directive 77/187/EEC as amended by Council Directive 98/50 EEC and consolidated in Council Directive 2001/23/EEC) as amended (“ ARD ”) or any enactment of the ARD in any national law or any analogous national law will not apply on the commencement of the Services.
15.1.2
The Parties believe that on the cessation or partial cessation of the Services or any part of the Services on the termination, expiry or variation of this TSA, no transfer of the contracts of employment between a Provider or any Third Party Supplier (or any subcontractor thereof) and any of its/their employees to the applicable Recipient or a Successor Provider shall take place by reason of the ARD or any enactment of the ARD in any national law or any analogous national law.
15.1.3
Without prejudice to Section 15.1.1, if requested to do so by a Recipient at any time before the termination, expiry or variation of the Services, the applicable Provider will (or will procure that) all persons working on the Services (“ Staff ”), whether employed/engaged by the Provider, by any Third Party Supplier or any subcontractor thereof, will be redeployed or otherwise removed from the Services before the cessation of those Services so that those Staff cease to be engaged within the Services and are not affected by any transfer pursuant to the ARD or any enactment of the ARD in any national law or any analogous national law that may otherwise occur on the cessation of those Services.
15.2
Pre-employment Screening
15.2.1
Subject to Regulation, the Provider shall require any individual it employs or engages in connection with the performance of its obligations under this TSA to have satisfied the screening procedures in Sections 15.2.2 and 15.2.3 prior to such individual performing any Services hereunder.
15.2.2
The screening procedures set forth in Section 15.2.3 below shall apply to individuals who will be performing Services from within the United States. For individuals who will be performing Services from outside the United States:

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(i)
when RBSG or its Affiliates are the Provider, they shall comply with the RBSG Policy applicable to the relevant jurisdiction; and
(ii)
when CFG or its Affiliates are the Provider, they shall comply with the CFG Policy applicable to the relevant jurisdiction.
15.2.3
For individuals who will have no unaccompanied access to any Recipient facility, and no access to the Recipient's information technology network or the Recipient's Confidential Information (“ Level 1 Clearance ”), the Provider shall have conducted commercially reasonable recruitment and security vetting procedures in relation to each such individual, including, at a minimum, by verifying such individual's identity and legal right to work in the United States based on documentation satisfying Form I‑9 of the U.S. Department of Homeland Security. For individuals who may have unaccompanied access to any Recipient facility, or any access to the Recipient's information technology network or the Recipient's Confidential Information (“ Level 2+ Clearance ”), the Provider shall also have performed a background investigation on each such individual which, at a minimum, consists of the following:
(i)
verification of current residence;
(ii)
verification of the previous two years of employment history;
(iii)
verification of any specific academic, trade or professional qualifications or records that are required for the individual to perform his or her role; and
(iv)
criminal records checks, including at a minimum a FIM county-level search and a FAM county and lower-court-level search;
provided that in the event that an individual experiences a break in service with the Provider subsequent to the foregoing investigation having been conducted, a new background investigation meeting the requirements set forth herein will be required.
15.2.4
In the event that:
(i)
the Provider is unable to comply fully with the pre-employment requirements above with respect to an individual;
(ii)
the Provider is unable to verify the information described in clauses (i) through (iii) of Section 15.2.3;
(iii)
the criminal records checks referred to in clause (iv) of Section 15.2.3 determine that the individual in question has (A) a conviction or program entry for a covered offense as described in Section 19 of the Federal Deposit Insurance Act, or (B) two or more convictions for crimes involving violent behavior in the previous five years; or

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(iv)
any pre-engagement screening activity returns information that otherwise indicates in the Provider's reasonable judgment that such individual should not be engaged to provide Services under this TSA,
then the Provider shall not engage the individual in relation to this TSA or any Service Schedule.
16
Communications with Competent Authorities
If either Party receives any material correspondence from any Competent Authority that relates to the Services, it will provide a copy of that correspondence to the other Party unless it is prevented from doing so by Regulation or such Competent Authority. The Parties shall consult with each other over such correspondence and shall only respond to the Competent Authority if:
16.1.1
the terms of the response have been approved by the other Party (such consent not to be unreasonably withheld or delayed); or
16.1.2
Regulation requires a response to the Competent Authority without the other Party’s consent.
17
Audit
17.1
Regulatory Audit Rights
17.1.1
The Provider shall (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services shall) promptly permit:
(i)
the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority); and
(ii)
any Competent Authority (or its designated representatives),
access to the Provider’s and Third Party Suppliers’ facilities and premises, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, and subcontractors to the extent required by the Competent Authority to perform an audit.
17.1.2
Subject to any restriction under Regulation or the direction of any Competent Authority, the Provider shall ensure it is (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services are) open and cooperative with the Recipient and its auditors and any Competent Authority (and its designated representatives) in performing its obligations under this Section 17.1 and shall provide such information, assistance, records and materials, access to persons engaged in the provision of the Services and explanations as required

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by the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority) or the Competent Authority (including attending any meetings requested by the Recipient and/or the Competent Authority (or its designated representatives) and providing copies of any internal audit reports which are relevant to the Services). The Recipient shall provide as much notice of the audit as is reasonably practicable. Subject to Section 17.1.3, each Party shall bear its own costs in respect of such audits.
17.1.3
If and to the extent the Provider does not have the rights under its relevant Third Party Agreement to ensure its Third Party Supplier grants the rights described in Sections 17.1.1 and 17.1.2, any costs in procuring such rights shall be borne by the Recipient; provided that such costs were approved by the Recipient in writing before they were incurred. If the Recipient declines, or otherwise fails, to approve such costs, the Provider shall not be required to obtain the grant of the relevant rights by that Third Party Supplier.
17.2
General Audit Rights
17.2.1
With respect to each Service Schedule:
(i)
The Provider shall, from time to time, but in any event no more than twice in any 12-month period (subject to the exception in Section 17.2.1(iii)), during regular business hours and upon reasonable notice, permit the Recipient or its representatives to perform audits of the Provider’s (and to the extent commercially reasonable, its Third Party Suppliers’) facilities, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, subcontractors, and such other audits as may be necessary to ensure the Provider’s and its Third Party Suppliers’ compliance with the terms and conditions of this TSA and the relevant Service Schedules, as well as Regulation, and to ensure the Provider’s financial and operational viability, including but not limited to the Provider’s internal controls, pre-engagement employee screening, information and other security, business resumption, continuity, recovery, Service Level compliance, and contingency plans.
(ii)
Upon request, the Provider shall provide to the Recipient at the Recipient’s expense an audit conducted by a reputable and experienced accounting firm in accordance with the Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization, developed by the American Institute of Certified Public Accountants (AICPA), and have such accounting firm issue a Service Organization Control (SOC) 1 Type II Report (or substantially similar report in the event the SOC 1 Type II Report is no longer the industry standard) which will cover, at a minimum, the policies, procedures and controls required by this TSA and the relevant Service Schedule (the “ Report ”).
(iii)
If an audit conducted pursuant to Section 17.2.1(i) reveals any non-compliance or other deficiencies, or the Report described in Section 17.2.1(ii) in its final an

43
    

d issued version contains a qualified opinion, in either case relating to risks to the Provider’s systems and facilities which could result in the unauthorized destruction, loss, alteration, disclosure of or access to the Recipient’s Confidential Information, then a senior technology executive of the Provider shall promptly meet with a representative of the Recipient to discuss the matter, and the Provider shall promptly take action to remedy the non-compliance or deficiencies and/or resolve the matters addressed by the qualification(s) so that any deficiencies that caused the qualified opinion to be issued are remedied to the Recipient’s reasonable satisfaction (including with respect to the timeline of the remediation). Notwithstanding the limitation on the number of audits in Section 17.2.1(i), a Provider shall permit the Recipient to perform an audit solely to the extent necessary to confirm that any non-compliance or deficiencies identified in an audit conducted pursuant to Section 17.2.1(i) or in the Report described in Section 17.2.1(ii) have been remedied.
18
Sanctions
18.1
Compliance with Sanctions Laws and Regulations
18.1.1
The Parties acknowledge that the Parties and their respective Groups are subject to the international sanction laws and regulations issued from time to time by HM Treasury, the European Union, the United States of America (including, but not limited to, all applicable regulations of the Office of Foreign Assets Control (“ OFAC ”), the Bank Secrecy Act and the USA Patriot Act (including such regulations that may require the Provider to implement a “Customer Identification Program” or “Know Your Customer Program” to confirm that no beneficiary or client of the Provider appears on any lists issued by OFAC, including the Specially Designated Nationals list, and determine whether transactions by or with such beneficiary or client may constitute suspicious activity, such as identity theft, fraud, money laundering, terrorist financing or other threats to national security)), and the United Nations.
18.1.2
Neither Party shall be obliged to make any payment under, or otherwise to implement any part of the Services, if in the reasonable opinion of the relevant Party to do so is illegal or there is involvement by any person (natural, corporate or governmental) listed in the HM Treasury, the European Union, the United States of America, the United Nations or local sanctions lists, or there is any involvement by any person located in, incorporated under the laws of, or owned or controlled by, or acting on behalf of, a person located in or organized under the laws of a country or territory that is the target of comprehensive sanctions.
19
Information Security
19.1
Information Security

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19.1.1
A Party’s Group may not store, copy, disclose or use the other Party’s Group’s Data for any purpose other than to the extent necessary to provide or receive, as applicable, the Services and to comply with Regulation.
19.1.2
Neither Party’s Group shall attempt to obtain access to, use or interfere with any information technology systems or data used or processed by the other Party’s Group except to the extent required to do so to provide or receive the Services (as applicable), or except to the extent expressly permitted to do so by this TSA.
19.1.3
Each Party’s Group shall maintain reasonable security measures to protect both Party’s Groups’ information technology systems, from third parties, and in particular from disruption by any “back door”, “time bomb”, “Trojan Horse”, “worm”, “drop dead device”, “virus” or other software routine intended or designed to (i) permit access or use of information technology systems by a third person other than as authorized by the Recipient or the Provider or (ii) disable, damage or erase, or disrupt or impair the normal operation of the Recipient’s or Provider’s information technology systems.
19.1.4
Each Party’s Group shall use reasonably up-to-date security measures to prevent unauthorized access to and unauthorized use of the information technology systems owned by the other Party (or, with respect to a Recipient, any member of the Recipient’s Group and, with respect to a Provider, any member of the Provider’s Group) and the other Party’s data (including, with respect to a Recipient, the Recipient Data) by third parties (including Third Party Suppliers).
19.1.5
A Party shall not introduce any Disabling Device into any information technology environment or any system used by the other Party’s Group in connection with the Services. Without limiting a Party’s other obligations under this TSA, the Parties agree that, in the event any Disabling Device is found in the systems used to provide the Services, (i) if such Disabling Device originated in any software, deliverable or other resource provided under this TSA or any Service Schedule, the Party that introduced the Disabling Device shall remove such Disabling Device at its sole expense and, subject to the caps on damages set forth in Section 8.2 hereof, indemnify the affected Party for all Losses incurred as a result of such Disabling Device, and (ii) in any case (wherever such Disabling Device originated), the Party that introduced the Disabling Device shall exercise commercially reasonable efforts at no additional charge to eliminate, and reduce the effects of, the Disabling Device and, if the Disabling Device causes a loss of operational efficiency or loss of data, to mitigate such losses and restore such data using generally accepted data restoration techniques.
19.1.6
In addition to its other obligations set forth in this TSA,
(i)
whenever a Party’s Group possesses, stores, processes or has access to the other Party’s Group’s Personal Data, it shall comply with the applicable Fraud Prevention Policy; and

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(ii)
whenever a Party’s Group possesses, stores, processes or has access to the other Party’s Group’s Confidential Information (inclusive of Personal Data), it shall comply with the applicable IS Requirements.
If requested, a Party will explain to the disclosing Party how it complies with the Fraud Prevention Policy and the IS Requirements, and shall demonstrate its compliance upon request as set forth in Section 17.2.
19.1.7
Each Party shall make the other aware as soon as reasonably practical of any information security breach which may materially adversely impact the Services or the other Party’s Group’s business.
20
Other Provisions
20.1
Whole Agreement
20.1.1
This TSA constitutes the entire agreement between the Parties with respect to the subject matter hereof at the date hereof and supersedes all prior agreements and understandings, both oral or written, between the Parties in relation to the subject matter hereof.
20.1.2
In this Section 20.1, “ this TSA ” includes all documents entered into pursuant to it and/or this TSA.
20.2
No Construction Against Drafter
The Parties acknowledge that this TSA and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties. Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of the TSA.
20.3
Publicity and Public Announcements
A Party must not make any public announcement relating to this TSA without the prior written approval of the other Party (such approval not to be unreasonably withheld, conditioned or delayed). This shall not affect any announcement required by Regulation, any Competent Authority or the rules of any stock exchange on which the shares of a Party are listed, but the Party with an obligation to make an announcement shall notify the other Party and take into account their reasonable representations so far as is reasonably practicable before complying with such obligation.
20.4
Further Assurances
Each Party shall, and shall cause its Affiliates to, from time to time execute such documents, perform such acts and things as any Party may reasonably require to give full effect to the provisions of this TSA and the transactions contemplated herein.

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20.5
Assignment
The provisions of this TSA shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns. No Party may assign, delegate or otherwise transfer any of its rights or obligations under this TSA without the prior written consent of the other Party hereto.
20.6
Third Party Rights
Each Party to this TSA acknowledges and agrees that each of Citizens Bank, N.A. and Citizens Bank of Pennsylvania (each a “ Bank Beneficiary ”) are express third party beneficiaries of this TSA, and that in the event of CFG’s default and failure to obtain for any Bank Beneficiary any services needed by such Bank Beneficiary under this TSA, such Bank Beneficiary shall be entitled to directly enforce and enjoy all rights and privileges of CFG set forth in this TSA (including, without limitation, the right to obtain services under this TSA directly and not through CFG) notwithstanding that they are not Parties to this TSA and irrespective of any actions taken or not taken by CFG; provided, however, that each Bank Beneficiary will be able to obtain services under this TSA directly only to the extent such Bank Beneficiary is in compliance with and assumes all of CFG’s obligations under this TSA, including any obligation such Bank Beneficiary may have to provide Services under this TSA. Subject to the foregoing, and except for the indemnification rights as set forth in Section 8.3, (i) the provisions of this TSA are solely for the benefit of the Parties and are not intended to confer upon any Person (including employees of the Parties hereto) except the Parties and the express third party beneficiaries set forth above any rights or remedies hereunder, and (ii) there are no third party beneficiaries of this TSA other than the express third party beneficiaries set forth above and this TSA shall not provide any third person (including employees of the Parties hereto), other than the express third party beneficiaries set forth above, with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this TSA.
20.7
Amendment and Waiver
20.7.1
Any provision of this TSA (including the Service Schedules hereto) may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this TSA, or in the case of a waiver, by the Party against whom the waiver is to be effective.
20.7.2
No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Regulation.
20.8
Notices
All notices, requests and other communications to any Party hereunder shall be in writing (electronic mail (“ e-mail ”) transmission may be used, provided that a receipt of such e-mail is requested and received), and shall be given:

47
    

(i)
if to RBSG to:
The Royal Bank of Scotland Group plc
Business House G, First Floor
RBS Gogarburn
PO Box 1000
Edinburgh EH12 1HQ
Scotland
Attention: Group General Counsel

With a copy to:

General Counsel, Corporate / M&A
chris.campbell@rbs.com
rushad.abadan@rbs.com
(ii)
if to CFG to:
Citizens Financial Group, Inc.
One Citizens Plaza
Providence, RI 02903
United States
Attention: John Fawcett, Chief Financial Officer

With a copy to:

Citizens Financial Group, Inc.
28 State Street, 12 th Floor, MS 1225
Boston, MA 02109
United States
Attention: Stephen T. Gannon, General Counsel

or such other address or e-mail address as such Party may hereafter specify for the purpose by notice to the other Parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
20.9
Severability
If any provision of this TSA or the application thereof to any Party or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to any of the Parties or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
20.10
Counterparts

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This TSA may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Execution of this TSA or any other documents pursuant to this TSA by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as if executed by an original signature.
20.11
Independent Contractor
Nothing in this TSA shall constitute or be deemed to constitute a partnership or joint venture between the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of the other Party for any purpose whatsoever and neither Party shall have authority or power to bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. The Parties hereto acknowledge and agree that when acting as a Provider, the other Party is an independent contractor in the performance of each and every part of this TSA and nothing herein shall be construed to be inconsistent with this status. Subject to the terms and conditions of this TSA, the Provider shall have the authority to select the means, methods and manner by which any Service is performed.
20.12
Governing Law and Submission to Jurisdiction
20.12.1
This TSA shall be governed by and construed and interpreted in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof that would result in the application of any law other than the laws of the State of New York.
20.12.2
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS TSA OR THE SERVICES CONTEMPLATED BY THIS TSA. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS TSA AND THE SERVICES CONTEMPLATED BY THIS TSA, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.12.2.
20.12.3
With respect to any Action relating to or arising out of this TSA, subject to the provisions of Section 11, each Party to this TSA irrevocably (a) consents and submits to the exclusive jurisdiction of the courts of the State of New York and any court of the United States located in the Borough of Manhattan in New York City; (b) waives any objection which such Party may have at any time to the laying of venue of any Action brought in any such court, waives any claim that such Action has been brought in an inconvenient forum and further waives the right to object, with respect to such Action, that such court does not have jurisdiction over such party; and (c) consents to the service of process at the address set forth for notices in Section 20.7 herein; provided, however, that such manner of service

49
    

of process shall not preclude the service of process in any other manner permitted under Regulation.
20.13
Anti-Bribery Provisions
20.13.1
Each Party agrees that it shall comply with, and that the Services will be performed in accordance with, the Anti-Corruption Laws, subject to the Change Control Procedure in respect of any change in Anti-Corruption Laws after the date hereof, and that it shall not cause, by act or omission, any other Party to be in breach of any Anti-Corruption Laws.
20.13.2
Each Party shall have in place and comply with its own anti-bribery and corruption policy to ensure that it complies with the Anti-Corruption Laws (each such policy, an “ Anti-Bribery and Corruption Policy ”). If requested, a Party shall provide to the other Party a copy of its Anti-Bribery and Corruption Policy and, if required, the providing Party will explain to the receiving Party how the features set out in its Anti-Bribery and Corruption Policy correspond to the receiving Party’s Anti-Bribery and Corruption Policy. Subject to the Change Control Procedure, the providing Party shall promptly implement any amendments to its Anti-Bribery and Corruption Policy which the receiving Party, acting reasonably, considers necessary following its review of the providing Party’s Anti-Bribery and Corruption Policy to ensure that the providing Party complies with the Anti-Corruption Laws.
20.13.3
Each Party shall review its Anti-Bribery and Corruption Policy on a regular basis and shall promptly implement and notify the other Party of any amendments to its Anti-Bribery and Corruption Policy which it considers necessary for continued compliance with the Anti-Corruption Laws.
20.13.4
Each Party shall cooperate with the other Party and promptly provide any information or confirmation which the other Party requires from time to time in connection with the obligations set forth in this Section 20.13. Each Party acknowledges that the other Party will place reliance upon the information provided.
20.13.5
Each Party shall immediately notify the other Party in writing of any suspected or known breach of its Anti-Bribery and Corruption Policy or any of the Anti-Corruption Laws.
20.13.6
Each Party shall have the right to suspend and/or terminate any Service Schedule for material breach immediately, or on such other time specified by the terminating Party, upon written notice to the Provider under such Service Schedule if: (i) the Provider, or any person employed by it or acting on its behalf (whether with or without the knowledge of such Service Provider) fails to comply with any of the Anti-Corruption Laws or is in material breach of the Provider’s Anti-Bribery and Corruption Policy; or (ii) a Party has a reasonable suspicion that an occurrence as specified in clause (i) of this Section 20.13.6 has occurred.
20.13.7
Regardless of any other provision in this TSA, no Party shall be obliged to do, nor obliged to omit to do, any act which would, in its reasonable opinion, put it in breach of any Anti-Corruption Laws.

50
    


IN WITNESS WHEREOF, this TSA has been duly executed.

SIGNED  for and on behalf of THE ROYAL BANK OF SCOTLAND GROUP PLC  by its Authorised Attorney:
 

/s/ Ewen Stevenson

 
 
 
SIGNED  for and on behalf of CITIZENS FINANCIAL GROUP, INC.  by:
 
/s/ Bruce Van Saun
 
 
 
 
 
 



51








TRADE MARK LICENCE AGREEMENT





between


THE ROYAL BANK OF SCOTLAND GROUP PLC


and


CITIZENS FINANCIAL GROUP INC.




















INDEX
CLAUSE
PAGE
1. Definitions and Interpretation     2
2. Licence Term     6
3. Grant of Licence     7
4. Title and Goodwill     12
5. Restrictions on Use     13
6. Composite Trade Marks     14
7. Quality Control     15
8. Infringement     17
9. Warranties, Indemnity and Liability     19
10. Termination     22
11. Consequences of Expiry of Agreement or Termination     24
12. Licence Fees     26
13. Irrevocable Authority     28
14. Notice     29
15. Amendment     30
16. Entire Agreement     30
17. Severability     31
18. No Partnership, Joint Venture or Agency     31
19. Assignment     31
20. Waiver     32
21. Contracts (Rights of Third Parties) Act 1999     32
22. Counterparts     32
23. Governing Law and Jurisdiction     32


SCHEDULES    PAGE
Schedule 1
Daisy Design     1-1
Schedule 2
Existing Composite Trade Marks    2-1
Schedule 3
New Composite Trade Marks    3-1
Schedule 3A
New Consumer Banking Business Line Composite Trade Marks    3-2
Schedule 3B
New Commercial Banking Business Line Composite Trade Marks    3-4
Schedule 4
Licensee’s Trade Marks    4-1
Schedule 5
Limited Instances of Permitted Use of “RBS” Mark in Relation
to Retail Banking Services    5-1
Schedule 6
Domain Names Containing the “RBS” Mark Controlled by the Licensor    6-1







THIS TRADE MARK LICENCE AGREEMENT made the 29th day of September, 2014 (the “ Agreement ”)
BETWEEN:
(1)
THE ROYAL BANK OF SCOTLAND GROUP PLC , a company incorporated in Scotland with company number SC045551 and having its registered office at 36 St. Andrew Square, Edinburgh EH2 2YB, Scotland (the “ Licensor” )
and
(2)
CITIZENS FINANCIAL GROUP, INC., a Delaware corporation, with a principal place of business at One Citizens Plaza, Providence, Rhode Island 02903-1339 (the “ Licensee” )
WHEREAS:
A.
The Licensor is the owner of the Licensor’s Trade Marks.
B.
The Licensor has previously granted the Licensee one or more licences in respect of Licensor’s Trade Marks, including pursuant to those previous licence agreements of 19 September 2005, 1 November 2006 and 18 May 2012 (the “ Previous Licence Agreements ”).
C.
The Licensee wishes to obtain from the Licensor for itself, the Licensee Group Companies and the Permitted Sub-licensees, and the Licensor has agreed to grant to the Licensee and the Licensee Group Companies, a limited licence to use the Licensor’s Trade Marks, on or in relation to the Services in the Territory, such licence to include the right of the Licensee to grant sub-licences to the Permitted Sub-licensees, all on the terms and conditions set out in this Agreement.
D.
The Licensor and the Licensee intend that this Agreement will supersede the Previous Licence Agreements and the Previous Licence Agreements shall terminate as of the Commencement Date and shall have no further effect following the Commencement Date.
NOW, THEREFORE , for good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the Licensor and the Licensee) and in consideration of the mutual undertakings set out in this Agreement, and intending to be legally bound hereby, the Licensor and the Licensee agree as follows:




1.
DEFINITIONS AND INTERPRETATION
1.1.
In this Agreement (including the recitals), the following words and expressions shall have the meanings set out below:
Acquired Bank shall have the meaning set out in Clause 3.4.1;
Acquired Branch shall have the meaning set out in Clause 3.4.2;
Acquiring Party shall have the meaning set out in Clause 3.4.1;
Capital Stock means, with respect to any person or entity, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person’s or entity’s voting stock, and any rights, warrants or options exercisable or exchangeable for or convertible into such voting stock;
CBNA means Citizens Bank, N.A.;
CBPA means Citizens Bank of Pennsylvania;
Change of Control means (i) the consummation of any transaction as a result of which any person or entity, other than the Licensor, any of its affiliates or any Initial Transferee, acquires directly or indirectly more than fifty (50) per cent of the outstanding Capital Stock of the Licensee, including through a merger or consolidation or purchase of the Capital Stock of the Licensee or (ii) the sale, lease, conveyance, disposition, in one or a series of related transactions other than a merger or consolidation, of all or substantially all of the assets of the Licensee taken as a whole to any person or entity other than the Licensor, or an affiliate of the Licensor;
Claim shall have the meaning set out in Clause 9.4.
Commencement Date means the date first appearing at the beginning of this Agreement;
Composite Trade Marks means the Existing Composite Trade Marks, New Composite Trade Marks, New Commercial Banking Business Line Composite Trade Marks and New Consumer Banking Business Line Trade Marks, collectively;
Daisy Design means the design set out in Schedule 1;
Extended Term shall have the meaning set out in Clause 2.2;


2


Existing Composite Trade Marks means (i) the marks set out in Schedule 2, the use of each of which shall be limited to any shade of green, black and/or white and variations thereof (including green or black outline of white lettering and the Daisy Design), save that the Daisy Design and “RBS” name shall always be used in Pantone 281 blue (or its equivalent under an industry recognised colour standard) where those two marks appear together in the Composite Trade Marks and (ii) any domain name which is either (a) controlled, and used in connection with the Services, by the Licensee as of the Commencement Date that contains the acronym "RBS" or (b) otherwise set out in Schedule 6;
Initial Term shall have the meaning set out in Clause 2.1;
Initial Transferee means any person or entity to whom the Licensor or any of its affiliates transfers at least fifty (50) per cent of the outstanding Capital Stock of the Licensee owned directly or indirectly by the Licensor on the Commencement Date;
Licence Fees shall have the meaning set out in Clause 12.1;
Licensee Group Company means, subject to Clause 3.4.1, in relation to the Licensee, any company which, at the relevant time, is a wholly-owned Subsidiary of the Licensee;
Licensee’s Trade Marks means the marks set out in Schedule 4 and any trade mark and service mark applications and registrations for such marks in the name of the Licensee;
Licensor’s Trade Marks means (i) the Daisy Design (whether registered or unregistered), (ii) the acronym "RBS" (whether registered or unregistered), and (iii) any United States trade mark and service mark applications and registrations in the name of the Licensor for the foregoing;
Manner of Use Requirements shall have the meaning set out in Clause 7.4;
New Commercial Banking Business Line Composite Trade Marks means the marks set out in Schedule 3B, as such Schedule may be amended from time-to time pursuant to Clause 5.2, the use of each of which shall be limited to any shade of green, grey, black and/or white and variations thereof, (including green, grey or black outline of white lettering and the Daisy Design);
New Composite Trade Marks means the marks set out in Schedule 3;


3


New Consumer Banking Business Line Composite Trade Marks means the marks set out in Schedule 3A, as such Schedule may be amended from time-to-time pursuant to Clause 5.2, the use of each of which shall be limited to any shade of green, grey, black and/or white and variations thereof, (including green, grey or black outline of white lettering and the Daisy Design);
Permitted Sub-licensees means only: (i) The Phillies and Phillies Ballpark L. P. and (ii) Major League Baseball (“MLB”), pursuant to the Permitted Sub-licence Agreement;
Permitted Sub-licence Agreement means the Naming Rights, Sponsorship and Advertising Agreement dated 17 June 2003 between CBPA and the Licensee on the one hand and The Phillies and Phillies Ballpark L.P. on the other;
Previous Licence Agreements shall have the meaning set out in Recital B;
Quality Standard shall have the meaning set out in Clause 7.3;
Registration Rights Agreement means the Registration Rights Agreement, dated on or around the Commencement Date, by and between the Licensor and the Licensee;
Schedule means a schedule annexed to and forming part of this Agreement as may be updated from time to time in accordance with this Agreement;
Separation Agreement means the Separation and Shareholder Agreement, dated on or around the Commencement Date, by and between the Licensor and the Licensee;
Services means retail and commercial banking services in the Territory and their marketing, promotion and sale;
Subsidiary means, with respect to any person or entity, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such person or entity;
Tax includes all forms of taxation and social security contributions and all statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions, levies and withholdings of any nature whatsoever, in each case whether imposed in the United Kingdom, the United States or elsewhere in the world, whenever imposed and whether chargeable directly or primarily or solely against or attributable directly


4


or primarily or solely to the parties, together with all penalties, charges and interest relating to any of the foregoing;
Tax Authority means any body or organization in any jurisdiction having authority over a party in relation to Tax;
Territory means those states and territories (including unincorporated territories) comprising the United States of America;
Transitional Services Agreement means the Transitional Services Agreement, dated on or around the Commencement Date, by and between the Licensor and the Licensee; and
VAT means United Kingdom value added tax imposed in compliance with EC Council Directive 2006/112 or any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax, or imposed elsewhere. Any reference in this Agreement to any party shall, at any time when such party is treated as a member of a group for VAT purposes, include (where appropriate and unless the context otherwise requires) a reference to the representative member of such group at such time (the term “representative member” to have the same meaning as in the Value Added Tax Act 1994).

1.2.
In this Agreement, unless the context otherwise requires:
1.2.1
the index and clause headings are for convenience only and shall not affect the construction or interpretation of this Agreement;
1.2.2
references to the recitals, clauses and Schedules are references to the recitals, clauses and Schedules of this Agreement and references in any clause or Schedule to a paragraph are, unless otherwise stated, references to a paragraph in that clause or Schedule;
1.2.3
unless the context otherwise requires the singular shall include the plural and vice versa , references to any gender shall include references to the other genders and references to persons shall include natural persons, corporations, companies, firms, partnerships, bodies corporate, associations, organisations, foundations and trusts (in each case whether or not having separate legal personality);


5


1.2.4
any phrase introduced by the terms “include” or “including” do not limit the sense of the words preceding such terms and shall be deemed to be followed by the words, “without limitation”; and
1.2.5
references to any English legal term for any right, action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include that which most nearly approximates in that jurisdiction to the English law term.
1.2.6
Unless otherwise specified to the contrary, all of the obligations, undertakings or covenants of the Licensee under this Agreement shall apply to the Licensee in relation to itself and all other Licensee Group Companies and Permitted Sub-licensees (subject to the terms of the Permitted Sub-licence Agreement) and the Licensee shall, accordingly, ensure that the Licensee Group Companies and the Permitted Sub-licensees (subject to the terms of the Permitted Sub-licence Agreement) comply at all times with the terms of this Agreement.
1.3.
The Schedules and recitals form part of this Agreement and shall have effect as if set out in full in the body of this Agreement and any reference to this Agreement includes the Schedules and recitals.
2.
LICENCE TERM
2.1.
This Agreement shall come into force on the Commencement Date and, except if terminated in accordance with Clause 3.1 or Clause 10, shall continue in full force and effect for a period of five (5) years from the Commencement Date (the “ Initial Term ”).
2.2.
If the Licensee wishes to extend the Initial Term, the Licensee shall, at least six (6) months prior to expiry of the Initial Term, notify the Licensor in writing both that such an extension is required and the period of such extension (not to exceed five (5) years) and, except to the extent this Agreement is terminated in accordance with Clause 3.1 or Clause 10, subject to payment of the Licence Fees as set forth in Clause 12.1.2, this Agreement shall be automatically extended for such period, and such extension shall automatically come into force on the date of expiry of the Initial Term and shall continue in full force and effect for a maximum period of up to five (5) years from the date of expiry of the Initial Term, or until


6


such time as terminated in accordance with Clause 3.1 or Clause 10 (the “Extended Term ”) (it being understood that, in the event this Agreement is terminated in part pursuant to Clause 3.1, any extension pursuant to this Clause 2.2 shall only apply to those parts of this Agreement that have not otherwise been terminated pursuant to Clause 3.1).
2.3.
The Previous Licence Agreements shall terminate as of the Commencement Date.
3.
GRANT OF LICENCE
3.1.
Subject to the terms and conditions of this Agreement, and in consideration of the payment by the Licensee of the Licence Fees, the Licensor hereby grants to the Licensee and the Licensee Group Companies, and the Licensee, on behalf of itself and the Licensee Group Companies, hereby accepts from the Licensor, a non-transferable, non-sub-licensable (except as set forth in Clause 3.3) sole licence to use the Licensor’s Trade Marks but only in relation to the Composite Trade Marks (except as set forth in Clause 3.2) in relation to the Services in the Territory; provided that (x) except as otherwise set forth in Clause 3.2.7 or Clause 3.8, and notwithstanding any other provision of this Agreement, not later than thirty (30) days after the Licensor shall have ceased to hold at least fifty (50) per cent of the Licensee’s outstanding Capital Stock (but in no event earlier than 1 October 2015), this Agreement shall, subject to Clause 11.3, t erminate with respect to the Licensee’s and the Licensee Group Companies’ right to use the Licensor’s “RBS” mark as part of the Existing Composite Trade Marks and in the instances set forth on Schedule 5, and upon such termination, the Licensee shall, and shall ensure that each Licensee Group Company shall, immediately discontinue the use of the acronym “RBS” as part of the Existing Composite Trade Marks and in the instances set forth on Schedule 5; (y) except in the limited instances set forth on Schedule 5, the Licensee shall not, and shall ensure that each Licensee Group Company shall not, at any time during its use of the Licensor’s “RBS” mark as part of the Existing Composite Trade Marks, use it in connection with the operation of the Licensee’s retail banking business or the marketing, promotion or sale of retail banking services; and (z) if the Licensee seeks to rebrand any product or Service which, as of the commencement of the relevant rebranding initiative for such product or Service, is branded using the Composite Trade Marks, and such rebranding provides for the cessation of use of the Composite Trade Marks with respect to such product or Service, then this Agreement shall, subject to Clause 11.4, without the need for notice and effective as of the date of completion


7


(but in no event more than sixty (60) days after the commencement) of the relevant rebranding initiative, terminate with respect to the Licensee’s right to use the Composite Trade Marks in relation to such product or Service.  The Licensee shall develop a project plan with respect to each rebranding initiative described in sub-clause (z) above and shall provide a copy of such project plan to the Licensor with reasonable notice prior to the commencement of the rebranding initiative. The dates of commencement and completion of such rebranding initiative shall be determined in accordance with the relevant project plan (it being understood that any such rebranding initiative shall not be deemed to have commenced to the extent the Licensee engages in customary testing or pre-launch activities (not to exceed ninety (90) days) in a test market to determine the viability and/or logistics associated with the full-scale public rollout of any such rebranding initiative).
3.2.
Nothing in this Agreement shall or is intended to permit the Licensee, the Licensee Group Companies or the Permitted Sub-licensees to use the Licensor’s Trade Marks (i) except as a component of a Composite Trade Mark, or (ii) for any purposes other than those set out in Clause 3.1 without the prior written consent of the Licensor, provided however, that subject to the terms of this Agreement, the Licensee and the Licensee Group Companies shall be permitted to continue to use:
3.2.1
the Daisy Design by itself on the interior and exterior of the properties owned or leased by the Licensee or any Licensee Group Company;
3.2.2
the Daisy Design by itself as a design element in plastic debit or credit cards issued by the Licensee or any Licensee Group Company;
3.2.3
the Daisy Design by itself as an environmental element in traditional and in-store branches and administrative offices of the Licensee or any Licensee Group Company as a wall super graphic, window vinyl pattern, media wall mark or podium;
3.2.4
the Daisy Design by itself as a design element in incidental promotional items and employee accessories ( e.g. , pens, ties, pins, cuff links and golf shirts) that use the Daisy Design produced by the Licensee or any Licensee Group Company for their own use, but solely to the extent and only in the manner used as of 1 June 2014;


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3.2.5
the Daisy Design by itself as a design element in printed materials and collateral ( e.g . internal Microsoft PowerPoint templates, memorandum templates etc) in existence as of 1 June 2014;
3.2.6
the Daisy Design by itself in online applications used by the Licensee or any Licensee Group Company (including its mobile application having the Daisy Design as the icon, the App Store icon on the iTunes site, the icon for a technology application known as Relay Initiative, which provides for an electronic message to be sent to loan applicants upon submission of a loan application, and all checking and savings pages on citizensbank.com and charterone.com) as of 1 June 2014; and
3.2.7
the Daisy Design and the Licensor’s “RBS” mark, each either by itself or together as a combined trade mark, as design elements in internal, non-customer facing technology applications, but solely to the extent and only in the manner used on such applications by the Licensee or any Licensee Group Company as of 1 June 2014; provided that the Licensee and any such Licensee Group Company shall cease any and all such uses by 1 October 2017.
3.3.
The Licensee and the Licensee Group Companies shall have no right to sub-licence the Licensor’s Trade Marks or the Composite Trade Marks without the prior written consent of the Licensor, which consent shall be given or withheld at the Licensor’s sole and absolute discretion. Notwithstanding the foregoing, the Licensee shall, subject to the terms of this Agreement, have the right to grant sub-licences under the licence granted to the Licensee pursuant to Clause 3.1 to the Permitted Sub-licensees, pursuant to the Permitted Sub-licence Agreement, without the prior written consent of the Licensor. Neither Licensee nor any Permitted Sub-licensee may amend, modify or otherwise change the Permitted Sub-licence Agreement without the prior written consent of the Licensor to the extent such amendment, modification or other change relates to or otherwise affects the Licensor’s Trade Marks or the Composite Trade Marks in any respect. The Licensee shall remain responsible and fully liable at all times to the Licensor for any acts, omissions or default on the part of the Permitted Sub-licensees, and any action, omission or default by any Permitted Sub-licensee that would constitute a breach of this Agreement if it were an action, omission or default by the Licensee, shall constitute a breach of this Agreement by the Licensee. For the avoidance of doubt, no Permitted Sub-licensee shall, at any time, have any greater


9


right to use the Licensor’s Trade Marks than the Licensee, each Permitted Sub-licensee’s right to use the Licensor’s Trade Marks shall be consistent with the terms of the Permitted Sub-licence Agreement and shall automatically terminate upon and to the extent of any expiration or termination of this Agreement.
3.4.
If:
3.4.1
at any time during the Initial Term, the Licensee or any Licensee Group Company (an “ Acquiring Party ”) acquires another depository institution, where such acquired institution becomes a Licensee Group Company (the “ Acquired Bank ”), the licence granted in Clause 3.1 shall extend, at the discretion of the Licensee, to such Acquired Bank, however the licence granted in Clause 3.1 shall not extend to any depositary institution acquired after the Initial Term; and
3.4.2
at any time during the Initial Term or the Extended Term, an Acquiring Party acquires one or more bank branches (each an “ Acquired Branch ”), the licence granted in Clause 3.1 shall extend, at the discretion of the Licensee, to such Acquired Branch.
3.5.
The Licensee acknowledges and confirms that the Licensor reserves the right to use or licence the Licensor’s Trade Marks in the Territory in any manner at the Licensor’s sole discretion; provided that the Licensor shall not sub-licence the Daisy Design in the Territory to any third party in relation to the Services except for (i) transitional purposes in connection with a sale or disposition of a business or (ii) the Licensor’s own purposes (including to a vendor providing services to Licensor or any of its affiliates or in connection with any joint venture or other strategic partnership or alliance).
3.6.
The Licensor may, at the Licensor’s sole and absolute discretion, add to, delete or vary any of the Licensor’s Trade Marks (it being understood that the Licensee and the Licensee Group Companies shall not be required to add, delete or vary any of the Licensor’s Trade Marks from the manner in which the Licensee or the Licensee Group Companies are using any of the Licensor’s Trade Marks as of 1 June 2014 as part of the Composite Trade Marks or as otherwise permitted hereunder).
3.7.
The Licensee shall not be in breach of the terms of Clause 3.1 solely by reason of using the Composite Trade Marks (or the Daisy Design by itself to the extent permitted under


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Clause 3.2) on an Internet website that is accessible from outside the Territory, so long as the website is targeted at persons inside the Territory.
3.8.
The parties acknowledge and agree that with respect to any plastic debit or credit card issued by the Licensee or any Licensee Group Company as of 1 October 2015 which uses the Licensor’s “RBS” mark as a design element on any such debit or credit card, whether in combination with the Daisy Design and/or the Existing Composite Trade Marks, the Licensee or the Licensee Group Company, as applicable, shall not be required to recall and/or reissue such debit or credit cards immediately after 1 October 2015; provided that (i) to the extent any such debit or credit card needs to be reissued by the Licensee or any Licensee Group Company in the ordinary course after the Commencement Date, whether due to expiration or replacement of such debit or credit card for any reason, any reissue of such debit or credit card shall have all uses of, and references to, the Licensor’s “RBS” mark removed and (ii) in any event, any and all of the Licensee’s and the Licensee Group Companies’ plastic debit and credit cards which use the Licensor’s “RBS” mark as a design element shall be recalled and reissued by the Licensee and/or the Licensee Group Companies, as applicable, no later than 1 October 2017 so that all uses of, and references to, the Licensor’s “RBS” mark are removed and no longer used in connection therewith. For the avoidance of doubt, the Licensee and the Licensee Group Companies shall only be permitted to use the Licensor’s “RBS” mark with respect to any plastic debit or credit card, as contemplated in this Clause 3.8, solely to the extent and only in the manner such “RBS” mark was used on such debit or credit card as of 1 June 2014.
3.9.
For the avoidance of doubt, and notwithstanding anything herein to the contrary, each Licensee Group Company shall be licensed hereunder only for so long as such Licensee Group Company is and remains a wholly-owned Subsidiary of the Licensee.
4.
TITLE AND GOODWILL
4.1.
The Licensee acknowledges the Licensor’s exclusive ownership of the Licensor’s Trade Marks. This Agreement does not give the Licensee, the Licensee Group Companies or the Permitted Sub-licensees any interest in the Licensor’s Trade Marks, except the right to use the Licensor’s Trade Marks in accordance with the terms of this Agreement.
4.2.
Any use of the Licensor’s Trade Marks in so far as they form part of the Composite Trade Marks, or as otherwise permitted hereunder or under the Permitted Sub-licence Agreement,


11


by the Licensee, any Licensee Group Company or any Permitted Sub-licensee shall inure to the sole benefit of the Licensor. Without prejudice to the foregoing, all goodwill arising on or derived from the use of the Licensor’s Trade Marks in so far as they form part of the Composite Trade Marks, or as otherwise permitted hereunder or under the Permitted Sub-licence Agreement, by the Licensee, any Licensee Group Company or any Permitted Sub-licensee pursuant to this Agreement shall accrue to the benefit of the Licensor. The Licensor may, at any time as reasonably required, call for a confirmatory assignment of that goodwill and the Licensee shall immediately execute, and shall ensure that the Licensee Group Companies and Permitted Sub-licensees immediately execute, such assignment. Any use of the Licensee’s Trade Marks in so far as they form part of the Composite Trade Marks by the Licensee, any Licensee Group Company or Permitted Sub-licensee shall inure to the sole benefit of the Licensee. Without prejudice to the foregoing, all goodwill arising on or derived from the use of the Licensee’s Trade Marks in so far as they form part of the Composite Trade Marks by the Licensee, any Licensee Group Company or Permitted Sub-licensee pursuant to this Agreement shall accrue to the benefit of the Licensee.
4.3.
Wherever practicable (but in relation to the use by the Permitted Sub-Licensee, subject to the terms of the Permitted Sub-licence Agreement) the Licensee shall indicate that the Licensor’s Trade Marks are the property of the Licensor by the use of the following style of trade mark notice (or its equivalent), or such other notice as may be approved in advance by the Licensor, on or in relation to all Services in relation to which the Licensor’s Trade Marks, in so far as they form part of the Composite Trade Marks or as otherwise permitted hereunder or under the Permitted Sub-licence Agreement, are used: “The Daisy Design and RBS marks are trade marks of The Royal Bank of Scotland Group plc used under licence by Citizens Financial Group Inc.”
5.
RESTRICTIONS ON USE
5.1.
The Licensee shall, and shall ensure that the Licensee Group Companies and Permitted Sub-licensees shall, neither do nor suffer to be done any act or thing which is in any way inconsistent with the Licensor’s ownership of the Licensor’s Trade Marks or the Licensor’s ownership of the Licensor’s Trade Marks in the Composite Trade Marks or in those marks on Schedule 5 or which could impair any application for or registration of any of the Licensor’s Trade Marks or the Composite Trade Marks.


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5.2.
The Licensee shall not, and shall ensure that the Licensee Group Companies, and the Permitted Sub-licensees shall not, adopt, register or use any word, name (including company or trading name), mark, symbol, internet domain name, other designation or trade style which, in the Licensor’s opinion, is likely to cause confusion with or dilute any of the Licensor’s Trade Marks, and shall not make any unlicensed use of trade marks which, in the Licensor’s opinion, are confusingly similar to the Licensor’s Trade Marks. For the avoidance of doubt, the Licensee shall only, and shall ensure that the Licensee Group Companies shall only, use the Licensor’s Trade Marks as they appear in Schedule 2, Schedule 3, Schedule 3A, Schedule 3B, Schedule 5 and Schedule 6 and, where applicable, subject always to the colour limitations specified in the definitions of “Existing Composite Trade Marks”, “New Commercial Banking Business Line Composite Trade Marks” and “New Consumer Banking Business Line Composite Trade Marks” set out in Clause 1.1 above. Any other use of the Licensor’s Trade Marks with or in a different colour, shall constitute a new mark and shall require the Licensor’s express written consent prior to any use thereof. The Licensee has confirmed to the Licensor that (a) it initially intends to use the New Consumer Banking Business Line Composite Trade Marks in connection with its consumer banking businesses and (b) it initially intends to use the New Commercial Banking Business Line Composite Trade Marks in connection with its commercial banking businesses. Subject to the foregoing, the parties agree that in the event that the Licensee encounters any unforeseen legal obstacle or litigation risk in relation to its use of the New Composite Trade Mark [Daisy Design] + CITIZENS ONE (or any other New Composite Trade Mark substituted therefor as provided below), the Licensee shall be permitted to use one of the other New Composite Trade Marks in substitution for the New Composite Trade Mark which is subject to such obstacle or legal risk and upon written notification to the Licensor, Schedule 3A and Schedule 3B shall be deemed automatically revised to reflect such substitution. Notwithstanding anything herein to the contrary, the Licensee and the Licensee Group Companies shall be limited at any given time to the use of a single New Composite Trade Mark (including as part of the associated New Consumer Banking Business Line Composite Trade Marks and New Commercial Banking Business Line Composite Trade Marks set out in Schedule 3A and Schedule 3B, respectively).
6.
COMPOSITE TRADE MARKS


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6.1.
The Licensor and Licensee have previously registered and applied to register various versions of the Existing Composite Trade Marks in the Territory, as detailed in Schedule 2. For the avoidance of doubt, the Licensor continues, and shall continue, to retain exclusive ownership of the Licensor’s Trade Marks in so far as they comprise the applied for and/or registered Composite Trade Marks and the Licensee continues, and shall continue, to retain exclusive ownership of the Licensee’s Trade Marks in so far as they comprise the applied for and/or registered Composite Trade Marks. The parties agree that the registration of the Composite Trade Marks is purely a protective measure and for administrative ease and shall not provide the Licensor and/or Licensee with any legal rights over either party’s respective component trade marks. The Licensee agrees that it shall take immediate steps to ensure that the Licensor is registered as a joint registrant and proprietor in relation to the Composite Trade Marks (to the extent this has not already been done by the Licensee in relation to each of the Composite Trade Marks).
6.2.
The Licensee shall not apply to register as a trade mark, service mark or domain name any further versions of the Existing Composite Trade Marks in the Territory without the prior written consent of the Licensor, such consent not to be unreasonably withheld, provided however that Licensee is entitled to register in the name of Licensee and Licensor jointly any New Composite Trade Marks under which it proposes to do business pursuant to Clause 5.2 subject to the Licensee giving the Licensor prior written notice to this effect. Similarly, the Licensor shall not apply to register as a trade mark or service mark any further versions of the Composite Trade Marks in the Territory without the prior written consent of the Licensee, such consent not to be unreasonably withheld. As regards the Existing Composite Trade Marks, as detailed in Schedule 2, and any New Composite Trade Marks that are registered pursuant to Clause 5.2, the Licensee shall have sole responsibility for the ongoing prosecution and maintenance of these, including the payment of any related fees, until the expiry and/or termination of this Agreement, but shall keep the Licensor regularly informed in this regard. With regard to the domain names in Schedule 6, the Licensor shall have sole responsibility for renewing those domain names, including the payment of any related fees, for at least so long as the Licensee is licensed to use them in accordance with Clause 3.1.
6.3.
If the Licensee ceases the use of any Composite Trade Mark for which a registration is in effect in the Territory, or for which an application for registration is pending in the Territory,


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such Composite Trade Mark shall be simply allowed to lapse on renewal or at the next official action if in the application stage.
7.
QUALITY CONTROL
7.1.
The Licensee shall use, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees use, the Licensor’s Trade Marks as part of the Composite Trade Marks (or otherwise to the extent specified in Clause 3.2 or permitted under the Permitted Sub-licence Agreement) only in a manner and form: (i) designed to maintain the goodwill and reputation for high quality associated with the Licensor’s Trade Marks; (ii) consistent with the use of the Licensor’s Trade Marks by the Licensee, the Licensee Group Companies and the Permitted Sub-licensees prior to 1 June 2014; (iii) that protects the Licensor’s ownership of the Licensor’s Trade Marks; and (iv) that complies with all applicable laws, rules and regulations.
7.2.
The Licensee shall ensure that its and the Licensee Group Companies’ Services, and advertising and marketing of such Services, featuring any of the Licensor’s Trade Marks as part of the Composite Trade Marks or other use as contemplated in Clause 3.2, and the Permitted Sub-licensees use in accordance with the terms of the Permitted Sub-licence Agreement, shall in no way reduce or diminish the reputation, image or prestige of the Licensor or the Licensor’s Trade Marks.
7.3.
Subject to Clause 7.5, the Licensee shall ensure that all Services which feature any of the Licensor’s Trade Marks as part of the Composite Trade Marks or other use as contemplated in Clause 3.2 or permitted under the Permitted Sub-licence Agreement shall be at least equal in quality to goods and services provided by the Licensee immediately prior to 1 June 2014 (the “ Quality Standard ”).
7.4.
Subject to Clause 7.5, the Licensee shall use, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees use, the Licensor’s Trade Marks as part of the Composite Trade Marks (or otherwise to the extent specified in Clause 3.2 or permitted under the Permitted Sub-licence Agreement) only in the form stipulated by Licensor and shall conform to and observe, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees conform to and observe, such standards as the Licensor from time to time prescribes, including standards related to the quality, design, identity, size, position, appearance, marking and colour of the Licensor’s Trade Marks, and the manner,


15


disposition and use of the Licensor’s Trade Marks and accompanying designations (the “ Manner of Use Requirements ”). For the avoidance of doubt, the parties acknowledge and agree that (i) the use of the Existing Composite Trade Marks by the Licensee and the Licensee Group Companies immediately prior to 1 June 2014 was compliant with the Licensor’s current Quality Standard and Manner of Use Requirements and (ii) notwithstanding the above, no Manner of Use Requirements applicable to any Composite Trade Mark shall require the Licensee or the Licensee Group Companies to deviate from the manner in which Licensor’s Trade Marks are depicted in the Existing Composite Trade Marks immediately prior to 1 June 2014.
7.5.
The Licensor shall have the right, in its reasonable discretion, to alter or amend the Quality Standard and/or the Manner of Use Requirements at any time during the Initial Term and the Extended Term, and shall give advance written notice of any such changes to the Licensee. The Licensee agrees to promptly adjust its use, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees promptly adjust their use, to abide by any such amended Quality Standard and/or Manner of Use Requirements; provided that no such alteration or amendment to the Quality Standard and/or the Manner of Use Requirements by the Licensor applicable to any Composite Trade Mark shall require the Licensee or the Licensee Group Companies to deviate from the manner in which the Licensor’s Trade Marks are depicted in the Existing Composite Trade Marks immediately prior to 1 June 2014.
7.6.
The Licensee shall permit, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees (subject to the terms of the Permitted Sub-licence Agreement) permit, the Licensor and/or its authorised representative at all reasonable times to enter the premises of the Licensee or the applicable Licensee Group Company or Permitted Sub-licensee for the purpose of observing the creation, promotion and provision of Services which feature any of the Licensor’s Trade Marks as part of the Composite Trade Marks. Upon the Licensor’s reasonable request but not more often than twice per year, the Licensee shall, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees shall, submit samples or provide other evidence (including the inspection of premises) for the Licensor’s review, of the Services bearing the Licensor’s Trade Marks as part of the Composite Trade Marks, and products, items or premises bearing the Licensor’s Trade Marks as set out in Clause 3.2, or pursuant to the Permitted Sub-licence Agreement.


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Should the Licensor notify the Licensee that any Services which feature any of the Licensor’s Trade Marks as part of the Composite Trade Marks or other use as contemplated in Clause 3.2 or pursuant to the Permitted Sub-licence Agreement fails to comply with the Quality Standard or the Manner of Use Requirements in effect at that time, the Licensee shall promptly correct, and shall ensure that any applicable Licensee Group Companies or Permitted Sub-licensees (subject to the terms of the Permitted Sub-licence Agreement) promptly correct, such defects in accordance with such notification from the Licensor, and in any event within forty five (45) days of such notice.
7.7.
As part of the Licensee’s obligations under quality control, it shall provide the Licensor with a written statement at each anniversary of the Commencement Date of its steps and the steps of the Licensee Group Companies and the Permitted Sub-licensees to adopt branding that does not incorporate the Licensor’s Trade Marks.
7.8.
The Licensor acknowledges and agrees that the use of the Existing Composite Trade Marks by the Permitted Sub-licensees as of the Commencement Date is, to the extent such use is compliant with the terms of the Permitted Sub-Licence Agreement as of the Commencement Date, compliant with the terms of this Agreement as of the Commencement Date.
8.
INFRINGEMENT
8.1.
The Licensee shall notify the Licensor promptly (including in respect of any of Licensor’s Trade Marks that form part of the Composite Trade Marks or of those marks on Schedule 5) of:
8.1.1
any actual or suspected infringement of any of the Licensor’s Trade Marks;
8.1.2
any third party claims that any of the Licensor’s Trade Marks are invalid or conflict with the rights of any other party; and
8.1.3
any claims that any of the Licensor’s Trade Marks or the use thereof infringes the rights of any other party,
that come to its attention and shall not act in such a way that will prejudice any claim or admit any liability in respect of the same.


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8.2.
Subject to Clause 8.5, the Licensor shall have the right, but not the obligation, in its sole and absolute discretion to prosecute or defend, at its own expense, all suits involving the Licensor’s Trade Marks, and to take any action that it deems desirable or necessary for the protection of the Licensor’s Trade Marks (irrespective of whether the Licensor’s Trade Marks form part of the Composite Trade Marks or of those marks on Schedule 5). At the Licensor’s discretion, it may do so in its name, in the name of the Licensee, or in the name of both the Licensor and the Licensee, and the Licensee shall claim no rights against the Licensor as a result of any such action.
8.3.
If the Licensor decides to take affirmative action against or in response to any actual or suspected infringement of the Licensor’s Trade Marks, any actual or threatened claim that the Licensor’s Trade Marks or the use thereof infringes the rights of any third party or any actions or proceedings (including registrations, cancellation and opposition proceedings or claims of invalidity) brought before the United States Patent and Trademark Office or any foreign equivalent relating to the Licensor’s Trade Marks, the Licensee shall, if requested by Licensor and at Licensor’s expense, lend its name to such proceedings and otherwise assist the Licensor in taking all steps reasonably required by the Licensor in respect of such action, including without limit, in respect of quantification of any damages claim based on the damages suffered by the Licensee as a result of the said infringement or claim. Except as expressly set out in Clause 8.5, recovery of costs or damages resulting from any such action or proceeding shall be distributed between the parties at the Licensor’s sole discretion and after reimbursement to the Licensor of any costs and expenses incurred by it in relation to such action.
8.4.
Subject to Clause 8.5, the Licensee shall have no right to take any affirmative action against or in response to any actual or suspected infringement of the Licensor’s Trade Marks, any actual or threatened claim that any of the Licensor’s Trade Marks or the use thereof infringes the rights of any third party or any actions or proceedings (including registrations, cancellation and opposition proceedings or claims of invalidity) brought before the United States Patent and Trademark Office or any foreign equivalent relating to the Licensor’s Trade Marks without the prior written consent of the Licensor. Except as expressly set out in this Clause 8, any rights of the Licensee to take such action (whether statutory or otherwise) shall be expressly disapplied to the maximum extent permitted by law.


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8.5.
Each party may take affirmative action in its own name against or in response to any actual or suspected infringement of the Composite Trade Marks or of those marks on Schedule 5, any actual or threatened claim that any of the Composite Trade Marks or any of those marks on Schedule 5, or the use thereof infringes the rights of any third party or any actions or proceedings (including registrations, cancellation and opposition proceedings or claims of invalidity) brought before the United States Patent and Trademark Office or any foreign equivalent relating to the Composite Trade Marks or to those marks on Schedule 5 (it being understood that nothing herein is intended to give either party the right to take affirmative action in its own name where the actual, suspected or threatened infringement relates only to an individual component of the Composite Trade Marks or of those marks on Schedule 5 which individual component, as a standalone mark, is exclusively owned by the other party). Where the parties mutually agree to take such an action, it shall be pursued jointly in the joint names of the parties. When such action is pursued subject to joint agreement, the parties shall work together to protect and enforce their collective rights in the applicable Composite Trade Mark or in the applicable mark on Schedule 5. In no event (regardless of whether or not the action is pursued jointly) shall either party, without the prior consent of the other, admit liability or make any offer, promise, compromise, settlement, or communication with the third party in respect of any such action. Recovery of costs or damages resulting from any such joint action shall be distributed equitably between the parties after the reimbursement to each party for its costs and expenses incurred in taking such action. All costs of any infringement proceedings or actions or proceedings brought before the United States Patent and Trademark Office or any foreign equivalent relating to the Composite Trade Marks or to those marks on Schedule 5, whether instigated by the Licensee itself or in partnership with the Licensor, shall be borne by the Licensee.
9.
WARRANTIES, INDEMNITY AND LIABILITY
9.1.
The Licensor hereby represents and warrants to the Licensee that the Licensor owns all right, title and interest in and to the Licensor’s Trade Marks.
9.2.
EACH PARTY ACKNOWLEDGES THAT, IN ENTERING INTO THIS AGREEMENT, IT DOES NOT DO SO IN RELIANCE ON ANY REPRESENTATION, WARRANTY OR OTHER PROVISION EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT AND ANY CONDITIONS, WARRANTIES, REPRESENTATIONS, UNDERSTANDINGS OR OTHER


19


TERMS, WHETHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING ANY REPRESENTATIONS OR WARRANTIES OF NON-INFRINGEMENT, ARE EXCLUDED FROM THIS AGREEMENT TO THE FULLEST EXTENT PERMITTED BY LAW.
9.3.
The Licensee shall indemnify and defend the Licensor and each of the Licensor’s affiliates from and against all suits, actions, claims, liabilities, damages, loss, costs and expenses whether actual or alleged, including reasonable legal fees, court costs and other legal expenses, arising out of, in connection with, or relating to, (i) any breach by the Licensee of its representations, warranties or covenants under this Agreement, (ii) any use of the Licensor’s Trade Marks, the Licensee’s Trade Marks or the Composite Trade Marks by the Licensee or anyone acting under authority of the Licensee (including any Licensee Group Company or Permitted Sub-licensee), and (iii) the Licensee’s failure or the failure of any Licensee Group Company or Permitted Sub-licensee to comply with all applicable laws and regulations relating to the sale, promotion or advertising of the Services or the purpose of the relevant sub-licence.
9.4.
Where the Licensor is seeking to rely upon one of the indemnities set out in Clause 9.3, in respect of any such suit, action or claim (whether actual or alleged) (a “ Claim ”), the Licensor shall:
9.4.1
as soon as reasonably practicable give to the Licensee written notice of the Claim specifying in reasonable detail the nature of the Claim, and all details of the Claim from time to time in the knowledge or possession of the Licensor;
9.4.2
with respect to any third party Claims, not, without the prior written consent of the Licensee, admit liability or make any offer, promise, compromise, settlement, or communication with the third party in respect of the Claim;
9.4.3
use all reasonable endeavours to mitigate any loss arising out of such Claim by any third party; and
9.4.4
with respect to any third party Claims, render all reasonable assistance to the Licensee in connection with the defence of any such Claim against the Licensor (at the Licensee’s expense) and/or, at the request of the Licensee, (and against the Licensee providing to the reasonable satisfaction of the Licensor security for all costs, charges and expenses) surrender to the Licensee or its insurers


20


on its request the conduct in the Licensor’s name of the defence, settlement and/or counterclaim of the Claim ( provided that the Licensor shall be kept informed as to the conduct of such defence, settlement and/or counterclaim) and nothing in this Agreement shall prohibit the Licensor from issuing any press release in connection with any adverse publicity resulting from any such Claim (but provided that such statement shall not contain any admission of liability).
9.5.
Notwithstanding anything in this Agreement to the contrary, the Licensor hereby expressly disclaims all liability for any and all:
9.5.1
special, punitive, incidental, indirect or consequential loss or damage; or
9.5.2
loss of profit, turnover, business, revenue, contracts, goodwill, reputation, anticipated savings or management time (whether direct or indirect); or
9.5.3
claims brought against the Licensee, any Licensee Group Company or the Permitted Sub-Licensees by any other party, which may arise out of or in connection with this Agreement or the performance or purported performance of or delay or failure in the performance of its obligations under this Agreement and the Licensee hereby waives and releases any claims it might otherwise have to be compensated in connection with this Agreement for such loss or damage.
9.6.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, THE TOTAL AGGREGATE LIABILITY OF THE LICENSOR UNDER THIS AGREEMENT OR OTHERWISE (WHETHER OR NOT CAUSED BY THE NEGLIGENCE OF THE LICENSOR, ITS EMPLOYEES, CONSULTANTS, AGENTS OR SUB-CONTRACTORS) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL NOT EXCEED THE LESSER OF (I) THE SUMS RECEIVED BY THE LICENSOR FROM THE LICENSEE UNDER THIS AGREEMENT IN THE IMMEDIATELY PRECEDING TWELVE (12) MONTH PERIOD FROM WHICH THE CLAIM AROSE, AND (II) FIVE HUNDRED THOUSAND US DOLLARS ($500,000).
9.7.
Nothing in this Agreement shall affect either party’s liability to the other for death or personal injury resulting from its own or that of its employees’, agents’, consultants’ or sub-contractors’ negligence or for breach of any obligations implied by Section 12 of the Sale of Goods Act


21


1979, Schedule 1 of the Sale and Supply of Goods Act 1994 or under Part 1 of the Consumer Protection Act 1987 which liability shall not be limited.
10.
TERMINATION
10.1.
The Licensor may terminate this Agreement at any time on giving written notice to the Licensee if:
10.1.1
the Licensee commits any material or persistent breach of any of the provisions of this Agreement (including as contemplated in Clause 3.3) and, in the case of a breach which is capable of remedy fails to remedy the same within thirty (30) days after receipt of a written notice giving full particulars of the breach and requiring it to be remedied; or
10.1.2
the Licensee commits any material or persistent breach of any of the provisions of the Separation Agreement or the Registration Rights Agreement (it being understood that, with respect to any termination by the Licensor pursuant to this Clause 10.1.2, the phase-out period set out in Clause 11.1.2 shall commence immediately upon the provision of such termination notice to the Licensee); or
10.1.3
an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any of the Licensee, CBNA or CBPA or any of their respective debts, or of a substantial part of any of their respective assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any of the Licensee, CBNA or CBPA or for a substantial part of any of their respective assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or
10.1.4
any of the Licensee, CBNA or CBPA shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) apply for or consent to the appointment


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of a receiver, trustee, custodian, sequestrator, conservator or similar official for any of the Licensee, CBNA or CBPA or for a substantial part of any of their respective assets, (iii) file an answer admitting the material allegations of a petition filed against any of them in any such proceeding, (iv) make a general assignment for the benefit of creditors or (v) take any action for the purpose of effecting any of the foregoing;
10.1.5
the Licensee is the subject of a notice to strike off the register of companies or corporations in the United States or such other country where the Licensee is registered as a company; or
10.1.6
anything analogous to any of the foregoing under the laws of any jurisdiction outside England occurs in relation to the Licensee; or
10.1.7
the Licensee ceases, or threatens to cease, to carry on business; or
10.1.8
the Licensee undergoes a Change of Control; or
10.1.9
the Licensee fails to pay to the Licensor the Licence Fees in accordance with Clause 12.1; or
10.1.10
the Licensee or any Licensee Group Company disputes or contests, directly or indirectly, the validity of any of the Licensor’s Trade Marks or the Composite Trade Marks, or any of Licensor’s rights therein, or counsels, procedures or assists anyone else to do the same; or
10.1.11
the Licensor, in its reasonable discretion, considers that the Licensee, any Licensee Group Company or any Permitted Sub-Licensee caused, directly or indirectly, any circumstances which could adversely affect the validity, ownership (including any assignment of or granting of an encumbrance or security interest in the Composite Trade Marks) or integrity of any of the Licensor’s Trade Marks or the Composite Trade Marks in any respect.
10.2.
At any time during the Initial Term and the Extended Term, the Licensee shall also be entitled to terminate this Agreement by written notice to the Licensor upon the later of: (x) the Licensee ceasing to use all of the Composite Trade Marks and the Daisy Design (to the extent contemplated by Clause 3.2); and (y) the cessation of use of all of the Licensor’s Trade Marks by the Permitted Sub-licensees.


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11.
CONSEQUENCES OF EXPIRY OF AGREEMENT OR TERMINATION
11.1.
Forthwith upon expiry or termination of this Agreement in whole or in part:
11.1.1
The Licensee shall discontinue, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees discontinue, all further use of the Licensor’s Trade Marks (including the Composite Trade Marks) to the extent of such termination, as relevant.
11.1.2
     The Licensee shall remove, and shall ensure that the Licensee Group Companies and the Permitted Sub-licensees remove, any existing uses of the Licensor’s Trade Marks (including the Composite Trade Marks) from the Services and any domain names, websites, company names, products, promotional items, premises and any other such existing uses. In the case of: (x) the expiration of this Agreement in the ordinary course at the end of the Initial Term or the Extended Term, this shall be done by the end of the Initial Term or the Extended Term, and (y) termination of this Agreement (in whole or in part) prior to the expiry of the Initial Term or the Extended Term, this shall be done as soon as practical and to the extent of such termination and, in any event, not later than six (6) months after such termination (without limiting the Licensee’s obligation to pay any Licence Fees pursuant to Clause 12.1 during such period).
11.1.3
The Licensee shall not thereafter promote, sell or offer, and shall ensure that all Licensee Group Companies and Permitted Sub-licensees do not promote, sell or offer any Services under or by reference to any mark identical to, confusingly similar to, or incorporating any of, the Licensor’s Trade Marks.
11.1.4
Any existing trade mark registrations and/or applications for the Composite Trade Marks shall be simply allowed to lapse on renewal (if a registration) and at the next official action (if in application stage).
11.2.
Termination of this Agreement for whatever reason shall not affect the accrued rights of either party arising out of this Agreement as at the date of termination and, in particular but without limitation to, the right to recover damages from the other.
11.3.
Forthwith upon a partial termination of this Agreement pursuant to Clause 3.1(x), except as provided therein:


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11.3.4
     The Licensee shall discontinue, and shall ensure that all Licensee Group Companies discontinue, all further use of any Existing Composite Trade Marks that incorporate the “RBS” mark and all further use of the instances set forth on Schedule 5.
11.3.5
The Licensee shall remove, and shall ensure that all Licensee Group Companies remove, any existing uses of any Existing Composite Trade Marks that incorporate the “RBS” mark and any existing uses of the instances set forth on Schedule 5 from the Services and any domain names, websites, company names and any other such existing uses. This shall be done as soon as practical and, in any event, not later than six (6) months after the partial termination of this Agreement in respect of Licensee’s right to use the “RBS” mark.
11.3.6
The Licensee shall not thereafter promote, sell or offer any Services under or by reference to any mark identical to, confusingly similar to, or incorporating the “RBS” mark, and the Licensee shall ensure that no Licensee Group Company shall engage in any of the foregoing.
11.3.7
Any existing trade mark and domain name registrations and/or applications for the Existing Composite Trade Marks and for those marks on Schedule 5, in each case, that incorporate the “RBS” mark shall be simply allowed to lapse on renewal (if a registration) and at the next official action (if in application stage).
11.4.
Forthwith upon a partial termination of this Agreement pursuant to Clause 3.1(z):
11.4.1
The Licensee shall discontinue, and shall ensure that all Licensee Group Companies and Permitted Sub-licensees discontinue, all further use of the Licensor’s Trade Marks (including the Composite Trade Marks) in relation to the applicable product or Services.
11.4.2
The Licensee shall remove, and shall ensure that all Licensee Group Companies and Permitted Sub-licensees remove, any existing uses of the Licensor’s Trade Marks (including the Composite Trade Marks) from the applicable product or Services or in relation to any uses as contemplated in the Permitted Sub-licence Agreement. This shall be done as soon as practical and, i


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n any event, no more than sixty (60) days after the commencement of the relevant rebranding initiative as specified in Clause 3.1(z).
11.4.3
The Licensee shall not thereafter promote, sell or offer the applicable product or Services in the Territory under or by reference to any mark identical to, confusingly similar to, or incorporating any of, the Licensor’s Trade Marks, and the Licensee shall ensure that no Licensee Group Company or Permitted Sub-licensees shall engage in any of the foregoing.
11.5.
For the avoidance of doubt, subject to Clause 12.1, a partial termination of this Agreement pursuant to Clause 3.1(x) or Clause 3.1(z) shall not affect Licensee’s obligation to pay any Licence Fees pursuant to Clause 12.1.
11.6.
Termination or expiry of this Agreement shall, in all cases, be without prejudice to Clauses 1 (Definitions and Interpretation), the first sentence of 5.2 (Restrictions on Use), 9 (Warranties, Indemnity and Liability), 11 (Consequences of Termination), 13 (Power of Attorney), 16 (Entire Agreement), 17 (Severability), 18 (No Partnership, Joint Venture or Agency), 19 (Assignment), 20 (Waiver), 21 (Contracts (Rights of Third Parties) Act 1999), 22 (Counterparts) and 23 (Governing Law and Jurisdiction), all of which shall survive termination or expiry for whatever reason and continue in full force and effect.
12.
LICENCE FEES
12.1.
From the Commencement Date to the expiry of the Initial Term or Extended Term, as applicable, the Licensee shall pay the Licensor the following licence fees in accordance with this Clause 12.1 (the “ Licence Fees ”).
12.1.1
For each applicable period of the Initial Term and the Extended Term, as applicable, the Licensee will pay the Licensor the following:


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Year
Licence Fees
During the Initial Term
One US Dollar ($1)
First year of the Extended Term
Five hundred thousand US Dollars ($500,000)
Second year of the Extended Term
Five hundred thousand US Dollars ($500,000)
Third year of the Extended Term
Five hundred thousand US Dollars ($500,000)
Fourth year of the Extended Term
Four million US Dollars ($4,000,000)
Fifth year of the Extended Term
Five million US Dollars ($5,000,000)
12.1.2
The applicable Licence Fee for the Initial Term is to be paid by the Licensee to the Licensor in advance of the Commencement Date. All other Licence Fees during the Extended Term must be paid by the Licensee to the Licensor annually in advance and at least seven (7) business days prior to the commencement of the first, second, third, fourth and/or fifth year of the Extended Term, as applicable.
12.2.
Without limiting the Licensee’s obligation to pay any accrued but unpaid Licence Fees to Licensor, the Licensee’s obligation to pay Licence Fees to Licensor pursuant to Clause 12.1 shall cease once (i) the Licensee has fully and finally ceased all use of the Composite Trade Marks (and the Licensor’s Trade Marks to the extent contemplated by Clause 3.2) throughout the Territory, (ii) all of the Licensee Group Companies and Permitted Sub-licensees have fully and finally ceased to use the Licensor’s Trade Marks and the Composite Trade Marks; and (iii) the Licensee has provided the Licensor with a written declaration signed by an officer of the Licensee certifying the foregoing.
12.3.
All sums payable by a party under this Agreement shall be paid free and clear of any deductions, withholdings, set-offs or counterclaims, save only as may be required by law. If any deductions or withholdings are required by law, the party making the payment shall be obliged to pay to the other party such sum as will after such deduction or withholding has been made leave the other party with a sum equal to the sum it would have been left with if no such requirement to make a deduction or withholding had been required. The


27


parties shall claim from the appropriate Tax Authority any exemption, rate reduction, refund, credit or similar benefit (including pursuant to any relevant tax treaty) to which they are entitled in respect of any deduction or withholding in respect of which a payment has been made pursuant to this Clause 12.3 and, for such purposes shall, within any applicable time limits, submit any claims, notices, returns or applications and send a copy thereof to the payer. If the recipient of a payment to which this Clause 12.3 receives a credit for or refund of any Tax payable or similar benefit by reason of any deduction or withholding for or on account of Tax, then it shall reimburse to the other party such part of such additional amounts paid to it pursuant to this Clause 12.3 as the recipient of the payment certifies to the other party will leave it (after such reimbursement) in no better and no worse position than it would have been if the other party had not been required to make such deduction or withholding .
12.4.
All amounts payable under this Agreement shall be deemed to be exclusive of any applicable VAT. If any amount falling due under this Agreement (from whatever cause) constitutes the consideration for a taxable supply of goods and/or services for VAT purposes, then the person(s) to whom the goods or services are supplied shall, where the provider is the person liable to account for the applicable VAT to the relevant Tax Authority, pay VAT in addition to and at the same time as the amount so falling due, against delivery of a valid VAT invoice. Where under the terms of this Agreement one party is liable to indemnify or reimburse another party in respect of any costs, the payment shall exclude the amount of any recoverable input tax of the other party (or the representative member of any group of which that party is a member for VAT purposes in respect of such costs), and that other party shall use its reasonable endeavours (and shall procure that any such relevant representative member shall use its reasonable endeavours) to recover such amount of VAT as may be practicable.
13.
IRREVOCABLE AUTHORITY
13.1.
The Licensee hereby irrevocably authorises the Licensor to promptly execute and deliver and sign on behalf of the Licensee, any documents, forms, instruments and (to the extent permitted by any relevant jurisdiction) deeds, or to do any such thing and generally to use the Licensee’s name as may be reasonably necessary for the purpose of giving to the Licensor the full benefit of this Agreement in relation to the Licensor’s Trade Marks. The


28


Licensor and the Licensee hereby undertake to each other to cooperate with their respective reasonable requests to promptly execute and deliver any documents, forms, instruments and (to the extent permitted by any relevant jurisdiction) deeds, or to do any such thing as may be reasonably necessary for the purpose of giving to the other the full benefit of this Agreement in relation to the Composite Trade Marks.
14.
NOTICE
14.1.
Any notice or other communication given under this Agreement shall be in writing and shall be served by (i) delivering it personally, (ii) sending it by registered airmail or a reputable overnight courier service, or (iii) sending it by email, in each case to the address and for the attention of the relevant party set out in Clause 14.2 (or as otherwise notified by that party in writing). Any such notice shall be deemed to have been received: (w) if delivered personally, at the time of delivery; (x) in the case of registered airmail, five (5) days from the date of posting; (y) in the case of overnight courier, forty eight (48) hours from the date of delivery to the courier; and (z) in the case of email, at the time of transmission if subsequently confirmed by return email.
14.2.
The addresses and fax numbers of the parties for the purposes of Clause 14 are:
14.2.1
The Royal Bank of Scotland Group plc
Address:        The Royal Bank of Scotland Group plc
Business House G, First Floor
RBS Gogarburn
PO Box 1000
Edinburgh EH12 1HQ
SCOTLAND
For the attention of:    Group General Counsel
With a copy to:     Head of Intellectual Property, RBS Legal
Email:            chris.campbell@rbs.com
ipunitrequests@rbs.co.uk
14.2.2
Citizens Financial Group Inc


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Address:        Citizens Financial Group Inc
28 State Street
Boston, MA 02109    
USA        
For the attention of:    Stephen T. Gannon, Esq., General Counsel
            
14.3.
In proving such service it shall be sufficient to prove that the envelope containing such notice was addressed to the address of the relevant party set out in Clause 14.2 (or as otherwise notified by that party under this Agreement) and delivered either to that address, into the custody of the postal authorities as a registered airmail letter or into the custody of a reputable courier for overnight delivery, or that the notice was transmitted by email to the email address of the relevant party set out in Clause 14.2 (or as otherwise notified by that party of the relevant party).
15.
AMENDMENT
15.1.
This Agreement may not be amended except by an instrument in writing executed by duly authorised representatives of both parties.
16.
ENTIRE AGREEMENT
16.1.
The parties acknowledge that this Agreement together with the Schedules constitutes the entire agreement between the parties in respect of the matters contemplated herein, and supersedes and replaces all prior agreements, representations and understandings and discussions between them, including the Previous Licence Agreements, which are hereby terminated. The parties confirm that they have not entered into this Agreement on the basis of any representation that is not expressly included in or incorporated into this Agreement.
16.2.
Without limiting the generality of the foregoing, neither party shall have any remedy in respect of any untrue statement made to it upon which it may have relied in entering into this Agreement, and a party’s only remedy is for breach of contract. Notwithstanding the foregoing, nothing in this Agreement purports to exclude liability for any fraudulent misrepresentation, statement or act.


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17.
SEVERABILITY
17.1.
If any provision of this Agreement is determined to be illegal and unenforceable by any court of law or any competent governmental or other authority, the remaining provisions shall be severable and enforceable in accordance with their terms so long as this Agreement without such terms or provisions does not fail of its essential purpose or purposes. The parties shall negotiate in good faith to replace any such illegal or unenforceable provision or provisions with suitable provisions which shall maintain the economic purposes and intentions of this Agreement.
18.
NO PARTNERSHIP, JOINT VENTURE OR AGENCY
18.1.
Nothing contained in this Agreement shall be deemed to constitute or imply any partnership, joint venture, agency, fiduciary relationship or other relationship between the parties other than the contractual relationship expressly provided for in this Agreement.
19.
ASSIGNMENT
19.1.
This Agreement is personal to the Licensee. The Licensee shall not assign, transfer, charge, deal, sub-contract, sub-licence (except as set forth in Clause 3.3) or in any other manner make over to any third party the benefit and/or the burden of this Agreement, or purport to do any of the same, without the prior written consent of the Licensor.
20.
WAIVER
20.1.
A failure or delay of either party to enforce any of the provisions of this Agreement shall not operate as a waiver of such provision and shall not preclude or prejudice such party from later enforcing the same or any other provisions of this Agreement.
21.
CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
21.1.
Nothing in this Agreement or any other document referred to in this Agreement shall create any rights or confer any benefit on any third party under the Contracts (Rights of Third Parties) Act 1999 (the “1999 Act”). For the avoidance of doubt, the Licensor and the Licensee are entitled to vary, amend, rescind or terminate any of the provisions of this Agreement (in accordance with its terms) without notifying or seeking the consent of any third party and the rights of the 1999 Act are hereby excluded.


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22.
COUNTERPARTS
22.1.
This Agreement may be executed in any number of counterparts each of which when executed and delivered shall be deemed to be an original and all of which counterparts when taken together shall be deemed to constitute one and the same instrument.
23.
GOVERNING LAW AND JURISDICTION
23.1.
The construction, validity and performance of this Agreement shall be governed in all respects by the laws of England and Wales and all disputes arising in any way out of or affecting this Agreement shall be subject to the non-exclusive jurisdiction of the English Courts to which the parties agree to submit, save in respect of those issues relating to the validity or enforcement of any of the Licensor’s Trade Marks or the Composite Trade Marks which shall be governed by the law of the country of registration (if any) of those rights.



AS WITNESS the hands of the parties hereto or their duly authorised representatives on the date first above written:

For and on behalf of
THE ROYAL BANK OF SCOTLAND GROUP PLC

By
/s/ Ewen Stevenson
…………………………………………… Authorised Attorney
Ewen James Stevenson
…………………………………………… Full Name
Chief Financial Officer
…………………………………………… Position

For and on behalf of
CITIZENS FINANCIAL GROUP INC.

By
/s/ Bruce Van Saun
…………………………………………… Authorised Signatory
Bruce Van Saun
…………………………………………… Full Name


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Chairman and Chief Executive Officer
…………………………………………… Position



1
EXECUTION VERSION


REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of September 29, 2014 (this “ Agreement ”), is by and between Citizens Financial Group, Inc., a Delaware corporation (the “ Company ”), and The Royal Bank of Scotland Group plc, a public limited company organized under the laws of Scotland (Company Number SC045551) (“ RBSG ”).
W I T N E S S E T H:
WHEREAS, the Company is currently contemplating an underwritten initial public offering (“ IPO ”) of shares of its Common Stock (as defined below); and
WHEREAS, the Company desires to grant registration rights to RBSG on the terms and conditions set out in this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree as follows:
Article 1
DEFINITIONS
Section 1.01.      Defined Terms . As used in this Agreement, the following terms shall have the following meanings:
“ Action ” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any federal, state, local, foreign or international arbitration or mediation tribunal.
“ Affiliate ” of any Person means a Person that controls, is controlled by, or is under common control with such Person; provided , however , that, for purposes of this Agreement, the Company and its Subsidiaries shall not be considered to be “ Affiliates ” of RBSG and its Subsidiaries (other than the Company and its Subsidiaries), and RBSG and its Subsidiaries (other than the Company and its Subsidiaries) shall not be considered to be “ Affiliates ” of the Company or its Subsidiaries. As used herein, “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.
“ Agreement ” has the meaning set forth in the preamble to this Agreement.
“ Business Day ” means any day other than a Saturday, Sunday or a day on which banking institutions are authorized or obligated by law to be closed in New York, New York or London, United Kingdom.
“ Common Stock ” shall mean the shares of common stock, $0.01 par value per share, of the Company.

    

“ Company Notice ” has the meaning set forth in Section 2.01(a).
“ Company Takedown Notice ” has the meaning set forth in Section 2.01(f).
“ Demand Registration ” has the meaning set forth in Section 2.01(a).
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“ Governmental Authority ” means any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.
“ Holder ” shall mean RBSG or any of its Subsidiaries, so long as such Person holds any Registrable Securities, and any Person owning Registrable Securities who is a permitted transferee of rights under Section 3.03.
“ Initiating Holder ” has the meaning set forth in Section 2.01(a).
“ IPO ” has the meaning set forth in the recitals to this Agreement.
“ Loss ” or “ Losses ” has the meaning set forth in Section 2.08(a).
“ Person ” means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority,
“ Piggyback Registration ” has the meaning set forth in Section 2.02(a).
“ Prospectus ” means the prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including post-effective amendments, and all other material incorporated by reference in such prospectus.
“ RBSG ” has the meaning set forth in the preamble to this Agreement and shall include its successors, by merger, acquisition, reorganization or otherwise.
“ Registrable Securities ” means any Shares and any securities issued or issuable directly or indirectly with respect to, in exchange for, upon the conversion of or in replacement of the Shares, whether by way of a dividend or distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, exchange or other reorganization; provided that any such Shares shall cease to be Registrable Securities if (i) they have been registered and sold pursuant to an effective Registration Statement, (ii) they have been transferred by a Holder in a transaction in which the Holder’s rights under this Agreement are not, or cannot be, assigned, (iii) they

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may be sold pursuant to Rule 144 under the Securities Act without limitation thereunder on volume or manner of sale, or (iv) they have ceased to be outstanding.
“ Registration ” means a registration with the SEC of the offer and sale to the public of Common Stock under a Registration Statement. The terms “ Register, ” “ Registered ” and “ Registering ” shall have a correlative meaning.
“ Registration Expenses ” shall mean all expenses incident to the Company’s performance of or compliance with this Agreement, including all (i) registration, qualification and filing fees; (ii) expenses incurred in connection with the preparation, printing and filing under the Securities Act of the Registration Statement, any Prospectus and any issuer free writing prospectus and the distribution thereof; (iii) the fees and expenses of the Company’s counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the state or foreign securities or blue sky laws and the preparation, printing and distribution of a World Sky Memorandum (including the related fees and expenses of counsel); (v) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of an offering by, Financial Industry Regulatory Authority, Inc.; (vii) expenses incurred in connection with any “ road show ” presentation to potential investors; (viii) printing expenses, messenger, telephone and delivery expenses; (ix) internal expenses of the Company (including all salaries and expenses of employees of the Company performing legal or accounting duties); and (x) fees and expenses of listing any Registrable Securities on any securities exchange on which shares of Common Stock are then listed; but excluding any Selling Expenses.
“ Registration Period ” has the meaning set forth in Section 2.01(c).
“ Registration Rights ” shall mean the rights of the Holders to cause the Company to Register Registrable Securities pursuant to this Agreement.
“ Registration Statement ” means any registration statement of the Company filed with, or to be filed with, the SEC under the rules and regulations promulgated under the Securities Act, including the related Prospectus, amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.
“ SEC ” has the meaning set forth in the recitals to this Agreement.
“ Securities Act ” means the U.S. Securities Act of 1933, as amended.
“ Selling Expenses ” means all underwriting discounts, selling commissions and transfer taxes applicable to the sale of Registrable Securities hereunder.

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“ Shares ” means all shares of Common Stock that are beneficially owned by RBSG or any of its Subsidiaries or any permitted transferee of rights under Section 3.03 from time to time, whether or not held immediately following the IPO.
“ Shelf Registration ” means a Registration Statement of the Company for an offering to be made on a delayed or continuous basis of Common Stock pursuant to Rule 415 under the Securities Act (or similar provisions then in effect).
“ Subsidiary ” means, when used with respect to any Person, (a) a corporation in which such Person or one or more Subsidiaries of such Person, directly or indirectly, owns capital stock having a majority of the total voting power in the election of directors of all outstanding shares of all classes and series of capital stock of such corporation entitled generally to vote in such election; and (b) any other Person (other than a corporation) in which such Person or one or more Subsidiaries of such Person, directly or indirectly, has (i) a majority ownership interest or (ii) the power to elect or direct the election of a majority of the members of the governing body of such first-named Person.
“ Takedown Notice ” has the meaning set forth in Section 2.01(f).
“ Underwritten Offering ” means a Registration in which securities of the Company are sold to an underwriter or underwriters on a firm commitment basis for reoffering to the public.
Section 1.02.      General Interpretive Principles . Whenever used in this Agreement, except as otherwise expressly provided or unless the context otherwise requires, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders. Whenever the words “ include ,” “ includes ” or “ including ” are used in this Agreement, they shall be deemed to be followed by the words “ without limitation .” Unless otherwise specified, the terms “ hereof ,” “ herein ,” “ hereunder ” and similar terms refer to this Agreement as a whole (including the exhibits hereto), and references herein to Articles and Sections refer to Articles and Sections of this Agreement. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided , however , that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be performed or given timely if performed or given on the next succeeding Business Day. References to a Person are also to its permitted successors and assigns. The parties have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
ARTICLE 2     
REGISTRATION RIGHTS
Section 2.01.      Registration .

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(a)      Request . Any Holder(s) of Registrable Securities (collectively, the “ Initiating Holder ”) shall have the right to request that the Company file a Registration Statement with the SEC on the appropriate registration form for all or part of the Registrable Securities held by such Holder once such Registrable Securities are no longer subject to the underwriter lock-up applicable to the IPO (which may be due to the expiration or waiver of such lock-up with respect to such Registrable Securities) by delivering a written request to the Company specifying the kind and number of shares of Registrable Securities such Holder wishes to Register and the intended method of distribution thereof (a “ Demand Registration ”). The Company shall (i)   within 10 Business Days of the receipt of such request, give written notice of such Demand Registration to all Holders of Registrable Securities (the “ Company Notice ”), (ii)   use its reasonable best efforts to file a Registration Statement in respect of such Demand Registration within 45 days of receipt of the request, and (iii)   use its reasonable best efforts to cause such Registration Statement to become effective as soon as reasonably practicable thereafter. The Company shall include in such Registration all Registrable Securities that the Holders request to be included within the 10 Business Days following their receipt of the Company Notice.
(b)      Limitations of Demand Registrations . There shall be no limitation on the number of Demand Registrations pursuant to Section 2.01(a); provided , however , that the Holders may not require the Company to effect more than six Demand Registrations in a 12-month period. In the event that any Person shall have received rights to Demand Registrations pursuant to Section 3.03, and such Person shall have made a Demand Registration request, such request shall be treated as having been made by the Holder(s). The Registrable Securities requested to be Registered pursuant to Section 2.01(a) must represent (i) an aggregate offering price of Registrable Securities that is reasonably be expected to equal at least $150,000,000 or (ii) all of the remaining Registrable Securities owned by the requesting Holder and its Affiliates.
(c)      Effective Registration . The Company shall be deemed to have effected a Registration for purposes of Section 2.01(b) if the Registration Statement is declared effective by the SEC or becomes effective upon filing with the SEC, and remains effective until the earlier of (i)   the date when all Registrable Securities thereunder have been sold and (ii)   40 days from the effective date of the Registration Statement (the “ Registration Period ”). No Registration shall be deemed to have been effective if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such Registration are not satisfied by reason of the Company. If, during the Registration Period, such Registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority, the Registration Period shall be extended on a day-for-day basis for any period the Holder is unable to complete an offering as a result of such stop order, injunction or other order or requirement of the SEC or other Governmental Authority.
(d)      Underwritten Offering . If the Initiating Holder so indicates at the time of its request pursuant to Section 2.01(a), such offering of Registrable Securities shall be in the

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form of an Underwritten Offering and the Company shall include such information in the Company Notice. In the event that the Initiating Holder intends to distribute the Registrable Securities by means of an Underwritten Offering, no Holder may include Registrable Securities in such Registration unless such Holder, subject to the limitations set forth in Section 2.06, (i) agrees to sell its Registrable Securities on the basis provided in the applicable underwriting arrangements; (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and (iii) cooperates with the Company’s reasonable requests in connection with such Registration (it being understood that the Company’s failure to perform its obligations hereunder, which failure is caused by such Holder’s failure to cooperate, will not constitute a breach by the Company of this Agreement).
(e)      Priority of Securities in an Underwritten Offering . If the managing underwriter or underwriters of a proposed Underwritten Offering, including an Underwritten Offering from a Shelf Registration, pursuant to this Section 2.01 informs the Company and the Holders with Registrable Securities in the proposed Underwritten Offering in writing that, in its or their opinion, the number of securities requested to be included in such Underwritten Offering exceeds the number that can be sold in such Underwritten Offering without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, then the number of securities to be included in such Underwritten Offering shall be reduced in the following order of priority: first , there shall be excluded from the Underwritten Offering any securities to be sold for the account of any selling securityholder other than the Holders; second , there shall be excluded from the Underwritten Offering any securities to be sold for the account of the Company; third , there shall be excluded from the Underwritten Offering any securities to be sold for the account of Holders other than RBSG and its Subsidiaries that have been requested to be included therein pro rata based on the number of Registrable Securities owned by each such Holder; and finally , the number of Registrable Securities of RBSG and its Subsidiaries shall be reduced, in each case to the extent necessary to reduce the total number of securities to be included in such offering to the number recommended by the managing underwriter or underwriters.
(f)      Shelf Registration . At any time after the date hereof when the Company is eligible to Register the applicable Registrable Securities on Form S-3 (or a successor form) and the Holder may request Demand Registrations, the requesting Holders may request the Company to effect a Demand Registration as a Shelf Registration. There shall be no limitations on the number of Underwritten Offerings pursuant to a Shelf Registration; provided , however , that the Holders may not require the Company to effect more than six Underwritten Offerings in a 12-month period. Any Holder of Registrable Securities included on a Shelf Registration shall have the right to request that the Company cooperate in a shelf takedown at any time, including an Underwritten Offering, by delivering a written request thereof to the Company specifying the kind and number of shares of Registrable Securities such Holder wishes to include in the shelf takedown

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(“ Takedown Notice ”). The Company shall (i)   within 5 Business Days of the receipt of a Takedown Notice for an Underwritten Offering, give written notice of such Takedown Notice to all Holders of Registrable Securities included on such Shelf Registration (the “ Company Takedown Notice ”), and (ii)   shall take all actions reasonably requested by such Holder, including the filing of a Prospectus supplement and the other actions described in Section 2.04, in accordance with the intended method of distribution set forth in the Takedown Notice as expeditiously as practicable. If the takedown is an Underwritten Offering, the Company shall include in such Underwritten Offering all Registrable Securities that that the Holders request to be included within the 5 days following their receipt of the Company Takedown Notice. If the takedown is an Underwritten Offering, the Registrable Securities requested to be included in a shelf takedown must represent (i) an aggregate offering price of Registrable Securities that is reasonably be expected to equal at least $50,000,000 or (ii) all of the remaining Registrable Securities owned by the requesting Holder and its Affiliates.
(g)      SEC Form . Except as set forth in the next sentence, the Company shall use its reasonable best efforts to cause Demand Registrations to be Registered on Form S-3 (or any successor form), and if the Company is not then eligible under the Securities Act to use Form S-3, Demand Registrations shall be Registered on Form S-1 (or any successor form). The Company shall use its reasonable best efforts to become eligible to use Form S-3 and, after becoming eligible to use Form S-3, shall use its reasonable best efforts to remain so eligible. All Demand Registrations shall comply with applicable requirements of the Securities Act and, together with each Prospectus included, filed or otherwise furnished by the Company in connection therewith, shall not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
Section 2.02.      Piggyback Registrations .
(a)      Participation . If the Company proposes to file a Registration Statement under the Securities Act with respect to any offering of Common Stock for its own account and/or for the account of any other Persons (other than a Registration (i)   under Section 2.01 hereof, (ii)   pursuant to a Registration Statement on Form S-8 (or other registration solely relating to an offering or sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit arrangement) or Form S-4 or similar form that relates to a transaction subject to Rule 145 under the Securities Act, (iii)   pursuant to any form that does not include substantially the same information as would be required to be included in a Registration Statement covering the sale of Registrable Securities, (iv)   in connection with any dividend reinvestment or similar plan or (v)   for the sole purpose of offering securities to another entity or its security holders in connection with the acquisition of assets or securities of such entity or any similar transaction), then, as soon as practicable (but in no event less than 15 days prior to the proposed date of filing such Registration Statement), the Company shall give written notice of such proposed filing to each Holder, and such notice shall offer such Holders the opportunity to Register under such Registration Statement such number of Re

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gistrable Securities as each such Holder may request in writing (a “ Piggyback Registration ”). Subject to Section 2.02(a) and Section 2.02(c), the Company shall include in such Registration Statement all such Registrable Securities that are requested to be included therein within 12 days after the receipt of any such notice; provided , however , that if, at any time after giving written notice of its intention to Register any securities pursuant to this Section 2.01(a) and prior to the effective date of the Registration Statement filed in connection with such Registration, the Company shall determine for any reason not to Register or to delay Registration of such securities, the Company may, at its election, give written notice of such determination to each such Holder and, thereupon, (i) in the case of a determination not to Register, shall be relieved of its obligation to Register any Registrable Securities in connection with such Registration and shall have no liability to any Holder in connection with such termination, without prejudice, however, to the rights of any Holder to request that such Registration be effected as a Demand Registration under Section 2.01, and (ii) in the case of a determination to delay Registration, shall be permitted to delay Registering any Registrable Securities for the same period as the delay in Registering such other shares of Common Stock. No Registration effected under this Section 2.02 shall relieve the Company of its obligation to effect any Demand Registration under Section 2.01. If the offering pursuant to a Registration Statement pursuant to this Section 2.02 is to be an Underwritten Offering, then each Holder making a request for a Piggyback Registration pursuant to this Section 2.02(a) shall, and the Company shall use reasonable best efforts to coordinate arrangements with the underwriters so that each such Holder may, participate in such Underwritten Offering. If the offering pursuant to such Registration Statement is to be on any other basis, then each Holder making a request for a Piggyback Registration pursuant to this Section 2.02(a) shall, and the Company shall use reasonable best efforts to coordinate arrangements so that each such Holder may, participate in such offering on such basis. If the Company files a Shelf Registration for its own account and/or for the account of any other Persons, the Company agrees that it shall use its reasonable best efforts to include in such Registration Statement such disclosures as may be required by Rule 430B under the Securities Act in order to ensure that the Holders may be added to such Shelf Registration at a later time through the filing of a Prospectus supplement rather than a post-effective amendment.
(b)      Right to Withdraw . Each Holder shall have the right to withdraw such Holder’s request for inclusion of its Registrable Securities in any Underwritten Offering pursuant to this Section 2.02 at any time prior to the execution of an underwriting agreement with respect thereto by giving written notice to the Company of such Holder’s request to withdraw and, subject to the preceding clause, each Holder shall be permitted to withdraw all or part of such Holder’s Registrable Securities from a Piggyback Registration at any time prior to the effective date thereof.
(c)      Priority of Piggyback Registration . If the managing underwriter or underwriters of any proposed Underwritten Offering of a class of Registrable Securities included in a Piggyback Registration informs the Company and the Holders in writing that, in its or their opinion, the number of securities of such class which such Holder and

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any other Persons intend to include in such Underwritten Offering exceeds the number which can be sold in such Underwritten Offering without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, then the securities to be included in such Underwritten Offering shall be reduced in the following order of priority: first , there shall be excluded from the Underwritten Offering any securities to be sold for the account of any selling securityholder other than the Holders; second , there shall be excluded from the Underwritten Offering any securities to be sold for the account of the Company; third , there shall be excluded from the Underwritten Offering any securities to be sold for the account of Holders other than RBSG and its Subsidiaries that have been requested to be included therein pro rata based on the number of Registrable Securities owned by each such Holder; and finally , the number of Registrable Securities of RBSG and its Subsidiaries shall be reduced, in each case to the extent necessary to reduce the total number of securities to be included in such offering to the number recommended by the managing underwriter or underwriters.
Section 2.03.      Selection of Underwriter(s) . In any Underwritten Offering pursuant to Section 2.01 or Section 2.02 in which a Holder is participating, RBSG, in the event RBSG is participating, or the Holders of a majority of the outstanding Registrable Securities being included in the Underwritten Offering (the “ Majority Holders ”), in the event RBSG is not participating, shall select the underwriter(s). RBSG or the Majority Holders shall consult with the Company in the selection of such underwriters by RBSG or such Majority Holders, provided that RBSG or such Majority Holders, as applicable, shall be under no obligation to the Company as a result of or in connection with such consultation.
Section 2.04.      Registration Procedures .
(a)      In connection with the Registration and/or sale of Registrable Securities pursuant to this Agreement, through an Underwritten Offering or otherwise, the Company shall use reasonable best efforts to effect or cause the Registration and the sale of such Registrable Securities in accordance with the intended methods of disposition thereof and:
(i)      prepare and file the required Registration Statement, including all exhibits and financial statements required under the Securities Act to be filed therewith, and before filing with the SEC a Registration Statement or Prospectus, or any amendments or supplements thereto, (A) furnish to the underwriters, if any, and to the Holders participating in such Registration, copies of all documents prepared to be filed, which documents will be subject to the review of such underwriters and such participating Holders and their respective counsel, and (B) consider in good faith any comments of the underwriters and Holders and their respective counsel on such documents;
(ii)      prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as

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may be necessary to keep such Registration Statement effective in accordance with the terms of this Agreement and to comply with the provisions of the Securities Act with respect to the disposition of all of the Shares Registered thereon;
(iii)      in the case of a Shelf Registration, prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Shares subject thereto for a period ending on the 3 rd anniversary after the effective date of such Registration Statement;
(iv)      notify the participating Holders and the managing underwriter or underwriters, if any, and (if requested) confirm such advice in writing and provide copies of the relevant documents, as soon as reasonably practicable after notice thereof is received by the Company (A) when the applicable Registration Statement or any amendment thereto has been filed or becomes effective, or when the applicable Prospectus or any amendment or supplement to such Prospectus has been filed, (B) of any written comments by the SEC or any request by the SEC or any other Governmental Authority for amendments or supplements to such Registration Statement or such Prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or any order preventing or suspending the use of any preliminary or final Prospectus or the initiation or threatening of any proceedings for such purposes, (D)  if, at any time, the representations and warranties of the Company in any applicable underwriting agreement cease to be true and correct in all material respects, and (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;
(v)      promptly notify each selling Holder and the managing underwriter or underwriters, if any, when the Company becomes aware of the occurrence of any event as a result of which the applicable Registration Statement or the Prospectus included in such Registration Statement (as then in effect) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein (in the case of such Prospectus and any preliminary Prospectus, in light of the circumstances under which they were made) not misleading or, if for any other reason it shall be necessary during such time period to amend or supplement such Registration Statement or Prospectus in order to comply with the Securities Act and, in either case as promptly as reasonably practicable thereafter, prepare and file with the SEC, and furnish without charge to the selling Holder and the managing underwriter or underwriters, if any, an amendment or supplement to such Registration Statement

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or Prospectus which will correct such statement or omission or effect such compliance;
(vi)      use its reasonable best efforts to prevent or obtain the withdrawal of any stop order or other order suspending the use of any preliminary or final Prospectus;
(vii)      promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and the Holders may reasonably request to be included therein in order to permit the intended method of distribution of the Registrable Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as reasonably practicable after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment;
(viii)      furnish to each selling Holder and each underwriter, if any, without charge, as many conformed copies as such Holder or underwriter may reasonably request of the applicable Registration Statement and any amendment or post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);
(ix)      deliver to each selling Holder and each underwriter, if any, without charge, as many copies of the applicable Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Holder or underwriter may reasonably request (it being understood that the Company consents to the use of such Prospectus or any amendment or supplement thereto by each selling Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto) and such other documents as such selling Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter;
(x)      on or prior to the date on which the applicable Registration Statement is declared effective or becomes effective, use its reasonable best efforts to register or qualify, and cooperate with each selling Holder, the managing underwriter or underwriters, if any, and their respective counsel, in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or “World Sky” laws of each state and other jurisdiction of the United States as any selling Holder or managing underwriter or underwriters, if any, or their respective counsel reasonably request in writing and do any and all other acts or things reasonably necessary or advisable to keep such registration or qualification in effect for so long as such Registration Statement remains in effect and so as to permit the continuance of sales and dealings in such jurisdictions of the United States for so long as may be necessary to complete the distribution of the Registrable Securities covered by the Registration Statement;

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provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to taxation or general service of process in any such jurisdiction where it is not then so subject;
(xi)      in connection with any sale of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with each selling Holder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive Securities Act legends; and to register such Registrable Securities in such denominations and such names as such selling Holder or the underwriter(s), if any, may request at least two Business Days prior to such sale of Registrable Securities; provided that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System;
(xii)      cooperate and assist in any filings required to be made with the Financial Industry Regulatory Authority and each securities exchange, if any, on which any of the Company’s securities are then listed or quoted and on each inter-dealer quotation system on which any of the Company’s securities are then quoted, and in the performance of any due diligence investigation by any underwriter (including any “qualified independent underwriter”) that is required to be retained in accordance with the rules and regulations of each such exchange, and use its reasonable best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities;
(xiii)      not later than the effective date of the applicable Registration Statement, provide a CUSIP number for all Registrable Securities and provide the applicable transfer agent with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company; provided that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System;
(xiv)      in the case of an Underwritten Offering, obtain for delivery to and addressed to RBSG, if RBSG is participating, and the underwriter or underwriters, an opinion from the Company’s outside counsel in customary form and content for the type of Underwritten Offering, dated the date of the closing under the underwriting agreement;
(xv)      in the case of an Underwritten Offering, obtain for delivery to and addressed to the underwriter or underwriters and, to the extent agreed by

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the Company’s independent certified public accountants, each selling Holder, a comfort letter from the Company’s independent certified public accountants in customary form and content for the type of Underwritten Offering, dated the date of execution of the underwriting agreement and brought down to the closing under the underwriting agreement;
(xvi)      use its reasonable best efforts to comply with all applicable rules and regulations of the SEC and make generally available to its security holders, as soon as reasonably practicable, but no later than 90 days after the end of the 12-month period beginning with the first day of the Company’s first quarter commencing after the effective date of the applicable Registration Statement, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder and covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the Registration Statement;
(xvii)      provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by the applicable Registration Statement from and after a date not later than the effective date of such Registration Statement;
(xviii)      cause all Registrable Securities covered by the applicable Registration Statement to be listed on each securities exchange on which any of the Company’s securities are then listed or quoted and on each inter-dealer quotation system on which any of the Company’s securities are then quoted;
(xix)      provide (A) each Holder participating in the Registration, (B) the underwriters (which term, for purposes of this Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, of the Registrable Securities to be Registered, (C) the sale or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) any attorney, accountant or other agent or representative retained by such Holder or any such underwriter, as selected by such Holder, the opportunity to participate in the preparation of such Registration Statement, each Prospectus included therein or filed with the SEC, and each amendment or supplement thereto, and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such Holder(s) and their counsel should be included; and for a reasonable period prior to the filing of such Registration Statement, make available upon reasonable notice at reasonable times and for reasonable periods for inspection by the parties referred to in (A) through (E) above, all pertinent financial and other records, pertinent corporate documents and properties of the Company that are available to the Company, and cause all of the Company’s officers, directors and employees and the independent public accountants who have certified its financial statements to make themselves available at reasonable times and for reasonable periods, to discuss the business of

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the Company and to supply all information available to the Company reasonably requested by any such Person in connection with such Registration Statement as shall be necessary to enable them to exercise their due diligence responsibility, subject to the foregoing, provided that any such Person gaining access to information or personnel pursuant to this Section 2.4(a)(xix) shall agree to use reasonable efforts to protect the confidentiality of any information regarding the Company which the Company determines in good faith to be confidential, and of which determination such Person is notified, unless (A) the release of such information is required by law or regulation or is requested or required by deposition, interrogatory, requests for information or documents by a governmental entity, subpoena or similar process, (B) such information is or becomes publicly known without a breach of this Agreement, (C) such information is or becomes available to such Person on a non-confidential basis from a source other than the Company or (D) such information is independently developed by such Person;
(xx)      to cause the executive officers of the Company to participate in the customary “road show” presentations that may be reasonably requested by the managing underwriter or underwriters in any Underwritten Offering and otherwise to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto; and
(xxi)      take all other customary steps reasonably necessary to effect the Registration, offering and sale of the Registrable Securities.
(b)      As a condition precedent to any Registration hereunder, the Company may require each Holder as to which any Registration is being effected to furnish to the Company such information regarding the distribution of such securities and such other information relating to such Holder, its ownership of Registrable Securities and other matters as the Company may from time to time reasonably request in writing. Each such Holder agrees to furnish such information to the Company and to cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.
(c)      RBSG agrees, and any other Holder agrees by acquisition of such Registrable Securities, that, upon receipt of any written notice from the Company of the occurrence of any event of the kind described in Section 2.04(a)(v), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to such Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 2.04(a)(v), or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and if so directed by the Company, such Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such

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notice. In the event the Company shall give any such notice, the period during which the applicable Registration Statement for a Demand Registration is required to be maintained effective shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies of the supplemented or amended Prospectus contemplated by Section 2.04(a)(v) or is advised in writing by the Company that the use of the Prospectus may be resumed.
Section 2.05.      Holdback Agreements . Each of the Company and the Holders agrees, upon notice from the managing underwriter or underwriters in connection with any Registration for an Underwritten Offering of the Company’s securities (other than pursuant to a registration statement on Form S-4 or any similar or successor form or pursuant to a registration solely relating to an offering and sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit plan arrangement), not to effect (other than pursuant to such Registration) any public sale or distribution of Registrable Securities, including, but not limited to, any sale pursuant to Rule 144, or make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any Registrable Securities, any other equity securities of the Company or any securities convertible into or exchangeable or exercisable for any equity securities of the Company without the prior written consent of the managing underwriters during such period as reasonably requested by the managing underwriters (but in no event longer than the seven days before and the 90 days after the pricing of such Underwritten Offering); provided , that such restrictions shall not apply in any circumstance to (i) Registrable Securities acquired by a Holder in the public market subsequent to the IPO, (ii) distributions-in-kind to a Holder’s limited or other partners, members, shareholders or other equity holders, (iii) Registrable Securities with regard to which RBSG has beneficial ownership pursuant to an investment advisory arrangement under which RBSG provides investment advisory services to a non-related third party in connection with such Registrable Securities and does not derive a benefit from such Registrable Securities other than customary advisory or similar fees. Notwithstanding the foregoing, no holdback agreements of the type contemplated by this Section 2.05 shall be required of Holders unless each of the Company’s directors and executive officers agrees to be bound by a substantially identical holdback agreement for at least the same period of time.
Section 2.06.      Underwriting Agreement in Underwritten Offerings . If requested by the managing underwriters for any Underwritten Offering, the Company and the participating Holders shall enter into an underwriting agreement in customary form with such underwriters for such offering; provided , however , that no Holder shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding (i) such Holder’s ownership of Registrable Securities to be transferred free and clear of all liens, claims and encumbrances created by such Holder, (ii) such Holder’s power and authority to effect such transfer, (iii) such matters pertaining to such Holder’s compliance with securities laws as reasonably may be requested and (iv) such Holder’s intended method of distribution) or to undertake any

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indemnification obligations to the Company with respect thereto, except as otherwise provided in Section 2.08 hereof.
Section 2.07.      Registration Expenses Paid By Company . In the case of any Registration of Registrable Securities required pursuant to this Agreement (including any Registration that is delayed or withdrawn) or proposed Underwritten Offering pursuant to this Agreement, the Company shall pay all Registration Expenses regardless of whether the Registration Statement becomes effective or the Underwritten Offering is completed. The Company shall have no obligation to pay any Selling Expenses.
Section 2.08.      Indemnification.
(a)      Indemnification by the Company . The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder and such Holder’s officers, directors, employees, advisors, Affiliates and agents and each Person who controls (within the meaning of the Securities Act or the Exchange Act) such Holder from and against any and all losses, claims, damages, liabilities (or actions in respect thereof, whether or not such indemnified party is a party thereto) and expenses, joint or several (including reasonable costs of investigation and legal expenses) (each, a “ Loss ” and collectively “ Losses ”) arising out of or based upon (i)   any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was Registered under the Securities Act (including any final or preliminary Prospectus contained therein or any amendment thereof or supplement thereto or any documents incorporated by reference therein), or any such statement made in any free writing prospectus (as defined in Rule 405 under the Securities Act) that the Company has filed or is required to file pursuant to Rule 433(d) of the Securities Act, or (ii)   any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or free writing prospectus, in light of the circumstances under which they were made) not misleading; provided , however , that the Company shall not be liable to any particular indemnified party in any such case to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such Registration Statement in reliance upon and in conformity with written information furnished to the Company by such indemnified party expressly for use in the preparation thereof. This indemnity shall be in addition to any liability the Company may otherwise have. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any indemnified party and shall survive the transfer of such securities by such Holder.
(b)      Indemnification by the Selling Holder . Each selling Holder agrees (severally and not jointly) to indemnify and hold harmless, to the full extent permitted by law, the Company and the Company’s directors, officers, employees, advisors, Affiliates and agents and each Person who controls the Company (within the meaning of the Securities Act and the Exchange Act) from and against any Losses arising out of or based upon

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(i)   any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was Registered under the Securities Act (including any final or preliminary Prospectus contained therein or any amendment thereof or supplement thereto or any documents incorporated by reference therein), or any such statement made in any free writing prospectus that the Company has filed or is required to file pursuant to Rule 433(d) of the Securities Act, or (ii)   any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or free writing prospectus, in light of the circumstances under which they were made) not misleading to the extent, but, in each case (i) or (ii), only to the extent, that such untrue statement or omission is contained in any information furnished in writing by such selling Holder to the Company expressly for inclusion in such Registration Statement, Prospectus, preliminary Prospectus or free writing prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder under the sale of the Registrable Securities giving rise to such indemnification obligation. This indemnity shall be in addition to any liability the selling Holder may otherwise have. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any indemnified party.
(c)      Conduct of Indemnification Proceedings . Any Person entitled to indemnification hereunder will (i)   give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification ( provided that any delay or failure to so notify the indemnifying party shall relieve the indemnifying party of its obligations hereunder to the extent that it is materially prejudiced by reason of such delay or failure) and (ii)   permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided , however , that any Person entitled to indemnification hereunder shall have the right to select and employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed in writing to pay such fees or expenses, (b) the indemnifying party shall have failed to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Person entitled to indemnification hereunder or fails to employ counsel reasonably satisfactory to such Person or to pursue the defense of such claim in a reasonably vigorous manner, (c) the named parties to any proceeding include both such indemnified and the indemnifying party and the indemnified party has reasonably concluded (based on written advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, or (d) in the reasonable judgment of any such Person, based upon written advice of its counsel, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any

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liability for any settlement made without its consent, but such consent may not be unreasonably withheld, conditioned or delayed. If the indemnifying party assumes the defense, the indemnifying party shall not have the right to settle such action without the consent of the indemnified party, which consent may not be unreasonably withheld, conditioned or delayed. No indemnifying party shall consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm (in addition to any appropriate local counsel) at any one time from all such indemnified party or parties unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on written advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists or in the reasonable judgment of such Person may exist (based on advice of counsel to an indemnified party) between such indemnified party or parties and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel.
(d)      Contribution . If for any reason the indemnification provided for in Section 2.08(a) or Section 2.08(b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by Section 2.08(a) or Section 2.08(b), then the indemnifying party shall, in lieu of indemnifying such indemnified party thereunder, contribute to the amount paid or payable by the indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions which resulted in such Loss as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. Notwithstanding anything in this Section 2.08(d) to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Section 2.08(d) to contribute any amount in excess of the amount by which the net proceeds received by such indemnifying party from the sale of Registrable Securities in the offering to which the Losses of the indemnified parties relate (before deducting expenses, if any) exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.08(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 2.08(d). No

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person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The amount paid or payable by an indemnified party hereunder shall be deemed to include, for purposes of this Section 2.08(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. If indemnification is available under this Section 2.08, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 2.08(a) and Section 2.08(b) hereof without regard to the relative fault of said indemnifying parties or indemnified party.
Section 2.09.      Reporting Requirements; Rule 144 . The Company shall use its reasonable best efforts to be and remain in compliance with the periodic filing requirements imposed under the SEC’s rules and regulations, including the Exchange Act, and thereafter shall timely file such information, documents and reports as the SEC may require or prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange Act. If the Company is not required to file such reports during such period, it will, upon the request of any Holder, make publicly available such necessary information for so long as necessary to permit sales pursuant to Rule 144 or Regulation S under the Securities Act, and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without Registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 or Regulation S under the Securities Act, as such Rules may be amended from time to time, or (b) any rule or regulation hereafter adopted by the SEC. From and after the date hereof through the date upon which no Holder owns any Registrable Securities, the Company shall forthwith upon request furnish any Holder (i)   a written statement by the Company as to whether it has complied with such requirements and, if not, the specifics thereof, (ii)   a copy of the most recent annual or quarterly report of the Company, and (iii)   such other reports and documents filed by the Company with the SEC as such Holder may reasonably request in availing itself of an exemption for the sale of Registrable Securities without registration under the Securities Act.
ARTICLE 3     
MISCELLANEOUS
Section 3.01.      Term . This Agreement shall terminate upon the earlier of (i) such time as there are no Registrable Securities and (ii) the Final Withdrawal Date (as defined in the Separation Agreement), except for the provisions of Section 2.07 and Section 2.08 and all of this Article 3, which shall survive any such termination.
Section 3.02.      Notices . All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in

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person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:
If to RBSG, to:
The Royal Bank of Scotland Group plc
Business House G, First Floor
RBS Gogarburn
PO Box 1000
Edinburgh EH12 1HQ
Scotland
Attention: Group General Counsel
with a copy to:
General Counsel, Corporate / M&A
chris.campbell@rbs.com
rushad.abadan@rbs.com
If to the Company to:
Citizens Financial Group, Inc.
One Citizens Plaza
Providence, RI 02903
Attention: John J. Fawcett, Chief Financial Officer
with a copy to:
Citizens Financial Group, Inc.
28 State Street, 12th Floor, MS 1225
Boston, MA 02109
Attention: David A. Bright, Senior Vice President and Senior Counsel
Any party may, by notice to the other party, change the address to which such notices are to be given.
Section 3.03.      Successors, Assigns and Transferees . This Agreement and all provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Company may assign this Agreement at any time in connection with a sale or acquisition of the Company, whether by merger, consolidation, sale of all or substantially all of the Company’s assets, or similar transaction, without the consent of the Holders; provided that the successor or acquiring Person agrees in writing to assume all of the Company’s rights and obligations under this Agreement. A Holder may assign its rights and obligations under this Agreement to any transferee that acquires at least 5% of the outstanding shares of Common Stock and executes an agreement to be bound hereby in the form attached

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hereto as Exhibit A , an executed counterpart of which shall be furnished to the Company. Notwithstanding the foregoing, if such transfer is subject to covenants, agreements or other undertakings restricting transferability thereof, the Registration Rights shall not be transferred in connection with such transfer unless such transferee complies with all such covenants, agreements and other undertakings.
Section 3.04.      GOVERNING LAW; NO JURY TRIAL .
(a)      This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof that would result in the application of any law other than the laws of the State of New York. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE.
(b)      With respect to any Action relating to or arising out of this Agreement, each party to this Agreement irrevocably (i) consents and submits to the exclusive jurisdiction of the courts of the State of New York and any court of the United States located in the Borough of Manhattan in New York City; (ii) waives any objection which such party may have at any time to the laying of venue of any Action brought in any such court, waives any claim that such Action has been brought in an inconvenient forum and further waives the right to object, with respect to such Action, that such court does not have jurisdiction over such party; and (iii) consents to the service of process at the address set forth for notices in Section 3.02 herein; provided , however , that such manner of service of process shall not preclude the service of process in any other manner permitted under applicable law.
Section 3.05.      Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are or are to be thereby aggrieved shall have the right to seek specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.
Section 3.06.      Headings . The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

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Section 3.07.      Severability . If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties.
Section 3.08.      Amendment; Waiver .
(c)      This Agreement may not be amended or modified and waivers and consents to departures from the provisions hereof may not be given, except by an instrument or instruments in writing making specific reference to this Agreement and signed by the Company and RBSG or, if neither RBSG or any of its Affiliates is a Holder, the Holders of a majority of the Registrable Securities.
(d)      Waiver by any party of any default by the other party of any provision of this Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party.
Section 3.09.      Further Assurances . Each of the parties hereto shall execute and deliver all additional documents, agreements and instruments and shall do any and all acts and things reasonably requested by the other party hereto in connection with the performance of its obligations undertaken in this Agreement.
Section 3.10.      Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Execution of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as, executed by an original signature.
[ The remainder of page intentionally left blank. Signature page follows. ]



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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.
CITIZENS FINANCIAL GROUP, INC.
By:
/s/ John Fawcett

 
Name: John Fawcett
 
Title: Chief Financial Officer


THE ROYAL BANK OF SCOTLAND GROUP PLC
By:
/s/ Ewen Stevenson

 
Name: Ewen Stevenson
 
Title: Chief Financial Officer




    
EXECUTION VERSION

Dated September 29, 2014
RBS BUSINESS SERVICES PRIVATE LTD
and
CITIZENS BANK, N.A.
AMENDED AND RESTATED MASTER SERVICES AGREEMENT





    


AMENDED AND RESTATED MASTER SERVICES AGREEMENT
THIS AMENDED AND RESTATED MASTER SERVICES AGREEMENT (“ MSA ”), dated as of September 29, 2014, is by and between RBS BUSINESS SERVICES PRIVATE LTD , a company incorporated under the laws of India, whose registered office is at Empire Complex, 414 Senapati Bapat Marg, Lower Parel, Mumbai 400 013 India, formerly known as ABN AMRO CENTRAL ENTERPRISE SERVICES PRIVATE LIMITED (“ PROVIDER” ) and whose processing centres are located at Mumbai, Chennai, Gurgaon and New Delhi ; and CITIZENS BANK, N.A a United States national bank with its principal place of business at 1 Citizens Plaza, Providence, Rhode Island 02903, formerly known as RBS Citizens, N.A.. (“ Recipient ”), Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Section 1 hereof.
RECITALS
WHEREAS, The Royal Bank of Scotland Group plc (“ RBSG ”) is the indirect owner of all the issued and outstanding common stock of Citizens Financial Group, Inc. (“ CFG ”) immediately prior to the date hereof;
WHEREAS, shares of CFG are being sold to the public pursuant to the IPO and CFG will cease to be a wholly owned indirect subsidiary of RBSG upon the closing of the IPO;
WHEREAS, after the closing of the IPO, RBSG will remain the majority shareholder of CFG, subject to future sales to the public (and ultimately the contemplated complete disposition by on or before December 31, 2016) by RBSG;
WHEREAS, the Provider is an Affiliate of RBSG and the Recipient is an Affiliate of CFG;
WHEREAS the Provider and the Recipient entered into a Master Services Agreement effective 21 July 2008, amended by a First Amendment Agreement dated 14 July 2009 (together, the “ Original MSA ”) for the provision of Services and the parties entered into service agreement schedules (“ Service Schedules ”) to give effect to the Original MSA and document the Services provided;
WHEREAS, the Parties have agreed with effect from the date hereof to amend and restate the Original MSA on the terms and conditions set out in this MSA;
WHEREAS, the Services will continue to be provided to the Recipient to facilitate its ongoing operations during a transitional period following the IPO;
WHEREAS, the Provider has agreed to continue to procure and provide the Services as specified in the Service Schedules to the Recipient, and the Recipient has agreed to receive and pay for the Services received pursuant to the Service Schedules, subject to the terms of this MSA; and
NOW, THEREFORE, in consideration of the rights and duties set forth herein, and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Provider and the Recipient hereby agree as follows:

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1
Definition and Rules of Construction
1.1
Definitions
For the purposes of this MSA, the following terms shall have the following meanings:
“ Adverse Policy Change ” has the meaning given in Section 2.3.4;
Affiliate ” means, in relation to any Party, its holding companies and direct and indirect subsidiaries and the direct and indirect subsidiaries of such holding companies from time to time; however, for purposes of this MSA the Parties shall not be considered Affiliates of each other. For the avoidance of doubt, in respect of the Provider, Affiliates shall not include the Recipient or its subsidiaries; and, in respect of the Recipient, Affiliates shall not include the Provider or its other subsidiaries and “ Affiliates ” shall be construed accordingly;
“ Anti-Bribery and Corruption Policy ” means each policy that a Party shall put in place to comply with its own anti-bribery and corruption policy and obligations, and with Anti-Corruption Laws;
“ Anti-Corruption Laws ” means any anti-bribery or anti-corruption related provisions in criminal and anti-competition laws and/or anti-bribery or anti-corruption laws of the jurisdiction in which, for the Provider, the Provider provides the Services and, for the Recipient, the Recipient receives the Services, together with any amending, consolidating or successor legislation or case law which has effect from time to time in the relevant jurisdiction;
“ ARD ” has the meaning given in Section 15.1.1;
“ Business Day ” means a day which is not a Saturday, Sunday or a public holiday in New York or Boston;
“ CFG ” means Citizens Financial Group, Inc.;
“ Change ” means any modification, addition or amendment to any Service (including any change to any part of any Service Schedule) including any Mandatory Change or Discretionary Change;
“ Change Control Procedure ” means the procedure set out in Section 10.1.1;
“ Change Control Request ” has the meaning given in Section 10.1.1(i);
“ Charges ” means collectively the fees payable under each Service Schedule for the provision of Services;
“ Competent Authority ” means any local, state, national, supranational, governmental or nongovernmental authority, statutory undertaking, agency or public or regulatory body (including the Prudential Regulation Authority, the Financial Conduct Authority, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau) which has jurisdiction over the Provider (and/or its Affiliates) and/or the Recipient (and/or its Affiliates);
“ Confidential Information ” has the meaning given in Section 13.2.1;

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“ Criticality 1 Incident ” means an incident, disaster or other disruption for which the Service Level time period in which the affected Service must have been restored is specified to be within four hours;
“ Defaulting Party ” has the meaning given to it in Section 6.7.1;
“ Disabling Device ” means any device, method, token, code, program or subprogram that can disable, interfere with or adversely affect all or any part of a Service, a Party’s equipment, and/or their operation, or destroy any of a Party’s data or other software or hardware, or damage, destroy or interfere with a Party’s information technology network or any of a Party’s data or other software or hardware, or permit any person to circumvent the normal security of a Party’s software, systems or networks;
“ Discretionary Change ” means any Change which is not a Mandatory Change or an Emergency;
“ Dispute ” has the meaning given in Section 11.1.1;
“ Emergency ” has the meaning given in Section 10.4.2;
“ Existing Third Party Agreement ” means any Third Party Agreement in force as at the date hereof, as the same may be amended from time to time and any extension, replacement or renewal of such agreement;
“ Force Majeure ” has the meaning given in Section 14.1;
“ Fraud Prevention Policy ” means anti-fraud measures or policies that the Provider shall have in place whenever it possesses, stores, processes or has access to the Recipient’s Personal Data, as listed in Schedule 2;
“ GLB Act ” means the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq;
“ Group ” means, in relation to a Party, that Party and its Affiliates;
“ Indemnitees ” has the meaning given in Section 8.3.1;
“ Intellectual Property Rights ” means (i) copyrights (including copyrights in any software), patents, database rights and rights in trademarks, designs, know-how and confidential information (whether registered or unregistered), (ii) applications for registration, and rights to apply for registration, of any of the foregoing rights and (iii) all other intellectual property rights and equivalent or similar forms of protection existing anywhere in the world;
“ IPO ” means the initial public offering of CFG’s shares;
“ IS Requirements ” means the information security policies that the Provider shall have in place whenever it possesses, stores, processes or has access to the Recipient’s Confidential Information (inclusive of Personal Data) as listed in Schedule 2;
“ Losses ” means losses, claims, damages, costs, charges and liabilities (including reasonable legal fees and disbursements) and “ Loss ” shall be construed accordingly;
“ Mandatory Change ” means a Change which is required as a consequence of any change in Regulation on or subsequent to the date hereof in order for (i) the Recipient to receive Services or to perform Recipient Dependencies and/or (ii) the Provider to provide (or procure the provision

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of), Services or to perform any of its other obligations under this MSA, in each case in compliance with Regulation;
“ Migration ” means the migration of Services in whole or part from the personnel and information technology systems or other facilities of the Provider, its Affiliates or Third Party Suppliers to the personnel and information technology systems or other facilities of the Recipient, and/or its Affiliates and/or Successor Providers, provided, however , that Migration does not require or otherwise give rise to an obligation on the part of a Provider, its Affiliates or Third Party Suppliers to grant any Successor Provider access to the Provider Systems;
“ Monthly Charge ” has the meaning given in Section 8.2.1;
“ MSA ” means this amended and restated master services agreement;
“ Non-Defaulting Party ” has the meaning given in Section 6.7.1;
“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury;
“ Original MSA ” means the Master Services Agreement effective 21 July 2008 entered into by the Parties as amended by the First Amendment Agreement dated 14 July 2009;
“ Party ” means the Provider or Recipient;
“ Personal Data ” of a disclosing Party means any data, information and/or records of or pertaining to the disclosing Party’s or an Affiliate’s customers (current, former or prospective) and employees (current, former or prospective) or its customers’ customers (current, former or prospective) or employees (current, former or prospective), including but not limited to names, addresses, telephone numbers, account numbers, account and transaction information and any other “Nonpublic Personal Information” as defined in the GLB Act, relating to such individuals;
“ Policies ” means the policies and procedures listed in Schedule 2 (as may be amended from time to time in accordance with Sections 2.3.3 and 2.3.4), as applicable to the Provider;
“ Provider Data ” means all Confidential Information provided in relation to the Services to the Recipient, any Affiliate of the Recipient, or any Successor Provider, by or on behalf of the Provider or any Affiliate of the Provider or any Third Party Supplier;
“ Provider Systems ” means the information technology systems made available to the Recipient pursuant to this MSA by or on behalf of the Provider, any Affiliate of the Provider or any Third Party Supplier, which are supported and maintained by or on behalf of the Provider, any Affiliate of the Provider or any Third Party Supplier;
“ RBSG ” means The Royal Bank of Scotland Group plc;
“ Recipient Data ” means all Confidential Information:
(i)
including, without limitation, all Personal Data provided in relation to the Services to the Provider, any Affiliate of the Provider or any Third Party Supplier, by or on behalf of the Recipient or any Affiliate of the Recipient; or

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(ii)
generated by the Provider, any Affiliate of the Provider, or any Third Party Supplier in the course of providing the Services,
“ Recipient Dependencies ” means the obligations of the Recipient under this MSA including those expressly identified as Recipient Dependencies in the Service Schedules and any other obligations of the Recipient otherwise set out in the description of the Services in the Service Schedules;
“ Regulation ” means any applicable law, regulation, regulatory constraint, obligation or rule (including any binding code of conduct and binding statement of principle incorporated and contained in such rules) applicable to the existence or operation of this MSA, the Recipient, the Provider, any Affiliate of the Provider, any Affiliate of the Recipient or the provision or receipt of the Services, the performance of any Recipient Dependency or the performance of either Party’s other obligations under this MSA from time to time;
“ Scheduled MSA End Date ” means the earlier of (i) December 31, 2016, and (ii) the first date on which RBSG ceases to beneficially own such number of shares of CFG common stock representing at least 26% of the voting power of all outstanding shares of CFG common stock;
“ Senior Nominees ” means the senior individuals nominated by each Party;
“ Service Level ” means the level of performance set out in the Service Schedules;
“ Service Records ” means complete and accurate records of, and supporting documentation for, all Services provided pursuant to this MSA;
“ Service Schedule ” means any of the Service Schedules in Schedule 1 of this MSA, each of which describes the terms and obligations of the Provider and the Recipient in relation to a particular Service, and any extension or renewal schedule, as agreed by the Parties, which has the effect of extending or amending the Service Schedule Expiry Date in respect of a Service set out in the Service Schedules in Schedule 1;
“ Service Schedule Expiry Date ” means the date of cessation of a Service as specified in a Service Schedule with respect to a Service;
“ Service Term ” means the period of provision of a Service which period commenced on the effective date as set out in the relevant Service Schedule and which shall expire (unless terminated earlier in accordance with this MSA) in accordance with the provisions of Section 6.3;
“ Services ” means the services (or any element of the services) specified in the Service Schedules for that Service and “ Service ” means any one of the Services;
“ Staff ” has the meaning given in Section 15.1.3;
“ Successor Provider ” means the entity or entities (which may include the Recipient or any member of its Group) succeeding the Provider in the provision or operation of services the same as or substantially similar to all or part of the Services;
“ Tax means all taxes, charges, imposts, levies and duties of any kind payable to any governmental, fiscal or taxing authority in the United States, India, United Kingdom or elsewhere in the world. The definition of “tax” includes any penalties, additions, fines or associated interest. The words

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“taxes” and “taxation” and similar expressions shall be interpreted in accordance with this definition;
“ Third Party Agreements ” means any agreements entered into between the Provider (or any of its Affiliates) and any third party for the provision of a service, goods, lease or license relating to, or necessary for, the provision of the Services or performance of any of the Provider’s other obligations under this MSA whether entered into before or after the date of this MSA;
“ Third Party Consent ” means any permission, consent, license, agreement, authorization or “right to use” required, from a third party (whether under a Third Party Agreement or otherwise):
(i)
by the Provider, to the extent necessary to allow the provision of the Services or performance of the Provider’s other obligations under this MSA by the Provider to or for the benefit of the Recipient or receipt of the Services by the Recipient; or
(ii)
by the Recipient, to the extent necessary for the Recipient to receive the benefit of the Services provided by the Provider under this MSA;
“ Third Party Supplier ” means any third party providing a service, goods, lease or license under a Third Party Agreement;
1.2
Rules of Construction
Unless the context otherwise requires or except as otherwise expressly provided the following rules of construction shall apply to this MSA.
1.2.1
Singular, Plural, Gender
References to one gender include all genders and references to the singular include the plural and vice versa.
1.2.2
References to Persons and Companies
References to:
(i)
a person shall include any company, partnership, trust, joint venture, firm, association, unincorporated association, organization, or any government, state or local body or authority (whether or not having separate legal personality); and
(ii)
a company shall include any company, corporation or any body corporate, wherever incorporated.
1.2.3
Schedules, Sections, Appendices, Paragraphs
References to this MSA shall include any Schedules to it and references to Sections and Schedules are to Sections of, and Schedules to, this MSA. References to paragraphs and appendices are to paragraphs and appendices of the Schedules. All Schedules are an integral part of this MSA.

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1.2.4
Headings
The article, Section and paragraph headings contained in this MSA are for reference purposes only and shall not affect in any way the meaning or interpretation of this MSA.
1.2.5
Includes, in writing
The words “ includes ” and “ including ” shall mean “include without limitation” and “including without limitation”, respectively. The words “ in writing ” means any communication made by letter (but not, for avoidance of doubt, electronic mail) and “ written ” shall be interpreted accordingly.
1.2.6
Agreed
References to “ agreed ” mean, in relation to any document, that document in the form agreed and, for the purposes of identification, signed or initialed by or on behalf of each Party by a duly authorized representative, with such alterations as the Parties agree in writing.
1.2.7
Information
References to books, records or other information mean books, records or other information in any form including paper, electronically stored data, magnetic media, film and microfilm.
1.2.8
References to Law
References to a statute or statutory provision include:
(i)
that statute or provision as modified or amended from time to time, whether before or after the date of this MSA; and
(ii)
any subordinate legislation or regulation made from time to time under that statute or statutory provision, including (where applicable) that statute or statutory provision as modified or amended.
1.2.9
Precedence
If there is any conflict, apparent conflict or ambiguity in or between any of sections of this MSA set out below, the sections will be applied in the following order of precedence with the sections higher in the order of precedence prevailing over the Parties:
(i)
the Sections of this MSA;
(ii)
the Schedules to this MSA; and
(iii)
any other document referred to in this MSA.
1.2.10
Interpretation
References to:

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(i)
“ Service Agreement ” or “ SA ” in a Service Schedule shall be construed to mean a Service Schedule; and
(ii)
“ Section 8 ” in a Service Schedule shall be construed to mean Section 4 of     this MSA.
1.2.11
Costs
Any reference to “costs” shall mean costs (including internal costs arising in respect of personnel and other related costs) and expenses (including charges, fees and other amounts payable to third parties).
2
Performance of Services
2.1
Provision of Services and Relief
2.1.1
The Parties agree that with effect from the date hereof, the Original MSA shall be (and shall be deemed and construed to have been) amended and restated and to be in the form of this MSA. The Parties agree that all Services Schedules entered into between the Provider and the Recipient prior to the date hereof shall, from the date hereof, incorporate and shall be bound by the terms and conditions of this MSA.
2.1.2
The Provider shall provide the Services to the Recipient for the relevant Service Term in accordance with the terms of this MSA. The Recipient shall timely pay the Provider for all Services provided in accordance with the terms of this MSA.
2.1.3
Without prejudice to the Mandatory Change provisions set out in Section 10.2, the Provider shall not be in breach of this MSA to the extent that it is unable to provide any of the Services or perform any of its other obligations under this MSA, in each case to the extent that to do so would result in a breach of Regulation so long as, if and to the extent commercially practicable, the Provider has promptly notified the Recipient of such prohibition, has consulted with the Recipient to explain why the Provider reasonably believes such prohibition applies, and has worked together with the Recipient in good faith to either arrange for modification of the relevant Services(s) at issue or a transition of such Service(s) to a Successor Provider. For the avoidance of doubt, the transition of any Service(s) to a Successor Provider pursuant to this Section 2.1.3 terminates the applicable Service(s) and related Service Schedule(s) under this MSA and does not create a Third Party Agreement for which the Provider is responsible for the remainder of the Service Term(s) with respect to the affected Service(s).
2.1.4
Subject to the requirements set forth below, the Provider may subcontract the provision of any or all of the Services or any of the Provider’s other obligations under this MSA. Except in relation to an Existing Third Party Agreement:
(i)
in selecting the subcontractor in question, the Provider shall have followed its applicable Policies on vendor procurement and approval;

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(ii)
the Provider will notify the Recipient in advance of entering into any subcontract;
(iii)
the Provider shall ensure any Third Party Consent that is required for the Recipient to receive the Services (and to sublicense to the extent necessary to receive the full benefit of the Services) is obtained and maintained for the duration of the applicable Service Term;
(iv)
the Provider shall be entitled to increase the Charges to reflect any increase in the costs incurred by the Provider under that subcontract, compared to the costs previously incurred by the Provider; and
(v)
the Provider shall furnish the Recipient with information about the subcontractor in question which is reasonable for diligence purposes, and the Recipient approves of the use of the subcontractor via the Change Control Procedure, with such approval not be unreasonably withheld or delayed.
2.1.5
The Provider shall be primarily liable under this MSA for any default in the performance of obligations under this MSA by any subcontractor of the Provider.
2.2
[Not Used]
2.3
Standard of Service
2.3.1
The Provider shall provide the Services in accordance with any specified Service Level within a Service Schedule for the relevant Service.
2.3.2
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in compliance with the Regulation applicable to the Provider.
2.3.3
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in accordance with the Policies applicable to the Provider.
2.3.4
Without prejudice to Section 2.3.3, if and to the extent that any proposed change to the Policies would materially increase the risk or reduce the operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or materially increase the cost or reduce the benefit to the Recipient in receiving the Services or the Provider in providing the Services (an “ Adverse Policy Change ”), the Provider shall undertake an impact assessment in advance of the change being implemented and involve the Recipient in that impact assessment. In respect of any Adverse Policy Change the Parties shall, acting reasonably and in good faith, develop, agree and implement a remedial plan with the objective of mitigating any material increase in risk or reduction in operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or material increase in the cost or reduction in the benefit to the Recipient

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or Provider in receiving or providing the Services. Any obligations set out in the Service Schedules which require compliance with policies shall be construed as referring to the Policies.
2.3.5
If and to the extent the Provider is aware of any material failure, or any circumstances that, in the Provider’s reasonable opinion, would be reasonably likely to result in a material failure, to provide any material part of the Services in accordance with Section 2.3.1, 2.3.2 or 2.3.3, then, without prejudice to the Recipient’s other rights and remedies, the Provider shall as soon as reasonably practicable:
(i)
inform the Recipient of such failure or potential failure (and, if known, what the Provider considers to be the cause of the problem);
(ii)
advise the Recipient of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure; and
(iii)
subject to any duty of confidentiality owed by the Provider, provide the Recipient with further information in relation to the failure or potential failure if and to the extent that information has been produced by, or is otherwise in the possession or control of, the Provider or any of its Affiliates for its own purposes and the Recipient reasonably requires that information at the time in order to manage communications with its customers, employees, investors, suppliers and any Competent Authority.
2.4
Recipient Dependencies
2.4.1
Each Service Schedule shall specify any “ Recipient Dependencies ” for the relevant Service, specific obligations to be performed by the Recipient under that Service Schedule in order for the Provider under that Service Schedule to be able to provide the relevant Service to the Recipient.
2.4.2
If and to the extent the Recipient is aware of any material failure, or any circumstances that, in the Recipient’s reasonable opinion, would be reasonably likely to result in a material failure, to perform any material part of the Recipient Dependencies that are set out in a Service Schedule in accordance with this MSA, then, without prejudice to the Provider’s other rights and remedies, the Recipient shall, as soon as reasonably practicable:
(i)
inform the Provider of such failure or potential failure and, if known, what the Recipient considers to be the cause of the problem; and
(ii)
undertake appropriate remedial efforts and promptly advise the Provider of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure.
2.4.3
Without prejudice to any right or remedy of the Provider under this MSA in respect of any other obligations of the Recipient (including in relation to any Recipient Dependency or any Incidental Service performed by a Recipient which is not set out in a Service Schedule),

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if and to the extent the Recipient fails to perform a Recipient Dependency that is set out in a Service Schedule, Section 2.4.4 sets out the Provider’s sole and exclusive remedy in respect of the failure by the Recipient to meet that Recipient Dependency other than with respect to:
(i)
any such failure which causes unauthorized or unlawful access by a third party to the Provider’s computing systems or loss or corruption of the Provider’s data; or
(ii)
any obligation of the Recipient to pay any amount (including any Charges) to the Provider under this MSA.
2.4.4
Each Party recognizes that the Provider is reliant and dependent on the performance of the Recipient Dependencies in order to provide the Services and to perform its other obligations under this MSA. The Provider shall not be in breach of this MSA to the extent that its failure to provide the Services or perform its other obligations under this MSA is a result of a breach by the Recipient of a Recipient Dependency ( provided that such relief shall not prejudice any rights or remedies of the Recipient in respect of any prior breach by the Provider, to the extent that such prior breach caused the Recipient’s breach of the relevant Recipient Dependency and was not itself caused by a breach by the Recipient of a Recipient Dependency). Any disputes relating to the Provider’s relief from a breach by the Recipient of a Recipient Dependency shall be resolved in accordance with Section 11. Nothing in this Section 2.4.4 shall exclude or limit the liability of the Provider in relation to any failure to provide the Services or perform its other obligations under this MSA to the extent that such failure is not the result of a breach by the Recipient of a Recipient Dependency.
2.4.5
The Recipient shall not be in breach of this MSA to the extent that its failure to perform a Recipient Dependency is a result of a breach by the applicable Provider of an obligation of the Provider ( provided that such relief shall not prejudice any rights or remedies of the Provider in respect of any prior breach by the Recipient, to the extent that such prior breach caused the Provider’s breach of the relevant obligation and was not itself caused by a breach of the Provider’s obligations under this MSA). Nothing in this Section 2.4.5 shall exclude or limit the liability of the Recipient in relation to any failure to perform a Recipient Dependency to the extent that such failure is not the result of a breach by the Provider of its obligations under this MSA.
2.5
Service Reporting
2.5.1
From the date hereof and thereafter until the earlier of the Scheduled MSA End Date or applicable Service Schedule Expiry Date, the Provider shall, with respect to each Service for which the Service Schedule requires a certain Service Level, provide to the Recipient, as part of its monthly performance reports a set of hard copy and soft copy reports to verify the Provider’s performance and compliance with the Service Levels and record the occurrence of any Criticality 1 Incidents.

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2.5.2
The Parties will review the Provider’s performance against the Service Levels for the previous reporting period.
3
Third Party Suppliers
3.1
Termination, Expiry or Renewal of Third Party Agreements
3.1.1
If, during a Service Term:
(i)
a Third Party Agreement is terminated by the Provider (or any member of its Group) or by the Third Party Supplier (for any reason other than Force Majeure (for which Section 14.2 shall apply) or for insolvency of the Third Party Supplier (for which Section 3.1.3 shall apply)); or
(ii)
a Third Party Agreement expires or is terminated other than as provided in Section 3.1.1(i), or;
(iii)
a Third Party Agreement otherwise ceases to be available to a Provider for the provisions of Services to a Recipient (for example, by virtue of application of a change of control or similar provision),
and that Third Party Agreement is required for the provision or receipt of any Service or the performance of any obligation of the Provider or the Recipient, then subject to the provisions of Section 3.1, the Provider shall use commercially reasonable efforts to implement such arrangements as are necessary to ensure continuity of the relevant Service on the same terms of the relevant Service Schedule and this MSA, unless otherwise agreed by the Parties in advance.
3.1.2
Each Party shall use commercially reasonable efforts to mitigate to the extent within its reasonable control any costs required to be incurred in respect of the negotiation and implementation of any change to, or extension, renewal or replacement of a Third Party Agreement and migration to an alternative Third Party Supplier.
3.1.3
In the event of the insolvency of a Third Party Supplier required for the provision or receipt of a Service or the performance of any obligation of the Provider or the applicable Recipient for such Service, the Provider may discontinue (which, for the avoidance of doubt, shall include electing not to replace) such Service without the discontinuance being a breach or causing any liability of the Provider to the relevant Recipient.
3.1.4
For the avoidance of doubt, the provisions of Section 3.1.1 through Section 3.1.3, inclusive, shall not affect the rights of a Provider to terminate a Service, or for a Service to terminate, pursuant to the terms of the applicable Service Schedule.
3.2
Changes in Third Party Supplier Costs
3.2.1
In the event that a Third Party Supplier increases or decreases its fees in relation to a Service during a Service Term:

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(i)
the Provider shall promptly notify the Recipient of the change in fees with such notice to include supporting documentation as might reasonably be expected to explain the change in fees to the Recipient; and
(ii)
the Charges for the relevant Service shall be adjusted accordingly.
3.3
Relationship with Third Party Suppliers
3.3.1
So far as it relates to the provision of a Service or the performance of the Provider’s other obligations under this MSA, the Provider shall manage exclusively its relationship with Third Party Suppliers and the applicable Recipient shall not discuss with any Third Party Supplier the provision of the Services or the performance of the Provider’s other obligations under this MSA, except:
(i)
to the extent required to do so by a court, competent judicial authority and/or a Competent Authority;
(ii)
as agreed by the Parties; or
(iii)
if in the Provider’s opinion and only to the extent reasonably necessary in order for the Recipient to be able to receive the Services under the applicable Service Schedule,
provided in each case that it has notified the Provider in advance (if and to the extent permitted to do so under Regulation).
3.4
Liability for Third Party Suppliers
3.4.1
If the Provider breaches this MSA as a result of the acts or omissions of a Third Party Supplier, the Provider’s liability is subject to the Section 8.2 limitations and caps on liability.
3.4.2
Notwithstanding the limitations in Section 3.4.1, any amounts recovered by the Provider from a Third Party Supplier which are in relation to Losses incurred as a result of the acts or omissions of the Third Party Supplier shall be divided among the Provider and Recipient in proportion to their Losses, provided , however, that any amounts paid over to the Recipient shall not exceed the amount of the Recipient’s Losses. For the avoidance of any doubt:
(i)
any amounts paid over to the Recipient pursuant to this Section 3.4.2 are independent of and not to be part of any limitations or caps on the liability of the Parties as set forth in Section 8.2; and
(ii)
if the Provider’s commercially reasonable efforts to recover such amounts from a Third Party Supplier are unsuccessful, such a failure to recover any amounts is not a breach and is not a liability of the Provider.
3.4.3
Without prejudice to the Parties’ rights and obligations in relation to mitigation of losses at law or in equity, each Provider and Recipient shall use commercially reasonable efforts to mitigate the quantum of Losses and/or any other adverse consequences incurred or

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suffered by the Recipient as a result of the breach of a Third Party Agreement by a Third Party Supplier (to the extent a Party is aware of such breach).
4
Price and Payment
4.1
Charges
4.1.7
In consideration for the provision of the Services, Recipient agrees to pay to Provider upon the terms and subject to the conditions of this MSA, the Charges in accordance with the then prevailing tax guidelines as to arms length remuneration currently considered to be at cost plus such regulatory transfer pricing mark-up on cost as may be recommended by advisors from time to time.
4.2
Costs
4.2.1
The costs referred to in Section 4.1 shall mean all direct, managed and indirect costs associated with and attributable to the provision of the Services by Provider. These costs shall be inclusive of, but not limited to, all expenses in so far as they relate to the Services supplied by Provider for salaries, advisory, facilities and equipment plus the expenses to the extent reasonably allocatable to the Services provided by Provider. The appropriate charges for depreciable assets such as facilities and equipment shall be determined in accordance with generally accepted accounting rules.
4.3
Taxes
4.3.1
The Charges payable under each Service Schedule are exclusive of any Taxes, which would be applicable from time to time as per statutory requirements and shall be for the account of Recipient.
4.3.2
Each party shall be responsible for Taxes based on its own net income, employment taxes of its own employees and Taxes on any property it owns or leases.
4.3.3
All payments made by the Recipient to the Provider will be made without deduction or withholding for or on account of any present or future Taxes, including but not limited to value added tax, turnover tax and withholding taxes, unless Recipient is required by law to deduct or withhold such taxes or duties.
4.3.4
In such event, the Recipient will pay such additional amounts as may be necessary in order that the net amounts receivable by Provider after such deduction or withholding shall be equal to the amount which would have been receivable in the absence of such deduction or withholding.
4.4
Payment Terms
4.4.1
The Services provided are classed as either Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO) which attracts a mark up in accordance with rate prevailing when the invoice is issued, based on benchmarking studies recommended by external advisors. The prevailing rates are detailed on the invoices at the time of issue.

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4.4.2
The invoice currency will be USD.
4.4.3
Provider will send the invoice in hard-copy format and use the address for invoicing as set out in the Service Schedule.
4.4.4
The invoice will contain the description as set out in the relevant Service Schedule, failing which the description, “Professional Services Charges rendered by RBS Business Services Private Ltd”, or other words as agreed by both parties.
4.4.5
The Provider shall invoice the Recipient monthly.
4.4.6
The invoices are payable through physical remittance of funds within 30 days of receipt of the relevant invoice.
4.4.7
If any part of the Charges is subject to a bona fide dispute then that part of the Charges subject to dispute shall be dealt with in accordance with Section 11 and any part of the Charges that is not subject to dispute is to be paid pursuant to this Section 4.
5
Representations, Warranties and Mutual Obligations
5.1
Representations and Warranties
5.1.1
Each Party represents and warrants to the other that as at the date hereof:
(i)
it is duly constituted, organized and validly existing under the laws of the jurisdiction of its incorporation;
(ii)
it has the legal right and full power and authority to execute and deliver, and it have the legal right and full power and authority to exercise its rights and perform its obligations under, this MSA, the Service Schedules and any documents which are to be executed by it or any of them pursuant to this MSA;
(iii)
its contemplated provision or receipt, as applicable, of Services in the Service Schedules does not conflict with any other contract to which it is a Party; and
(iv)
it is satisfied that all Charges for the Services provided hereunder were negotiated and determined on an arm’s-length basis.
5.1.2
The Provider represents and warrants to the Recipient that as at the date hereof:
(i)
this MSA and the provision of the Services pursuant to the Service Schedule is compliant in all material respects with all Regulation applicable to it; and
(ii)
its provision of Services in the Service Schedule is compliant in all material respects with the Policies.

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5.1.3
The Recipient represents and warrants to the Provider that as at the date hereof this MSA and the receipt of the Services by it pursuant to the Service Schedule is compliant in all material respects with all Regulation applicable to it, including, for the avoidance of any doubt and to the extent applicable, Regulation W of the Board of Governors of the Federal Reserve System.
5.2
General Obligations
5.2.1
Each Party shall:
(i)
subject to the Change Control Procedure with respect to any change in Regulation after the date hereof, comply with Regulation in connection with the performance of its obligations under this MSA including (in the case of the Provider) its provision of the Services and (in the case of the Recipient) its receipt of the Services;
(ii)
perform its obligations under this MSA including (in the case of the Provider) its provision of the Services and (in the case of the Recipient) its receipt of the Services;
(iii)
provide on a timely basis such information and data as the other Party may reasonably require for the purposes of the provision of the Services; and
(iv)
participate in discussions regarding the provision or receipt of the Services (as applicable) to the extent reasonably required by the other Party in order to enable the Services to be properly provided or received.
5.2.2
Without prejudice to the Mandatory Change provisions set out in Section 10.2, each Party shall promptly notify the other upon becoming aware of any proposed changes to a Regulation or new Regulation which will or are likely to impact the provision or receipt of the Services.
5.2.3
If a Party or any of its Affiliates or, to its knowledge, any Third Party Supplier is subject to any investigation by any Competent Authority and such investigation is relevant to the performance of the obligations under this MSA, then, to the extent permitted by Regulation and the Competent Authority, the Party shall as soon as reasonably practicable notify the other Party of such investigation (such notice to contain reasonable detail relating to the reason for the investigation and why it is relevant to the provision or receipt of the Services). The Parties agree to cooperate to the extent reasonable in the event of any such investigation.
6
Term and Termination
6.1
Original MSA

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The Parties acknowledge and agree that the Original MSA was effective from 21 July 2008. On and from the date of execution of this MSA, the Original MSA shall be amended and restated in the form of this MSA.
6.2
MSA Term
Subject to earlier termination in accordance with its terms, this MSA shall automatically terminate without the need for further action by either Party on the earlier of: (i) the date of expiry of the last Service Term; and (ii) the Scheduled MSA End Date, (both being subject to an extension pursuant to Section 6.3.2).
6.3
Service Term
6.3.1
Subject to Section 6.3.2 each Service Term shall automatically expire without the need for further action by either Party on the earlier of: (i) the applicable Service Schedule Expiry Date; and (ii) the Scheduled MSA End Date.
6.3.2
If the Recipient wishes to continue to receive a Service after the expiry of the relevant Service Schedule Expiry Date and/or Scheduled MSA End Date then the Recipient must give notice to the Provider specifying the period for which the Recipient wishes to continue to receive the Service, provided however, that such extension shall not extend beyond December 31, 2016. Upon such notice the Service Term shall be extended up to the relevant date.
6.4
Termination on Notice
6.4.1
Notwithstanding any other provision of this MSA, the Recipient may terminate any of the Services, or any separable part of the Services, by providing the Provider with at least six months’ prior mailed notice of such termination.
6.4.2
The Recipient is not responsible or liable for any Provider costs incurred as a result of an early termination notice made in compliance herewith, provided, however, that a Recipient shall reimburse the Provider for any costs incurred by the Provider as a result of a Service being terminated early by the Recipient where such Service is provided pursuant to a Third Party Agreement which was renewed, extended or replaced after the date hereof.
6.5
Termination for Insolvency
Each Party may terminate this MSA immediately by written notice to the other Party if the other Party becomes unable to pay its debts, enters into liquidation, a receiver or administrative receiver is appointed over all or any of its assets, it ceases trading or is dissolved, or any procedure equivalent to any of the preceding matters occurs in any other jurisdiction with respect to that other Party.
6.6
Termination for Regulatory Reasons
6.6.1
Each Party shall have a right to terminate this MSA if directed in writing by a Competent Authority. A Party may exercise such right upon 90 days’ prior notice, or such shorter timeframe as required by a Competent Authority or to comply with Regulation.

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6.6.2
In the event of a termination of this MSA pursuant to this Section 6.6, the Parties acknowledge and agree that Migration of the Services may not be fully implemented as of such termination and, to the extent required by a Competent Authority, neither Party will have any obligation to assist in the Migration of the Services after such termination.
6.7
Termination for Breach
6.7.1
Subject to Section 6.7.2, each Party (the “ Non-Defaulting Party ”) may terminate a Service immediately by written notice to the other Party (the “ Defaulting Party ”) if the Defaulting Party commits a material breach of its obligations with respect to that Service under this MSA and the applicable Service Schedule and (where the breach is capable of being remedied) that breach has not been remedied within 30 days after receipt of a written request to do so from the Non-Defaulting Party.
6.7.2
In the event that a Party elects to terminate a Service pursuant to Section 6.7.1, the MSA shall be deemed to continue in full force and effect in accordance with its terms, except with respect to such terminated Service.
6.7.3
Unless otherwise specified, any breach in respect of any individual Service Schedule shall not constitute a breach of this MSA or a breach of any other Service Schedule, and unless otherwise agreed in writing, the Parties will continue to provide Services and honor all other commitments under this MSA during the course of dispute resolution pursuant to Section 11, except to the extent such commitments are the subject of such dispute, controversy or claim.
6.8
Delivery of Data on Termination or Expiry
6.8.1
Except if and to the extent otherwise agreed in the relevant Service Schedule and subject always to Regulation, in the event of the termination or expiry of a Service pursuant to this MSA:
(i)
to the extent that:
(a)
any Recipient Data is in the possession or reasonable control of the Provider or its Affiliates, the Provider shall provide to the Recipient such Recipient Data in its then-current format; and
(b)
any Provider Data is in the possession or reasonable control of the Recipient or its Affiliates, the Recipient shall provide to the Provider such Provider Data in its then-current format;
(ii)
once the Provider has provided the Recipient Data in accordance with Section 6.8.1.(i)(a), the Provider will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Recipient Data also relates to the Provider’s Group’s business; and

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(iii)
once the Recipient has provided the Provider Data in accordance with Section 6.8.1.(i)(b) the Recipient will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Provider Data also relates to the Recipient’s Group’s business.
6.8.2
Unless otherwise agreed by the Parties, the Provider shall charge Recipient in respect of the costs incurred by the Provider in respect of complying with its obligations under this Section 6.8.
6.8.3
Any Recipient Data retained by Provider and any Provider Data retained by Recipient pursuant to Section 6.8.1 shall be subject to the Data Protection requirements set forth in Section 13 and the Confidentiality requirements set forth in Section 13 for as long as such data is retained.
6.9
Survival of Rights on Termination or Expiry
Termination or expiry of this MSA shall not affect any rights or obligations which may have accrued prior to termination or expiry. The obligations of each Party set out in any Section intended to survive such termination or expiry, including this Section 6.9 and Section 4, Section 8, Section 12, Section 13, Section 16, Section 17 and and Section 20 shall continue in full force and effect notwithstanding termination or expiry of this MSA.
7
Migration
7.1
Migration
No later than the third month of the six month notice period specified in Section 6.4, the     Provider will:
7.1.1
submit a plan reasonably acceptable to the Recipient, specifying how the Provider will assist in the orderly handover of the terminated Services;
7.1.2
regularly update the plan to ensure that it reflects changes in the Services or terminated Services, and the methods of delivering the terminated Services; and
7.1.3
revise the plan from time to time in accordance with Recipient's reasonable directions.
7.2
Migration Plan
The Provider will as soon as reasonably practicable:

7.2.1
implement the plan referred to in Section 7.1; and
7.2.2
provide the Recipient with all information, documentation, Recipient software, Recipient Data, Recipient equipment and hardware and any work or records which are material to

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Recipient’s business. The Provider will also provide all other assistance reasonably required by the Recipient.
7.3
Migration Costs
The Recipient shall be responsible for any costs incurred by the Provider in relation to the migration services described in Sections 7.1 and 7.2.
8
Limitation of Liability and Indemnification
8.1
Exclusions from Liability
Notwithstanding anything herein to the contrary, no Party shall be liable for any special, indirect, incidental, consequential or punitive damages of any kind whatsoever in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform Provider’s or Recipient’s obligations under this MSA, as applicable, including to the extent that such liability is:
(i)
for or in respect of any loss of profit, loss of revenue, loss of goodwill or indirect or consequential losses, punitive, special or consequential damages; or
(ii)
for the value of any lost or corrupted data; or
(iii)
for the costs of reconstituting, restoring or rectifying lost or corrupted data (in each case, other than to the extent arising from a breach of Section 19.1),
in each case of whatever nature regardless of whether such damages are foreseeable or whether the Provider or Recipient, as applicable, or any of its Affiliates has been advised of the possibility of such damages.
8.2
Cap on Damages and Exclusions
8.2.1
Except in the case of death or personal injury, fraud or fraudulent misrepresentation, or Charges that have come due in connection with the Services, the Provider’s and the Recipient’s aggregate liability to the other in respect of any individual Service shall be limited to an amount equal to 12 x the Monthly Charge for such Service, where “ Monthly Charge ” means the amount of Charges paid for the first full calendar month (which shall include any amounts invoiced directly to the Recipient by a Third Party Supplier in that month) of the relevant Service giving rise to the claim.
8.2.2
Except in the case of death or personal injury, fraud or fraudulent misrepresentation, or Charges that have been paid or come due in connection with the Services, each Party’s total aggregate liability to the other in connection with this MSA shall be limited to an amount equal to the total Charges for all Services paid and payable to Provider pursuant to this MSA during the 12 months prior to the first date an event giving rise to the liability occurred.

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8.2.3
The limits on, and exclusions of, liability set out in this Section 8 shall not apply in respect of:
(i)
any liability for death or personal injury;
(ii)
any liability for fraud or fraudulent misrepresentation;
(iii)
any other liability that cannot be lawfully excluded; and
(iv)
the obligation of Recipient to pay Charges with respect to Services that have been provided.
8.3
Indemnification
8.3.1
Subject to the exclusions from liability in Section 8.1, the Provider and the Recipient agree to indemnify and hold harmless each other, and each of their directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively the “ Indemnitees ”), from and against any and all losses of the Indemnitees relating to, arising out of or resulting from any breach by a Party, of this MSA or any of the Service Schedules hereunder, to the extent caused by, resulting from or arising out of or in connection with the other Party’s infringement, misappropriation or violation of Intellectual Property Rights of a third party in connection with the provision or receipt of Services under this MSA;
provided that.
(i)
the aggregate liability pursuant to this Section 8.3 shall not exceed the cap on damages in Section 8.2 (subject to the exclusions from the cap set forth therein); and
(ii)
the Provider shall have no liability under this Section 8.3 with respect to any infringement, misappropriation or violation of Intellectual Property Rights of a third party to the extent that such claim is based upon or related to:
(a)
Services that have been modified by the Recipient;
(b)
use of the Services in conjunction or combination with any software, data or other materials not provided by the Provider of the Services; or
(c)
use of the Services in a manner or for any purpose other than as directed by the Provider or as expressly permitted by this MSA.
9
Governance
9.1
Each party will appoint representatives with suitable qualifications, experience and authority to participate in the meetings and committees, and otherwise fulfil their respective functions.

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9.2
The Provider and the Recipient will each manage and supervise the relationship set out in this MSA, through a body containing representatives of both the Provider and the Recipient as constituted from time to time.
10
Changes and Change Control
10.1
Changes
10.1.1
Subject to Sections 10.2 to 10.4 (inclusive), in the event that a Party wishes to make any Change it shall be managed by way of the “ Change Control Procedure ” as set forth in this Section 10.1.1.
(i)
Upon realization of the need for a Change, either Party shall provide prompt notice to the other Party of a Change request (“ Change Control Request ”) in writing specifying in as much detail as is reasonably practicable the nature of the proposed Change. Within four weeks of receipt of a Change Control Request, the Party that received such notice shall provide a response indicating whether it can make the proposed Change, its estimated costs of making the proposed Change and an estimated schedule for implementing the proposed Change.
(ii)
The timing of implementation of any Change will be determined by the Parties.
10.2
Mandatory Change
10.2.1
Where a Change Control Request is in respect of a Mandatory Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss and agree the terms on which, and the time frame in which, each Party shall implement that Mandatory Change (which shall be within the time frame required to comply with the relevant Regulation, except where it would not be reasonable for each Party to implement such Mandatory Change within such time frame, in which case each Party shall implement such Mandatory Change as soon as reasonably practicable thereafter). The Parties shall work together in good faith to mitigate the consequences of any delay in implementing the Mandatory Change beyond the date required to comply with the Regulation.
10.2.2
To the extent that a Mandatory Change requested by a Party increases the cost to the Provider (including, for the avoidance of doubt, the costs and appropriate margin of implementing the Mandatory Change and incremental running costs and appropriate margin incurred by the Provider arising as a result of that Mandatory Change), then the increased cost and margin to the Provider will be added to the Charges paid by the Recipient for the relevant Service.
10.3
Discretionary Changes
10.3.1
Where a Change Control Request submitted by a Party is in respect of a Discretionary Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss

23
    


the terms of the Discretionary Change, including the payment of costs incurred by the Provider associated with the proposed Discretionary Change. For the avoidance of doubt, the Party being requested to implement a Discretionary Change may refuse to implement any Discretionary Change.
10.4
Emergency Change
10.4.1
If a Change is required to respond to an Emergency, the affected Party shall use commercially reasonable efforts to notify the other Party and obtain the other Party’s prior consent for the Change but, if the notifying party is the Provider and the Provider is not able to notify the Recipient and obtain consent, the Provider shall be entitled, without limiting any rights and remedies of the Recipient in respect of any breach of this MSA (as if such Change had not been made), to nevertheless make the minimum necessary temporary Change as necessary to respond to the Emergency in accordance with the terms of any applicable disaster recovery plans. As soon as practicable following the implementation of any temporary Change, the Provider shall notify the Recipient of the temporary Change and the nature of the Emergency and shall then retroactively comply with the terms of the Change Control Procedure.
10.4.2
“ Emergency ” means a Change that is required to ensure: (i) continued provision of, or the continued operation and integrity of the Services; or (ii) the continued operation and integrity of the Provider Systems, in each case the implementation of which cannot wait (including for reasons of stability and performance) for authorization through the Change Control Procedure.
11
Dispute Resolution
11.1
Dispute Resolution Process
11.1.1
The Parties shall in the first instance attempt to resolve any dispute in relation to any aspect of, or failure to agree any matter arising in relation to, this MSA or any document agreed or contemplated as being agreed pursuant to this MSA (a “ Dispute ”) informally through discussion as follows:
(i)
the representatives will discuss to resolve the Dispute, and if the representatives cannot resolve the Dispute within 10 Business Days of the Dispute being referred to them, then;
(ii)
the Dispute shall promptly be referred by the representatives to a nominated senior individual of each Party (the “ Senior Nominees ”), and if the Senior Nominees cannot resolve the Dispute within 10 Business Days of the Dispute being referred to them (unless a longer period is mutually agreed), then;
(iii)
the dispute resolution process shall be deemed to have been exhausted in respect of the Dispute, and each Party shall be free to pursue its rights at law in respect of such Dispute without further reference to the dispute procedure under this Section 11.1.

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This Section 11.1 does not limit the right of either Party to: (i) exercise any self-help remedies provided for herein; or (ii) file an action in a court of law, before, during, or after the dispute resolution process to obtain a provisional or interim remedy, and/or any ancillary, additional or supplementary remedy, provided that any such action shall be heard and determined exclusively in any court of competent jurisdiction sitting in England.
11.1.2
The Parties will discuss in good faith, at either Party’s request, measures to shorten the time contemplated by this Section 11 to complete the Dispute resolution process.
12
Intellectual Property Rights
12.1
Ownership
12.1.5
The Provider and the Recipient (or their respective licensors) will retain all right, title and interest in or to their respective Intellectual Property Rights.

12.2
License
12.2.1
Each party grants the other party a royalty-free, non-transferable, non-exclusive licence to use the Intellectual Property Rights solely for the purpose of providing or receiving the Services.
12.2.2
Both parties undertake to:
(i)
comply with the other party’s reasonable directions (whether oral or written) relating to the manner of the use of the other Party’s Intellectual Property Rights;
(ii)
only modify the other party’s Intellectual Property Rights with the prior written consent of that other party and then only in the manner and to the extent authorised by that other Party; and
(iii)
treat all information relating to the other Party's Intellectual Property Rights as confidential in accordance with the terms of Section 13.
12.2.3
Neither Party shall:
(i)
sub-license, assign, transfer, charge or otherwise deal in or encumber the other Party’s Intellectual Property Rights or use the other Party’s Intellectual Property Rights on behalf of a third party; or
(ii)
remove or alter any copyright or proprietary notice on any materials in which the other Party’s Intellectual Property Rights are embodied.
13
Data Protection, Confidential Information and Record-keeping

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13.1
Data Protection
13.1.1
Each Party acknowledges and agrees that, solely to permit it to perform its obligations pursuant to this MSA and the Service Schedules, the other Party may provide it with Confidential Information, including Personal Data. Each Party further acknowledges and agrees that it shall have the right to use the other Party’s Confidential Information, including Personal Data, solely to fulfill and perform its obligations under this MSA and otherwise comply with Regulations that apply to that Party. Regulation in respect of Personal Data may include U.S. federal data privacy laws and regulations such as the GLB Act, the Federal “Privacy of Consumer Financial Information” Regulation (12 CFR Part 30), as amended from time to time, issued pursuant to Section 504 of the GLB Act, and the Health and Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d), U.S. state data privacy laws such as the Massachusetts Data Protection Act (201 CMR 17) and, if applicable, international data privacy laws such as The Data Protection Act 1998 and Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and the free movement of such data. To the extent that the Recipient requires the Provider to comply with any Regulation in respect of Personal Data which does not apply to the Provider at law, then the Recipient shall (i) instruct the Provider of the same under Clause 13.1.2(i) and (ii) provide all reasonable assistance and information to the Provider in order to allow the Provider to comply with the same. Each Party may provide guidelines to help the other Party comply with such Regulation, but each Party using its own legal advisors will remain fully responsible, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, for interpreting and complying with such Regulation with respect to its own business. A Party shall have no right to use, reuse or disclose any Personal Data to any person or entity for any reason not specifically permitted under this MSA or a Service Schedule.
13.1.2
Each Party confirms that, when it is processing data, it shall:
(i)
only process Personal Data in accordance with the other Party’s instructions; and
(ii)
take appropriate technical and organizational measures to protect Personal Data against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access and against all other unlawful forms of processing.
13.1.3
The Parties shall respectively comply with all Regulation, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, in respect of Confidential Information, including Personal Data, including securing such consents, registrations and notifications as may be required to enable the Provider and any Third Party Suppliers to provide the Services and to enable the Recipient to receive the Services.
13.2
Confidential Information

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13.2.1
The Parties hereby covenant and agree to keep confidential all Confidential Information relating to the other Party. Without limiting the generality of the foregoing, each Party shall cause its employees and agents to exercise the same level of care with respect to Confidential Information relating to the other Party as it would with respect to proprietary information, materials and processes relating to itself. “ Confidential Information ” shall mean all information, materials and processes relating to a Party, its Affiliates, its employees, third party vendors, counterparties or customers obtained by the other Party at any time (whether prior to or after the date hereof) in any format whatsoever (whether orally, visually, in writing, electronically or in any other form) arising out of the rendering or receipt of Services hereunder (or preparations for the same or for the termination thereof) and shall include, but not be limited to, economic and business information or data, business plans, software and information relating to personnel, products, financial performance and projections, processes, strategies and systems but shall not include information which:
(i)
was already in possession of the other Party prior to the date hereof and for which no confidentiality obligation or other restriction on use previously existed;
(ii)
is or becomes generally available to the public other than by release in violation of the provisions of this Section 13;
(iii)
is or becomes available on a non-confidential basis to a Party from a source other than the other Party to this MSA, provided that the Party in question reasonably believes that such source is not or was not bound by an obligation to the other Party to hold such information confidential; and
(iv)
is acquired or developed independently by a Party without use or reference to otherwise Confidential Information of the other Party.
Except with the prior written consent of the other Party, each Party will use the other Party’s Confidential Information only in connection with the performance of its obligations hereunder and each Party shall use commercially reasonable efforts to restrict access to the other Party’s Confidential Information to those employees of such Party requiring access for the purpose of providing or receiving Services hereunder.
13.2.2
The provisions of Section 13.2.1 shall not prohibit a Party’s disclosure or use of the other Party’s Confidential Information if and to the extent such Confidential Information is made available to or used by the professional advisers or Third Party Suppliers of each Party for the provision or receipt of the Services, provided , however that in each case such professional advisors or Third Party Suppliers are subject to written confidentiality obligations in a form approved by the other Party (such approval not to be unreasonably withheld or delayed).
13.2.3
Each Party shall notify the other Party immediately of any suspected or known fraud relevant to its activities under this MSA or any Service Schedule, or of any unauthorized access, possession, use, or knowledge, or attempt thereof, of the other party's Confidential

27
    


Information, or of the occurrence of any other incident relating to the Services that could cause financial, customer or reputational loss to another Party, and agrees to cooperate with the other Party to investigate the occurrence and mitigate the impact of such an event. Each Party shall promptly provide the other Party with full details of any such event and use all available efforts to prevent a recurrence of any such event.
13.2.4
Notwithstanding any provision of this Section 13 to the contrary, a receiving Party may disclose such portion of the Confidential Information relating to the disclosing Party to the extent, but only to the extent, the receiving Party reasonably believes that such disclosure is required Regulation or the rules of a Competent Authority or under a subpoena or other legal process; provided that if practicable and permissible under Regulation, or rules, the receiving Party shall first notify the disclosing Party of such requirement and allow such Party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure and cooperate with the disclosing Party in any lawful effort by the disclosing Party to contest the legal validity of such requirement and prevent such disclosure.
13.2.5
The Parties agree that monetary damages will not be an adequate remedy if this Section 13 regarding Data Protection and Confidential Information is breached and therefore, a disclosing Party shall, in addition to any other legal or equitable remedies, be entitled to seek injunctive relief against any breach or threatened breach of this Section 13 by the receiving Party with respect to the disclosing Party’s Confidential Information.
13.3
Record-keeping
13.3.1
The Provider will at all times operate a consistent and generally accepted system of accounting in relation to, and maintain complete and accurate records of, and adequate supporting documents for the Service Records.
13.3.2
The Provider will maintain the Service Records:
(i)
in a manner and to a level of detail sufficient to justify the calculation of the Charges and to satisfy the requirements of the Regulation; and
(ii)
for the period required by the Regulation, and for a minimum of seven years after the Service Records are created.
14
Force Majeure
14.1
Force Majeure Events
For purposes of this MSA, “ Force Majeure ” means an event beyond the reasonable control of either Party, which by its nature was not foreseen by such Party, or, if it was foreseen, was not reasonably avoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, threat, declaration, continuation, escalation or acts of war (declared or undeclared) or acts of terrorism, any unauthorized, unlawful access by a third party to either Party’s computing systems other

28
    


than as a result of such Party’s, failure or shortage of energy sources, strike, walkout, lockout or other labor trouble or shortage, delays by unaffiliated suppliers, and acts, omissions or delays in acting by any Competent Authority.
14.2
No Liability for Force Majeure
Without limiting the generality of Section 8.3, neither Party shall be under any liability for failure to fulfill any obligation under this MSA or a Service Schedule, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure; provided that (i) such Party shall have used commercially reasonable efforts to minimize to the extent practicable the effect of Force Majeure on its obligations hereunder and (ii) nothing in this Section 14.2 shall be construed to require the settlement of any strike, walkout, lockout or other labor dispute on terms which, in the reasonable judgment of the affected Party, are contrary to its interests. It is understood that the settlement of a strike, walkout, lockout or other labor dispute will be entirely within the discretion of the affected Party. The Party affected by the Force Majeure event shall notify the other Party of that fact as soon as practicable.
14.3
Delay Owing to Force Majeure
In the event of any such delay as a consequence of circumstances of Force Majeure, the Recipient of any affected Service may elect to either:
(i)
submit a Change Control Request to extend the time for performance of the affected Service for a period equal to the time lost by reason of the delay, provided however, that such extension shall not extend beyond the Scheduled MSA End Date; or
(ii)
terminate this MSA in relation to those Services which are affected by the     Force Majeure event.
15
Employee Provisions
15.1
No Obligation to Transfer Employees
15.1.1
The Parties acknowledge and agree that the Acquired Rights Directive (Council Directive 77/187/EEC as amended by Council Directive 98/50 EEC and consolidated in Council Directive 2001/23/EEC) as amended (“ ARD ”) or any enactment of the ARD in any national law or any analogous national law did not apply on the commencement of the Services.
15.1.2
The Parties believe that on the cessation or partial cessation of the Services or any part of the Services on the termination, expiry or variation of this MSA, no transfer of the contracts of employment between a Provider or any Third Party Supplier (or any subcontractor thereof) and any of its/their employees to the Recipient or Successor Provider shall take place by reason of the ARD or any enactment of the ARD in any national law or any analogous national law.

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15.1.3
Without prejudice to Section 15.1.1, if requested to do so by the Recipient at any time before the termination, expiry or variation of the Services, the Provider will (or will procure that) all persons working on the Services (“ Staff ”), whether employed/engaged by the Provider, by any Third Party Supplier or any subcontractor thereof, will be redeployed or otherwise removed from the Services before the cessation of those Services so that those Staff cease to be engaged within the Services and are not affected by any transfer pursuant to the ARD or any enactment of the ARD in any national law or any analogous national law that may otherwise occur on the cessation of those Services.
15.2
Pre-employment Screening
15.2.1
Subject to Regulation, the Provider shall require any individual it employs or engages in connection with the performance of its obligations under this MSA to have satisfied the screening procedures set out in the RBSG Policy for India, prior to such individual performing any Services hereunder:
15.2.2
In the event that:
(i)
the Provider is unable to comply fully with the pre-employment requirements above with respect to an individual;
(ii)
any pre-engagement screening activity returns information that otherwise indicates in the Provider's reasonable judgment that such individual should not be engaged to provide Services under this MSA,
then the Provider shall not engage the individual in relation to this MSA or any Service Schedule.
16
Communications with Competent Authorities
If either Party receives any material correspondence from any Competent Authority that relates to the Services, it will provide a copy of that correspondence to the other Party unless it is prevented from doing so by Regulation or such Competent Authority. The Parties shall consult with each other over such correspondence and shall only respond to the Competent Authority if:
16.1.1
the terms of the response have been approved by the other Party (such consent not to be unreasonably withheld or delayed); or
16.1.2
Regulation requires a response to the Competent Authority without the other Party’s consent.
17
Audit
17.1
Regulatory Audit Rights

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17.1.1
The Provider shall (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services shall) promptly permit:
(i)
the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority); and
(ii)
any Competent Authority (or its designated representatives),
access to the Provider’s and Third Party Suppliers facilities and premises, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, and subcontractors to the extent required by the Competent Authority to perform an audit.
17.1.2
Subject to any restriction under Regulation or the direction of any Competent Authority, the Provider shall ensure it is (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services are) open and cooperative with the Recipient and its auditors and any Competent Authority (and its designated representatives) in performing its obligations under this Section 17.1 and shall provide such information, assistance, records and materials, access to persons engaged in the provision of the Services and explanations as required by the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority) or the Competent Authority (including attending any meetings requested by the Recipient and/or the Competent Authority (or its designated representatives) and providing copies of any internal audit reports which are relevant to the Services). The Recipient shall provide as much notice of the audit as is reasonably practicable. Unless otherwise agreed by the Parties, the Provider shall charge Recipient in respect of the costs incurred by the Provider in respect of such audits.
17.1.3
If and to the extent the Provider does not have the rights under its relevant Third Party Agreement to ensure its Third Party Supplier grants the rights described in Sections 17.1.1 and 17.1.2, any costs in procuring such rights shall be borne by the Recipient, provided that such costs were approved by the Recipient in writing before they were incurred. If the Recipient declines, or otherwise fails, to approve such costs, the Provider shall not be required to obtain the grant of the relevant rights by that Third Party Supplier.
17.2
General Audit Rights
17.2.1
With respect to each Service Schedule:
(i)
The Provider shall, from time to time, but in any event no more than twice in any 12-month period (subject to the exception in Section 17.2.1(ii)), during regular business hours and upon reasonable notice, permit the Recipient or its representatives to perform audits of the Provider’s (and to the extent commercially reasonable, its Third Party Suppliers’) facilities, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, subcontractors, and such other audits as may be

31
    


necessary to ensure the Provider’s and its Third Party Suppliers’ compliance with the terms and conditions of this MSA and the relevant Service Schedules, as well as Regulation and to ensure the Provider’s financial and operational viability, including but not limited to the Provider’s internal controls, pre-engagement employee screening, information and other security, business resumption, continuity, recovery, Service Level compliance, and contingency plans.
(ii)
If an audit conducted pursuant to Section 17.2.1 (i) reveals any non-compliance or other deficiencies relating to risks to the Provider’s systems and facilities which could result in the unauthorized destruction, loss, alteration, disclosure of or access to the Recipient’s Confidential Information, then a senior technology executive of the Provider shall promptly meet with a representative of the Recipient to discuss the matter, and the Provider shall promptly take action to remedy the non-compliance or deficiencies and/or resolve the matters addressed by the qualification(s) so that any deficiencies that caused the qualified opinion to be issued are remedied to the Recipient’s reasonable satisfaction (including with respect to the timeline of the remediation). Notwithstanding the limitation on the number of audits in Section 17.2.1(i), the Provider shall permit the Recipient to perform an audit solely to the extent necessary to confirm that any non-compliance or deficiencies identified in an audit conducted pursuant to Section 17.2.1(i) have been remedied.
18
Sanctions
18.1
Compliance with Sanctions Laws and Regulations
18.1.1
The Parties acknowledge that the Parties and their respective Affiliates are subject to the international sanction laws and regulations issued from time to time by HM Treasury, the European Union, the United States of America (including, but not limited to, all applicable regulations of the Office of Foreign Assets Control (“ OFAC ”), the Bank Secrecy Act and the USA Patriot Act (including such regulations that may require the Provider to implement a “Customer Identification Program” or “Know Your Customer Program” to confirm that no beneficiary or client of the Provider appears on any lists issued by OFAC, including the Specially Designated Nationals list, and determine whether transactions by or with such beneficiary or client may constitute suspicious activity, such as identity theft, fraud, money laundering, terrorist financing or other threats to national security)), and the United Nations.
18.1.2
Neither Party shall be obliged to make any payment under, or otherwise to implement any part of the Services, if in the reasonable opinion of the relevant Party to do so is illegal or there is involvement by any person (natural, corporate or governmental) listed in the HM Treasury, the European Union, the United States of America, the United Nations or local sanctions lists, or there is any involvement by any person located in, incorporated under the laws of, or owned or controlled by, or acting on behalf or, a person located in or organized under the laws of a country or territory that is the target of comprehensive sanctions.

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19
Information Security
19.1
Information Security
19.1.1
A Party may not store, copy, disclose, or use the other Party’s Data for any purpose other than to the extent necessary to provide or receive, as applicable, the Services and to comply with Regulation.
19.1.2
Neither Party shall attempt to obtain access to, use or interfere with any information technology systems or data used or processed by the other Party except to the extent required to do so to provide or receive the Services (as applicable), or except to the extent expressly permitted to do so by this MSA.
19.1.3
Each Party shall maintain reasonable security measures to protect both Parties’ information technology systems, from third parties, and in particular from disruption by any “back door”, “time bomb”, “Trojan Horse”, “worm”, “drop dead device“, “virus” or other software routine intended or designed to (i) permit access or use of information technology systems by a third person other than as authorized by the Recipient or the Provider, or (ii) disable, damage or erase or disrupt or impair the normal operation of the Recipient’s or Provider’s information technology systems.
19.1.4
Each Party shall use reasonably up-to-date security measures to prevent unauthorized access to and unauthorized use of the information technology systems owned by the other Party (or, with respect to a Recipient, any member of the Recipient’s Group and, with respect to a Provider, any member of the Provider’s Group) and the other Party’s data (including, with respect to a Recipient, the Recipient Data) by third parties (including Third Party Suppliers).
19.1.5
A Party shall not introduce any Disabling Device into any information technology environment or any system used by the other Party in connection with the Services. Without limiting a Party’s other obligations under this MSA, the Parties agree that, in the event any Disabling Device is found in the systems used to provide the Services, (i) if such Disabling Device originated in any software, deliverable or other resource provided under this MSA or any Service Schedule, the Party that introduced the Disabling Device shall, without prejudice to any other rights and remedies it may have, remove such Disabling Device at its sole expense and (ii) in any case (wherever such Disabling Device originated), the Party that introduced the Disabling Device shall exercise commercially reasonable efforts at no additional charge to eliminate, and reduce the effects of, the Disabling Device and, if the Disabling Device causes a loss of operational efficiency or loss of data, to mitigate such losses and restore such data using generally accepted data restoration techniques.
19.1.6
In addition to its other obligations set forth in this MSA,
(i)
whenever the Provider possesses, stores, processes or has access to the Recipient’s Personal Data, it shall comply with the applicable Fraud Prevention Policy; and

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(ii)
whenever the Provider possesses, stores, processes or has access to the Recipient’s Confidential Information (inclusive of Personal Data), it shall comply with the applicable IS Requirements.
If requested, the Provider will explain to the Recipient how it complies with the Fraud Prevention Policy and the IS Requirements, and shall demonstrate its compliance upon request as set forth in Section 17.2.
19.1.7
Each Party shall make the other aware as soon as reasonably practical of any information security breach which may materially adversely impact the Services or the other Party’s business.
20
Other Provisions
20.1
Whole Agreement
20.1.1
This MSA constitutes the entire agreement between the Parties with respect to the subject matter hereof at the date hereof and supersedes all prior agreements and understandings, both oral or written, between the Parties in relation to the subject matter hereof.
20.1.2
In this Section 20.1, “ this MSA ” includes all documents entered into pursuant to it and/or this MSA.
20.2
No Construction Against Drafter
The Parties acknowledge that this MSA and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties. Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of the MSA.
20.3
Publicity and Public Announcements
A Party must not make any public announcement relating to this MSA without the prior written approval of the other Party (such approval not to be unreasonably withheld, conditioned or delayed). This shall not affect any announcement required by Regulation, any Competent Authority or the rules of any stock exchange on which the shares of a Party are listed, but the Party with an obligation to make an announcement shall notify the other Party and take into account their reasonable representations so far as is reasonably practicable before complying with such obligation.
20.4
Further Assurances
Each Party shall, from time to time execute such documents, perform such acts and things as any Party may reasonably require to give full effect to the provisions of this MSA and the transactions contemplated therein.
20.5
Assignment

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20.5.1
The provisions of this MSA shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns. Subject to Section 20.5.2, no Party may assign, delegate or otherwise transfer any of its rights or obligations under this MSA without the prior written consent of the other Party hereto.
20.5.2
The Provider may assign or in any way transfer or dispose of all or any of its rights under or derived from this MSA, or any part of them, to an Affiliate of the Provider.
20.6
Third Party Rights
Except where such rights are expressly granted by this Agreement, a person who is not a party to this MSA shall have no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. This Clause does not affect any right or remedy of any person which exists or is available otherwise pursuant to that Act.
20.7
Amendment and Waiver
20.7.1
Any provision of this MSA (including the Service Schedules hereto) may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this MSA, or in the case of a waiver, by the Party against whom the waiver is to be effective.
20.7.2
No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Regulation.
20.8
Notices
20.8.1
All notices, requests and other communications to any Party hereunder shall be in writing, (electronic mail (“ e-mail ”) transmission may be used, provided that a receipt of such e-mail is requested and received), and shall be given:
(i)
if to the Provider to:
RBS Business Services Private Ltd
414, Empire Complex, Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013,
India.
Attention: Pankaj Phatarphod, Managing Director
Email: pankaj.phatarphod@rbs.com

(ii)
if to the Recipient to:
Citizens Bank, N.A.
1 Citizens Drive
East Providence, RI 02915
USA
Attention: Jeff LeBlanc

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Head of Consumer Operations, Senior Vice President
Email: Jeff.leblanc@citizensbank.com

Citizens Bank, N.A.
443 Jefferson Blvd
Warwick, RI 02886
USA
Attention: Heather Bentley
Head of Consumer Specialty Operations, Senior Vice President
Email: Heather.j.bentley@citizensbank.com

Citizens Bank, N.A.
100 Sockanosset Cross Rd
Cranston, RI 02920
USA
Attention: Jo Wyper
Head of Commercial Operations, Senior Vice President
Email: Joanne.c.wyper@citizensbank.com

or such other address or e-mail address as such Party may hereafter specify for the purpose by notice to the other Parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
20.9
Severability
20.9.1
If any provision of this MSA or the application thereof to any Party or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to any of the Parties or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
20.10
Counterparts
20.10.1
This MSA may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Execution of this MSA or any other documents pursuant to this MSA by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as, executed by an original signature.
20.11
Independent Contractor

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20.11.1
Nothing in this MSA shall constitute or be deemed to constitute a partnership or joint venture between the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of the other Party for any purpose whatsoever and neither Party shall have authority or power to bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. The Parties hereto acknowledge and agree that when acting as a Provider, the other Party is an independent contractor in the performance of each and every part of this MSA and nothing herein shall be construed to be inconsistent with this status. Subject to the terms and conditions of this MSA, the Provider shall have the authority to select the means, methods and manner by which any Service is performed.
20.12
Governing Law and Submission to Jurisdiction
20.12.1 This MSA and the relationship between the parties will be governed by, and interpreted in accordance with English law.
20.12.2 Each of the parties agree that the courts of England are to have exclusive jurisdiction relating to court proceedings to settle any dispute (including claims for set‑off and counterclaims) which may arise in connection with the creation, validity, effect, interpretation or performance of, or the legal relationships established by, this MSA or otherwise arising in connection with this MSA and for the purposes irrevocably submit to the jurisdiction of the English courts.
20.13
Anti-Bribery Provisions
20.13.1
Each Party agrees that it shall comply with, and that the Services will be performed in accordance with, the Anti-Corruption Laws, subject to the Change Control Procedure in respect of any change in Anti-Corruption Laws after the date hereof, and that it shall not cause, by act or omission, any other Party to be in breach of any Anti-Corruption Laws.
20.13.2
Each Party shall have in place and comply with its own anti-bribery and corruption policy to ensure that it complies with the Anti-Corruption Laws (each such policy, an “ Anti-Bribery and Corruption Policy ”). If requested, a Party shall provide to the other Party a copy of its Anti-Bribery and Corruption Policy and, if required, the providing Party will explain to the receiving Party how the features set out in its Anti-Bribery and Corruption Policy correspond to the receiving Party’s Anti-Bribery and Corruption Policy. Subject to the Change Control Procedure, the providing Party shall promptly implement any amendments to its Anti-Bribery and Corruption Policy which the receiving Party, acting reasonably, considers necessary following its review of the providing Party’s Anti-Bribery and Corruption Policy to ensure that the providing Party complies with the Anti-Corruption Laws.
20.13.3
Each Party shall review its Anti-Bribery and Corruption Policy on a regular basis and shall promptly implement and notify the other Party of any amendments to its Anti-Bribery and Corruption Policy which it considers necessary for continued compliance with the Anti-Corruption Laws.
20.13.4
Each Party shall cooperate with the other Party and promptly provide any information or confirmation which the other Party requires from time to time in connection with the

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obligations set forth in this Section 20.13. Each Party acknowledges that the other Party will place reliance upon the information provided.
20.13.5
Each Party shall immediately notify the other Party in writing of any suspected or known breach of its Anti-Bribery and Corruption Policy or any of the Anti-Corruption Laws.
20.13.6
Each Party shall have the right to suspend and/or terminate any Service Schedule for material breach immediately, or on such other time specified by the terminating Party, upon written notice to the Provider under such Service Schedule if: (i) the Provider, or any person employed by it or acting on its behalf (whether with or without the knowledge of such Service Provider) fails to comply with any of the Anti-Corruption Laws or is in material breach of the Provider’s Anti-Bribery and Corruption Policy; or (ii) a Party has a reasonable suspicion that an occurrence as specified in clause (i) of this Section 20.13.6 has occurred.
20.13.7
Regardless of any other provision in this MSA, no Party shall be obliged to do, nor obliged to omit to do, any act which would, in its reasonable opinion, put it in breach of any Anti-Corruption Laws.

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IN WITNESS WHEREOF, this MSA has been duly executed.

SIGNED  for and on behalf of RBS BUSINESS SERVICES PRIVATE LTD  by:







/s/ Pankaj Phatarphod

SIGNED  for and on behalf of RBS BUSINESS SERVICES PRIVATE LTD  by:





/s/ Gopal Singaraju
SIGNED  for and on behalf of CITIZENS BANK, N.A.  by:
 
/s/ Bruce Van Saun
 
 
 
 
 
 








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EXECUTION VERSION

Dated September 29, 2014
RBS GLOBAL TRADE SERVICE CENTRE PRIVATE LIMITED and
CITIZENS BANK, N.A.
TRANSITIONAL SERVICES AGREEMENT





    


TRANSITIONAL SERVICES AGREEMENT
THIS TRANSITIONAL SERVICES AGREEMENT (“ TSA ”), dated as of September 29, 2014, is by and between RBS GLOBAL TRADE SERVICE CENTRE PRIVATE LIMITED, a company incorporated under the laws of India, whose registered office is at Empire Complex, 414 Senapati Bapat Marg, Lower Parel, Mumbai 400 013 India and whose processing centres are located at Mumbai, Chennai and Gurgaon (“ PROVIDER” ) ; and CITIZENS BANK, N.A a United States national bank with its principal place of business at 1 Citizens Plaza, Providence, Rhode Island 02903, formerly known as RBS Citizens, N.A.. (“ Recipient ”), Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Section 1 hereof.
RECITALS
WHEREAS, The Royal Bank of Scotland Group plc (“ RBSG ”) is the indirect owner of all the issued and outstanding common stock of Citizens Financial Group, Inc. (“ CFG ”) immediately prior to the date hereof;
WHEREAS, shares of CFG are being sold to the public pursuant to the IPO and CFG will cease to be a wholly owned indirect subsidiary of RBSG upon the closing of the IPO;
WHEREAS, after the closing of the IPO, RBSG will remain the majority shareholder of CFG, subject to future sales to the public (and ultimately the contemplated complete disposition by on or before December 31, 2016) by RBSG;
WHEREAS, the Provider is an Affiliate of RBSG and the Recipient is an Affiliate of CFG;
WHEREAS immediately prior to the date hereof, the Provider was providing services to the Recipient which were the same as Services to be provided thereunder pursuant to the terms of a Services Agreement between the Provider and the Recipient effective 1 May, 2014, (“ Original SA” ) which incorporated by reference a master services agreement between The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.) and the Recipient effective 10 June, 2008 (“ Original MSA ”);
WHEREAS, as of the date hereof and pursuant to the terms of (and except as otherwise provided in) a Separation Agreement, all master agreements, statements of work, service schedules and similar agreements, including the Original MSA and Original SA are terminated;
WHEREAS, the Provider has agreed to procure and provide the Services as specified in the Service Schedule to the Recipient, and the Recipient has agreed to receive and pay for the Services received pursuant to the Service Schedule, subject to the terms of this TSA to facilitate the Recipient’s ongoing operations during a transitional period following the IPO; and
NOW, THEREFORE, in consideration of the rights and duties set forth herein, and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Provider and the Recipient hereby agree as follows:

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1
Definition and Rules of Construction
1.1
Definitions
For the purposes of this TSA, the following terms shall have the following meanings:
“ Adverse Policy Change ” has the meaning given in Section 2.3.4;
Affiliate ” means, in relation to any Party, its holding companies and direct and indirect subsidiaries and the direct and indirect subsidiaries of such holding companies from time to time; however, for purposes of this TSA the Parties shall not be considered Affiliates of each other. For the avoidance of doubt, in respect of the Provider, Affiliates shall not include the Recipient or its subsidiaries; and, in respect of the Recipient, Affiliates shall not include the Provider or its other subsidiaries and “ Affiliates ” shall be construed accordingly;
“ Anti-Bribery and Corruption Policy ” means each policy that a Party shall put in place to comply with its own anti-bribery and corruption policy and obligations, and with Anti-Corruption Laws;
“ Anti-Corruption Laws ” means any anti-bribery or anti-corruption related provisions in criminal and anti-competition laws and/or anti-bribery or anti-corruption laws of the jurisdiction in which, for the Provider, the Provider provides the Services and, for the Recipient, the Recipient receives the Services, together with any amending, consolidating or successor legislation or case law which has effect from time to time in the relevant jurisdiction;
“ ARD ” has the meaning given in Section 15.1.1;
“ Business Day ” means a day which is not a Saturday, Sunday or a public holiday in New York or Boston;
“ CFG ” means Citizens Financial Group, Inc.;
“ Change ” means any modification, addition or amendment to any Service (including any change to any part of any Service Schedule) including any Mandatory Change or Discretionary Change;
“ Change Control Procedure ” means the procedure set out in Section 10.1.1;
“ Change Control Request ” has the meaning given in Section 10.1.1(i);
“ Charges ” means collectively the fees payable under each Service Schedule for the provision of Services;
“ Competent Authority ” means any local, state, national, supranational, governmental or nongovernmental authority, statutory undertaking, agency or public or regulatory body (including the Prudential Regulation Authority, the Financial Conduct Authority, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau) which has jurisdiction over the Provider (and/or its Affiliates) and/or the Recipient (and/or its Affiliates);
“ Confidential Information ” has the meaning given in Section 13.2.1;

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“ Defaulting Party ” has the meaning given to it in Section 6.7.1;
“ Disabling Device ” means any device, method, token, code, program or sub-program that can disable, interfere with or adversely affect all or any part of a Service, a Party’s equipment, and/or their operation, or destroy any of a Party’s data or other software or hardware, or damage, destroy or interfere with a Party’s information technology network or any of a Party’s data or other software or hardware, or permit any person to circumvent the normal security of a Party’s software, systems or networks;
“ Discretionary Change ” means any Change which is not a Mandatory Change or an Emergency;
“ Dispute ” has the meaning given in Section 11.1.1;
“ Emergency ” has the meaning given in Section 10.4.2;
“ Existing Third Party Agreement ” means any Third Party Agreement in force as at the date hereof, as the same may be amended from time to time and any extension, replacement or renewal of such agreement;
“ Force Majeure ” has the meaning given in Section 14.1;
“ Fraud Prevention Policy ” means anti-fraud measures or policies that the Provider shall have in place whenever it possesses, stores, processes or has access to the Recipient’s Personal Data, as listed in Schedule 2;
“ GLB Act ” means the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq;
“ Group ” means, in relation to a Party, that Party and its Affiliates;
“ Indemnitees ” has the meaning given in Section 8.3.1;
“ Intellectual Property Rights ” means (i) copyrights (including copyrights in any software), patents, database rights and rights in trademarks, designs, know-how and confidential information (whether registered or unregistered), (ii) applications for registration, and rights to apply for registration, of any of the foregoing rights and (iii) all other intellectual property rights and equivalent or similar forms of protection existing anywhere in the world;
“ IPO ” means the initial public offering of CFG’s shares;
“ IS Requirements ” means the information security policies that the Provider shall have in place whenever it possesses, stores, processes or has access to the Recipient’s Confidential Information (inclusive of Personal Data) as listed in Schedule 2;
“ Losses ” means losses, claims, damages, costs, charges and liabilities (including reasonable legal fees and disbursements) and “ Loss ” shall be construed accordingly;
“ Mandatory Change ” means a Change which is required as a consequence of any change in Regulation on or subsequent to the date hereof in order for (i) the Recipient to receive Services or to perform Recipient Dependencies and/or (ii) the Provider to provide (or procure the provision of), Services or to perform any of its other obligations under this TSA, in each case in compliance with Regulation;

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“ Migration ” means the migration of Services in whole or part from the personnel and information technology systems or other facilities of the Provider, its Affiliates or Third Party Suppliers to the personnel and information technology systems or other facilities of the Recipient, and/or its Affiliates and/or Successor Providers, provided, however , that Migration does not require or otherwise give rise to an obligation on the part of a Provider, its Affiliates or Third Party Suppliers to grant any Successor Provider access to the Provider Systems;
“ Monthly Charge ” has the meaning given in Section 8.2.1;
“ Non-Defaulting Party ” has the meaning given in Section 6.7.1;
“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury;
“ Original MSA ” means the Master Services Agreement effective 10 June, 2008 entered into by The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.) and the Recipient;
“Original SA ” means the Services Agreement effective 1 May, 2014 entered into by the Provider and Recipient;
“ Party ” means the Provider or Recipient;
“ Personal Data ” of a disclosing Party means any data, information and/or records of or pertaining to the disclosing Party’s or an Affiliate’s customers (current, former or prospective) and employees (current, former or prospective) or its customers’ customers (current, former or prospective) or employees (current, former or prospective), including but not limited to names, addresses, telephone numbers, account numbers, account and transaction information and any other “Nonpublic Personal Information” as defined in the GLB Act, relating to such individuals;
“ Policies ” means the policies and procedures listed in Schedule 2 (as may be amended from time to time in accordance with Sections 2.3.3 and 2.3.4), as applicable to the Provider;
“ Provider Data ” means all Confidential Information provided in relation to the Services to the Recipient, any Affiliate of the Recipient, or any Successor Provider, by or on behalf of the Provider or any Affiliate of the Provider or any Third Party Supplier;
“ Provider Systems ” means the information technology systems made available to the Recipient pursuant to this TSA by or on behalf of the Provider, any Affiliate of the Provider or any Third Party Supplier, which are supported and maintained by or on behalf of the Provider, any Affiliate of the Provider or any Third Party Supplier;
“ RBSG ” means The Royal Bank of Scotland Group plc;
“ Recipient Data ” means all Confidential Information:
(i)
including, without limitation, all Personal Data provided in relation to the Services to the Provider, any Affiliate of the Provider or any Third Party Supplier, by or on behalf of the Recipient or any Affiliate of the Recipient; or
(ii)
generated by the Provider, any Affiliate of the Provider, or any Third Party Supplier in the course of providing the Services,

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“ Recipient Dependencies ” means the obligations of the Recipient under this TSA including those expressly identified as Recipient Dependencies in the Service Schedule and any other obligations of the Recipient otherwise set out in the description of the Services in the Service Schedule;
“ Regulation ” means any applicable law, regulation, regulatory constraint, obligation or rule (including any binding code of conduct and binding statement of principle incorporated and contained in such rules) applicable to the existence or operation of this TSA, the Recipient, the Provider, any Affiliate of the Provider, any Affiliate of the Recipient or the provision or receipt of the Services, the performance of any Recipient Dependency or the performance of either Party’s other obligations under this TSA from time to time;
“ Scheduled TSA End Date ” means the earlier of (i) December 31, 2016, and (ii) the first date on which RBSG ceases to beneficially own such number of shares of CFG common stock representing at least 26% of the voting power of all outstanding shares of CFG common stock;
“ Senior Nominees ” means the senior individuals nominated by each Party;
Separation Agreement ” means the Separation and Shareholder Agreement between RBSG and CFG dated on or about the date of this TSA;
“ Service Level ” means the level of performance set out in the Service Schedule;
“ Service Records ” means complete and accurate records of, and supporting documentation for, the Services provided pursuant to this TSA;
“ Service Schedule ” means the Service Schedule in Schedule 1 of this TSA, which describes the terms and obligations of the Provider and the Recipient in relation to the Services, and any extension or renewal schedule, as agreed by the Parties, which has the effect of extending or amending the Service Schedule Expiry Date in respect of the Services;
“ Service Schedule Expiry Date ” means the date of cessation of the Services specified in the Service Schedule;
“ Services ” means the services (or any element of the services) specified in the Service Schedule and “ Service ” means any element of the Services;
“ Staff ” has the meaning given in Section 15.1.3;
“ Successor Provider ” means the entity or entities (which may include the Recipient or any member of its Group) succeeding the Provider in the provision or operation of services the same as or substantially similar to all or part of the Services;
“ Tax means all taxes, charges, imposts, levies and duties of any kind payable to any governmental, fiscal or taxing authority in the United States, India, United Kingdom or elsewhere in the world. The definition of “tax” includes any penalties, additions, fines or associated interest. The words “taxes” and “taxation” and similar expressions shall be interpreted in accordance with this definition;
“ Term ” means the term of this TSA which period shall start on the date hereof and expire (unless terminated earlier in accordance with this TSA) in accordance with the provisions of Sections 6.2 and 6.3;

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“ Third Party Agreements ” means any agreements entered into between the Provider (or any of its Affiliates) and any third party for the provision of a service, goods, lease or license relating to, or necessary for, the provision of the Services or performance of any of the Provider’s other obligations under this TSA whether entered into before or after the date of this TSA;
“ Third Party Consent ” means any permission, consent, license, agreement, authorization or “right to use” required, from a third party (whether under a Third Party Agreement or otherwise):
(i)
by the Provider, to the extent necessary to allow the provision of the Services or performance of the Provider’s other obligations under this TSA by the Provider to or for the benefit of the Recipient or receipt of the Services by the Recipient; or
(ii)
by the Recipient, to the extent necessary for the Recipient to receive the benefit of the Services provided by the Provider under this TSA;
“ Third Party Supplier ” means any third party providing a service, goods, lease or license under a Third Party Agreement;
“ TSA ” means this transitional services agreement;
1.2
Rules of Construction
Unless the context otherwise requires or except as otherwise expressly provided the following rules of construction shall apply to this TSA.
1.2.1
Singular, Plural, Gender
References to one gender include all genders and references to the singular include the plural and vice versa.
1.2.2
References to Persons and Companies
References to:
(i)
a person shall include any company, partnership, trust, joint venture, firm, association, unincorporated association, organization, or any government, state or local body or authority (whether or not having separate legal personality); and
(ii)
a company shall include any company, corporation or any body corporate, wherever incorporated.
1.2.3
Schedules, Sections, Appendices, Paragraphs
References to this TSA shall include any Schedules to it and references to Sections and Schedules are to Sections of, and Schedules to, this TSA. References to paragraphs and appendices are to paragraphs and appendices of the Schedules. All Schedules are an integral part of this TSA.

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1.2.4
Headings
The article, Section and paragraph headings contained in this TSA are for reference purposes only and shall not affect in any way the meaning or interpretation of this TSA.
1.2.5
Includes, in writing
The words “ includes ” and “ including ” shall mean “include without limitation” and “including without limitation”, respectively. The words “ in writing ” means any communication made by letter (but not, for avoidance of doubt, electronic mail) and “ written ” shall be interpreted accordingly.
1.2.6
Agreed
References to “ agreed ” mean, in relation to any document, that document in the form agreed and, for the purposes of identification, signed or initialed by or on behalf of each Party by a duly authorized representative, with such alterations as the Parties agree in writing.
1.2.7
Information
References to books, records or other information mean books, records or other information in any form including paper, electronically stored data, magnetic media, film and microfilm.
1.2.8
References to Law
References to a statute or statutory provision include:
(i)
that statute or provision as modified or amended from time to time, whether before or after the date of this TSA; and
(ii)
any subordinate legislation or regulation made from time to time under that statute or statutory provision, including (where applicable) that statute or statutory provision as modified or amended.
1.2.9
Precedence
If there is any conflict, apparent conflict or ambiguity in or between any of sections of this TSA set out below, the sections will be applied in the following order of precedence with the sections higher in the order of precedence prevailing over the Parties:
(i)
the Sections of this TSA;
(ii)
the Schedules to this TSA; and
(iii)
any other document referred to in this TSA.

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1.2.10
Costs
Any reference to “costs” shall mean costs (including internal costs arising in respect of personnel and other related costs) and expenses (including charges, fees and other amounts payable to third parties).
2
Performance of Services
2.1
Provision of Services and Relief
2.1.1
[Not Used].
2.1.2
The Provider shall provide the Services to the Recipient during the Term in accordance with the terms of this TSA. The Recipient shall timely pay the Provider for all Services provided in accordance with the terms of this TSA.
2.1.3
Without prejudice to the Mandatory Change provisions set out in Section 10.2, the Provider shall not be in breach of this TSA to the extent that it is unable to provide any of the Services or perform any of its other obligations under this TSA, in each case to the extent that to do so would result in a breach of Regulation so long as, if and to the extent commercially practicable, the Provider has promptly notified the Recipient of such prohibition, has consulted with the Recipient to explain why the Provider reasonably believes such prohibition applies, and has worked together with the Recipient in good faith to either arrange for modification of the Services at issue or a transition of the Services to a Successor Provider. For the avoidance of doubt, the transition of the Services to a Successor Provider pursuant to this Section 2.1.3 terminates the Services and the Service Schedule under this TSA and does not create a Third Party Agreement for which the Provider is responsible for the remainder of the Term with respect to the Services.
2.1.4
Subject to the requirements set forth below, the Provider may subcontract the provision of any or all of the Services or any of the Provider’s other obligations under this TSA. Except in relation to an Existing Third Party Agreement:
(i)
in selecting the subcontractor in question, the Provider shall have followed its applicable Policies on vendor procurement and approval;
(ii)
the Provider will notify the Recipient in advance of entering into any subcontract;
(iii)
the Provider shall ensure any Third Party Consent that is required for the Recipient to receive the Services (and to sublicense to the extent necessary to receive the full benefit of the Services) is obtained and maintained for the duration of the Term;
(iv)
the Provider shall be entitled to increase the Charges to reflect any increase in the costs incurred by the Provider under that subcontract, compared to the costs previously incurred by the Provider; and

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(v)
the Provider shall furnish the Recipient with information about the subcontractor in question which is reasonable for diligence purposes, and the Recipient approves of the use of the subcontractor via the Change Control Procedure, with such approval not be unreasonably withheld or delayed.
2.1.5
The Provider shall be primarily liable under this TSA for any default in the performance of obligations under this TSA by any subcontractor of the Provider.
2.2
[Not Used]
2.3
Standard of Service
2.3.1
The Provider shall provide the Services in accordance with the Service Level.
2.3.2
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in compliance with the Regulation applicable to the Provider.
2.3.3
Subject to the Change Control Procedure with respect to any change in Regulation coming into effect after the date hereof, the Provider shall provide and procure the provision of the Services in accordance with the Policies applicable to the Provider.
2.3.4
Without prejudice to Section 2.3.3, if and to the extent that any proposed change to the Policies would materially increase the risk or reduce the operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or materially increase the cost or reduce the benefit to the Recipient in receiving the Services or the Provider in providing the Services (an “ Adverse Policy Change ”), the Provider shall undertake an impact assessment in advance of the change being implemented and involve the Recipient in that impact assessment. In respect of any Adverse Policy Change the Parties shall, acting reasonably and in good faith, develop, agree and implement a remedial plan with the objective of mitigating any material increase in risk or reduction in operational controls available to the Provider or the Recipient in connection with the provision or receipt of the Services or material increase in the cost or reduction in the benefit to the Recipient or Provider in receiving or providing the Services. Any obligations set out in the Service Schedule which require compliance with policies shall be construed as referring to the Policies.
2.3.5
If and to the extent the Provider is aware of any material failure, or any circumstances that, in the Provider’s reasonable opinion, would be reasonably likely to result in a material failure, to provide any material part of the Services in accordance with Section 2.3.1, 2.3.2 or 2.3.3, then, without prejudice to the Recipient’s other rights and remedies, the Provider shall as soon as reasonably practicable:
(i)
inform the Recipient of such failure or potential failure (and, if known, what the Provider considers to be the cause of the problem);

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(ii)
advise the Recipient of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure; and
(iii)
subject to any duty of confidentiality owed by the Provider, provide the Recipient with further information in relation to the failure or potential failure if and to the extent that information has been produced by, or is otherwise in the possession or control of, the Provider or any of its Affiliates for its own purposes and the Recipient reasonably requires that information at the time in order to manage communications with its customers, employees, investors, suppliers and any Competent Authority.
2.4
Recipient Dependencies
2.4.1
The Service Schedule shall specify any “ Recipient Dependencies ” for the relevant Service, specific obligations to be performed by the Recipient under the Service Schedule in order for the Provider under the Service Schedule to be able to provide the relevant Service to the Recipient.
2.4.2
If and to the extent the Recipient is aware of any material failure, or any circumstances that, in the Recipient’s reasonable opinion, would be reasonably likely to result in a material failure, to perform any material part of the Recipient Dependencies that are set out in the Service Schedule in accordance with this TSA, then, without prejudice to the Provider’s other rights and remedies, the Recipient shall, as soon as reasonably practicable:
(i)
inform the Provider of such failure or potential failure and, if known, what the Recipient considers to be the cause of the problem; and
(ii)
undertake appropriate remedial efforts and promptly advise the Provider of the remedial efforts being undertaken with respect to that failure or to prevent that potential failure.
2.4.3
Without prejudice to any right or remedy of the Provider under this TSA in respect of any other obligations of the Recipient (including in relation to any Recipient Dependency or any Incidental Service performed by a Recipient which is not set out in a Service Schedule), if and to the extent the Recipient fails to perform a Recipient Dependency that is set out in the Service Schedule, Section 2.4.4 sets out the Provider’s sole and exclusive remedy in respect of the failure by the Recipient to meet that Recipient Dependency other than with respect to:
(i)
any such failure which causes unauthorized or unlawful access by a third party to the Provider’s computing systems or loss or corruption of the Provider’s data; or
(ii)
any obligation of the Recipient to pay any amount (including any Charges) to the Provider under this TSA.

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2.4.4
Each Party recognizes that the Provider is reliant and dependent on the performance of the Recipient Dependencies in order to provide the Services and to perform its other obligations under this TSA. The Provider shall not be in breach of this TSA to the extent that its failure to provide the Services or perform its other obligations under this TSA is a result of a breach by the Recipient of a Recipient Dependency ( provided that such relief shall not prejudice any rights or remedies of the Recipient in respect of any prior breach by the Provider, to the extent that such prior breach caused the Recipient’s breach of the relevant Recipient Dependency and was not itself caused by a breach by the Recipient of a Recipient Dependency). Any disputes relating to the Provider’s relief from a breach by the Recipient of a Recipient Dependency shall be resolved in accordance with Section 11. Nothing in this Section 2.4.4 shall exclude or limit the liability of the Provider in relation to any failure to provide the Services or perform its other obligations under this TSA to the extent that such failure is not the result of a breach by the Recipient of a Recipient Dependency.
2.4.5
The Recipient shall not be in breach of this TSA to the extent that its failure to perform a Recipient Dependency is a result of a breach by the applicable Provider of an obligation of the Provider ( provided that such relief shall not prejudice any rights or remedies of the Provider in respect of any prior breach by the Recipient, to the extent that such prior breach caused the Provider’s breach of the relevant obligation and was not itself caused by a breach of the Provider’s obligations under this TSA). Nothing in this Section 2.4.5 shall exclude or limit the liability of the Recipient in relation to any failure to perform a Recipient Dependency to the extent that such failure is not the result of a breach by the Provider of its obligations under this TSA.
2.5
Service Reporting
2.5.1
During the Term the Provider shall, with respect to each Service for which the Service Schedule requires a certain Service Level, provide to the Recipient, as part of its monthly performance reports a set of hard copy and soft copy reports to verify the Provider’s performance and compliance with the Service Levels.
2.5.2
The Parties will review the Provider’s performance against the Service Levels for the previous reporting period.
3
Third Party Suppliers
3.1
Termination, Expiry or Renewal of Third Party Agreements
3.1.1
If, during the Term:
(i)
a Third Party Agreement is terminated by the Provider (or any member of its Group) or by the Third Party Supplier (for any reason other than Force Majeure (for which Section 14.2 shall apply) or for insolvency of the Third Party Supplier (for which Section 3.1.3 shall apply)); or

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(ii)
a Third Party Agreement expires or is terminated other than as provided in Section 3.1.1(i), or;
(iii)
a Third Party Agreement otherwise ceases to be available to a Provider for the provisions of Services to a Recipient (for example, by virtue of application of a change of control or similar provision),
and that Third Party Agreement is required for the provision or receipt of any Service or the performance of any obligation of the Provider or the Recipient, then subject to the provisions of Section 3.1, the Provider shall use commercially reasonable efforts to implement such arrangements as are necessary to ensure continuity of the relevant Service on the same terms of the Service Schedule and this TSA, unless otherwise agreed by the Parties in advance.
3.1.2
Each Party shall use commercially reasonable efforts to mitigate to the extent within its reasonable control any costs required to be incurred in respect of the negotiation and implementation of any change to, or extension, renewal or replacement of a Third Party Agreement and migration to an alternative Third Party Supplier.
3.1.3
In the event of the insolvency of a Third Party Supplier required for the provision or receipt of a Service or the performance of any obligation of the Provider or the applicable Recipient for such Service, the Provider may discontinue (which, for the avoidance of doubt, shall include electing not to replace) such Service without the discontinuance being a breach or causing any liability of the Provider to the relevant Recipient.
3.1.4
For the avoidance of doubt, the provisions of Section 3.1.1 through Section 3.1.3, inclusive, shall not affect the rights of a Provider to terminate the Services, or for the Services to terminate, pursuant to the terms of the Service Schedule.
3.2
Changes in Third Party Supplier Costs
3.2.1
In the event that a Third Party Supplier increases or decreases its fees in relation to a Service during the Term:
(i)
the Provider shall promptly notify the Recipient of the change in fees with such notice to include supporting documentation as might reasonably be expected to explain the change in fees to the Recipient; and
(ii)
the Charges for the Services shall be adjusted accordingly.
3.3
Relationship with Third Party Suppliers
3.3.1
So far as it relates to the provision of a Service or the performance of the Provider’s other obligations under this TSA, the Provider shall manage exclusively its relationship with Third Party Suppliers and the applicable Recipient shall not discuss with any Third Party Supplier the provision of the Services or the performance of the Provider’s other obligations under this TSA, except:

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(i)
to the extent required to do so by a court, competent judicial authority and/or a Competent Authority;
(ii)
as agreed by the Parties; or
(iii)
if in the Provider’s opinion and only to the extent reasonably necessary in order for the Recipient to be able to receive the Services under the Service Schedule,
provided in each case that it has notified the Provider in advance (if and to the extent permitted to do so under Regulation).
3.4
Liability for Third Party Suppliers
3.4.1
If the Provider breaches this TSA as a result of the acts or omissions of a Third Party Supplier, the Provider’s liability is subject to the Section 8.2 limitations and caps on liability.
3.4.2
Notwithstanding the limitations in Section 3.4.1, any amounts recovered by the Provider from a Third Party Supplier which are in relation to Losses incurred as a result of the acts or omissions of the Third Party Supplier shall be divided among the Provider and Recipient in proportion to their Losses, provided , however, that any amounts paid over to the Recipient shall not exceed the amount of the Recipient’s Losses. For the avoidance of any doubt:
(i)
any amounts paid over to the Recipient pursuant to this Section 3.4.2 are independent of and not to be part of any limitations or caps on the liability of the Parties as set forth in Section 8.2; and
(ii)
if the Provider’s commercially reasonable efforts to recover such amounts from a Third Party Supplier are unsuccessful, such a failure to recover any amounts is not a breach and is not a liability of the Provider.
3.4.3
Without prejudice to the Parties’ rights and obligations in relation to mitigation of losses at law or in equity, each Provider and Recipient shall use commercially reasonable efforts to mitigate the quantum of Losses and/or any other adverse consequences incurred or suffered by the Recipient as a result of the breach of a Third Party Agreement by a Third Party Supplier (to the extent a Party is aware of such breach).
4
Price and Payment
4.1
Charges
4.1.1
In consideration for the provision of the Services, Recipient agrees to pay to Provider upon the terms and subject to the conditions of this TSA, the Charges in accordance with the then prevailing tax guidelines as to arms length remuneration currently considered to be at cost plus such regulatory transfer pricing mark-up on cost as may be recommended by advisors from time to time.

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4.2
Costs
4.2.1
The costs referred to in Section 4.1 shall mean all direct, managed and indirect costs associated with and attributable to the provision of the Services by Provider. These costs shall be inclusive of, but not limited to, all expenses in so far as they relate to the Services supplied by Provider for salaries, advisory, facilities and equipment plus the expenses to the extent reasonably allocatable to the Services provided by Provider. The appropriate charges for depreciable assets such as facilities and equipment shall be determined in accordance with generally accepted accounting rules.
4.3
Taxes
4.3.1
The Charges payable under the Service Schedule are exclusive of any Taxes, which would be applicable from time to time as per statutory requirements and shall be for the account of Recipient.
4.3.2
Each party shall be responsible for Taxes based on its own net income, employment taxes of its own employees and Taxes on any property it owns or leases.
4.3.3
All payments made by the Recipient to the Provider will be made without deduction or withholding for or on account of any present or future Taxes, including but not limited to value added tax, turnover tax and withholding taxes, unless Recipient is required by law to deduct or withhold such taxes or duties.
4.3.4
In such event, the Recipient will pay such additional amounts as may be necessary in order that the net amounts receivable by Provider after such deduction or withholding shall be equal to the amount which would have been receivable in the absence of such deduction or withholding.
4.4
Payment Terms
4.4.1
The Services provided are classed as either Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO) which attracts a mark up in accordance with rate prevailing when the invoice is issued, based on benchmarking studies recommended by external advisors. The prevailing rates are detailed on the invoices at the time of issue.
4.4.2
The invoice currency will be USD.
4.4.3
Provider will send the invoice in hard-copy format and use the address for invoicing as set out in the Service Schedule.
4.4.4
The invoice will contain the description as set out in the Service Schedule, failing which the description, “Professional Services Charges rendered by RBS Global Trade Service Centre Private Ltd”, or other words as agreed by both parties.
4.4.5
The Provider shall invoice the Recipient monthly.

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4.4.6
The invoices are payable through physical remittance of funds within 30 days of receipt of the relevant invoice.
4.4.7
If any part of the Charges is subject to a bona fide dispute then that part of the Charges subject to dispute shall be dealt with in accordance with Section 11 and any part of the Charges that is not subject to dispute is to be paid pursuant to this Section 4.
5
Representations, Warranties and Mutual Obligations
5.1
Representations and Warranties
5.1.1
Each Party represents and warrants to the other that as at the date hereof:
(i)
it is duly constituted, organized and validly existing under the laws of the jurisdiction of its incorporation;
(ii)
it has the legal right and full power and authority to execute and deliver, and it have the legal right and full power and authority to exercise its rights and perform its obligations under, this TSA, the Service Schedule and any documents which are to be executed by it or any of them pursuant to this TSA;
(iii)
its contemplated provision or receipt, as applicable, of Services in the Service Schedule does not conflict with any other contract to which it is a Party; and
(iv)
it is satisfied that all Charges for the Services provided hereunder were negotiated and determined on an arm’s-length basis.
5.1.2
The Provider represents and warrants to the Recipient that as at the date hereof:
(i)
this TSA and the contemplated provision of the Services pursuant to the Service Schedule is compliant in all material respects with all Regulation applicable to it; and
(ii)
its contemplated provision of Services in the Service Schedule is compliant in all material respects with the Policies applicable to it.
5.1.3
The Recipient represents and warrants to the Provider that as at the date hereof this TSA and the contemplated receipt of the Services by it pursuant to the Service Schedule is compliant in all material respects with all Regulation applicable to it, including, for the avoidance of any doubt and to the extent applicable, Regulation W of the Board of Governors of the Federal Reserve System.
5.2
General Obligations
5.2.1
Each Party shall:

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(i)
subject to the Change Control Procedure with respect to any change in Regulation after the date hereof, comply with Regulation in connection with the performance of its obligations under this TSA including (in the case of the Provider) its provision of the Services and (in the case of the Recipient) its receipt of the Services;
(ii)
perform its obligations under this TSA including (in the case of the Provider) its provision of the Services and (in the case of the Recipient) its receipt of the Services;
(iii)
provide on a timely basis such information and data as the other Party may reasonably require for the purposes of the provision of the Services; and
(iv)
participate in discussions regarding the provision or receipt of the Services (as applicable) to the extent reasonably required by the other Party in order to enable the Services to be properly provided or received.
5.2.2
Without prejudice to the Mandatory Change provisions set out in Section 10.2, each Party shall promptly notify the other upon becoming aware of any proposed changes to a Regulation or new Regulation which will or are likely to impact the provision or receipt of the Services.
5.2.3
If a Party or any of its Affiliates or, to its knowledge, any Third Party Supplier is subject to any investigation by any Competent Authority and such investigation is relevant to the performance of the obligations under this TSA, then, to the extent permitted by Regulation and the Competent Authority, the Party shall as soon as reasonably practicable notify the other Party of such investigation (such notice to contain reasonable detail relating to the reason for the investigation and why it is relevant to the provision or receipt of the Services). The Parties agree to cooperate to the extent reasonable in the event of any such investigation.
6
Term and Termination
6.1
Commencement
This TSA shall come into effect on the date of its execution.
6.2
Term
Subject to Section 6.3 and to earlier termination in accordance with its terms, this TSA shall automatically terminate without the need for further action by either Party on the earlier of: (i) the Service Schedule Expiry Date; and (ii) the Scheduled TSA End Date (both being subject to an extension pursuant to Section 6.3).
6.3
Extension to the Term
If the Recipient wishes for the Service to continue beyond the Service Schedule Expiry Date and/or Scheduled TSA End Date then the Recipient must give notice to the Provider specifying the

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period for which the Recipient wishes to continue to receive the Service, provided however, that such extension shall not extend beyond December 31, 2016. Upon such notice the Term shall be extended up to the relevant date.
6.4
Termination on Notice
6.4.1
Notwithstanding any other provision of this TSA, the Recipient may terminate any of the Services, or any separable part of the Services, by providing the Provider with at least six months’ prior mailed notice of such termination.
6.4.2
The Recipient is not responsible or liable for any Provider costs incurred as a result of an early termination notice made in compliance herewith, provided, however, that a Recipient shall reimburse the Provider for any costs incurred by the Provider as a result of a Service being terminated early by the Recipient where such Service is provided pursuant to a Third Party Agreement which was renewed, extended or replaced after the date hereof.
6.5
Termination for Insolvency
Each Party may terminate this TSA immediately by written notice to the other Party if the other Party becomes unable to pay its debts, enters into liquidation, a receiver or administrative receiver is appointed over all or any of its assets, it ceases trading or is dissolved, or any procedure equivalent to any of the preceding matters occurs in any other jurisdiction with respect to that other Party.
6.6
Termination for Regulatory Reasons
6.6.1
Each Party shall have a right to terminate this TSA if directed in writing by a Competent Authority. A Party may exercise such right upon 90 days’ prior notice, or such shorter timeframe as required by a Competent Authority or to comply with Regulation.
6.6.2
In the event of a termination of this TSA pursuant to this Section 6.6, the Parties acknowledge and agree that Migration of the Services may not be fully implemented as of such termination and, to the extent required by a Competent Authority, neither Party will have any obligation to assist in the Migration of the Services after such termination.
6.7
Termination for Breach
6.7.1
Subject to Section 6.7.2, each Party (the “ Non-Defaulting Party ”) may terminate a Service immediately by written notice to the other Party (the “ Defaulting Party ”) if the Defaulting Party commits a material breach of its obligations with respect to that Service under this TSA and the Service Schedule and (where the breach is capable of being remedied) that breach has not been remedied within 30 days after receipt of a written request to do so from the Non-Defaulting Party.
6.7.2
In the event that a Party elects to terminate a Service pursuant to Section 6.7.1, the TSA shall be deemed to continue in full force and effect in accordance with its terms, except with respect to such terminated Service.

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6.7.3
Unless otherwise specified, any breach in respect of the Service Schedule shall not constitute a breach of this TSA, and unless otherwise agreed in writing, the Parties will continue to provide Services and honor all other commitments under this TSA during the course of dispute resolution pursuant to Section 11, except to the extent such commitments are the subject of such dispute, controversy or claim.
6.8
Delivery of Data on Termination or Expiry
6.8.1
Except if and to the extent otherwise agreed in the Service Schedule and subject always to Regulation, in the event of the termination or expiry of a Service pursuant to this TSA:
(i)
to the extent that:
(a)
any Recipient Data is in the possession or reasonable control of the Provider or its Affiliates, the Provider shall provide to the Recipient such Recipient Data in its then-current format; and
(b)
any Provider Data is in the possession or reasonable control of the Recipient or its Affiliates, the Recipient shall provide to the Provider such Provider Data in its then-current format;
(ii)
once the Provider has provided the Recipient Data in accordance with Section 6.8.1.(i)(a), the Provider will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Recipient Data also relates to the Provider’s Group’s business; and
(iii)
once the Recipient has provided the Provider Data in accordance with Section 6.8.1.(i)(b) the Recipient will (to the extent reasonably practicable) delete or destroy its copy or copies of such data, unless required to maintain a copy by Regulation or the requirements of any Competent Authority or to the extent such Provider Data also relates to the Recipient’s Group’s business.
6.8.2
Unless otherwise agreed by the Parties, the Provider shall charge Recipient in respect of the costs incurred by the Provider in respect of complying with its obligations under this Section 6.8.
6.8.3
Any Recipient Data retained by Provider and any Provider Data retained by Recipient pursuant to Section 6.8.1 shall be subject to the Data Protection requirements set forth in Section 13 and the Confidentiality requirements set forth in Section 13 for as long as such data is retained.
6.9
Survival of Rights on Termination or Expiry
Termination or expiry of this TSA shall not affect any rights or obligations which may have accrued prior to termination or expiry. The obligations of each Party set out in any Section intended to

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survive such termination or expiry, including this Section 6.9 and Section 4, Section 8, Section 12, Section 13, Section 16, Section 17 and Section 20 shall continue in full force and effect notwithstanding termination or expiry of this TSA.
7
Migration
7.1
Migration
No later than the third month of the six month notice period specified in Section 6.4, the     Provider will:
7.1.1
submit a plan reasonably acceptable to the Recipient, specifying how the Provider will assist in the orderly handover of the terminated Services;
7.1.2
regularly update the plan to ensure that it reflects changes in the Services or terminated Services, and the methods of delivering the terminated Services; and
7.1.3
revise the plan from time to time in accordance with Recipient's reasonable directions.
7.2
Migration Plan
The Provider will as soon as reasonably practicable:

7.2.1
implement the plan referred to in Section 7.1; and
7.2.2
provide the Recipient with all information, documentation, Recipient software, Recipient Data, Recipient equipment and hardware and any work or records which are material to Recipient’s business. The Provider will also provide all other assistance reasonably required by the Recipient.
7.3
Migration Costs
The Recipient shall be responsible for any costs incurred by the Provider in relation to the migration services described in Sections 7.1 and 7.2.
8
Limitation of Liability and Indemnification
8.1
Exclusions from Liability
Notwithstanding anything herein to the contrary, no Party shall be liable for any special, indirect, incidental, consequential or punitive damages of any kind whatsoever in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform Provider’s or Recipient’s obligations under this TSA, as applicable, including to the extent that such liability is:
(i)
for or in respect of any loss of profit, loss of revenue, loss of goodwill or indirect or consequential losses, punitive, special or consequential damages; or

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(ii)
for the value of any lost or corrupted data; or
(iii)
for the costs of reconstituting, restoring or rectifying lost or corrupted data (in each case, other than to the extent arising from a breach of Section 19.1),
in each case of whatever nature regardless of whether such damages are foreseeable or whether the Provider or Recipient, as applicable, or any of its Affiliates has been advised of the possibility of such damages.
8.2
Cap on Damages and Exclusions
8.2.1
Except in the case of death or personal injury, fraud or fraudulent misrepresentation, or Charges that have come due in connection with the Services, the Provider’s and the Recipient’s aggregate liability to the other in respect of the Service shall be limited to an amount equal to 12 x the Monthly Charge for such Service, where “ Monthly Charge ” means the amount of Charges paid for the first full calendar month (which shall include any amounts invoiced directly to the Recipient by a Third Party Supplier in that month) of the relevant Service giving rise to the claim.
8.2.2
Except in the case of death or personal injury, fraud or fraudulent misrepresentation, or Charges that have been paid or come due in connection with the Services, each Party’s total aggregate liability to the other in connection with this TSA shall be limited to an amount equal to the total Charges for the Services paid and payable to Provider pursuant to this TSA during the 12 months prior to the first date an event giving rise to the liability occurred.
8.2.3
The limits on, and exclusions of, liability set out in this Section 8 shall not apply in respect of:
(i)
any liability for death or personal injury;
(ii)
any liability for fraud or fraudulent misrepresentation;
(iii)
any other liability that cannot be lawfully excluded; and
(iv)
the obligation of Recipient to pay Charges with respect to Services that have been provided.
8.3
Indemnification
8.3.1
Subject to the exclusions from liability in Section 8.1, the Provider and the Recipient agree to indemnify and hold harmless each other, and each of their directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively the “ Indemnitees ”), from and against any and all losses of the Indemnitees relating to, arising out of or resulting from any breach by a Party, of this TSA or the Service Schedule, to the extent caused by, resulting from or arising out of or in connection with the other Party’s infringement, misappropriation or violation of Intellectual Property Rights of a third party in connection with the provision or receipt of Services under this TSA;

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provided that.
(i)
the aggregate liability pursuant to this Section 8.3 shall not exceed the cap on damages in Section 8.2 (subject to the exclusions from the cap set forth therein); and
(ii)
the Provider shall have no liability under this Section 8.3 with respect to any infringement, misappropriation or violation of Intellectual Property Rights of a third party to the extent that such claim is based upon or related to:
(a)
Services that have been modified by the Recipient;
(b)
use of the Services in conjunction or combination with any software, data or other materials not provided by the Provider of the Services; or
(c)
use of the Services in a manner or for any purpose other than as directed by the Provider or as expressly permitted by this TSA.
9
Governance
9.1
Each party will appoint representatives with suitable qualifications, experience and authority to participate in the meetings and committees, and otherwise fulfil their respective functions.
9.2
The Provider and the Recipient will each manage and supervise the relationship set out in this TSA, through a body containing representatives of both the Provider and the Recipient as constituted from time to time.
10
Changes and Change Control
10.1
Changes
10.1.1
Subject to Sections 10.2 to 10.4 (inclusive), in the event that a Party wishes to make any Change it shall be managed by way of the “ Change Control Procedure ” as set forth in this Section 10.1.1.
(i)
Upon realization of the need for a Change, either Party shall provide prompt notice to the other Party of a Change request (“ Change Control Request ”) in writing specifying in as much detail as is reasonably practicable the nature of the proposed Change. Within four weeks of receipt of a Change Control Request, the Party that received such notice shall provide a response indicating whether it can make the proposed Change, its estimated costs of making the proposed Change and an estimated schedule for implementing the proposed Change.
(ii)
The timing of implementation of any Change will be determined by the Parties.

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10.2
Mandatory Change
10.2.1
Where a Change Control Request is in respect of a Mandatory Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss and agree the terms on which, and the time frame in which, each Party shall implement that Mandatory Change (which shall be within the time frame required to comply with the relevant Regulation, except where it would not be reasonable for each Party to implement such Mandatory Change within such time frame, in which case each Party shall implement such Mandatory Change as soon as reasonably practicable thereafter). The Parties shall work together in good faith to mitigate the consequences of any delay in implementing the Mandatory Change beyond the date required to comply with the Regulation.
10.2.2
To the extent that a Mandatory Change requested by a Party increases the cost to the Provider (including, for the avoidance of doubt, the costs and appropriate margin of implementing the Mandatory Change and incremental running costs and appropriate margin incurred by the Provider arising as a result of that Mandatory Change), then the increased cost and margin to the Provider will be added to the Charges paid by the Recipient for the relevant Service.
10.3
Discretionary Changes
10.3.1
Where a Change Control Request submitted by a Party is in respect of a Discretionary Change, the Parties shall, as soon as reasonably practicable thereafter, meet to discuss the terms of the Discretionary Change, including the payment of costs incurred by the Provider associated with the proposed Discretionary Change. For the avoidance of doubt, the Party being requested to implement a Discretionary Change may refuse to implement any Discretionary Change.
10.4
Emergency Change
10.4.1
If a Change is required to respond to an Emergency, the affected Party shall use commercially reasonable efforts to notify the other Party and obtain the other Party’s prior consent for the Change but, if the notifying party is the Provider and the Provider is not able to notify the Recipient and obtain consent, the Provider shall be entitled, without limiting any rights and remedies of the Recipient in respect of any breach of this TSA (as if such Change had not been made), to nevertheless make the minimum necessary temporary Change as necessary to respond to the Emergency in accordance with the terms of any applicable disaster recovery plans. As soon as practicable following the implementation of any temporary Change, the Provider shall notify the Recipient of the temporary Change and the nature of the Emergency and shall then retroactively comply with the terms of the Change Control Procedure.
10.4.2
“ Emergency ” means a Change that is required to ensure: (i) continued provision of, or the continued operation and integrity of the Services; or (ii) the continued operation and integrity of the Provider Systems, in each case the implementation of which cannot wait (including for reasons of stability and performance) for authorization through the Change Control Procedure.

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11
Dispute Resolution
11.1
Dispute Resolution Process
11.1.1
The Parties shall in the first instance attempt to resolve any dispute in relation to any aspect of, or failure to agree any matter arising in relation to, this TSA or any document agreed or contemplated as being agreed pursuant to this TSA (a “ Dispute ”) informally through discussion as follows:
(i)
the representatives will discuss to resolve the Dispute, and if the representatives cannot resolve the Dispute within 10 Business Days of the Dispute being referred to them, then;
(ii)
the Dispute shall promptly be referred by the representatives to a nominated senior individual of each Party (the “ Senior Nominees ”), and if the Senior Nominees cannot resolve the Dispute within 10 Business Days of the Dispute being referred to them (unless a longer period is mutually agreed), then;
(iii)
the dispute resolution process shall be deemed to have been exhausted in respect of the Dispute, and each Party shall be free to pursue its rights at law in respect of such Dispute without further reference to the dispute procedure under this Section 11.1.
This Section 11.1 does not limit the right of either Party to: (i) exercise any self-help remedies provided for herein; or (ii) file an action in a court of law, before, during, or after the dispute resolution process to obtain a provisional or interim remedy, and/or any ancillary, additional or supplementary remedy, provided that any such action shall be heard and determined exclusively in any court of competent jurisdiction sitting in England.
11.1.2
The Parties will discuss in good faith, at either Party’s request, measures to shorten the time contemplated by this Section 11 to complete the Dispute resolution process.
12
Intellectual Property Rights
12.1
Ownership
12.1.1
The Provider and the Recipient (or their respective licensors) will retain all right, title and interest in or to their respective Intellectual Property Rights.

12.2
License
12.2.1
Each party grants the other party a royalty-free, non-transferable, non-exclusive licence to use the Intellectual Property Rights solely for the purpose of providing or receiving the Services.
12.2.2
Both parties undertake to:

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(i)
comply with the other party’s reasonable directions (whether oral or written) relating to the manner of the use of the other Party’s Intellectual Property Rights;
(ii)
only modify the other party’s Intellectual Property Rights with the prior written consent of that other party and then only in the manner and to the extent authorised by that other Party; and
(iii)
treat all information relating to the other Party's Intellectual Property Rights as confidential in accordance with the terms of Section 13.
12.2.3
Neither Party shall:
(i)
sub-license, assign, transfer, charge or otherwise deal in or encumber the other Party’s Intellectual Property Rights or use the other Party’s Intellectual Property Rights on behalf of a third party; or
(ii)
remove or alter any copyright or proprietary notice on any materials in which the other Party’s Intellectual Property Rights are embodied.
13
Data Protection, Confidential Information and Record-keeping
13.1
Data Protection
13.1.1
Each Party acknowledges and agrees that, solely to permit it to perform its obligations pursuant to this TSA and the Service Schedule, the other Party may provide it with Confidential Information, including Personal Data. Each Party further acknowledges and agrees that it shall have the right to use the other Party’s Confidential Information, including Personal Data, solely to fulfill and perform its obligations under this TSA and otherwise comply with Regulations that apply to that Party. Regulation in respect of Personal Data may include U.S. federal data privacy laws and regulations such as the GLB Act, the Federal “Privacy of Consumer Financial Information” Regulation (12 CFR Part 30), as amended from time to time, issued pursuant to Section 504 of the GLB Act, and the Health and Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d), U.S. state data privacy laws such as the Massachusetts Data Protection Act (201 CMR 17) and, if applicable, international data privacy laws such as The Data Protection Act 1998 and Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and the free movement of such data. To the extent that the Recipient requires the Provider to comply with any Regulation in respect of Personal Data which does not apply to the Provider at law, then the Recipient shall (i) instruct the Provider of the same under Clause 13.1.2(i) and (ii) provide all reasonable assistance and information to the Provider in order to allow the Provider to comply with the same. Each Party may provide guidelines to help the other Party comply with such Regulation, but each Party using its own legal advisors will remain fully responsible, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, for interpreting and complying with such Regulation with

25
    


respect to its own business. A Party shall have no right to use, reuse or disclose any Personal Data to any person or entity for any reason not specifically permitted under this TSA or the Service Schedule.
13.1.2
Each Party confirms that, when it is processing data, it shall:
(i)
only process Personal Data in accordance with the other Party’s instructions; and
(ii)
take appropriate technical and organizational measures to protect Personal Data against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access and against all other unlawful forms of processing.
13.1.3
The Parties shall respectively comply with all Regulation, subject to the Change Control Procedure in respect of any change in Regulation after the date hereof, in respect of Confidential Information, including Personal Data, including securing such consents, registrations and notifications as may be required to enable the Provider and any Third Party Suppliers to provide the Services and to enable the Recipient to receive the Services.
13.2
Confidential Information
13.2.1
The Parties hereby covenant and agree to keep confidential all Confidential Information relating to the other Party. Without limiting the generality of the foregoing, each Party shall cause its employees and agents to exercise the same level of care with respect to Confidential Information relating to the other Party as it would with respect to proprietary information, materials and processes relating to itself. “ Confidential Information ” shall mean all information, materials and processes relating to a Party, its Affiliates, its employees, third party vendors, counterparties or customers obtained by the other Party at any time (whether prior to or after the date hereof) in any format whatsoever (whether orally, visually, in writing, electronically or in any other form) arising out of the rendering or receipt of Services hereunder (or preparations for the same or for the termination thereof) and shall include, but not be limited to, economic and business information or data, business plans, software and information relating to personnel, products, financial performance and projections, processes, strategies and systems but shall not include information which:
(i)
was already in possession of the other Party prior to the date hereof and for which no confidentiality obligation or other restriction on use previously existed;
(ii)
is or becomes generally available to the public other than by release in violation of the provisions of this Section 13;
(iii)
is or becomes available on a non-confidential basis to a Party from a source other than the other Party to this TSA, provided that the Party in question reasonably believes that such source is not or was not bound by an obligation to the other Party to hold such information confidential; and

26
    


(iv)
is acquired or developed independently by a Party without use or reference to otherwise Confidential Information of the other Party.
Except with the prior written consent of the other Party, each Party will use the other Party’s Confidential Information only in connection with the performance of its obligations hereunder and each Party shall use commercially reasonable efforts to restrict access to the other Party’s Confidential Information to those employees of such Party requiring access for the purpose of providing or receiving Services hereunder.
13.2.2
The provisions of Section 13.2.1 shall not prohibit a Party’s disclosure or use of the other Party’s Confidential Information if and to the extent such Confidential Information is made available to or used by the professional advisers or Third Party Suppliers of each Party for the provision or receipt of the Services, provided , however that in each case such professional advisors or Third Party Suppliers are subject to written confidentiality obligations in a form approved by the other Party (such approval not to be unreasonably withheld or delayed).
13.2.3
Each Party shall notify the other Party immediately of any suspected or known fraud relevant to its activities under this TSA or the Service Schedule, or of any unauthorized access, possession, use, or knowledge, or attempt thereof, of the other party's Confidential Information, or of the occurrence of any other incident relating to the Services that could cause financial, customer or reputational loss to another Party, and agrees to cooperate with the other Party to investigate the occurrence and mitigate the impact of such an event. Each Party shall promptly provide the other Party with full details of any such event and use all available efforts to prevent a recurrence of any such event.
13.2.4
Notwithstanding any provision of this Section 13 to the contrary, a receiving Party may disclose such portion of the Confidential Information relating to the disclosing Party to the extent, but only to the extent, the receiving Party reasonably believes that such disclosure is required Regulation or the rules of a Competent Authority or under a subpoena or other legal process; provided that if practicable and permissible under Regulation, or rules, the receiving Party shall first notify the disclosing Party of such requirement and allow such Party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure and cooperate with the disclosing Party in any lawful effort by the disclosing Party to contest the legal validity of such requirement and prevent such disclosure.
13.2.5
The Parties agree that monetary damages will not be an adequate remedy if this Section 13 regarding Data Protection and Confidential Information is breached and therefore, a disclosing Party shall, in addition to any other legal or equitable remedies, be entitled to seek injunctive relief against any breach or threatened breach of this Section 13 by the receiving Party with respect to the disclosing Party’s Confidential Information.
13.3
Record-keeping

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13.3.1
The Provider will at all times operate a consistent and generally accepted system of accounting in relation to, and maintain complete and accurate records of, and adequate supporting documents for the Service Records.
13.3.2
The Provider will maintain the Service Records:
(i)
in a manner and to a level of detail sufficient to justify the calculation of the Charges and to satisfy the requirements of the Regulation; and
(ii)
for the period required by the Regulation, and for a minimum of seven years after the Service Records are created.
14
Force Majeure
14.1
Force Majeure Events
For purposes of this TSA, “ Force Majeure ” means an event beyond the reasonable control of either Party, which by its nature was not foreseen by such Party, or, if it was foreseen, was not reasonably avoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, threat, declaration, continuation, escalation or acts of war (declared or undeclared) or acts of terrorism, any unauthorized, unlawful access by a third party to either Party’s computing systems other than as a result of such Party’s, failure or shortage of energy sources, strike, walkout, lockout or other labor trouble or shortage, delays by unaffiliated suppliers, and acts, omissions or delays in acting by any Competent Authority.
14.2
No Liability for Force Majeure
Without limiting the generality of Section 8.3, neither Party shall be under any liability for failure to fulfill any obligation under this TSA or the Service Schedule, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure; provided that (i) such Party shall have used commercially reasonable efforts to minimize to the extent practicable the effect of Force Majeure on its obligations hereunder and (ii) nothing in this Section 14.2 shall be construed to require the settlement of any strike, walkout, lockout or other labor dispute on terms which, in the reasonable judgment of the affected Party, are contrary to its interests. It is understood that the settlement of a strike, walkout, lockout or other labor dispute will be entirely within the discretion of the affected Party. The Party affected by the Force Majeure event shall notify the other Party of that fact as soon as practicable.
14.3
Delay Owing to Force Majeure
In the event of any such delay as a consequence of circumstances of Force Majeure, the Recipient of any affected Service may elect to either:
(i)
submit a Change Control Request to extend the time for performance of the affected Service for a period equal to the time lost by reason of the delay, provided

28
    


however, that such extension shall not extend beyond the Scheduled TSA End Date; or
(ii)
terminate this TSA in relation to those Services which are affected by the          Force Majeure event.
15
Employee Provisions
15.1
No Obligation to Transfer Employees
15.1.1
The Parties acknowledge and agree that the Acquired Rights Directive (Council Directive 77/187/EEC as amended by Council Directive 98/50 EEC and consolidated in Council Directive 2001/23/EEC) as amended (“ ARD ”) or any enactment of the ARD in any national law or any analogous national law will not apply on the commencement of the Services.
15.1.2
The Parties believe that on the cessation or partial cessation of the Services or any part of the Services on the termination, expiry or variation of this TSA, no transfer of the contracts of employment between a Provider or any Third Party Supplier (or any subcontractor thereof) and any of its/their employees to the Recipient or Successor Provider shall take place by reason of the ARD or any enactment of the ARD in any national law or any analogous national law.
15.1.3
Without prejudice to Section 15.1.1, if requested to do so by the Recipient at any time before the termination, expiry or variation of the Services, the Provider will (or will procure that) all persons working on the Services (“ Staff ”), whether employed/engaged by the Provider, by any Third Party Supplier or any subcontractor thereof, will be redeployed or otherwise removed from the Services before the cessation of those Services so that those Staff cease to be engaged within the Services and are not affected by any transfer pursuant to the ARD or any enactment of the ARD in any national law or any analogous national law that may otherwise occur on the cessation of those Services.
15.2
Pre-employment Screening
15.2.1
Subject to Regulation, the Provider shall require any individual it employs or engages in connection with the performance of its obligations under this TSA to have satisfied the screening procedures set out in the RBSG Policy for India, prior to such individual performing any Services hereunder:
15.2.2
In the event that:
(i)
the Provider is unable to comply fully with the pre-employment requirements above with respect to an individual;
(ii)
any pre-engagement screening activity returns information that otherwise indicates in the Provider's reasonable judgment that such individual should not be engaged to provide Services under this TSA,

29
    


then the Provider shall not engage the individual in relation to this TSA or the Service Schedule.
16
Communications with Competent Authorities
If either Party receives any material correspondence from any Competent Authority that relates to the Services, it will provide a copy of that correspondence to the other Party unless it is prevented from doing so by Regulation or such Competent Authority. The Parties shall consult with each other over such correspondence and shall only respond to the Competent Authority if:
16.1.1
the terms of the response have been approved by the other Party (such consent not to be unreasonably withheld or delayed); or
16.1.2
Regulation requires a response to the Competent Authority without the other Party’s consent.
17
Audit
17.1
Regulatory Audit Rights
17.1.1
The Provider shall (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services shall) promptly permit:
(i)
the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority); and
(ii)
any Competent Authority (or its designated representatives),
access to the Provider’s and Third Party Suppliers facilities and premises, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, and subcontractors to the extent required by the Competent Authority to perform an audit.
17.1.2
Subject to any restriction under Regulation or the direction of any Competent Authority, the Provider shall ensure it is (and shall use all commercially reasonable efforts to ensure its Third Party Suppliers providing material Services or a material element of the Services are) open and cooperative with the Recipient and its auditors and any Competent Authority (and its designated representatives) in performing its obligations under this Section 17.1 and shall provide such information, assistance, records and materials, access to persons engaged in the provision of the Services and explanations as required by the Recipient or its auditors (to the extent the Recipient and its auditors are directed by a Competent Authority) or the Competent Authority (including attending any meetings requested by the Recipient and/or the Competent Authority (or its designated representatives) and providing copies of any internal audit reports which are relevant to the Services). The Recipient shall provide as much notice of the audit as is reasonably practicable. Unless otherwise agreed

30
    


by the Parties, the Provider shall charge Recipient in respect of the costs incurred by the Provider in respect of such audits.
17.1.3
If and to the extent the Provider does not have the rights under its relevant Third Party Agreement to ensure its Third Party Supplier grants the rights described in Sections 17.1.1 and 17.1.2, any costs in procuring such rights shall be borne by the Recipient, provided that such costs were approved by the Recipient in writing before they were incurred. If the Recipient declines, or otherwise fails, to approve such costs, the Provider shall not be required to obtain the grant of the relevant rights by that Third Party Supplier.
17.2
General Audit Rights
17.2.1
With respect to the Service Schedule:
(i)
The Provider shall, from time to time, but in any event no more than twice in any 12-month period (subject to the exception in Section 17.2.1(ii)), during regular business hours and upon reasonable notice, permit the Recipient or its representatives to perform audits of the Provider’s (and to the extent commercially reasonable, its Third Party Suppliers’) facilities, equipment, books and records (electronic or otherwise), operational systems, employees, contractors, subcontractors, and such other audits as may be necessary to ensure the Provider’s and its Third Party Suppliers’ compliance with the terms and conditions of this TSA and the Service Schedule, as well as Regulation and to ensure the Provider’s financial and operational viability, including but not limited to the Provider’s internal controls, pre-engagement employee screening, information and other security, business resumption, continuity, recovery, Service Level compliance, and contingency plans.
(ii)
If an audit conducted pursuant to Section 17.2.1 (i) reveals any non-compliance or other deficiencies relating to risks to the Provider’s systems and facilities which could result in the unauthorized destruction, loss, alteration, disclosure of or access to the Recipient’s Confidential Information, then a senior technology executive of the Provider shall promptly meet with a representative of the Recipient to discuss the matter, and the Provider shall promptly take action to remedy the non-compliance or deficiencies and/or resolve the matters addressed by the qualification(s) so that any deficiencies that caused the qualified opinion to be issued are remedied to the Recipient’s reasonable satisfaction (including with respect to the timeline of the remediation). Notwithstanding the limitation on the number of audits in Section 17.2.1(i), the Provider shall permit the Recipient to perform an audit solely to the extent necessary to confirm that any non-compliance or deficiencies identified in an audit conducted pursuant to Section 17.2.1(i) have been remedied.
18
Sanctions

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18.1
Compliance with Sanctions Laws and Regulations
18.1.1
The Parties acknowledge that the Parties and their respective Affiliates are subject to the international sanction laws and regulations issued from time to time by HM Treasury, the European Union, the United States of America (including, but not limited to, all applicable regulations of the Office of Foreign Assets Control (“ OFAC ”), the Bank Secrecy Act and the USA Patriot Act (including such regulations that may require the Provider to implement a “Customer Identification Program” or “Know Your Customer Program” to confirm that no beneficiary or client of the Provider appears on any lists issued by OFAC, including the Specially Designated Nationals list, and determine whether transactions by or with such beneficiary or client may constitute suspicious activity, such as identity theft, fraud, money laundering, terrorist financing or other threats to national security)), and the United Nations.
18.1.2
Neither Party shall be obliged to make any payment under, or otherwise to implement any part of the Services, if in the reasonable opinion of the relevant Party to do so is illegal or there is involvement by any person (natural, corporate or governmental) listed in the HM Treasury, the European Union, the United States of America, the United Nations or local sanctions lists, or there is any involvement by any person located in, incorporated under the laws of, or owned or controlled by, or acting on behalf or, a person located in or organized under the laws of a country or territory that is the target of comprehensive sanctions.
19
Information Security
19.1
Information Security
19.1.1
A Party may not store, copy, disclose, or use the other Party’s Data for any purpose other than to the extent necessary to provide or receive, as applicable, the Services and to comply with Regulation.
19.1.2
Neither Party shall attempt to obtain access to, use or interfere with any information technology systems or data used or processed by the other Party except to the extent required to do so to provide or receive the Services (as applicable), or except to the extent expressly permitted to do so by this TSA.
19.1.3
Each Party shall maintain reasonable security measures to protect both Parties’ information technology systems, from third parties, and in particular from disruption by any “back door”, “time bomb”, “Trojan Horse”, “worm”, “drop dead device“, “virus” or other software routine intended or designed to (i) permit access or use of information technology systems by a third person other than as authorized by the Recipient or the Provider, or (ii) disable, damage or erase or disrupt or impair the normal operation of the Recipient’s or Provider’s information technology systems.
19.1.4
Each Party shall use reasonably up-to-date security measures to prevent unauthorized access to and unauthorized use of the information technology systems owned by the other Party (or, with respect to a Recipient, any member of the Recipient’s Group and, with respect to a Provider, any member of the Provider’s Group) and the other Party’s data

32
    


(including, with respect to a Recipient, the Recipient Data) by third parties (including Third Party Suppliers).
19.1.5
A Party shall not introduce any Disabling Device into any information technology environment or any system used by the other Party in connection with the Services. Without limiting a Party’s other obligations under this TSA, the Parties agree that, in the event any Disabling Device is found in the systems used to provide the Services, (i) if such Disabling Device originated in any software, deliverable or other resource provided under this TSA or the Service Schedule, the Party that introduced the Disabling Device shall, without prejudice to any other rights and remedies it may have, remove such Disabling Device at its sole expense and (ii) in any case (wherever such Disabling Device originated), the Party that introduced the Disabling Device shall exercise commercially reasonable efforts at no additional charge to eliminate, and reduce the effects of, the Disabling Device and, if the Disabling Device causes a loss of operational efficiency or loss of data, to mitigate such losses and restore such data using generally accepted data restoration techniques.
19.1.6
In addition to its other obligations set forth in this TSA,
(i)
whenever the Provider possesses, stores, processes or has access to the Recipient’s Personal Data, it shall comply with the applicable Fraud Prevention Policy; and
(ii)
whenever the Provider possesses, stores, processes or has access to the Recipient’s Confidential Information (inclusive of Personal Data), it shall comply with the applicable IS Requirements.
If requested, the Provider will explain to the Recipient how it complies with the Fraud Prevention Policy and the IS Requirements, and shall demonstrate its compliance upon request as set forth in Section 17.2.
19.1.7
Each Party shall make the other aware as soon as reasonably practical of any information security breach which may materially adversely impact the Services or the other Party’s business.
20
Other Provisions
20.1
Whole Agreement
20.1.1
This TSA constitutes the entire agreement between the Parties with respect to the subject matter hereof at the date hereof and supersedes all prior agreements and understandings, both oral or written, between the Parties in relation to the subject matter hereof.
20.1.2
In this Section 20.1, “ this TSA ” includes all documents entered into pursuant to it and/or this TSA.
20.2
No Construction Against Drafter

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The Parties acknowledge that this TSA and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties. Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of the TSA.
20.3
Publicity and Public Announcements
A Party must not make any public announcement relating to this TSA without the prior written approval of the other Party (such approval not to be unreasonably withheld, conditioned or delayed). This shall not affect any announcement required by Regulation, any Competent Authority or the rules of any stock exchange on which the shares of a Party are listed, but the Party with an obligation to make an announcement shall notify the other Party and take into account their reasonable representations so far as is reasonably practicable before complying with such obligation.
20.4
Further Assurances
Each Party shall, from time to time execute such documents, perform such acts and things as any Party may reasonably require to give full effect to the provisions of this TSA and the transactions contemplated therein.
20.5
Assignment
20.5.1
The provisions of this TSA shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns. Subject to Section 20.5.2, no Party may assign, delegate or otherwise transfer any of its rights or obligations under this TSA without the prior written consent of the other Party hereto.
20.5.2
The Provider may assign or in any way transfer or dispose of all or any of its rights under or derived from this TSA, or any part of them, to an Affiliate of the Provider.
20.6
Third Party Rights
Except where such rights are expressly granted by this Agreement, a person who is not a party to this TSA shall have no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. This Clause does not affect any right or remedy of any person which exists or is available otherwise pursuant to that Act.
20.7
Amendment and Waiver
20.7.1
Any provision of this TSA (including the Service Schedule hereto) may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this TSA, or in the case of a waiver, by the Party against whom the waiver is to be effective.
20.7.2
No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The

34
    


rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Regulation.
20.8
Notices
20.8.1
All notices, requests and other communications to any Party hereunder shall be in writing, (electronic mail (“ e-mail ”) transmission may be used, provided that a receipt of such e-mail is requested and received), and shall be given:
(i)
if to the Provider to:
RBS Global Trade Service Centre Private Limited
India Land Tech Park, Tower - A, Plot No.14, 3rd Main Street; Ambattur Industrial Estate, Ambattur,
Chennai 600058,
India
Attention: Santanu Bhadra, Trade Operations - CIB Customer Service & Operations
Email: santanu.bhadra@rbs.com
(ii)
if to the Recipient to:
Citizens Bank, N.A.
1 Citizens Drive
East Providence, RI 02915
USA
Attention: Jeff LeBlanc
Head of Consumer Operations, Senior Vice President
Email: Jeff.leblanc@citizensbank.com

Citizens Bank, N.A.
443 Jefferson Blvd
Warwick, RI 02886
USA
Attention: Heather Bentley
Head of Consumer Specialty Operations, Senior Vice President
Email: Heather.j.bentley@citizensbank.com

Citizens Bank, N.A.
100 Sockanosset Cross Rd
Cranston, RI 02920
USA
Attention: Jo Wyper
Head of Commercial Operations, Senior Vice President
Email: Joanne.c.wyper@citizensbank.com

or such other address or e-mail address as such Party may hereafter specify for the purpose by notice to the other Parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be

35
    


deemed not to have been received until the next succeeding Business Day in the place of receipt.
20.9
Severability
20.9.1
If any provision of this TSA or the application thereof to any Party or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to any of the Parties or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
20.10
Counterparts
20.10.1
This TSA may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Execution of this TSA or any other documents pursuant to this TSA by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as, executed by an original signature.
20.11
Independent Contractor
20.11.1
Nothing in this TSA shall constitute or be deemed to constitute a partnership or joint venture between the Parties hereto or constitute or be deemed to constitute any Party the agent or employee of the other Party for any purpose whatsoever and neither Party shall have authority or power to bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. The Parties hereto acknowledge and agree that when acting as a Provider, the other Party is an independent contractor in the performance of each and every part of this TSA and nothing herein shall be construed to be inconsistent with this status. Subject to the terms and conditions of this TSA, the Provider shall have the authority to select the means, methods and manner by which any Service is performed.
20.12
Governing Law and Submission to Jurisdiction
20.12.1 This TSA and the relationship between the parties will be governed by, and interpreted in accordance with English law.
20.12.2 Each of the parties agree that the courts of England are to have exclusive jurisdiction relating to court proceedings to settle any dispute (including claims for set‑off and counterclaims) which may arise in connection with the creation, validity, effect, interpretation or performance of, or the legal relationships established by, this TSA or otherwise arising in connection with this TSA and for the purposes irrevocably submit to the jurisdiction of the English courts.
20.13
Anti-Bribery Provisions

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20.13.1
Each Party agrees that it shall comply with, and that the Services will be performed in accordance with, the Anti-Corruption Laws, subject to the Change Control Procedure in respect of any change in Anti-Corruption Laws after the date hereof, and that it shall not cause, by act or omission, any other Party to be in breach of any Anti-Corruption Laws.
20.13.2
Each Party shall have in place and comply with its own anti-bribery and corruption policy to ensure that it complies with the Anti-Corruption Laws (each such policy, an “ Anti-Bribery and Corruption Policy ”). If requested, a Party shall provide to the other Party a copy of its Anti-Bribery and Corruption Policy and, if required, the providing Party will explain to the receiving Party how the features set out in its Anti-Bribery and Corruption Policy correspond to the receiving Party’s Anti-Bribery and Corruption Policy. Subject to the Change Control Procedure, the providing Party shall promptly implement any amendments to its Anti-Bribery and Corruption Policy which the receiving Party, acting reasonably, considers necessary following its review of the providing Party’s Anti-Bribery and Corruption Policy to ensure that the providing Party complies with the Anti-Corruption Laws.
20.13.3
Each Party shall review its Anti-Bribery and Corruption Policy on a regular basis and shall promptly implement and notify the other Party of any amendments to its Anti-Bribery and Corruption Policy which it considers necessary for continued compliance with the Anti-Corruption Laws.
20.13.4
Each Party shall cooperate with the other Party and promptly provide any information or confirmation which the other Party requires from time to time in connection with the obligations set forth in this Section 20.13. Each Party acknowledges that the other Party will place reliance upon the information provided.
20.13.5
Each Party shall immediately notify the other Party in writing of any suspected or known breach of its Anti-Bribery and Corruption Policy or any of the Anti-Corruption Laws.
20.13.6
Each Party shall have the right to suspend and/or terminate the Service Schedule for material breach immediately, or on such other time specified by the terminating Party, upon written notice to the Provider under the Service Schedule if: (i) the Provider, or any person employed by it or acting on its behalf (whether with or without the knowledge of such Service Provider) fails to comply with any of the Anti-Corruption Laws or is in material breach of the Provider’s Anti-Bribery and Corruption Policy; or (ii) a Party has a reasonable suspicion that an occurrence as specified in clause (i) of this Section 20.13.6 has occurred.
20.13.7
Regardless of any other provision in this TSA, no Party shall be obliged to do, nor obliged to omit to do, any act which would, in its reasonable opinion, put it in breach of any Anti-Corruption Laws.

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IN WITNESS WHEREOF, this TSA has been duly executed.

SIGNED  for and on behalf of RBS GLOBAL TRADE SERVICE CENTRE PRIVATE LIMITED  by:





/s/ Santanu Bhadra

SIGNED  for and on behalf of RBS GLOBAL TRADE SERVICE CENTRE PRIVATE LIMITED  by:





/s/ Sriram Kumar Krishnan

SIGNED  for and on behalf of CITIZENS BANK, N.A.  by:
 
/s/ Bruce Van Saun
 
 
 
 
 
 







38
    

CITIZENS FINANCIAL GROUP, INC.

CONVERTED EQUITY
2010 DEFERRAL PLAN





 


Table of Contents
Contents    Page
1
Meaning of words used    1
2
Operation of the Plan    6
3
Grant of Deferred Awards    7
4
Reduction of Deferred Award    10
5
Vesting of Deferred Awards    11
6
Leaving the CFG Group before Vesting    14
7
Corporate events    17
8
General Terms    18
Schedule A
A-1




i



Converted Equity 2010 Deferral Plan
Introduction
Under this Plan, Participants defer all or part of a cash bonus which might otherwise have been paid under any cash bonus plan operated by any Member of the CFG Group, in return for the grant of a Deferred Award under the Plan.
Further, Schedule A, annexed hereto, modifies certain provisions of the Plan with respect to awards granted after March 5, 2014.
1
Meaning of words used
1.1
In these Rules:
1.1.1
“ Acquiring Company ” means a Person described in rule 1.1.7(i) or rule 1.1.7(iii)(B), or the corporation or entity described in rule 1.1.7(iii)(A), in each case other than any Member of the CFG Group, in connection with a Change of Control;
1.1.2
“ Award Date ” means the date on which a Deferred Award is granted under rule 3.2;
1.1.3
“ Bond Awards ” means an instrument evidencing an obligation to pay an amount in accordance with its terms, as granted in accordance with rule 3;
1.1.4
“ Bonus ” means a bonus which might otherwise become payable under any bonus plan or arrangement operated by any Member of the CFG Group;
1.1.5
“ Cause ” means the Participant’s misconduct, capability, or any reason entitling the Participant’s employer to summarily terminate the Employee’s employment;
1.1.6
“ CFG Bonds ” means debt issued or to be issued by any Member of the CFG Group;
1.1.7
“ Change of Control ” means the occurrence of any one or more of the following events, except as otherwise provided in a Participant’s Deferred Award Certificate:
(i)
any Person, other than an employee benefit plan or trust maintained by the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s outstanding securities entitled to vote generally in the election of directors;
(ii)
at any time during a period of 12 consecutive months, individuals who at the beginning of such period constituted the Company’s board of directors and any new member of the board of directors whose election or nomination for election was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was so approved, cease for any reason to constitute a majority of members of the board of directors; or
(iii)
the consummation of (A) a merger or consolidation of the Company with any other corporation or entity, other than a merger or consolidation which would

1



result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or, if applicable, the ultimate parent thereof) at least 50% of the combined voting power and total fair market value of the securities of the Company or such surviving entity or parent outstanding immediately after such merger or consolidation, or (B) any sale, lease, exchange or other transfer to any Person of assets of the Company, in one transaction or a series of related transactions, having an aggregate fair market value of more than 50% of the fair market value of the Company and its subsidiaries (the “ Company Value ”) immediately prior to such transaction(s), but only to the extent that, in connection with such transaction(s) or within a reasonable period thereafter, the Company’s shareholders receive distributions of cash and/or assets having a fair market value that is greater than 50% of the Company Value immediately prior to such transaction(s).
Notwithstanding the foregoing or any provision of any Deferred Award Certificate to the contrary, for any Deferred Award that provides for accelerated distribution on a Change of Control of amounts that constitute “deferred compensation” (as defined in Section 409A of the Code), if the event that constitutes such Change of Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Company’s assets (in either case, as defined in Section 409A of the Code), such amount shall not be distributed on such Change of Control but instead shall vest as of the date of such Change of Control and shall be paid on the scheduled payment date specified in the applicable Deferred Award Certificate, except to the extent that earlier distribution would not result in the Participant who holds such Deferred Award incurring interest or additional tax under Section 409A of the Code.
1.1.8
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Code shall include any successor provision thereto.
1.1.9
“ Committee ” means the Compensation and Human Resources Committee of the Company and any individual or group of persons authorized by the Compensation and Human Resources Committee to exercise powers under the Plan;
1.1.10
“ Company ” means Citizens Financial Group, Inc. and any and all successor entities;
1.1.11
“ Competitive Activity ” means, as determined in the Committee’s sole discretion, engaging in any activity, accepting an offer of employment with, being employed by, participating in or otherwise being interested in any business with a competitor;
1.1.12
“ Conditional Cash ” means a conditional right to be paid a cash amount granted in accordance with rule 3;
1.1.13
“ Conditional Securities ” means a conditional right to acquire securities other than Shares, granted in accordance with rule 3;

2



1.1.14
“ Conditional Shares ” means a conditional right to acquire Shares granted in accordance with rule 3;
1.1.15
“ Conditional CFG Bonds ” means a conditional right to acquire CFG Bonds granted in accordance with rule 3;
1.1.16
“ Dealing Restrictions ” means restrictions on dealing in Shares, imposed by any applicable law, the principal stock market or exchange on which the Shares are quoted or traded, if any, or otherwise, as varied from time to time;
1.1.17
“ Deferred Award ” means Conditional Shares, Forfeitable Shares, Conditional Cash, Bond Awards, Conditional Securities, Phantom Conditional Securities, Phantom Options, Conditional CFG Bonds, or Options;
1.1.18
“ Deferred Award Certificate ” means any agreement, contract, deed, certificate or other instrument or document evidencing any Deferred Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant;
1.1.19
“ Detrimental Activity ” means, as established to the satisfaction of the Committee, and without the prior written consent of the Company (which consent should not be unreasonably withheld):
(i)
using or communicating in a manner which is not authorised in writing by any Member of the CFG Group or the RBS Group or required by law, any secret, confidential or proprietary information which is not publicly available concerning any Member of the CFG Group or the RBS Group or their respective clients or customers;
(ii)
directly or indirectly persuading or attempting to persuade any employee of any Member of the CFG Group or the RBS Group to breach any of the terms of their employment with any Member of the CFG Group or the RBS Group;
(iii)
at any time on or during the 12 months after the Relevant Date, either on the Participant’s own behalf or for or with any other person, whether directly or indirectly:
(1)
soliciting or inducing or endeavouring to solicit or induce to cease working for or providing services to any Member of the CFG Group or the RBS Group, any person with whom the Participant has had material dealings during the period of 2 years ending on the Relevant Date, including through any third party including recruitment intermediary, whether or not such person would thereby commit a breach of contract;
(2)
employing or otherwise engaging in any competitor any person with whom the Participant has had material dealings during the period of 2 years ending on the Relevant Date and who was during that period an employee of any Member of the CFG Group or the RBS Group;
(3)
enticing away, interfering with, soliciting or canvassing or endeavouring to entice away, interfere with, solicit or canvas the custom of any

3



customer or client, or prospective customer or client, of any Member of the CFG Group or the RBS Group with whom the Participant had, at any time in the 2 years before the Relevant Date, business dealings, negotiations or discussions during the course of his duties;
(4)
having business dealings with any customer or client, or prospective customer or client, of any Member of the CFG Group or the RBS Group, or any business which has had a trading relationship with any Member of the CFG Group or the RBS Group, in relation to which business, by reason of the Participant’s dealings during the period of 2 years ending on the Relevant Date, the Participant is or may be able to influence the trading relationship between that business and any Member of the CFG Group or the RBS Group;
(5)
endeavoring to cause any person, firm, company, organization or other entity who or which is an investor with or an exclusive supplier of services to any Member of the CFG Group or the RBS Group, to either cease investing in or doing business with, or materially alter the terms of its investment in or business with, any Member of the CFG Group or the RBS Group, as applicable, in a manner detrimental to that company;
(iv)
engaging in any behavior which in the reasonable opinion of the Committee is deliberately prejudicial to the good name of any Member of the CFG Group or the RBS Group; or
(v)
leaving or resigning without notice (or with insufficient notice) without the permission of the person’s employing entity, or engaging in any activity which in the reasonable opinion of the Committee is not consistent with providing an orderly handover of the person’s responsibilities.
1.1.20
“ Disciplinary Action ” for the purpose of rule 5.1, means any inquiry or investigation by any Member of the CFG Group into the conduct, capability or performance of a Participant that may potentially lead to disciplinary action being taken against that Participant, and/or any disciplinary procedure (whether in accordance with any relevant contractual obligation, policy or otherwise) that has been commenced by any Member of the CFG Group against a Participant;
1.1.21
“ Employee ” means any person who is an employee (whether full-time or part-time), including an executive director, of any Member of the CFG Group or who was an employee at any time from January 1 of the calendar year before the Award Date until the Award Date;
1.1.22
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Exchange Act shall include any successor provision thereto;
1.1.23
“ Expiry Date ” means the date on which all Bonus Awards and/or Deferred Awards granted or issued under the Plan that are outstanding as of the closing of the Company’s

4



underwritten initial public offering have been Vested, settled, delivered, forfeited, terminated, reduced or canceled or that have otherwise lapsed or expired, as applicable;
1.1.24
“ Forfeitable Shares ” means Shares held in the name of or for the benefit of a Participant subject to the Forfeitable Share Agreement and granted in accordance with rule 3;
1.1.25
“ Forfeitable Share Agreement ” means the agreement referred to in rule 3.6.2;
1.1.26
“ Member of the CFG Group ” means:
(i)
the Company and its Subsidiaries from time to time; and
(ii)
any other company which the Committee determines should be treated as a Member of the CFG Group;
1.1.27
“ Option ” means a right to acquire Shares or other instruments or securities, granted in accordance with rule 3, and exercisable between Vesting and the Option Expiry Date;
1.1.28
“ Option Expiry Date ” in relation to an Option, means the date on which an Option lapses and ceases to be exercisable, being the fifth anniversary of the Award Date, or such other date as may be specified under rule 3;
1.1.29
“ Participant ” means a person who has received a Deferred Award under rule 3 or, following the death of a Participant, his personal representatives;
1.1.30
“ Person ” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, and used in Sections 13(d) and 14(d) thereof, including “group” as defined in Section 13(d) thereof;
1.1.31
“ Phantom Conditional Securities ” means a right to be paid a cash amount representing the value of notional Conditional Securities, granted in accordance with rule 3;
1.1.32
“ Phantom Option ” means a right to be paid a cash amount representing the value of notional Shares, granted in accordance with rule 3;
1.1.33
“ Plan ” means this plan (including Schedule A) known as the “CFG Converted Equity 2010 Deferral Plan”, as amended from time to time;
1.1.34
“ Relevant Date ” means the date of termination of employment of the Participant or, if earlier, the date on which the Participant commenced garden leave;
1.1.35
“ RBS Group ” means The Royal Bank of Scotland Group plc and its subsidiaries (within the meaning of Section 1159 of the Companies Act 2006), other than any Member of the CFG Group;
1.1.36
“ Retention Period ” means a period of time commencing on the date of Vesting and ending on the date specified under rule 3.2.10 in respect of a Deferred Award as described in rule 5.8;
1.1.37
“ Shares ” means shares of the Company’s common stock, $0.01 par value per Share;

5



1.1.38
“ Subsidiary ” means (i) any entity that, directly or indirectly, is controlled by the Company or (ii) any entity in which the Company, directly or indirectly, has a significant equity interest, in each case as determined by the Committee;
1.1.39
“ Vesting ”, “ Vest ” and “ Vested ”, in relation to:
(i)
Conditional Shares, Conditional Securities and Conditional CFG Bonds, means a Participant becoming entitled to have the Shares, other securities or CFG Bonds transferred to him subject to the Plan;
(ii)
Forfeitable Shares, means the restrictions in the Forfeitable Share Agreement ceasing to have effect as described in rule 3.6.2(i);
(iii)
Conditional Cash, Bond Awards and Phantom Conditional Securities, means a Participant becoming entitled to payment of the amount due in accordance with the Plan; and
(iv)
an Option and a Phantom Option, means a Participant becoming entitled to exercise the Option or Phantom Option
without prejudice in all cases to the application of any restriction described in rule 5.8 (Retention Period) or any other condition imposed under rule 3.3.
2
Operation of the Plan
2.1
Timing of Operation
The Committee may operate the Plan at any time after its adoption and before its termination. Deferred Awards may only be granted within 42 days starting on any of the following:
2.1.1
the date of shareholder approval;
2.1.2
the day after the announcement of the Company’s results for any period;
2.1.3
any day on which the Committee resolves that exceptional circumstances exist which justify the grant of Deferred Awards;
2.1.4
the day an Employee joins any Member of the CFG Group, where the Deferred Awards are granted as a replacement for an incentive that would otherwise have been provided by the Employee’s previous employer;
2.1.5
any day on which changes to the legislation or regulations affecting share plans are announced, effected or made; or
2.1.6
the lifting of Dealing Restrictions which prevented the granting of Deferred Awards during any period specified above.
2.2
Selection of Participants
In relation to any operation of the Plan the Committee may select any Employee to participate in the Plan. However, a selected Employee who ceases to be an Employee before the Award Date in circumstances described in rule 6.2 will not receive a Deferred Award.

6



2.3
No Payment
A Participant is not required to pay for the grant of any Deferred Award.
2.4
No Grants of New Awards
No new Deferred Awards shall be granted under the Plan following the closing of the Company’s underwritten initial public offering (other than, for the avoidance of doubt, Deferred Awards received upon the conversion of awards granted to Employees of Members of the CFG Group by the RBS Group).
3
Grant of Deferred Awards
3.1
Determination of Deferred Awards
The Committee will, as soon as practicable following the end of a financial year in which the Plan is operated, determine, in respect of each selected Employee:
3.1.1
the proportion, if any, of the Bonus which will be subject to mandatory deferral under the Deferral Plan in return for the grant of a Deferred Award;
3.1.2
the form which the Deferred Award will take (Conditional Shares, Forfeitable Shares, Conditional CFG Bonds, Conditional Securities, Conditional Cash, Bond Awards, Phantom Options, Phantom Conditional Securities or an Option); and
3.1.3
the method of converting the amount of the Bonus into the subject matter of the Deferred Award.
3.2
Terms of Deferred Awards
Deferred Awards must be granted in the form of a Deferred Award Certificate. The terms of each Deferred Award must be specified in the Deferred Award Certificate and must include:
3.2.1
the Award Date;
3.2.2
the form of the Deferred Award;
3.2.3
the number of Shares, securities or notional securities and/or the amount of Conditional Cash, Bond Awards or CFG Bonds subject to the Deferred Award, in accordance with rule 3.4 or 3.6.1, as appropriate, and the amount of Bonus this represents;
3.2.4
the date or dates of Vesting for the Deferred Award, or any part of the Deferred Award, which for the avoidance of doubt may, if the Committee so determines, be the same as the Award Date;
3.2.5
in the case of an Option or a Phantom Option, the Option Expiry Date;
3.2.6
where relevant, the currency in which the Deferred Award is made and the basis for determining the rate of exchange to be used in converting the amount of the Deferred Award to that currency;
3.2.7
the portion of the Deferred Award, if any, to which rule 4 applies;

7



3.2.8
whether the Participant is entitled to receive a dividend equivalent under rule 5.2.5;
3.2.9
whether the Participant is entitled to receive notional interest under rule 5.4 and, if appropriate, the basis for determining the calculation of the notional interest; and
3.2.10
if a Retention Period applies, the date on which it ends.
3.3
Other terms of Deferred Awards
When granting Deferred Awards, the Committee may impose conditions. Those conditions must be set out in the Deferred Award Certificate and may be amended or waived by the Committee at any time in its discretion.
3.4
Deferred Award Certificate
Each Participant will receive a Deferred Award Certificate setting out the terms of the Deferred Award. This may be the Deferred Award Certificate referred to in rule 3.2 or any other document and it may be sent by e-mail or any other electronic means.
3.5
Deferred Awards – Shares and other securities
3.5.1
The number of Shares or other securities subject to an award (including an award structured as an Option or a Phantom Option) of Conditional Shares, Conditional Securities or Phantom Conditional Securities, is equal to the amount of Bonus subject to mandatory deferral under rule 3.1.1, on a gross basis before any taxation and social security contributions are withheld under rule 8.3, calculated as determined under rule 3.1.3.
3.5.2
A Participant shall not be entitled to receive dividends or to have any other rights of a shareholder in respect of Shares or other securities subject to such an award or Option unless and until the Shares or other securities are transferred to the Participant.
3.5.3
A Participant shall not in any circumstances be entitled to receive dividends or have any rights of a shareholder in respect of securities under an award of Phantom Conditional Securities or a Phantom Option.
3.5.4
If an award of Conditional Shares, Conditional Securities or Phantom Conditional Securities, or an Option, or a Phantom Option, lapses under the Plan, it cannot Vest and a Participant has no rights in respect of it.
3.6
Forfeitable Shares
3.6.1
On or as soon as practicable after the grant of an award of Forfeitable Shares the Committee will procure that the amount of Bonus subject to mandatory deferral under rule 3.1.1, on a net basis after any taxation and social security contributions are withheld under rule 8.3, is applied in the purchase or subscription of Shares at the price determined under rule 3.1.3. The Shares will then be transferred to a nominee to be held for the benefit of the Participant under the terms of the Plan.
3.6.2
Where the Deferred Award is in the form of Forfeitable Shares, the Participant must:

8



(i)
enter into an agreement with the Company, that to the extent the Deferred Award lapses under the Plan, the Shares are forfeited and his interest in the Shares will be immediately transferred, for no consideration or nominal consideration, to any person (which may include the Company, where permitted) specified by the Company;
(ii)
enter into any elections required by the Committee, including elections under Section 83(b) of the Code, and elections to transfer any liability, or agreements to pay, social security contributions; and
(iii)
sign any documentation, including a power of attorney or blank stock transfer form, requested by the Committee.
3.6.3
Except to the extent specified in the Forfeitable Share Agreement a Participant will be entitled to vote, to receive dividends and to have all other rights of a shareholder in respect of Forfeitable Shares until the Award lapses.
3.6.4
On the lapse of an Award of Forfeitable Shares, a Participant must transfer his interest in the Shares in accordance with the Forfeitable Share Agreement.
3.7
Deferred Awards - Conditional Bonds etc.
3.7.1
The number or value of CFG Bonds subject to an award (including an award structured as an Option or a Phantom Option) of Conditional CFG Bonds and the amount payable under an award of Conditional Cash or Bond Awards is determined under rule 3.1.3.
3.7.2
A Participant shall not be entitled to receive interest or to have any other rights of a bondholder in respect of CFG Bonds subject to an award or Option over Conditional CFG Bonds unless and until the CFG Bonds are transferred to the Participant.
3.7.3
If an award (including an award structured as an Option or a Phantom Option) of Conditional CFG Bonds, Conditional Cash or Bond Awards lapses under the Plan it cannot Vest and a Participant has no rights in respect of it.
3.8
Individual limit
A Deferred Award must not be granted to an Employee if it would, at the proposed Award Date, cause the market value of Shares subject to Deferred Awards that he has been granted in that financial year under the Plan to exceed the value of his Bonus or, where the Deferred Awards are granted as a replacement for an incentive that would otherwise have been provided by the Employee’s previous employer, the value of that incentive.
3.9
Plan limits
Subject to adjustment as provided in rule 7, the maximum number of Shares available for issuance under the Plan shall not exceed in the aggregate 1,992,319 Shares. Where the right to acquire Shares is released or lapses or is satisfied in cash or CFG Bonds, in whole or in part, the Shares concerned will become available for grant under the Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan, as amended from time to time.

9



For the purposes of this rule 3.9, if the Committee determines that the number of Shares subject to a Deferred Award will be reduced by a sufficient number of Shares as may be necessary to discharge any liability under rule 8.3.1, the number of Shares committed to be issued under that Deferred Award will be based on the net number of Shares to be transferred on Vesting, calculated by reference to applicable tax rates on the date of the Committee’s determination.
To the extent required by applicable law, Shares transferred from treasury will be counted as part of the ordinary share capital of the Company, and as Shares issued by the Company.
3.10
Compliance with Applicable Law and Exchange Listing Rules
No Shares will be issued under the Plan if such issuance would be in violation of any applicable law or any rule of the principal stock market or exchange on which the Shares are quoted or traded, if any.
4
Reduction of Deferred Award
4.1
Review of Deferred Awards
To the extent this rule 4 applies to a Deferred Award, the Committee may review Deferred Awards, or any individual Deferred Award, in the light of the performance of any Member of the CFG Group or the RBS Group and any business area or team, and the conduct, capability or performance of the Participant. The review may take place at any time determined by the Committee. In addition, the Committee may make any determination and take any action under this rule 4 in accordance with applicable law, including Section 10D of the Exchange Act.
4.2
Focus of Review
In carrying out a review, the Committee will consider:
4.2.1
in respect of the financial year in relation to which the Deferred Award was made:
(i)
whether the results announced for that financial year have subsequently appeared materially inaccurate or misleading;
(ii)
whether a business unit or profit center in which the Participant worked has subsequently made a loss out of business written in that year or from circumstances that could reasonably have been risk-managed in that year; and/or
(iii)
any other matter which appears relevant, and
4.2.2
the conduct, capability or performance of a Participant, and the performance of any team, business area or profit center, if the Committee deems that the circumstances warrant a review.
4.3
Reduction of Deferred Award
Following a review under rule 4.1, the Committee may make any determination in respect of any part of a Deferred Award that has not Vested, including for example:

10



4.3.1
reduce the number of Shares or other securities and/or the amount or value of CFG Bonds, Conditional Cash or Bond Awards subject to a Deferred Award;
4.3.2
determine that a Deferred Award will not Vest or will only Vest in part; and
4.3.3
determine that no amount, or a reduced amount, will be paid in respect of any dividend equivalent or notional interest.
5
Vesting of Deferred Awards
5.1
Timing of Vesting
Subject to rules 5.5.3, 6.3 and 7 a Deferred Award Vests on the date of Vesting specified at grant, or if on that date a Dealing Restriction applies to a Participant and the Committee so determines, it Vests in respect of that Participant on the first date on which the Dealing Restriction ceases to apply, but in no case will Vesting be delayed later than December 31 of the year in which Vesting would have occurred if not for such Dealing Restriction. However, Vesting is delayed in respect of a Participant’s Deferred Award, or any part of it, if any of the following circumstances apply on the anticipated date of Vesting:
5.1.1
if the Participant is subject to any Disciplinary Action;
5.1.2
if the Participant’s employment has terminated or is about to terminate in circumstances where it is not clear whether the Deferred Award should lapse under rule 6;
5.1.3
if a matter which may otherwise involve or affect that Participant has been referred to the Committee for review under rule 4; or
5.1.4
the Committee considers that it is necessary or appropriate to defer Vesting.
In these cases, Vesting will not occur unless and until the Committee determines that the Deferred Award should Vest. The Committee’s determination must be made before December 1 of the calendar year in which the date originally set for Vesting falls and any Shares or CFG Bonds that the Committee determines will Vest in accordance with this rule 5.1 shall be transferred to the Participant by December 31 of the calendar year in which the date originally set for Vesting falls. Any Deferred Award not transferred to the Participant by December 31 of the calendar year in which the date originally set for Vesting falls shall lapse.
5.2
Consequences of Vesting
Subject to any condition imposed under rule 3.3, the consequences of Vesting of a Deferred Award are as follows:
5.2.1
In relation to an award of Conditional Shares, Conditional Securities or Phantom Conditional Securities, as soon as practicable after Vesting (but in no event later than December 31 of the year in which Vesting occurs), the Participant will receive the number of Shares or securities (or value in cash) in respect of which it has Vested, unless the Committee determines that this is reduced by a sufficient number of Shares or securities (or value in cash) as may be necessary to discharge any liability under rule 8.3.1.

11



5.2.2
In relation to an award of Forfeitable Shares, to the extent it has Vested, the restrictions referred to in rule 3.6.2 and contained in the Forfeitable Shares Agreement between the Participant and the Company will cease to have effect. Any liability to taxation or social security contributions or other applicable taxes in respect of Deferred Awards will be dealt with in accordance with rule 8.3.
5.2.3
In relation to an award of Conditional CFG Bonds, as soon as practicable after Vesting (but in no event later than December 31 of the year in which Vesting occurs), the Participant will receive the number or value of CFG Bonds in respect of which it has Vested, including in relation to any notional interest under rule 5.4. CFG Bonds may be sold on the Participant’s behalf, either pursuant to rule 8.3 or in other circumstances which the Committee considers appropriate.
5.2.4
In relation to an award of Conditional Cash, Bond Awards, and Phantom Conditional Securities, the amount of cash payable in accordance with the terms of the award will be paid to the Participant in the next practicable payroll (but in no event later than December 31 of the year in which Vesting occurs), subject to deduction of tax under rule 8.3.
5.2.5
In relation to an Option or a Phantom Option, the provisions of this rule apply at the time of exercise in the same way as they would apply to an award that is not an Option or a Phantom Option at the time of Vesting.
5.3
Dividend equivalent
This rule applies if:
5.3.1
an award of Conditional Shares includes the right to receive an amount (known as a “dividend equivalent”) equal in value to the dividends which were payable on the number of Vested Shares during the period between the Award Date and the Vesting date. The right to a dividend equivalent may be granted under rule 3.2.8 at the time of grant, or by the Committee at any later time in its discretion. The dividend equivalent may be paid in cash or Shares (as determined from time to time by the Committee). Dividend equivalents will be paid to the Participant as soon as practicable after Vesting (but in no event later than December 31 of the year in which Vesting occurs), subject to rule 8.3;
5.3.2
an award of Conditional Securities includes the right to receive an amount (known as a “dividend equivalent”) equal in value to the dividends or other income payable on the Vested securities during the period between the Award Date and the Vesting date. The right to a dividend equivalent may be granted under rule 3.2.8 at the time of grant, or by the Committee at any later time in its discretion and may relate to all or some only of the Vested securities. Dividend equivalents will be paid to the Participant as soon as practicable after Vesting (but in no event later than December 31 of the year in which Vesting occurs), subject to rule 8.3; and
5.3.3
an Option over Shares or other securities includes the right to receive an amount (known as a “dividend equivalent”) equal in value to the dividends or other income payable on the Vested Shares or other Vested securities during the period between the Award Date

12



and the Vesting date. The right to a dividend equivalent may be granted under rule 3.2.8 at the time of grant, or by the Committee at any later time in its discretion and in the case of other securities, may relate to all or some only of the Vested securities. The dividend equivalent may be paid in cash or Shares (as determined from time to time by the Committee). Dividend equivalents will be paid to the Participant as soon as practicable after Vesting (but in no event later than December 31 of the year in which Vesting occurs), subject to rule 8.3.
5.4
Notional interest
5.4.1
An award of Conditional CFG Bonds may include the right to receive additional CFG Bonds on Vesting of the Conditional CFG Bonds to which they relate. The value of the additional CFG Bonds will be equal to interest on the value of the CFG Bonds in respect of which the related Conditional CFG Bonds have Vested, calculated at such rate or rates as the Committee may determine from time to time.
5.4.2
An award of Conditional Cash or Bond Awards may include the right to receive an additional amount on Vesting, equal to interest on the amount payable on Vesting, calculated at such rate or rates as the Committee may determine from time to time.
5.5
Cash, Share or CFG Bond alternative
On Vesting, the Committee may decide:
5.5.1
in respect of an award of Conditional Shares, to satisfy the portion which Vests by paying an equivalent amount in cash or by transferring an equivalent value in CFG Bonds (subject to rule 8.3); or
5.5.2
in respect of an award of Conditional CFG Bonds, to satisfy the portion which Vests by paying an equivalent amount in cash or by issuing or transferring an equivalent value in Shares (subject to rule 8.3); or
5.5.3
in respect of an Option over Shares or CFG Bonds, to satisfy the exercise by paying an equivalent amount in cash (subject to rule 8.3).
5.6
No double-dipping
5.6.1
It is intended that any Deferred Award is in substitution for, and not in addition to, any Bonus for the financial year in respect of which the Deferred Award was made.
5.6.2
In the event any Participant files any claim or demand in any court or tribunal of competent jurisdiction for a determination that the Participant was or is entitled, in addition to or in substitution for any Deferred Award, to be paid any Bonus (including, without limitation, a cash bonus) or any amount in lieu of any Bonus in respect of the financial year to which the Deferred Award relates, then to the extent the Deferred Award may not be Vested at the time the claim or demand is filed, the Vesting of that Deferred Award will be delayed, unless and to the extent that the Committee determines otherwise, until the court or tribunal makes its determination, whereupon rule 5.6.3 will apply.

13



5.6.3
In the event any court or tribunal of competent jurisdiction determines that the Participant was or is entitled, in addition to or in substitution for any Deferred Award, to be paid any Bonus (including, without limitation, a cash bonus) or any amount in lieu of any Bonus in respect of the financial year to which the Deferred Award relates, then that Deferred Award will, unless and to the extent that the Committee determines otherwise, no longer be capable of Vesting and, to the extent that it has already Vested, it will be forfeited and any amount received by the Participant, whether in cash and/or Shares and/or CFG Bonds (or their value) must be repaid or returned to the Company.
5.6.4
No Deferred Award that Vests under rule 5.5.3 shall Vest prior to the date originally set for Vesting except to the extent such early Vesting and payment is in accordance with Treasury Regulation Section 1.409A-3(j)(4)(xiv). Any delayed Vesting under rule 5.5.3 shall be only as in accordance with Treasury Regulation Section 1.409A-3(g).
5.7
Income tax before Vesting
If a Participant is liable for income tax in relation to a Deferred Award before it Vests, the liability may be discharged by the Participant’s employer (by making a payment to the relevant taxing authorities or to the Participant personally), provided the value of the Deferred Award is reduced by a corresponding amount or, in respect of an award of Forfeitable Shares, Shares to the value of that liability are transferred and/or sold as the Committee may direct.
5.8
Retention Period
If a Retention Period applies to a Deferred Award, the Participant must not dispose of the Shares or other assets which are acquired on the Vesting of the Deferred Award until the end of the Retention Period, except so far as is necessary to discharge any tax liability arising on the Vesting, in accordance with rule 8.3.
6
Leaving the CFG Group before Vesting
6.1
General rule on leaving employment
6.1.1
If a Participant ceases to be an employee of any Member of the CFG Group, unless otherwise provided in a Participant’s Deferred Award Certificate, a Deferred Award which has not Vested will not lapse but will Vest on the date or dates originally set for Vesting, subject to:
(i)
any reduction which may be applied under rule 4;
(ii)
rule 5.1 (timing of Vesting);
(iii)
rule 5.5.3 (no double-dipping);
(iv)
rule 6.2 (termination for Cause);
(v)
rule 6.3 (death);
(vi)
rule 6.3.3 (Competitive Activity and Detrimental Activity);

14



(vii)
any determination which the Committee may make under rule 7 (corporate events); and
(viii)
any other conditions or restrictions which the Committee may consider appropriate; however, no conditions or restrictions under this rule 6.1.1 shall affect the timing of Vesting or payment as set forth in the Plan to the extent it would cause the Plan to fail to meet the requirements of Section 409A of the Code.
6.2
Termination for Cause
6.2.1
If a Participant ceases to be an employee of any Member of the CFG Group due to termination for Cause, or if the Participant resigns in circumstances which would entitle his employer to summarily terminate his employment, unless otherwise provided in the Participant’s Deferred Award Certificate, then subject to rule 6.2.2 his Deferred Award will lapse on the date the Participant ceases to be an employee of any Member of the CFG Group.
6.2.2
If a Participant receives notice that his employment with any Member of the CFG Group will be terminated for Cause, the Committee may decide that a Deferred Award which has not Vested will lapse on the date on which the Participant receives such notice of termination (whether or not such termination is lawful).
6.2.3
Any reference in this rule 6.2 to a termination for Cause shall include a termination where either (a) the primary reason or (b) any significant reason for the termination is Cause in the honest and reasonable opinion of the Participant’s employer.
6.3
Death
If a Participant dies, unless otherwise provided in the Participant’s Deferred Award Certificate, his Deferred Award will not lapse and the consequences will be as set out in rule 6.3.1 or 6.3.2 or 6.3.3 below, as appropriate:
6.3.1
An award of Conditional Shares, Conditional CFG Bonds, Conditional Securities, or Phantom Conditional Securities will be satisfied by paying a cash amount equivalent to their value on the date of death to the Participant’s personal representatives as soon as practicable after production of a valid grant of probate (or local equivalent subject to the satisfaction of the Committee) (but in no event later than the later of December 31 of the year of the Participant’s death or the 15th day of the third calendar month following the Participant’s death). The date of the Participant’s death will be treated as the Vesting of the award for the purposes of these rules.
6.3.2
In relation to an award of Forfeitable Shares, the restrictions referred to in rule 3.6.2 and contained in the Forfeitable Shares Agreement between the Participant and the Company will cease to have effect on the date of death. The Shares comprised in the award of Forfeitable Shares will be transferred to the Participant’s personal representatives as soon as practicable after production of a valid grant of probate (or local equivalent subject to the satisfaction of the Committee).

15



6.3.3
An award structured as an Option or a Phantom Option will become exercisable after production of a valid grant of probate (or local equivalent subject to satisfaction of the Committee), but in no event later than the later of December 31 of the year of the Participant’s death or the 15 th day of the third calendar month following the Participant’s death, and may be exercised by the Participant’s personal representatives within three months after becoming exercisable, and will lapse if not exercised within 18 months after the date of death. On exercise, the Option or Phantom Option will be satisfied by paying a cash amount equivalent to the market value of the relevant Shares, CFG Bonds or securities on the date of exercise less the exercise price, if any. The date of the Participant’s death will be treated as the date of Vesting of the award for the purposes of these rules.
6.4
Competitive Activity and Detrimental Activity
6.4.1
If a Participant voluntarily ceases to be an employee of any Member of the CFG Group, any portion of his Deferred Award which has not Vested will lapse if he engages in Competitive Activity or Detrimental Activity, except to the extent the Committee may determine otherwise.
6.4.2
If a Participant ceases to be an employee of any Member of the CFG Group due to redundancy, as determined by the Committee, any portion of his Deferred Award which has not Vested will lapse if he engages in Detrimental Activity, except to the extent the Committee may determine otherwise.
6.4.3
If requested, the Participant must certify that he has not engaged in Competitive Activity and/or Detrimental Activity, as appropriate, by the date or dates specified by the Committee. If the Participant does not certify this by the specified date, any portion of his Deferred Award which has not Vested will lapse on that date, except to the extent the Committee may determine otherwise.
6.4.4
This rule applies to an award structured as an Option or a Phantom Option which has Vested but has not been exercised, in the same way as it applies to a Deferred Award which has not Vested.
6.5
Meaning of “ceasing to be an employee”
6.5.1
For the purposes of this rule 6, a Participant will not be treated as ceasing to be an employee of a Member of the CFG Group until he ceases to be an employee of all Members of the CFG Group, or if he recommences employment with any Member of the CFG Group within 7 days of so ceasing. However, the Committee may decide that a Participant’s employment should be treated as ceasing on the date he gives or receives notice of termination of employment, whether or not such termination is lawful. A Participant who takes voluntary unpaid leave from employment with any Member of the CFG Group shall be treated as having ceased employment on the date the leave commences. However, the Committee may decide that a Participant should be treated as having ceased employment on the date notice of intention to take leave is given by the Participant, or on such later date as may be considered appropriate.

16



6.5.2
For the avoidance of doubt, rule 6.1 and 6.2 do not apply to a Participant whose employment had already terminated before the Award Date.
7
Corporate events
7.1
Rights issues, demergers and other corporate events
7.1.1
If the Committee becomes aware that the Company is or is expected to be affected by any variation in share capital, demerger, distribution (other than an ordinary dividend), Change of Control, delisting or other transaction which, in the opinion of the Committee could affect the current or future value of Shares or CFG Bonds, Deferred Awards are not affected unless and to the extent that the Committee determines to:
(i)
cause Deferred Awards to lapse;
(ii)
require Deferred Awards to be exchanged under rule 7.3;
(iii)
adjust the number of Shares comprised in an award of Conditional Shares, and such other terms of the Conditional Shares as appear appropriate, but only in accordance with Treasury Regulations Section 1.409A-1(b)(5)(v)(D); and/or
(iv)
take any other appropriate action, subject to Section 409A of the Code (which may include, for the avoidance of doubt, allowing Deferred Awards to be exchanged for new awards on equivalent terms (so far as practicable)).
7.1.2
Subject to the Forfeitable Share Agreement, a Participant will have the same rights as any other shareholders in respect of Forfeitable Shares where there is a variation or other event of the sort described in rule 7.1.1. Any shares, securities or rights allotted to a Participant as a result of such an event, other than a Change of Control, will be:
(i)
treated as if they were awarded to the Participant under the Plan in the same way and at the same time as the Forfeitable Shares in respect of which the rights were conferred; and
(ii)
subject to the rules of the Plan and the terms of the Forfeitable Share Agreement.
7.2
Committee
If this rule applies on a Change of Control (except in relation to an exchange under rule 7.3), “ Committee ” means Committee as constituted immediately before the Change of Control, and includes those people who were authorized at that time.
7.3
Exchange of Deferred Awards
7.3.1
Where the Committee determines that an award of Conditional Shares or Option to acquire Shares is to be exchanged for a new award, the terms of the new award will:
(i)
confer a right to acquire shares in the Acquiring Company or another body corporate determined by the Acquiring Company;

17



(ii)
be subject to terms which are and have a value which is equivalent, as far as practicable, to the existing award of Conditional Shares or Option;
(iii)
be treated as having been acquired at the same time as the existing award of Conditional Shares or Option and, subject to paragraph (iv) below, Vests in the same manner and at the same time;
(iv)
be in respect of a number of shares which is equivalent to the number of Shares comprised in the existing award of Conditional Shares or Option which would have Vested under rule 7.1.1(i); and
(v)
be governed by the Plan as if references to Shares were references to the shares over which the new award is granted and references to the Company were references to the Acquiring Company or another body corporate determined by the Acquiring Company.
7.3.2
Where the Committee determines that an award of Forfeitable Shares is to be exchanged for a new award, the Participant may be required to exchange some or all of his Forfeitable Shares for other securities or to sell them and use the proceeds to buy other securities on such terms as the Committee may determine and these rules will apply to those other securities as if they were Forfeitable Shares.
7.3.3
Where rules 7.1.1(ii) and 7.3.1 apply, any exchange of Deferred Awards shall be in accordance with Treasury Regulations Section 1.409A-1(b)(5)(v)(D) to the extent necessary to maintain compliance with Section 409A of the Code.
8
General Terms
8.1
Transfer of Deferred Awards
A Participant may not transfer, assign or otherwise dispose of a Deferred Award or any rights in respect of it. This rule 8.1 does not apply to the transmission of a Deferred Award on the death of a Participant to his personal representatives.
8.2
Company documents
The Company is not required to send to any Participant holding an award of Conditional Shares or an Option to acquire Shares and/or Conditional CFG Bonds a copy of any documents which the Company is required to send to its shareholders or bondholders.
8.3
Withholding
8.3.1
The Company, any employing company, any Member of the CFG Group or trustee of any employee benefit trust, may withhold any amounts or make such arrangements as it considers necessary to meet any liability to taxation or social security contributions or other applicable taxes in respect of Deferred Awards.
8.3.2
The Company, any employing company, any Member of the CFG Group or trustee of any employee benefit trust operated by any Member of the CFG Group may withhold or

18



offset any amounts or make such arrangements as it considers necessary to repay any outstanding liability of any Participant.
8.3.3
Subject to rule 5.2.1, any arrangements in this rule 8.3 may include the sale or reduction in number of Shares or other securities, or the amount or value of CFG Bonds comprised in a Deferred Award.
8.3.4
Without limiting the generality of this rule 8.3, to the extent any taxes (e.g., Federal Insurance Contributions Act (FICA) taxes) are due with respect to a Deferred Award in any year(s) prior to the year(s) of Vesting, the Company may, to the extent permitted by applicable law, in its discretion withhold any or all of the amount due in respect of such taxes 8.3.11 from any compensation (including salary; bonus and other incentive awards; or special payments) otherwise payable to the Participant during such year or 8.3.12 by reducing the amount of any deferred award by the amount of any such taxes.
8.4
Discretionary nature of the Plan
8.4.1
Nothing in this Plan or the operation of the Plan will form part of the contract of employment or other relationship with any Member of the CFG Group of any Employee, Participant or any other person. The fact that one or more Deferred Awards have been made to an Employee does not create any right to, or expectation of, continued employment.
8.4.2
No Employee is entitled to participate in, or be considered for participation in, the Plan at all or at a particular level. Participation in the Plan does not imply any right to participate, or to be considered for any future participation.
8.4.3
The terms of the Plan do not entitle the Employee to the exercise of any discretion in his favor.
8.4.4
No Employee will have any right to compensation or damages or any other sum or benefit in respect of the Plan, including, without limitation, in relation to:
(i)
his eligibility to participate, or ceasing to be eligible to participate, or ceasing to participate in the Plan;
(ii)
any exercise of a discretion or a decision taken in relation to the Plan or the Plan’s operation (whether or not this disadvantages the Employee concerned);
(iii)
any loss or reduction of any rights or expectations under the Plan in any circumstances or for any reason (including lawful or unlawful termination of employment or the employment relationship); and
(iv)
any tax liability or any other fiscal detriment suffered in relation to the reduction or forfeiture of a Deferred Award.
8.4.5
Participation in the Plan is permitted only on the basis that any rights that are not expressly set out in this Plan are excluded. Each Participant will be required to waive any such excluded rights in consideration for, and as a condition to, participating in the Plan.

19



8.4.6
Nothing in this Plan confers any benefit, right, remedies, obligations, liabilities or expectation on any Person who is not an Employee. But this does not affect any other right or remedy of a third party which exists or is available.
8.4.7
For the avoidance of doubt, this rule applies throughout the employment of any Employee, after the termination of the employment, and during any period when the Employee has given or received notice to terminate his employment (whether such termination is lawful or unlawful).
8.5
Committee’s decisions final and binding
The decision of the Committee in connection with any interpretation of the rules of the Plan or in any dispute relating to any matter relating to the Plan will be final and conclusive.
8.6
Regulations
The Committee has power from time to time to make or vary rules or regulations for the administration and operation of the Plan. However, no such rule or regulation shall affect the timing of Vesting or payment as set forth in the Plan to the extent it would cause the Plan to fail to meet the requirements of Section 409A of the Code.
8.7
Deferred Awards non-pensionable
Deferred Awards do not form part of a Participant’s remuneration for the purpose of determining entitlement to any benefit of employment including any pension or retirement benefit, life insurance, permanent health insurance or other similar benefit, whether existing or subsequently introduced.
8.8
Employee trust
The Company and any Subsidiary may provide money to the trustee of any trust or any other person to enable them or him to acquire Shares or other assets to be held for the purposes of the Plan, or enter into any guarantee or indemnity for those purposes, to the extent permitted by applicable law.
8.9
Consents
All transfers of Shares and CFG Bonds will be subject to any necessary consents under any applicable law or regulations for the time being in force in the United States or elsewhere, and it will be the individual’s responsibility to comply with any requirements to be fulfilled in order to obtain or obviate the necessity for any such consent.
8.10
Notices
Any notice or other document which has to be given to an Employee or Participant under or in connection with the Plan may be delivered or sent by mail to him at his home address according to the records of his employing company or sent by e-mail or fax to any e-mail address or fax number which according to the records of his employing company is used by him, or in either case such other address which the Company considers appropriate.

20



Any notice or other document which has to be given to the Company or other duly appointed agent under or in connection with the Plan may be delivered or sent by mail to it at its respective registered office (or such other place as the Committee or duly appointed agent may from time to time decide and notify to Participants) or sent by e-mail or fax to any e-mail address or fax number notified to the sender.
Notices sent by mail will be deemed to have been given on the second day after the date of mailing. However, notices sent by or to a Participant who works outside the United States will be deemed to have been given on the seventh day after the date of mailing.
Notices sent by e-mail or fax, in the absence of evidence to the contrary, will be deemed to have been received on the day after sending.
8.11
Data protection
By participating in the Plan each Participant consents to the holding and processing of personal data provided by such Participant to the Company, any Member of the CFG Group and any other persons or entities for all purposes relating to the operation of the Plan. These include, but are not limited to:
8.11.1
administering and maintaining Participants’ records;
8.11.2
providing information to trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan;
8.11.3
providing information to future purchasers of the Company or the business in which the Participant works; and
8.11.4
transferring information about the Participant to a country or territory outside the United States.
8.12
Amendment
8.12.1
Except as described in the rest of this rule 8.12, subject to (i) applicable law and the rules and regulations of the primary stock market or exchange on which the Shares are quoted or traded (if any) and (ii) the approval of the RBS Group Performance and Remuneration Committee of the Board of Directors, the Committee may at any time change the Plan in any way.
8.12.2
Except as described in rule 8.12.3, the Company in a general meeting must approve in advance by ordinary resolution any proposed change to the Plan to the advantage of present or future Participants, which relates to:
(i)
the Participants;
(ii)
the limits on the number of Shares which may be issued under the Plan;
(iii)
the individual limit for each Participant under the Plan;
(iv)
the basis for determining a Participant's entitlement to, and the terms of, securities, cash or other benefit to be provided and for the adjustment thereof (if any) if there is a capitalization issue, rights issue or open offer, sub-division

21



or consolidation of shares or reduction of capital or any other variation of capital; or
(v)
the terms of this rule 8.12.1.
8.12.3
The Committee can change the Plan and need not obtain the approval of the Company in a general meeting for any minor changes:
(i)
to benefit the administration of the Plan;
(ii)
to comply with or take account of the provisions of, or changes to, any proposed or existing applicable law or rules of the stock market or exchange, if any, on which the Shares are principally quoted or traded; or
(iii)
to obtain or maintain favorable tax, exchange control or regulatory treatment of the Company, any Member of the CFG Group or any present or future Participant.
8.12.4
No amendment under this rule 8.12 shall affect the timing of Vesting or payment as set forth in the Plan to the extent it would cause the Plan to fail to meet the requirements of Section 409A of the Code.
8.12.5
Without limiting rules 8.6 and 8.12, the Committee expressly reserves the right to amend, prospectively or retroactively, the Plan and any outstanding Deferred Awards, to the extent necessary to maintain compliance with Section 409A of the Code.
8.13
Severability
By participating in the Plan, each Participant agrees and acknowledges that the restrictions contained in the Plan are reasonable and necessary to protect the business of the Company and all Subsidiaries (including, but not limited to, its confidential information, customer relations and goodwill and its employees) and that the benefits each Participant receives under this Plan are sufficient compensation for these restrictions. Each of the obligations in the Plan is an entire, separate and independent restriction on each Participant, despite the fact that they may be contained in the same phrase and if any part is found to be invalid or unenforceable the remainder will remain valid and enforceable. While the restrictions are considered to be fair and reasonable in the circumstances, each Participant agrees that if any of them should be determined to be void or ineffective by a court or tribunal of competent jurisdiction for any reason, but would be treated as valid and effective if part of the wording was deleted or the period was reduced in scope, they shall apply with such modifications only as necessary to make them valid and effective.
8.14
Effective Date and Termination of the Plan
The Plan shall be effective as of the effective date of the Company’s underwritten initial public offering (the “ Effective Date ”). The Plan will terminate on the Expiry Date, but the Committee may terminate the Plan at any time before that date. The termination of the Plan will not affect existing Deferred Awards.
8.15
Section 409A of the Code

22



With respect to Deferred Awards subject to Section 409A of the Code, the Plan is intended to comply with the requirements of Section 409A of the Code, and the provisions of the Plan and any Deferred Award Certificate shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Deferred Award would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything else in the Plan, if the Committee considers a Participant to be a “specified employee” under Section 409A of the Code at the time of such Participant’s “separation from service” (as defined in Section 409A of the Code), and the amount hereunder is “deferred compensation” subject to Section 409A of the Code, any distribution that otherwise would be made to such Participant with respect to a Deferred Award as a result of such “separation from service” shall not be made until the date that is six months after such “separation from service,” except to the extent that earlier distribution would not result in such Participant’s incurring interest or additional tax under Section 409A of the Code. If the Deferred Award includes a “series of installment payments” (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Participants’ right to the series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment and if the Deferred Award includes “dividend equivalents” (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), the Participant’s right to the dividend equivalents shall be treated separately from the right to other amounts under the Deferred Award. Any payments to be made under this Plan upon a termination of employment shall only be made upon a “separation from service” under Section 409A of the Code. Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Deferred Award Certificate is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A of the Code.
8.16
Governing Law
The Plan and each Deferred Award Certificate shall be governed by the laws of the State of Delaware, without application of the conflicts of law principles thereof. Each Participant waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with the Plan.

23



SCHEDULE A
For All Deferred Awards Granted After March 5, 2014
This schedule modifies the Plan with respect to all Deferred Awards granted after March 5, 2014. To the extent section cross-references are modified or sections are renumbered as a result of the provisions included in this Schedule A, the Plan shall be read to give effect to the revised cross-references and section numbers, as applicable.
1.
Section 1.1 is amended to include the following terms:
“ Approved Plan ” means any plan approved by HM Revenue & Customs under the Income Tax (Earnings and Pensions) Act 2003;

“ Clawback ” means the obligation to repay amounts to a Member of the CFG Group by an individual in accordance with rule 4 as the Committee considers appropriate;

“ Malus ” means the reduction of elements of an individual’s remuneration in accordance with rule 4 as the Committee considers appropriate;

2.
Section 4.1 is replaced with the following:
4    Malus and Clawback
4.1 Review of Deferred Awards

4.1.1
The Committee may decide at any time before a Deferred Award Vests, or for such period after a Deferred Award Vests that the Committee determines is appropriate, that any Participant will be subject to Malus and/or Clawback in the light of:
(i)
the performance of the Company, any Member of the CFG Group, the RBS Group and any business area or team, and the conduct, capability or performance of the Participant; and/or
(ii)
any legal or regulatory requirement on the Company or any Member of the CFG Group or the RBS Group to apply Malus and/or Clawback in relation to the Company, any Member of the CFG Group, the RBS Group or any business area or team or the Participant; and/or
(iii)
non-compliance with any legal or regulatory requirement relating to the Company, any Member of the CFG Group, the RBS Group and any business area or team or the Participant; and/or
(iv)
any other matter which the Committee considers relevant.
4.1.2
To give effect to Malus and/or Clawback in respect of a Participant the Committee may take any action, including but not limited to:
(i)
reducing (if appropriate, to zero) the amount of any Bonus which would otherwise be payable; and/or
(ii)
reducing (if appropriate, to zero):

A-1



(a)
the number or amount of Shares, or other securities and/or the amount or value of RBS Bonds, Conditional Cash or Bond Awards subject to a Deferred Award; and/or

(b)
the number or amount of any assets relating to any awards (which have been granted to the Participant under any other employee share plan or incentive plan (other than an Approved Plan)) operated by any Member of the CFG Group; and/or
 
(c)
the extent to which any Deferred Award held by the Participant Vests or becomes exercisable; and/or

(d)
the extent to which any award granted to the Participant under any other employee share plan or incentive plan (other than any Approved Plan) operated by any Member of the CFG Group vests or becomes exercisable,

in each case notwithstanding the extent to which any conditions imposed on such Awards or awards may be or have been satisfied; and/or
(iii)
reducing (if appropriate, to zero) any amount otherwise payable under rules 5.3 or 5.4.
(iv)
requiring the Participant to pay or repay any amounts as may be required for the Malus or Clawback to be satisfied in full (which, without limitation, may be deducted from the Participant's salary or any other payment to be made to the Participant by any Member of the CFG Group).
4.1.3
Where Clawback is proposed to be operated, account will be taken of any tax or social security actually paid (or due to be paid) by the Participant in respect of the amount proposed to be subject to Clawback, unless and to the extent that the Participant can claim relief in respect of such tax or social security.
3.
Section 4.2 is replaced with the following:
4.2    Reduction in Deferred Awards to give effect to provisions in other plans
The Committee may decide to take any of the actions described in rule 4.1.2 to give effect to a malus or clawback provision contained in any other employee share plan, incentive plan or bonus plan operated by any Member of the CFG Group. Such action will be taken in accordance with the terms of the relevant plan or, in the absence of any such terms, on such basis as the Committee decides is appropriate.
4.
Section 4.3 is replaced with the following:
4.3    Compliance with legal or regulatory provisions
The Company can alter or extend the range of circumstances in which Malus and/or Clawback may be operated if required by any legal or regulatory provision, including, for the avoidance of doubt, under Section 10D of the Exchange Act.
5.
Section 5 is amended to include the following:

A-2



5.1    General
A Deferred Award will not Vest if any legal or regulatory requirement on the Company or any Member of the CFG Group would make Vesting unlawful, impossible or, in the opinion of the Committee, inappropriate or impractical.
6.
Section 8.3.3 is replaced with the following:
8.3.3
Any arrangements in this rule 8.3 may include the sale or reduction in number of Shares or value of CFG Bonds comprised in a Deferred Award.




A-3


CITIZENS FINANCIAL GROUP, INC.



CONVERTED EQUITY
 2010 LONG TERM INCENTIVE PLAN







Table of Contents
Contents    Page
1 Meaning of words used     1
2 Operation of the Plan     4
3 Grant of Awards     5
4 Reduction of Award     7
5 Vesting of Awards     8
6 Leaving the CFG Group     10
7 Corporate events     12
8 General terms     13
Schedule A    A-1

    


i


Converted Equity 2010 Long Term Incentive Plan
Introduction
This Plan provides for the grant of conditional rights to receive Shares and/or Options to those Employees selected to participate.
Participants will generally only become entitled to the Shares if they are still an Employee on Vesting. An Award may also include the right to receive an amount, in cash or in Shares, equal in value to the dividends which were payable between the Award Date and Vesting on the number of Shares which Vest.
Further, Schedule A, annexed hereto, modifies certain provisions of the Plan with respect to awards granted after June 25, 2012 and March 5, 2014.
This introduction does not form part of the Plan. It is an overview of how the Plan operates.

1

1 Meaning of words used
1.1
In these rules:
1.1.1
“ Acquiring Company ” means a Person described in rule 1.1.7(i) or rule 1.1.7(iii)(B), or the corporation or entity described in rule 1.1.7(iii)(A), in each case other than any Member of the CFG Group, in connection with a Change of Control;
1.1.2
“ Award ” means a Conditional Award or an Option;
1.1.3
“ Award Certificate ” means any agreement, contract, deed, certificate or other instrument or document evidencing any Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant;
1.1.4
“ Award Date ” means the date which the Committee sets for the grant of an Award;
1.1.5
“ Business Day ” means a day on which the New York Stock Exchange (or, if relevant and the Committee determines, any stock exchange nominated by the Committee on which the Shares are traded) is open for the transaction of business;
1.1.6
“ CFG Bond ” means debt issued or to be issued by any Member of the CFG Group;
1.1.7
“ Change of Control ” means the occurrence of any one or more of the following events, except as otherwise provided in a Participant’s Award Certificate:
(i)
any Person, other than an employee benefit plan or trust maintained by the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s outstanding securities entitled to vote generally in the election of directors;
(ii)
at any time during a period of 12 consecutive months, individuals who at the beginning of such period constituted the Company’s board of directors and any new member of the board of directors whose election or nomination for election was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was so approved, cease for any reason to constitute a majority of members of the board of directors; or
(iii)
the consummation of (A) a merger or consolidation of the Company with any other corporation or entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or, if applicable, the ultimate parent thereof) at least 50% of the combined voting power and total fair market value of the securities of the Company or such surviving entity or parent outstanding immediately after such merger or consolidation, or (B) any sale, lease, exchange or other transfer to any Person of assets of the Company, in one transaction or a series of related transactions, having an aggregate fair market value of more than 50% of the fair market value of the Company and its subsidiaries (the “ Company Value ”) immediately prior

2

to such transaction(s), but only to the extent that, in connection with such transaction(s) or within a reasonable period thereafter, the Company’s shareholders receive distributions of cash and/or assets having a fair market value that is greater than 50% of the Company Value immediately prior to such transaction(s).  
Notwithstanding the foregoing or any provision of any Award Certificate to the contrary, for any Award that provides for accelerated distribution on a Change of Control of amounts that constitute “deferred compensation” (as defined in Section 409A of the Code), if the event that constitutes such Change of Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Company’s assets (in either case, as defined in Section 409A of the Code), such amount shall not be distributed on such Change of Control but instead shall vest as of the date of such Change of Control and shall be paid on the scheduled payment date specified in the applicable Award Certificate, except to the extent that earlier distribution would not result in the Participant who holds such Award incurring interest or additional tax under Section 409A of the Code.
1.1.8
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Code shall include any successor provision thereto.
1.1.9
“ Committee ” means the Compensation and Human Resources Committee of the Company and any individual or group of persons authorized by the Compensation and Human Resources Committee to exercise powers under the Plan;
1.1.10
“ Company ” means Citizens Financial Group, Inc. and any and all successor entities;
1.1.11
“ Conditional Award ” means a conditional right to acquire Shares under the Plan;
1.1.12
“ Dealing Restrictions ” means restrictions on dealing in Shares, imposed by any applicable law, the principal stock market or exchange on which the Shares are quoted or traded, if any, or otherwise, as varied from time to time;
1.1.13
“ Disciplinary Action ” for the purpose of rule 5.2, means any inquiry or investigation by any Member of the CFG Group into the conduct, capability or performance of a Participant that may potentially lead to disciplinary action being taken against that Participant, and/or any disciplinary procedure (whether in accordance with any relevant contractual obligation, policy or otherwise) that has been commenced by any Member of the CFG Group against a Participant;
1.1.14
“ Employee ” means any employee of any Member of the CFG Group including an executive director;
1.1.15
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Exchange Act shall include any successor provision thereto;
1.1.16
“ Member of the CFG Group ” means:
(i)
the Company and its Subsidiaries from time to time; and

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(ii)
any other company which the Committee determines should be treated as a Member of the CFG Group;
1.1.17
“ Option ” means a right to acquire Shares granted under the Plan;
1.1.18
“ Option Period ” means a period starting on the grant of an Option and ending at the end of the day before the tenth anniversary of the grant, or such shorter period as may be specified under rule 3.2 on the grant of an Option;
1.1.19
“ Option Price ” means zero, or the amount payable on the exercise of an Option, as specified under rule 3.2.3;
1.1.20
“ Participant ” means a person holding an Award, or following the death of a Participant, his personal representatives;
1.1.21
“ Performance Condition ” means any performance condition imposed under rule 3;
1.1.22
“ Performance Period ” means the period in respect of which a Performance Condition is to be satisfied;
1.1.23
“ Person ” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, and used in Sections 13(d) and 14(d) thereof, including “group” as defined in Section 13(d) thereof;
1.1.24
“ Plan ” means these rules (including Schedule A) known as the “ CFG Converted Equity 2010 Long Term Incentive Plan ” as amended from time to time;
1.1.25
“ RBS Group ” means The Royal Bank of Scotland Group plc and its subsidiaries (within the meaning of Section 1159 of the Companies Act 2006), other than any Member of the CFG Group;
1.1.26
“ Shares ” means shares of the Company’s common stock, $0.01 par value per Share;
1.1.27
“ Short-Term Deferral Period ” means the period beginning on the date of Vesting (or, if rule 6.2 applies to a Conditional Award that is subject to a Performance Condition, the date on which the Performance Condition is satisfied) and ending on March 15 after the end of the calendar year in which the Short-Term Deferral Period begins;
1.1.28
“ Subsidiary ” means (i) any entity that, directly or indirectly, is controlled by the Company or (ii) any entity in which the Company, directly or indirectly, has a significant equity interest, in each case as determined by the Committee;
1.1.29
“ Vesting ” in relation to an Option, means the Option becoming exercisable and in relation to a Conditional Award, means a Participant becoming entitled to have the Shares transferred to him subject to the Plan.
2      Operation of the Plan
2.1
Timing of Operation

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The Committee may operate the Plan at any time after its adoption and before its termination. Awards may only be granted within 42 days starting on any of the following:
2.1.1
the date of shareholder approval;
2.1.2
the day after the announcement of the Company’s results for any period;
2.1.3
any day on which the Committee resolves that exceptional circumstances exist which justify the grant of Awards;
2.1.4
the day an Employee joins any Member of the CFG Group, where the Awards are granted as a replacement for an incentive that would otherwise have been provided by the Employee’s previous employer;
2.1.5
any day on which changes to the legislation or regulations affecting share plans are announced, effected or made; or
2.1.6
the lifting of Dealing Restrictions which prevented the granting of Awards during any period specified above.
2.2
Selection of Participants
In relation to any operation of the Plan, the Committee may select any Employee to participate in the Plan. However, a selected Employee who ceases to be an Employee before the Award Date will not receive an Award.
2.3
No Payment
A Participant is not required to pay for the grant of any Award.
2.4
No Grants of New Awards
No new Awards shall be granted under the Plan following the closing of the Company’s underwritten initial public offering (other than, for the avoidance of doubt, Awards received upon conversion of Awards granted to employees of Members of the CFG Group by the RBS Group).
3      Grant of Awards
3.1
Grant of Awards
The Committee may grant an Award to such Employees as it, in its sole discretion, considers appropriate.
3.2
Terms of Awards
Awards are subject to the rules of the Plan and any Performance Condition and must be granted in the form of an Award Certificate. The terms of the Award, as determined by the Committee, must be specified in the Award Certificate and must include:
3.2.1
whether the Award is:
(i)
a Conditional Award;
(ii)
an Option,

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or a combination of these;
3.2.2
the Award Date;
3.2.3
the Option Price (if relevant);
3.2.4
the number of Shares subject to the Award or the basis on which the number of Shares subject to the Award will be calculated;
3.2.5
any Performance Condition or any other condition specified under rule 3.4;
3.2.6
the date or dates of Vesting for the Award, or any part of the Award, unless specified in a Performance Condition;
3.2.7
whether the Participant is entitled to receive any cash or Shares as a dividend equivalent under rule 5.4;
3.2.8
if relevant, whether an Option will be satisfied in cash, Shares or CFG Bonds under rule 5.5.2; and
3.2.9
if rule 4 (Reduction of Award) is disapplied in respect of the Award, or any part of the Award, a statement that the rule is so disapplied.
3.3
Performance Conditions
When granting an Award, the Committee may make its Vesting conditional on the satisfaction of one or more conditions linked to the strategic objectives of the Company, including team based conditions aligned to its corporate based strategy. A Performance Condition must be objective and specified at the Award Date and may provide that an Award will lapse if a Performance Condition is not satisfied. The Committee may waive or change a Performance Condition in accordance with its terms or if anything happens which causes the Committee reasonably to consider it appropriate.
3.4
Other conditions
When granting Awards, the Committee may impose other conditions. Those conditions must be set out in the Award Certificate and may be amended or waived by the Committee at any time in its discretion.
3.5
Award Certificate
Each Participant will receive an Award Certificate setting out the terms of the Award.
3.6
Individual limit for Awards
An Award must not be granted to an Employee if it would at the proposed Award Date, cause the market value of Shares subject to Awards that he has been granted in that financial year under the Plan to exceed 4 times his annual base salary from any Member of the CFG Group. For these purposes, market value may be determined by reference to the share price averaged over a period specified by the Committee.
This limit may be exceeded if the Committee determines that exceptional circumstances make it desirable that Awards should be granted in excess of that limit.
3.7
Plan limits

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Subject to rule 3.8 and adjustment as provided in rule 7, the maximum number of Shares available for issuance under the Plan shall not exceed in the aggregate 3,717,559 Shares.
3.8
Scope of Plan limits
Where the right to acquire Shares is released or lapses or is satisfied in cash or CFG Bonds, in whole or in part, the Shares concerned will become available for grant under the Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan, as amended from time to time.
For the purposes of rule 3.7, the number of Shares committed to be issued under that Conditional Award or Option will be based on the net number of Shares to be transferred on Vesting or exercise (as applicable), from the date of any Committee determination that:
3.8.1
under rule 5.3.3 any Conditional Award will be reduced by a sufficient number of Shares as may be necessary to discharge any liability under rule 8.4.1, in which case the net number will be calculated by reference to applicable tax rates on the date of the Committee’s determination;
3.8.2
under rule 5.5.2 an Option will be satisfied in Shares; and
3.8.3
under rule 5.5.1 a Conditional Award will be satisfied in cash or CFG Bonds.
3.9
Compliance with Applicable Law and Exchange Listing Rules
No Shares will be issued under the Plan if such issuance would be in violation of any applicable law or any rule of the principal stock market or exchange on which the Shares are quoted or traded, if any.
4      Reduction of Award
4.1
Review of Awards
The Committee may review Awards, or any individual Award, in the light of the performance of any Member of the CFG Group or the RBS Group, any business area or team and the conduct, capability or performance of the Participant, unless it specifies otherwise when granting the Award. The review may take place at any time determined by the Committee. In addition, the Committee may make any determination and take any action under this rule 4 in accordance with applicable law, including Section 10D of the Exchange Act.
4.2
Focus of Review
4.2.1
In carrying out a review the Committee will consider:
(i)
whether results have subsequently appeared materially inaccurate or misleading;
(ii)
whether a business unit or profit center in which the Participant worked has subsequently made a loss out of business written in the Performance Period or which could reasonably have been risk-managed in the Performance Period;
(iii)
any performance of a Participant, team, business area or profit center, if the Committee deems that the circumstances warrant a review; and

7

(iv)
any other matter which appears relevant.
4.3
Reduction of Award
Following a review under rule 4.1, the Committee may make any determination in respect of any part of an Award that has not Vested (or, in respect of an Option, that has not been exercised), including for example:
4.3.1
reduce the number of Shares in respect of an Award;
4.3.2
determine that no Shares, cash or CFG Bonds will Vest in respect of a Conditional Award or that an Option may not be exercised and will lapse in whole or in part; and
4.3.3
determine that no amount, or a reduced amount, will be paid in respect of any dividend equivalent.
5      Vesting of Awards
5.1
Determination of Performance Condition
As soon as reasonably practicable after the end of the Performance Period, the Committee will determine whether and to what extent any Performance Condition has been satisfied and the number of Shares and/or the amount of cash the Participant will receive under rule 5.3.
5.2
Timing of Vesting
5.2.4
Where an Award is subject to a Performance Condition, subject to rules 3.4, 5.2.3, 5.3.3, 5.5, 6 and 7, an Award Vests to the extent determined under rule 5.1, on the date on which the Committee makes its determination or, if on that date a Dealing Restriction applies to a Participant and the Committee so determines, it Vests in respect of that Participant on the first date on which the Dealing Restriction ceases to apply. To the extent any Performance Condition is not satisfied, the Award lapses, unless otherwise specified in the Performance Condition.
5.2.5
Subject to rules 3.4, 5.2.3, 5.3.3, 5.5, 6 and 7, an Award Vests on the date of Vesting specified at grant. However, if a Dealing Restriction applies to a Participant on the date of Vesting and the Committee so determines, Vesting is delayed in respect of that Participant’s Award until the Dealing Restriction ceases to apply to that Participant, subject to compliance with Section 409A of the Code.
5.2.6
Vesting is delayed in respect of a Participant’s Award, or any part of it, if any of the following circumstances apply on the anticipated date of Vesting:
(i)
if the Participant is subject to any Disciplinary Action; or
(ii)
if a matter which may otherwise involve or affect that Participant has been referred to the Committee for review under rule 4.
In these cases, Vesting will not occur unless and until the Committee determines that the Award should Vest, subject to compliance with Section 409A of the Code.
5.3
Consequences of Vesting

8

5.3.1
In relation to a Conditional Award, as soon as practicable after Vesting, and in any event no later than the date on which the Short-Term Deferral Period ends or such earlier date as required to comply with Section 409A of the Code, the Participant, or a nominee for the Participant appointed by the Company, will receive the number of Shares in respect of which it has Vested, subject to rules 5.3.3, 5.5, 6.4, 8.4 and 8.10.
5.3.2
In relation to an Option, to the extent it has vested a Participant may exercise the Option at any time during the Option Period following Vesting by giving notice in the prescribed form to the Company or any person nominated by the Company and paying the Option Price (if any). The Option will lapse at the end of that period or, if earlier, on the earliest of:
(i)
if a Participant ceases to be an Employee of the Company or any Member of the CFG Group under rule 6.2, twelve months after it Vests in accordance with rule 6.3;
(ii)
six months after an event which gives rise to Vesting under rule 7; or
(iii)
if the Participant dies, the earlier of two years from his death or three months after the Participant’s personal representatives notify the Company that they have obtained a grant of representation,
and, subject to rules 5.3.3, 5.5, 6.4, 8.4 and 8.10, the Committee will arrange for Shares to be transferred to or issued to the Participant, or to a nominee for the Participant appointed by the Company, within 30 days of the date on which the Option is exercised. If an Option Vests under more than one provision of the rules of the Plan, the provision resulting in the shortest exercise period will prevail.
5.3.3
The Participant will receive the number of Shares in respect of which the Award has Vested, unless the Committee determines that this is reduced by a sufficient number of Shares as may be necessary to discharge any liability under rule 8.4.1.
5.4
Dividend Equivalent
An Award may include the right to receive an amount (known as a “dividend equivalent”) equal in value to the dividends which were payable on the number of Shares in respect of which an Award Vests between the Award Date and Vesting or, for Options, between the Award Date and exercise. This amount may be paid in cash or Shares (as determined from time to time by the Committee). Dividend equivalents will be paid to the Participant, or transferred to a nominee for the Participant appointed by the Company, subject to rule 8.4, as soon as practicable after Vesting, and in any event no later than the date on which the Short-Term Deferral Period ends.
5.5
Alternative ways to satisfy Awards
5.5.1
On the Vesting of a Conditional Award, the Committee may decide to satisfy the portion which Vests by paying an equivalent amount in cash or by transferring an equivalent value in CFG Bonds (subject to rule 8.4).
5.5.2
At the Award Date or at any time before exercise of an Option, the Committee may decide to satisfy the Option by paying an amount in cash equal to the amount by which the Market Value (as determined in rule 5.6) of the Shares in respect of which the Option is exercised exceeds the Option Price (if any) on the date of exercise,

9

subject to rule 8.4. Alternatively, the Committee may decide to satisfy an Option by procuring the issue or transfer of Shares or CFG Bonds to the value of such cash amount. If the Committee decides to satisfy an Option in this way, the Participant need not pay the Option Price or, if he has paid it, the Company will repay it to him.
5.6
Market Value
For the purposes of rule 5.5.2, “ Market Value ” on any particular day means:
5.6.4
the price for the immediately preceding Business Day;
5.6.5
if the Committee decides, the average price for the five immediately preceding Business Days; or
5.6.6
such other price as the Committee may decide.
The “price” is the middle market price quoted on the principal stock market or exchange on which the Shares are quoted or traded, or if Shares are not so quoted or traded, fair market value of a Share as determined by the Committee.
6      Leaving the CFG Group
6.1
General rule on leaving employment
6.1.7
Unless rule 6.2 applies or as otherwise provided in a Participant’s Award Certificate, an Award which has not Vested will lapse on the date the Participant ceases to be an Employee of any Member of the CFG Group.
6.1.8
The Committee may decide that an Award which has not Vested will lapse on the date on which the Participant gives or receives notice of termination of his employment with any Member of the CFG Group (whether or not such termination is lawful), unless the reason for giving or receiving notice is one listed in rule 6.2.1 below or is otherwise provided in the Participant’s Award Certificate.
6.2
Leaving in exceptional circumstances
6.2.4
Unless otherwise provided in a Participant’s Award Certificate, if a Participant ceases to be an Employee of any Member of the CFG Group for any of the reasons set out below, his Award will Vest as described in rule 6.3 and lapse as to the balance. The reasons are:
(i)
ill-health, injury or disability, as established to the satisfaction of the Company;
(ii)
retirement with the agreement of the Participant’s employer;
(iii)
redundancy;
(iv)
the Participant’s employing company ceasing to be a Member of the CFG Group;
(v)
the business in which the Participant works being transferred to a Person which is not a Member of the CFG Group; or

10

(vi)
any other reason, if and to the extent the Committee so decides in any particular case.
6.2.5
If the Committee does not exercise any discretion provided for in rule 6.2.1 within 30 days after cessation of the relevant Participant’s employment, the Award will lapse on the date of cessation.
6.3
Vesting
6.3.1
With respect to a Conditional Award that is subject to a Performance Condition, where rule 6.2 applies, unless otherwise provided in a Participant’s Award Certificate, an Award which has not Vested will Vest on the date or dates originally set for Vesting (or on such earlier date or dates as the Committee may consider appropriate), subject to the following:
(i)
the satisfaction of any Performance Condition, as determined by the Committee in the manner specified in the Performance Condition or in such a manner as it considers reasonable;
(ii)
a pro rata reduction to reflect the proportion of the period between the Award Date and date originally set for Vesting which has not elapsed, unless the Committee decides otherwise.
6.3.2
With respect to a Conditional Award that is not subject to a Performance Condition, where rule 6.2 applies, unless otherwise provided in a Participant’s Award Certificate, an Award which has not Vested will Vest on the date of cessation of employment. The Committee may, in its sole discretion, reduce the portion of an Award that Vests under this rule 6.3 pro rata to reflect the proportion of the period between the Award Date and the date originally set for Vesting which has not elapsed.
6.4
Death
If a Participant dies, unless otherwise provided in the Participant’s Award Certificate, his Award will not lapse but will Vest in full on the date of death. The Committee will only arrange for Shares, cash and/or CFG Bonds to be delivered to the Participant’s personal representatives if they have produced a valid grant of probate (or local equivalent, if applicable, subject to the satisfaction of the Committee) and, in any case, no later than the date on which the Short-Term Deferral Period ends, or such later date as may be permitted under Section 409A of the Code.
6.5
Transfer outside of the United States
If a Participant remains an Employee but is transferred to work in a country other than the United States or changes tax residence status and, as a result he would:
6.5.7
suffer a tax disadvantage in relation to his Awards (this being shown to the satisfaction of the Committee); or
6.5.8
become subject to restrictions on his ability to exercise his Awards or to hold or deal in the Shares or the proceeds of the sale of the Shares acquired on exercise because of the securities laws or exchange control laws of the country to which he is transferred,

11

then the Committee may decide that the Awards will Vest on a date they choose before or after the transfer takes effect. The Award will Vest and/or lapse to the extent they permit.
6.6
Meaning of “ceasing to be an Employee”
For the purposes of this rule 6, a Participant will not be treated as ceasing to be an Employee of a Member of the CFG Group until he ceases to be an Employee of all Members of the CFG Group, or if he recommences employment with any Member of the CFG Group within 7 days of so ceasing.
7      Corporate events
7.1
Change of Control
In the event of a Change of Control, Awards will Vest on the date of such Change of Control, subject to the following (unless the Committee decides otherwise or unless otherwise necessary to comply with Section 409A of the Code):
7.1.6
the satisfaction of any Performance Condition, as determined by the Committee in the manner specified in the Performance Condition or in such a manner as it considers reasonable;
7.1.7
a pro rata reduction to reflect the proportion of the period between the Award Date and Vesting which has not elapsed.
7.2
Rights issues, demergers and other corporate events
If the Committee becomes aware that the Company is or is expected to be affected by any variation in share capital, demerger, distribution (other than an ordinary dividend), delisting or other transaction which, in the opinion of the Committee could affect the current or future value of Shares, Awards are not affected unless and to the extent that the Committee determines to:
(i)
allow Awards to Vest, subject to any conditions the Committee may decide to impose including, in the case of Options, specifying a different Option Period;
(ii)
cause Awards to lapse wholly or in part;
(iii)
require Awards to be exchanged under rule 7.4;
(iv)
adjust the number of Shares comprised in an Award, and such other terms of the Award as appear appropriate; and/or
(v)
take any other appropriate action (which may include, for the avoidance of doubt, allowing Awards to be exchanged for new awards on equivalent terms (so far as practicable)).
7.3
Committee
If rule 7.1 applies (except following an exchange under rule 7.4), “ Committee ” means the Committee as constituted immediately before the Change of Control, and includes those people who were authorized at that time.

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7.4
Exchange of Awards
Where the Committee determines that an Award is to be exchanged for a new award, the terms of the new award will:
(i)
confer a right to acquire shares in the Acquiring Company or another body corporate determined by the Acquiring Company;
(ii)
be subject to terms which are and have a value which is equivalent, as far as practicable, to the existing Award;
(iii)
be treated as having been acquired at the same time as the existing Award and, subject to paragraph (iv) below, Vest in the same manner and at the same time;
(iv)
be in respect of a number of shares which is equivalent to the number of Shares comprised in the existing Award which would have Vested under rule 7.1 or 7.2(i);
(v)
be governed by the Plan as if references to Shares were references to the shares over which the new award is granted and references to the Company were references to the Acquiring Company or another body corporate determined by the Acquiring Company.
8      General terms
8.1
Rights in respect of Awards
A Participant is not entitled to vote, to receive dividends or to have any other rights of a shareholder in respect of Shares subject to an Option or a Conditional Award unless and until the Shares are issued or transferred to the Participant, or transferred to a nominee for the Participant appointed by the Company.
8.2
Transfer of Awards
A Participant may not transfer, assign or otherwise dispose of an Award or any rights in respect of it. This rule 8.2 does not apply to the transmission of an Award on the death of a Participant to his personal representatives.
8.3
Company Documents
The Company is not required to send to Participants copies of any documents or notices normally sent to the holders of its Shares.
8.4
Tax withholding
8.4.1
The Company, any employing company, any Member of the CFG Group or trustee of any employee benefit trust, may withhold any amounts or make such arrangements as it considers necessary to meet any liability to taxation or social security contributions or other applicable taxes in respect of Awards.
8.4.2
The Company, any employing company, any Member of the CFG Group or trustee of any employee benefit trust operated by any Member of the CFG Group may

13

withhold or offset any amounts or make such arrangements as it considers necessary to repay any outstanding liability of any Participant.
8.4.3
Subject to rule 5.3.1, any arrangements in this rule 8.4 may include the sale or reduction in number of Shares or value of CFG Bonds comprised in an Award.
8.5
Discretionary nature of the Plan
8.5.1
Nothing in this Plan or the operation of the Plan will form part of the contract of employment or other relationship with any Member of the CFG Group of any Employee, Participant or any other person. The fact that one or more Awards have been made to an Employee does not create any right to, or expectation of, continued employment.
8.5.2
No Employee is entitled to participate in, or be considered for participation in, the Plan at all or at a particular level. Participation in the Plan does not imply any right to participate, or to be considered for any future participation.
8.5.3
The terms of the Plan do not entitle the Employee to the exercise of any discretion in his favor.
8.5.4
No Employee will have any right to compensation or damages or any other sum or benefit in respect of the Plan, including, without limitation, in relation to:
(i)
his eligibility to participate, or ceasing to be eligible to participate, or ceasing to participate in the Plan;
(ii)
any exercise of a discretion or a decision taken in relation to the Plan or the Plan’s operation (whether or not this disadvantages the Employee concerned);
(iii)
any loss or reduction of any rights or expectations under the Plan in any circumstances or for any reason (including lawful or unlawful termination of employment or the employment relationship); and
(iv)
any tax liability or any other fiscal detriment suffered in relation to the reduction or forfeiture of an Award.
8.5.5
Participation in the Plan is permitted only on the basis that any rights that are not expressly set out in this Plan are excluded. Each Participant will be deemed to waive any such excluded rights in consideration for, and as a condition to, participating in the Plan.
8.5.6
Nothing in this Plan confers any benefit, right, remedies, obligations, liabilities or expectation on any Person who is not an Employee. But this does not affect any other right or remedy of a third party which exists or is available.
8.5.7
For the avoidance of doubt, this rule applies throughout the employment of any Employee, after the termination of the employment, and during any period when the Employee has given or received notice to terminate his employment (whether such termination is lawful or unlawful).
8.6
Committee’s decisions final and binding

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The decision of the Committee in connection with any interpretation of the rules of the Plan or in any dispute relating to any matter relating to the Plan will be final and conclusive.
8.7
Regulations
The Committee has power from time to time to make or vary rules or regulations for the administration and operation of the Plan.
8.8
Awards non-pensionable
Awards do not form part of a Participant’s remuneration for the purpose of determining entitlement to any benefit of employment including any pension or retirement benefit, life insurance, permanent health insurance or other similar benefit, whether existing or subsequently introduced.
8.9
Employee trust
The Company and any Subsidiary may provide money to the trustee of any trust or any other person to enable them or him to acquire Shares or other assets to be held for the purposes of the Plan, or enter into any guarantee or indemnity for those purposes, to the extent permitted by applicable law.
8.10
Consents
All transfers of Shares and CFG Bonds will be subject to any necessary consents under any applicable law or regulations for the time being in force in the United States or elsewhere, and it will be the individual’s responsibility to comply with any requirements to be fulfilled in order to obtain or obviate the necessity for any such consent.
8.11
Share rights
Shares issued to satisfy Awards under the Plan will rank equally in all respects with the Shares in issue on the date of allotment. They will not rank for any rights attaching to Shares by reference to a record date preceding the date of allotment. Where Shares are transferred to a Participant, or to a nominee for the Participant appointed by the Company including a transfer out of treasury, the Participant will be entitled to all rights attaching to the Shares by reference to a record date on or after the transfer date. The Participant will not be entitled to rights before that date.
8.12
Notices
8.12.1
Any notice or other document which has to be given to an Employee or Participant under or in connection with the Plan may be delivered or sent by mail to him at his home address according to the records of his employing company or sent by e-mail or fax to any e-mail address or fax number which according to the records of his employing company, or in either case such other address which the Company considers appropriate.
8.12.2
Any notice or other document which has to be given to the Company or other duly appointed agent under or in connection with the Plan may be delivered or sent by mail to it at its respective registered office (or such other place as the Committee or duly appointed agent may from time to time decide and notify to Participants) or sent by e-mail or fax to any e-mail address or fax number notified to the sender.

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8.12.3
Notices sent by mail will be deemed to have been given on the second day after the date of mailing. However, notices sent by or to a Participant who works outside the United States will be deemed to have been given on the seventh day after the date of mailing.
8.12.4
Notices sent by e-mail or fax, in the absence of evidence to the contrary, will be deemed to have been received on the day after sending.
8.13
Data protection
By participating in the Plan, each Participant consents to the holding and processing of personal data provided by such Participant to the Company, any Member of the CFG Group and any other persons or entities for all purposes relating to the operation of the Plan. These include, but are not limited to:
8.13.1
administering and maintaining Participants’ records;
8.13.2
providing information to trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan;
8.13.3
providing information to future purchasers of the Company or the business in which the Participant works; and
8.13.4
transferring information about the Participant to a country or territory outside the United States.
8.14
Amendment
8.14.1
Except as described in the rest of this rule 8.14, subject to (i) applicable law and the rules and regulations of the primary stock market or exchange on which the Shares are quoted or traded (if any) and (ii) the approval of the RBS Group Performance and Remuneration Committee of the Board of Directors, the Committee may at any time change the Plan in any way.
8.14.2
Except as described in rule 8.14.3, the Company in a general meeting must approve in advance by ordinary resolution any proposed change to the Plan to the advantage of present or future Participants, which relates to:
(i)
the Participants;
(ii)
the limits on the number of Shares which may be issued under the Plan;
(iii)
the individual limit for each Participant under the Plan;
(iv)
the basis for determining a Participant's entitlement to, and the terms of, securities, cash or other benefit to be provided and for the adjustment thereof (if any) if there is a capitalization issue, rights issue or open offer, sub-division or consolidation of shares or reduction of capital or any other variation of capital; or
(v)
the terms of this rule 8.14.2.
8.14.3
The Committee can change the Plan and need not obtain the approval of the Company in a general meeting for any minor changes:

16

(i)
to benefit the administration of the Plan;
(ii)
to comply with or take account of the provisions of, or changes to, any proposed or existing applicable law or rules of the stock market or exchange, if any, on which the Shares are principally quoted or traded; or
(iii)
to obtain or maintain favorable tax, exchange control or regulatory treatment of the Company, any Member of the CFG Group or any present or future Participant.
8.15
Severability
By participating in the Plan, each Participant agrees and acknowledges that the restrictions contained in the Plan are reasonable and necessary to protect the business of each Member of the CFG Group (including, but not limited to, its confidential information, customer relations and goodwill and its employees) and that the benefits each Participant receives under this Plan are sufficient compensation for these restrictions. Each of the obligations in the Plan is an entire, separate and independent restriction on each Participant, despite the fact that they may be contained in the same phrase and if any part is found to be invalid or unenforceable the remainder will remain valid and enforceable. While the restrictions are considered to be fair and reasonable in the circumstances, each Participant agrees that if any of them should be judged to be void or ineffective for any reason, but would be treated as valid and effective if part of the wording was deleted or the period was reduced in scope, they shall apply with such modifications as necessary to make them valid and effective.
8.16
Effective Date and Termination
The Plan shall be effective as of the effective date of the Company’s underwritten initial public offering (the “ Effective Date ”). The Committee may terminate the Plan at any time, and it will terminate on the date on which all Awards granted or issued under the Plan that are outstanding as of the closing of the Company’s underwritten initial public offering have been Vested, settled, delivered, forfeited, terminated, reduced or canceled or that have otherwise lapsed or expired, as applicable. The termination of the Plan will not affect existing Awards.
8.17
Section 409A of the Code
With respect to Awards subject to Section 409A of the Code, the Plan is intended to comply with the requirements of Section 409A of the Code, and the provisions of the Plan and any Award Certificate shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything else in the Plan, if the Committee considers a Participant to be a “specified employee” under Section 409A of the Code at the time of such Participant’s “separation from service” (as defined in Section 409A of the Code), and the amount hereunder is “deferred compensation” subject to Section 409A of the Code, any distribution that otherwise would be made to such Participant with respect to an Award as a result of such “separation from service” shall not be made until the date that is six months after such “separation from service,” except to the extent that earlier distribution would not result in such Participant’s incurring interest or additional tax under Section 409A of the Code. If the Award includes a “series of installment payments” (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Participants’ right to the series of

17

installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment and if the Award includes “dividend equivalents” (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), the Participant’s right to the dividend equivalents shall be treated separately from the right to other amounts under the Award. Any payments to be made under this Plan upon a termination of employment shall only be made upon a “separation from service” under Section 409A of the Code. Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Certificate is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A of the Code.
8.18
Governing law and jurisdiction
The Plan and each Award Certificate shall be governed by the laws of the State of Delaware, without application of the conflicts of law principles thereof. Each Participant waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with the Plan.
SCHEDULE A
This Schedule A modifies the Plan with respect to all Awards granted after June 25, 2012 and March 5, 2014, in each case as indicated below. To the extent section cross-references are modified or sections are renumbered as a result of the provisions included in this Schedule A, the Plan shall be read to give effect to the revised cross-references and section numbers, as applicable.
For All Awards granted after June 25, 2012
1.
Section 5.2.3 is replaced with the following:
5.2.3
Vesting is delayed in respect of a Participant’s Award, or any part of it, if any of the following circumstances apply on the anticipated date of Vesting:
(i)
if the Participant is subject to any Disciplinary Action;
(ii)
if a matter which may otherwise involve or affect that Participant has been referred to the Committee for review under rule 4;
(iii)
if the Participant’s employment has terminated or is about to terminate in circumstances where it is not clear whether the Award should lapse under rule 6; or
(iv)
the Committee considers that it is necessary or appropriate to defer Vesting.
In these cases, Vesting will not occur unless and until the Committee determines that the Award should Vest, subject to compliance with Section 409A of the Code.
For All Awards granted after March 5, 2014
1.
Section 1.1 is amended to include the following terms:
“ Approved Plan ” means any plan approved by HM Revenue & Customs under the Income Tax (Earnings and Pensions) Act 2003;

18

“ Clawback ” means the obligation to repay amounts to a Member of the CFG Group by an individual in accordance with rule 4 as the Committee considers appropriate;
“ Detrimental Activity ” means, as established to the satisfaction of the Committee, and without the prior written consent of the Company (which consent should not be unreasonably withheld):
(i)
using or communicating in a manner which is not authorized in writing by any Member of the CFG Group or the RBS Group or required by law, any secret, confidential or proprietary information which is not publicly available concerning any Member of the CFG Group or the RBS Group or their respective clients or customers;
(ii)
directly or indirectly persuading or attempting to persuade any employee of any Member of the CFG Group or the RBS Group to breach any of the terms of their employment with any Member of the CFG Group or the RBS Group;
(iii)
at any time on or during the 12 months after the Relevant Date, either on his own behalf or for or with any other person, whether directly or indirectly:
1.
soliciting or inducing or endeavoring to solicit or induce to cease working for or providing services to any Member of the CFG Group or the RBS Group, any person with whom the Participant has had material dealings during the period of 2 years ending on the Relevant Date, including through any third party including recruitment intermediary, whether or not such person would thereby commit a breach of contract;
2.
employing or otherwise engaging in any competitor any person with whom the Participant has had material dealings during the period of 2 years ending on the Relevant Date and who was during that period an employee of any Member of the CFG Group or the RBS Group;
3.
enticing away, interfering with, soliciting or canvassing or endeavoring to entice away, interfere with, solicit or canvas the custom of any customer or client, or prospective customer or client, of any Member of the CFG Group or the RBS Group with whom the Participant had, at any time in the 2 years before the Relevant Date, business dealings, negotiations or discussions during the course of his duties;
4.
having business dealings with any customer or client, or prospective customer or client, of any Member of the CFG Group or the RBS Group, or any business which has had a trading relationship with any Member of the CFG Group or the RBS Group, in relation to which business, by reason of the Participant’s dealings during the period of 2 years ending on the

A-1

Relevant Date, the Participant is or may be able to influence the trading relationship between that business and any Member of the CFG Group or the RBS Group;
5.
endeavoring to cause any person, firm, company, organization or other entity who or which is an investor with or an exclusive supplier of services to any Member of the CFG Group or the RBS Group, to either cease investing in or doing business with, or materially alter the terms of its investment in or business with, a Member of the CFG Group or the RBS Group in a manner detrimental to that company;
(iv)
engaging in any behavior which in the reasonable opinion of the Committee is deliberately prejudicial to the good name of any Member of the CFG Group or the RBS Group; or
(v)
leaving or resigning without notice (or with insufficient notice) without the permission of the person’s employing entity, or engaging in any activity which in the reasonable opinion of the Committee is not consistent with providing an orderly handover of the person’s responsibilities.
“ Malus ” means the reduction of elements of an individual’s remuneration in accordance with rule 4 as the Committee considers appropriate;
“ Relevant Date ” means the date of termination of employment of the Participant or, if earlier, the date on which the Participant commenced garden leave;
2.
Section 4.1 is replaced with the following:
4
Malus and Clawback
4.1
General
4.1.1
The Committee may decide at any time before an Award Vests, or for such period after an Award Vests that the Committee determines is appropriate, that any Participant will be subject to Malus and/or Clawback in the light of:
(i)
the performance of the Company, any Member of the CFG Group, the RBS Group and any business area or team, and the conduct, capability or performance of the Participant; and/or
(ii)
any legal or regulatory requirement on the Company or any Member of the CFG Group or the RBS Group to apply Malus and/or Clawback in relation to the Company, any Member of the CFG Group, the RBS Group or any business area or team or the Participant; and/or
(iii)
non-compliance with any legal or regulatory requirement relating to the Company, any Member of the CFG Group, the RBS Group and any business area or team or the Participant; and/or
(iv)
any other matter which the Committee considers relevant.

A-2

4.1.2
To give effect to Malus and/or Clawback in respect of a Participant the Committee may take any action, including but not limited to:
(i)
reducing (if appropriate, to zero) the amount of any bonus which would otherwise be payable; and/or
(ii)
reducing (if appropriate, to zero):
(a)
the number or amount of Shares; and/or
(b)
the number or amount of any assets relating to any awards (which have been granted to the Participant under any other employee share plan or incentive plan (other than an Approved Plan) operated by any Member of the CFG Group); and/or
(c)
the extent to which any Award held by the Participant Vests or becomes exercisable; and/or
(d)
the extent to which any award granted to the Participant under any other employee share plan or incentive plan (other than any Approved Plan) operated by any Member of the CFG Group vests or becomes exercisable,
in each case notwithstanding the extent to which any conditions imposed on such Awards or awards may be or have been satisfied; and/or
(iii)
reducing (if appropriate, to zero) any amount otherwise payable under rule 5.4;
(iv)
requiring the Participant to pay or repay any amounts as may be required for the Malus or Clawback to be satisfied in full (which, without limitation, may be deducted from the Participant's salary or any other payment to be made to the Participant by any Member of the CFG Group).
4.1.3
Where Clawback is proposed to be operated, account will be taken of any tax or social security actually paid (or due to be paid) by the Participant in respect of the amount proposed to be subject to Clawback, unless and to the extent that the Participant can claim relief in respect of such tax or social security.
3.
Section 4.2 is replaced with the following:
4.2
Reduction in Awards to give effect to provisions in other plans
The Committee may decide to take any of the actions described in rule 4.1.2 to give effect to a malus or clawback provision contained in any other employee share plan, incentive plan or bonus plan operated by any Member of the CFG Group. Such action will be taken in accordance with the terms of the relevant plan or, in the absence of any such terms, on such basis as the Committee decides is appropriate.
4.
Section 4.3 is replaced with the following:
4.3
Compliance with legal or regulatory provisions

A-3

The Company can alter or extend the range of circumstances in which Malus and/or Clawback may be operated if required by any legal or regulatory provision, including, for the avoidance of doubt, under Section 10D of the Exchange Act.
5.
Section 5 is amended to include the following:
5.1    General
An Award will not Vest if any legal or regulatory requirement on the Company or any Member of the CFG Group would make Vesting unlawful, impossible or, in the opinion of the Committee, inappropriate or impractical.
6.
Section 6.2.1 is replaced with the following:
6.2.1
Subject to rule 6.4, unless otherwise provided in a Participant’s Award Certificate, if a Participant ceases to be an Employee of any Member of the CFG Group for any of the reasons set out below, his Award will Vest as described in rule 6.3 and lapse as to the balance. The reasons are:
(i)
ill-health, injury or disability, as established to the satisfaction of the Company;
(ii)    retirement with the agreement of the Participant’s employer;
(iii)    redundancy;
(iv)
the Participant’s employing company ceasing to be a Member of the CFG Group;
(v)    the business in which the Participant works being transferred to a Person         which is not a Member of the CFG Group; or
(vi)    any other reason, if and to the extent the Committee so decides in any         particular case.
7.
Section 6 is amended to include the following language:
6.4
If a Participant ceases to be an employee of any Member of the CFG Group due to any reason set out in rule 6.2.1 above, his Award will lapse if he engages in Detrimental Activity, except to the extent the Committee may determine otherwise.
8.
The following language is added to the end of Section 6.6:
Any Participant who takes voluntary unpaid leave from employment with a Member of the CFG Group should be treated as having ceased employment on the date the leave commences. However, the Committee may decide that a Participant should be treated as having ceased employment on the date notice of intention to take leave is given by the Participant, or on such later date as may be considered appropriate.
9.
Section 8.4.3 is replaced with the following:

A-4

8.4.3
Any arrangements in this rule 8.4 may include the sale or reduction in number of Shares or value of CFG Bonds comprised in an Award.




A-5



CITIZENS FINANCIAL GROUP, INC.
NON-EMPLOYEE DIRECTORS COMPENSATION POLICY

Effective as of September 29, 2014

The Board of Directors (the “ Board ”) of Citizens Financial Group, Inc. (the “ Company ”) has approved this director compensation policy (the “ Policy ”), which establishes compensation to be paid to each Non-Employee Director (as defined in the Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan (the “ Plan ”)), effective as of the Company’s initial public offering of common stock, par value $0.01 per share (“ Common Stock ”), as an inducement to obtain and retain the services of persons qualified to serve as members of the Board. Capitalized terms used but not defined in this policy will have the meanings set forth in the Plan.

This policy is subject to annual review and approval by the Compensation and Human Resources Committee of the Board (the “ Committee ”) to confirm continued alignment between the compensation of the Company’s Non-Employee Directors, the Company’s business and its shareholders’ interests, and to ensure that the Company’s director compensation program is competitive with those of its peers. During the course of its review, the Committee may consider the annual retainer, lead director and committee chair retainers, meeting fees and other benefits offered to Non-Employee Directors and payable under this Policy. The Committee may amend, revise, suspend, discontinue or terminate this Policy at any time.

The elements of compensation for the Company’s Non-Employee Directors below are expressed as annual amounts.
Cash Retainers and Meeting Fees
Cash Retainers
Board Retainer …………………………………………………………………
$75,000
Lead Director Retainer ………………………………………………………...
$20,000
Audit Committee Chair Retainer ……………………………………………..
$15,000
Other Committee Chair Retainer (per committee) …………………………….
$10,000
The cash retainers are payable quarterly in advance. Starting in 2015, the first quarterly payment will occur as soon as practicable following the annual general meeting of stockholders (each such date, a “ Payment Date ”).
Meeting Fees
Any Non-Employee Director who attends more than six meetings of any committee of the Board per calendar year will receive an additional cash meeting fee of $1,500 for each such additional meeting that such Non-Employee Director attends (regardless of whether attended in person or by telephone). Such additional cash meeting fees will be payable on the first Payment Date following the end of each calendar year.
Equity Retainers
Initial Public Offering Equity Grants
Any Non-Employee Director who is serving on the Board at the time of the Company’s initial public offering (“ IPO ”) will receive on the closing date of such IPO an equity award, with the number of shares of Common Stock covered by such award determined by dividing (i) the product of $75,000 and a fraction, the numerator of which is the number of days between the date of the Company’s IPO and May 5, 2015, and the denominator of which is 365, by (ii) the IPO price. Each IPO award will vest 100% on the earlier of the first anniversary of the grant date or the date of the Company’s annual general meeting of stockholders, subject to the terms and conditions of the Plan and applicable award agreement thereunder.
Annual Equity Grants     
On the date of each annual general meeting of stockholders of the Company, each Non-Employee Director who at such meeting is elected to serve on the Board or whose term is scheduled to continue at least through the date of the next such meeting of stockholders will receive under and subject to the Plan (and any applicable award agreement thereunder) an annual award of RSUs. The number of shares of Common Stock covered by the annual award will be determined by dividing $75,000 by the Fair Market Value of a share of Common Stock on the grant date. Each annual award will vest 100% on the first anniversary of the grant date, subject to the terms and conditions of the Plan and applicable award agreement thereunder.
Any Non-Employee Director who commences service on the Board on a date other than the date of the Company’s annual general meeting of stockholders will receive on such start date a pro-rated annual award, with the number of shares of Common Stock covered by such award determined by dividing (i) the product of $75,000 and a fraction, the numerator of which is 365 minus the number of days that have elapsed between the date of such meeting and such start date, and the denominator of which is 365, by (ii) the Fair Market Value of a share of Common Stock on the start date.
Other Director Benefits
•
Charitable Matching Gift Program . The Company will match each Non-Employee Director’s contributions to qualifying charities up to an aggregate limit of $5,000 per year.
•
Expenses Relating to Board Service . The Company will reimburse each Non-Employee Director for reasonable expenses incurred by such Non-Employee Director in connection with his or her Board service, including travel, lodging and meals, subject to the Company’s requirements for reporting and documentation of such expenses.
Deferred Compensation Plan
Subject to and under the terms and conditions of the Company’s Director Deferred Compensation Plan, Non-Employee Directors may defer up to 100% of their cash retainers and meeting fees. Such deferred amounts will be paid in cash following the termination of the Non-Employee Director’s service on the Board, either in a lump sum or a series of installments, as elected by the Non-Employee Director under the Company’s Director Deferred Compensation Plan.
Stock Ownership Guidelines
Non-Employee Directors will be subject to stock ownership guidelines, as they may be in effect from time to time.


    

CITIZENS FINANCIAL GROUP, INC.
2014 NON-EMPLOYEE DIRECTORS COMPENSATION PLAN
RSU Award Agreement
Terms and Conditions
Unless defined in this award agreement (this “ Award Agreement ”), capitalized terms will have the meanings assigned to them in the Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan (the “ Plan ”). In the event of a conflict among the provisions of the Plan, this Award Agreement and any descriptive materials provided in connection herewith, the provisions of the Plan will prevail.
Section 1. Grant of RSU Award. Citizens Financial Group, Inc. (the “ Company ”) hereby grants this award (this “ Award ”) of restricted share units (“ RSUs ”) on the date that appears in the “grant date” field in the Participant’s electronic account (the “ Grant Date ”), subject to the terms and conditions of the Plan and this Award Agreement. This Award is granted under the Plan, the provisions of which are incorporated herein by reference and made a part of this Award Agreement.
Section 2.      Issuance of RSUs. Each RSU shall represent the right to receive one Share upon the vesting of such RSU, as determined in accordance with and subject to the terms of this Award Agreement and the Plan.
Section 3.      Rights as a Shareholder; Dividend Equivalents .
(a) The Participant shall have no voting rights or any other rights as a shareholder of the Company with respect to the RSUs unless and until the Participant becomes the record owner of the Shares, including Dividend Shares (as defined below) to the extent applicable, underlying such RSUs.
(b) If a dividend is paid on Shares during the period commencing on the Grant Date and ending on the date on which the Shares underlying RSUs are distributed to the Participant pursuant to Section 6, the Participant shall be eligible to receive an amount equal to the dividend that the Participant would have received had the Shares underlying the RSUs been distributed to the Participant as of the time at which such dividend is paid; provided , however , that no such amount shall be payable with respect to any RSUs that are forfeited. Such amount shall be paid to the Participant on the date on which the Shares underlying the RSUs are distributed to the Participant in the same form (cash, Shares or other property) in which such dividend is paid to holders of Shares generally. Any Shares that the Participant is eligible to receive pursuant to this Section 3(b) are referred to herein as “ Dividend Shares .”  
Section 4.      Restrictions on Transferability . The RSUs granted hereunder shall not be assigned, sold, exchanged, pledged, hypothecated, transferred, alienated or otherwise disposed of or hedged, in any manner (including through the use of any cash-settled instrument), whether voluntarily or involuntarily, and whether by operation of law or otherwise, other than by will or by the laws of descent and distribution, by the Participant. Any sale, exchange, transfer, assignment, pledge, hypothecation, or other disposition in violation of the provisions of this Section 4 will be null and void and any RSU which is hedged in any manner will immediately be forfeited. All of the terms and conditions of the Plan and this Award Agreement will be binding upon any permitted successors and assigns.
Section 5.      Vesting; Change of Control; Accelerated Vesting and Forfeiture Upon a Separation from Service .
(a)      Vesting. Subject to the provisions of this Section 5, the RSUs shall fully vest on the first anniversary of the Grant Date (or, with respect to the RSUs granted on September 29, 2014, on the earlier of (x) September 29, 2015 or (y) the date of the 2015 annual shareholders meeting) (the “ Vesting Date ”), provided that the Participant does not experience a separation of service from the Board prior to the Vesting Date or as otherwise set forth below.
(b)      Change of Control. In the event of the Change of Control, the RSUs shall fully vest on the date of such Change of Control and shall be distributed to the Participant pursuant to Section 6.
(c)      Accelerated Vesting Upon Separation From Service. In the event of the Participant’s separation from service from the Board for any reason (other than under circumstances which would constitute “cause” under the terms of the Company’s bylaws or applicable law), the RSUs shall fully vest on the date of the Participant’s separation from service from the Board and shall be distributed to the Participant pursuant to Section 6.
(d)      Forfeiture . In the event of the Participant’s separation from service from the Board under circumstances which would constitute “cause” under the terms of the Company’s bylaws or applicable law, any unvested RSUs shall be forfeited in their entirety without any payment to the Participant.
Section 6.      Distribution on Vesting . Subject to the provisions of this Award Agreement, upon the vesting of any of the RSUs, the Company shall deliver to the Participant, as soon as reasonably practicable after the Vesting Date (or the date of the Participant’s separation of service, as applicable), one Share for each such RSU and the number of Dividend Shares (as determined in accordance with Section 3(b)), provided that such delivery of Shares shall be made no later than March 15 of the calendar year immediately following the year in which the Vesting Date (or the date of the Participant’s separation of service, as applicable) occurs. Upon such delivery, such Shares (including Dividend Shares) shall be fully assignable, saleable and transferable by the Participant, provided that any such assignment, sale, transfer or other alienation with respect to such Shares shall be in accordance with applicable securities laws.
Section 7.      Tax Liability; Withholding Requiremen ts. The Participant shall be solely responsible for any applicable taxes (including, without limitation, income and excise taxes) and penalties, and any interest that accrues thereon, that the Participant incurs in connection with the receipt, vesting or settlement of any RSU granted hereunder.
Section 8.      Recoupment/Clawback. This Award may be subject to recoupment or “clawback” as may be required by applicable law, stock exchange rules or by any applicable Company policy or arrangement, as it may be established or amended from time to time.
Section 9.      No Right to Continued Service on the Board. Neither the Plan nor this Award Agreement shall confer upon the Participant any right to be retained as a Non-Employee Director of the Company or in any other capacity, and the receipt of this Award does not confer any rights on the Participant other than those expressly set forth in this Award Agreement or the Plan.
Section 10.      Section 409A of the Code. This Award Agreement is intended to comply with the requirements of Section 409A of the Code and the regulations thereunder, and the provisions of this Award Agreement shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and this Award Agreement shall be operated accordingly. If any provision of this Award Agreement or any term or condition of the RSUs would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything else in this Award Agreement, if the Board considers a Participant to be a “specified employee” under Section 409A of the Code at the time of such Participant’s “separation from service” (as defined in Section 409A of the Code), and the amount hereunder is “deferred compensation” subject to Section 409A of the Code any distribution that otherwise would be made to such Participant with respect to RSUs as a result of such separation from service shall not be made until the date that is six months after such separation from service, except to the extent that earlier distribution would not result in such Participant’s incurring interest or additional tax under Section 409A of the Code. If the Award includes a “series of installment payments” (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Participants’ right to the series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment and if the Award includes “dividend equivalents” (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), the Participant’s right to the dividend equivalents shall be treated separately from the right to other amounts under the Award. Notwithstanding the foregoing, the tax treatment of the benefits provided under this Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code.
Section 11.      Miscellaneous .
(a)      Notices . All notices, requests and other communications under this Award Agreement shall be in writing and shall be delivered in person (by courier or otherwise), mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission, as follows:
if to the Company, to:
Citizens Financial Group, Inc.
600 Washington Blvd.
Stamford, CT 06901
Attention: Corporate Secretary
if to the Participant, to the address that the Participant most recently provided to the Company,
or to such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. on a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed received on the next succeeding business day in the place of receipt.
(b)      Entire Agreement . This Award Agreement, the Plan and any other agreements, schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise, between the parties with respect to the subject matter hereof.
(c)      Severability . If any provision of this Award Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Award Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Award Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Award Agreement shall remain in full force and effect.
(d)      Amendment; Waiver . No amendment or modification of any provision of this Award Agreement that has a material adverse effect on the Participant shall be effective unless signed in writing by or on behalf of the Company and the Participant, provided that the Company may amend or modify this Award Agreement without the Participant’s consent in accordance with the provisions of the Plan or as otherwise set forth in this Award Agreement. No waiver of any breach or condition of this Award Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Award Agreement, or any waiver of any provision of this Award Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given.
(e)      Assignment . Neither this Award Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Participant.
(f)      Successors and Assigns; No Third-Party Beneficiaries . This Award Agreement shall inure to the benefit of and be binding upon the Company and the Participant and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Award Agreement, express or implied, is intended to confer on any Person other than the Company and the Participant, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Award Agreement.
(g)      Governing Law; Waiver of Jury Trial. This Award Agreement shall be governed by the laws of the State of Delaware, without application of the conflicts of law principles thereof. By acknowledging this Award Agreement electronically or signing it manually, as applicable, the Participant waives any right that the Participant may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Award Agreement or the Plan.
(h)      Discretionary Nature. The grant of the RSUs does not create any contractual right or other right in the Participant to receive any RSUs or other Awards in the future. Future grants of Awards, if any, will be at the sole discretion of the Company.
(i)      Participant Undertaking; Acceptance . The Participant agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to carry out or give effect to any of the obligations or restrictions imposed on either the Participant or the RSUs pursuant to this Award Agreement. The Participant acknowledges receipt of a copy of the Plan and this Award Agreement and understands that material definitions and provisions concerning the RSUs and the Participant’s rights and obligations with respect thereto are set forth in the Plan. The Participant has read carefully, and understands, the provisions of this Award Agreement and the Plan.
(j)      Dispute Resolution. Except as provided in the last sentence of this paragraph to the fullest extent permitted by law, the Company and each Participant agree to waive their rights to seek remedies in court, including but not limited to rights to a trial by jury. The Company and each Participant agree that any dispute between or among them and/or their affiliates arising out of, relating to or in connection with this Plan will be resolved in accordance with a confidential two-step dispute resolution procedure involving: (a) Step One: non-binding mediation, and (b) Step Two: binding arbitration under the Federal Arbitration Act, 9 U.S.C. § 1, et. seq., or state law, whichever is applicable. Any such mediation or arbitration hereunder shall be under the auspices of the American Arbitration Association (“ AAA ”) pursuant to its then current AAA Commercial Arbitration Rules. No arbitration shall be initiated or take place with respect to a given dispute if the parties have successfully achieved a mutually agreed to resolution of the dispute as a result of the Step One mediation. The mediation session(s) and, if necessary, the arbitration hearing shall be held in the city/location selected by the Company in its sole discretion. The arbitration (if the dispute is not resolved by mediation) will be conducted by a single AAA arbitrator, selected by the Company in its sole discretion. Any award rendered by the arbitrator, including with respect to responsibility for AAA charges (including the costs of the mediator and arbitrator), will be final and binding, and judgment may be entered on it in any court of competent jurisdiction. In the unlikely event the AAA refuses to accept jurisdiction over a dispute, the Company and each Grantee agree to submit to JAMS mediation and arbitration applying the JAMS equivalent of the AAA Commercial Arbitration Rules. If AAA and JAMS refuse to accept jurisdiction, the parties may litigate in a court of competent jurisdiction.
(k)      Captions . Captions provided herein are for convenience only and shall not affect the scope, meaning , intent or interpretation of the provisions of this Award Agreement.



CITIZENS FINANCIAL GROUP, INC.
2014 OMNIBUS INCENTIVE PLAN
Section 1. Purpose . The purpose of the Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan (the “ Plan ”) is to motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of Citizens Financial Group, Inc. (together with its subsidiaries and any and all successor entities, the “ Company ”), thereby furthering the best interests of the Company and its shareholders.
Section 2.      Definitions . As used in the Plan, the following terms shall have the meanings set forth below:
(a)      “ Award ” means any Option, SAR, Restricted Stock, RSU, Performance Award, Deferred Award, Other Cash-Based Award or Other Share-Based Award granted under the Plan.
(b)      “ Award Agreement ” means any agreement, contract or other instrument or document evidencing any Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant.
(c)      “ Beneficial Owner ” has the meaning ascribed to such term in Rule 13d-3 under the Exchange Act.
(d)      “ Beneficiary ” means a Person entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of the Participant’s death. If no such Person can be named or is named by the Participant, or if no Beneficiary designated by such Participant is eligible to receive payments or other benefits or exercise rights that are available under the Plan at the Participant’s death, such Participant’s Beneficiary shall be such Participant’s estate.
(e)      “ Board ” means the board of directors of the Company.
(f)      “ Change of Control ” means the occurrence of any one or more of the following events, except as otherwise provided in the Participant’s Award Agreement:
(i)      any Person, other than an employee benefit plan or trust maintained by the Company, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s outstanding securities entitled to vote generally in the election of directors;
(ii)      at any time during a period of 12 consecutive months, individuals who at the beginning of such period constituted the Board and any new member of the Board whose election or nomination for election was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was so approved, cease for any reason to constitute a majority of members of the Board; or
(iii)      the consummation of (A) a merger or consolidation of the Company with any other corporation or entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or being converted into voting


    

securities of the surviving entity or, if applicable, the ultimate parent thereof) at least 50% of the combined voting power and total fair market value of the securities of the Company or such surviving entity or parent outstanding immediately after such merger or consolidation, or (B) any sale, lease, exchange or other transfer to any Person of assets of the Company, in one transaction or a series of related transactions, having an aggregate fair market value of more than 50% of the fair market value of the Company and its subsidiaries (the “ Company Value ”) immediately prior to such transaction(s), but only to the extent that, in connection with such transaction(s) or within a reasonable period thereafter, the Company’s shareholders receive distributions of cash and/or assets having a fair market value that is greater than 50% of the Company Value immediately prior to such transaction(s).
Notwithstanding the foregoing or any provision of any Award Agreement to the contrary, for any Award that provides for accelerated distribution on a Change of Control of amounts that constitute “deferred compensation” (as defined in Section 409A of the Code and the regulations thereunder), if the event that constitutes such Change of Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Company’s assets (in either case, as defined in Section 409A of the Code), such amount shall not be distributed on such Change of Control but instead shall vest as of the date of such Change of Control and shall be paid on the scheduled payment date specified in the applicable Award Agreement, except to the extent that earlier distribution would not result in the Participant who holds such Award incurring interest or additional tax under Section 409A of the Code.
(g)      “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Code shall include any successor provision thereto.
(h)      “ Committee ” means the compensation committee of the Board unless another committee is designated by the Board. If there is no compensation committee of the Board and the Board does not designate another committee, references herein to the “Committee” shall refer to the Board.
(i)      “ Consultant ” means any individual, including an advisor, who is providing services to the Company or any Subsidiary, other than as an Employee or non-employee Director, or who has accepted an offer of service or consultancy from the Company or any Subsidiary.
(j)      “ Converted Award ” means an award granted under The Royal Bank of Scotland Group plc 2010 Long Term Incentive Plan or The Royal Bank of Scotland Group plc 2010 Deferral Plan to any Employee or any other individual who provides services to the Company that is converted into an award underlying Shares upon the Company’s initial public offering, subject to the terms of applicable governing plan documents.
(k)      “ Covered Employee ” means an individual who is, for a given fiscal year of the Company, (i) a “covered employee” within the meaning of Section 162(m) of the Code or (ii) designated by the Committee by not later than 90 days following the start of such year (or such other time as may be required or permitted by Section 162(m) of the Code) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.
(l)      “ Deferred Award ” shall mean an Award granted pursuant to Section 10.

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(m)      “ Director ” means any member of the Company’s Board.
(n)      “ Effective Date ” means the effective date of the Company’s initial public offering.
(o)      “ Employee ” means any individual, including any officer, employed by the Company or any Subsidiary or any prospective employee or officer who has accepted an offer of employment from the Company or any Subsidiary, with the status of employment determined based upon such factors as are deemed appropriate by the Committee in its discretion, subject to any requirements of the Code or the applicable laws.
(p)      “ Employment Agreement ” means any employment, severance, consulting or similar agreement (including any offer letter) between the Company or any Subsidiary and the Participant.
(q)      “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Exchange Act shall include any successor provision thereto.
(r)      “ Fair Market Value ” means (i) with respect to Shares, the closing price of a Share on the day prior to the grant date or vesting, settlement or exercise date, as applicable (or, if there is no reported sale on such prior day, on the last preceding date on which any reported sale occurred), on the principal stock market or exchange on which the Shares are quoted or traded, or if Shares are not so quoted or traded, fair market value of a Share as determined by the Committee, and (ii) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.
(s)      “ Incentive Stock Option ” means an option representing the right to purchase Shares from the Company, granted pursuant to the provisions of Section 6, that meets the requirements of Section 422 of the Code.
(t)      “ Intrinsic Value ” with respect to an Option or SAR Award means (i) the excess, if any, of the price or implied price per Share in a Change of Control or other event over (ii) the exercise or hurdle price of such Award multiplied by (iii) the number of Shares covered by such Award.
(u)      “ Non-Qualified Stock Option ” means an option representing the right to purchase Shares from the Company, granted pursuant to Section 6, that is not an Incentive Stock Option.
(v)      “ Option ” means an Incentive Stock Option or a Non-Qualified Stock Option.
(w)      “ Other Cash-Based Award ” means a cash Award granted pursuant to Section 11, including cash awarded as a bonus or upon the attainment of specified performance criteria or otherwise as permitted under the Plan.
(x)      “ Other Share-Based Award ” means an Award granted pursuant to Section 11 that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares or factors that may influence the value of Shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights for Shares, Awards with value

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and payment contingent upon performance of the Company or business units thereof or any other factors designated by the Committee.
(y)      “ Participant ” means the recipient of an Award granted under the Plan.
(z)      “ Performance Award ” means an Award granted pursuant to Section 9.
(aa)      “ Performance Period ” means the period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are measured.
(bb)      “ Person ” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including “group” as defined in Section 13(d) thereof.
(cc)      “ Restricted Stock ” means any Share granted pursuant to Section 8.
(dd)      “ Returning Shares ” means any Converted Award that is forfeited, expires, terminates, otherwise lapses or is settled for cash, in whole or in part, without the delivery of Shares, subject to the terms of applicable governing plan documents.     
(ee)      “ RSU ” means a contractual right granted pursuant to Section 8 that is denominated in Shares. Each RSU represents a right to receive the value of one Share (or a percentage of such value) in cash, Shares or a combination thereof. Awards of RSUs may include the right to receive dividend equivalents.
(ff)      “ SAR ” means any right granted pursuant to Section 7 to receive upon exercise by the Participant or settlement, in cash, Shares or a combination thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise or settlement over (ii) the exercise or hurdle price of the right on the date of grant, or if granted in connection with an Option, on the date of grant of the Option.
(gg)      “ SEC ” means the Securities and Exchange Commission.
(hh)      “ Section 162(m) Compensation ” means “qualified performance-based compensation” under Section 162(m) of the Code.
(ii)      “ Shares ” means shares of the Company’s common stock, $0.01 par value per Share.
(jj)      “ Subsidiary ” means (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company, directly or indirectly, has a significant equity interest, in each case as determined by the Committee and (iii) any other company which the Committee determines should be treated as a “Subsidiary.”
(kk)      “ Substitute Award ” means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company or other business acquired by the Company or with which the Company combines.
Section 3.      Eligibility .
(a)      Any Employee, Consultant or any other individual who provides services to the Company or any Subsidiary shall be eligible to be selected to receive an Award

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under the Plan, to the extent an offer of an Award or a receipt of such Award is permitted by applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
(b)      Holders of options and other types of awards granted by a company acquired by the Company or with which the Company combines are eligible for grants of Substitute Awards under the Plan to the extent permitted under applicable regulations of any stock exchange on which the Company is listed.
Section 4.      Administration .
(a)      Administration of the Plan . The Plan shall be administered by the Committee, which shall be appointed by the Board. All decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, its shareholders, Participants and any Beneficiaries thereof. The Committee may issue rules and regulations for administration of the Plan. It shall meet at such times and places as it may determine.
(b)      Composition of Committee . To the extent necessary or desirable to comply with applicable regulatory regimes, any action by the Committee shall require the approval of Committee members who are (i) independent, within the meaning of and to the extent required by applicable rulings and interpretations of the applicable stock market or exchange on which the Shares are quoted or traded; (ii) a non-employee Director within the meaning of Rule 16b-3 under the Exchange Act; and (iii) an outside Director pursuant to Section 162(m) of the Code. The Board may designate one or more Directors as alternate members of the Committee who may replace any absent or disqualified member at any meeting of the Committee. To the extent permitted by applicable law, including under Section 157(c) of the Delaware General Corporation Law, the Committee may delegate to one or more officers of the Company the authority to grant Options and SARs or other Awards in the form of Share rights, except that such delegation shall not be applicable to any Award for a Person then covered by Section 16 of the Exchange Act, and the Committee may delegate to one or more committees of the Board (which may consist of solely one Director) the authority to grant all types of Awards, in accordance with applicable law.
(c)      Authority of Committee . Subject to the terms of the Plan and applicable law, the Committee (or its delegate) shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards (including Substitute Awards) to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent and under what circumstances Awards may be settled or exercised in cash, Shares, other Awards, other property, net settlement, or any combination thereof, or canceled, forfeited or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) amend terms or conditions of any outstanding Awards, including without limitation, to accelerate the time or times at which the Award becomes vested, unrestricted or may be exercised; (viii) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect; (ix) interpret and administer the Plan and any instrument or agreement relating to, or Awar

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d made under, the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents, trustees, brokers, depositories and advisors and determine such terms of their engagement as it shall deem appropriate for the proper administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards or administer the Plan. In any such case, the Board shall have all of the authority and responsibility granted to the Committee herein.
Section 5.      Shares Available for Awards .
(a)      Subject to adjustment as provided in Section 5(c) and except for Substitute Awards, the maximum number of Shares available for issuance under the Plan shall not exceed in the aggregate 51,969,949 Shares plus any Returning Shares.
(b)      If any Award is forfeited, expires, terminates, otherwise lapses or is settled for cash, in whole or in part, without the delivery of Shares, then the Shares covered by such forfeited, expired, terminated or lapsed Award shall again be available for grant under the Plan. For the avoidance of doubt, the following will not again become available for issuance under the Plan: (i) any Shares withheld in respect of taxes and (ii) any Shares tendered or withheld to pay the exercise price of Options.
(c)      In the event that the Committee determines that, as a result of any dividend or other distribution (whether in the form of cash, Shares or other securities), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, separation, rights offering, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, issuance of Shares pursuant to the anti-dilution provisions of securities of the Company, or other similar corporate transaction or event affecting the Shares, or of changes in applicable laws, regulations or accounting principles, an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, subject to compliance with Section 409A of the Code, adjust equitably (including, without limitation, by payment of cash) any or all of:
(i)      the number and type of Shares (or other securities) which thereafter may be made the subject of Awards, including the aggregate limit specified in Section 5(a) and the individual limit specified in Section 5(e);
(ii)      the number and type of Shares (or other securities) subject to outstanding Awards; and
(iii)      the grant, purchase, exercise or hurdle price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award;
provided , however , that the number of Shares subject to any Award denominated in Shares shall always be a whole number.

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(d)      Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or Shares acquired by the Company.
(e)      The following limits shall apply to the amount that may be awarded to any Participant during any calendar year, subject to adjustment as provided in Section 5(c): (i) Options and SARs that relate to no more than 1,000,000 Shares; (ii) Restricted Stock and RSUs that relate to no more than 1,000,000 Shares; (iii) Share-based Performance Awards and Other Share-Based Awards that relate to no more than 1,000,000 Shares; (iv) Share-based Deferred Awards that relate to no more than 1,000,000 Shares; (v) cash-based Deferred Awards that relate to no more than $15,000,000; and (vi) cash-based Performance Awards and Other Cash-Based Awards that relate to no more than $15,000,000.
Section 6.      Options. The Committee is authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a)      The exercise price per Share under an Option shall be determined by the Committee at the time of grant; provided , however , that, except in the case of Substitute Awards, and subject to Section 6(f), such exercise price shall not be less than the Fair Market Value of a Share on the date of grant of such Option.
(b)      The term of each Option shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such Option; provided that the Committee may (but shall not be required to) provide in an Award Agreement for an extension of such 10-year term in the event the exercise of the Option would be prohibited by law on the expiration date.
(c)      The Committee shall determine the time or times at which an Option becomes vested and exercisable in whole or in part.
(d)      The Committee shall determine the method or methods by which, and the form or forms, including cash, Shares, other Awards, other property, net settlement, broker assisted cashless exercise or any combination thereof, having a Fair Market Value on the exercise date equal to the exercise price of the Shares as to which the Option shall be exercised, in which payment of the exercise price with respect thereto may be made or deemed to have been made.
(e)      No grant of Options may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such Options.
(f)      The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. Incentive Stock Options may be granted only to employees of the Company or of a parent or subsidiary corporation (as defined in Section 424(a) of the Code). Notwithstanding any designation as an Incentive Stock Option, to the extent that the aggregate Fair Market Value of Shares subject to a Participant’s Incentive Stock Options that become exercisable for the first time during any calendar year exceeds $100,000, such excess Options shall be treated as Non-Qualified Stock Options. For purposes of the foregoing, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant. No Incentive Stock Options may be issued more than ten years following the earlier of (i) the date of adoption of this Plan by the Board or (ii) the date of approval of this Plan by the C

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ompany’s shareholders. In the case of a 10% shareholder, the exercise price per Share under an Incentive Stock Option shall not be less than 110% of the Fair Market Value on the date of grant of such Incentive Stock Option and the term of such Incentive Stock Option shall not exceed five years from the date of grant of such Incentive Stock Option.
Section 7.      Stock Appreciation Rights . The Committee is authorized to grant SARs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a)      SARs may be granted under the Plan to Participants either alone (“freestanding”) or in addition to other Awards granted under the Plan (“tandem”) and may, but need not, relate to a specific Option granted under Section 6.
(b)      The exercise or hurdle price per Share under a SAR shall be determined by the Committee; provided , however , that, except in the case of Substitute Awards, such exercise or hurdle price shall not be less than the Fair Market Value of a Share on the date of grant of such SAR.
(c)      The term of each SAR shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such SAR.
(d)      The Committee shall determine the time or times at which a SAR may be exercised or settled in whole or in part.
(e)      Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of Shares subject to the SAR multiplied by the excess, if any, of the Fair Market Value of one Share on the exercise date over the exercise or hurdle price of such SAR. The Company shall pay such excess in cash, in Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee.
(f)      No grant of SARs may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such SARs.
Section 8.      Restricted Stock and RSUs. The Committee is authorized to grant Awards of Restricted Stock and RSUs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a)      The Award Agreement shall specify the vesting schedule and, with respect to RSUs, the delivery schedule (which may include deferred delivery later than the vesting date) and whether the Award of Restricted Stock or RSUs is entitled to voting rights or any other rights.
(b)      Shares of Restricted Stock and RSUs shall be subject to such restrictions as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.
(c)      The Committee may specify in the applicable Award Agreement that any or all dividends, dividend equivalents or other distributions, as applicable, paid on Awards of Restricted Stock or RSUs prior to vesting or settlement, as applicable, be paid either in

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cash or in additional Shares and either on a current or deferred basis and that such dividends, dividend equivalents or other distributions may be reinvested in additional Shares, which may be subject to the same restrictions as the underlying Awards; provided , however , that dividends, dividend equivalents or other distributions, as applicable, on Awards of Restricted Stock and RSUs with restrictions that lapse as a result of the achievement of performance conditions shall be deferred until and paid contingent upon the achievement of the applicable performance conditions.
(d)      Any Share of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of shares of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock.
(e)      If, and to the extent the Committee intends that an Award granted under this Section 8 shall constitute or give rise to Section 162(m) Compensation, such Award shall be structured in accordance with the requirements of Section 9, including the performance criteria set forth therein and the Award limitation set forth in Section 5(e), and any such Award shall be considered a Performance Award for purposes of the Plan.
(f)      The Committee may provide in an Award Agreement that an Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to an Award of Restricted Stock, the Participant shall be required to file promptly a copy of such election with the Company and the applicable Internal Revenue Service office.
(g)      The Committee may determine the form or forms (including cash, Shares, other Awards, other property or any combination thereof) in which payment of the amount owing upon settlement of any RSU Award may be made.
Section 9.      Performance Awards. The Committee is authorized to grant Performance Awards to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a)      Performance Awards may be denominated as a cash amount, number of Shares or a combination thereof and are Awards which may be earned upon achievement or satisfaction of performance conditions specified by the Committee. In addition, the Committee may specify that any other Award shall constitute a Performance Award by conditioning the right of a Participant to exercise the Award or have it settled, and the timing thereof, upon achievement or satisfaction of such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the Plan, the performance goals to be achieved during any Performance Period, the length of any Performance Period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.
(b)      If the Committee intends that a Performance Award should constitute Section 162(m) Compensation for purposes of this Plan, such Performance Award shall include a pre-established formula, such that payment, retention or vesting of the Award is

9
    

subject to the achievement during a Performance Period or Performance Periods, as determined by the Committee, of a level or levels of, or increases in, in each case as determined by the Committee, one or more of the following performance measures or any other performance measure reasonably determined by the Committee, with respect to the Company:
(i)      return measures (including, but not limited to, total shareholder return; return on equity; return on tangible common equity; return on tier 1 common equity; return on assets or net assets; return on risk-weighted assets; and return on capital (including return on total capital or return on invested capital));
(ii)      revenues (including, but not limited to, total revenue; gross revenue; net revenue; revenue growth; and net sales);
(iii)      income/earnings measures (including, but not limited to, earnings per share; earnings or loss (including earnings before or after interest, taxes, depreciation and amortization); gross income; net income after cost of capital; net interest income; non-interest income; fee income; net interest margin; operating income (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); pre- or after-tax operating income; net earnings; net income or loss (before or after taxes); operating margin; gross margin; and adjusted net income);
(iv)      expense measures (including, but not limited to, expenses; operating efficiencies; non-interest expense and operating/efficiency ratios; and improvement in or attainment of expense levels or working capital levels (including cash and accounts receivable));
(v)      balance sheet/risk management measures (including, but not limited to, loans; deposits; assets; tangible equity; charge-offs; net charge-offs; non-performing assets or loans; risk-weighted assets; classified assets; criticized assets; allowance for loans and lease losses; loan loss reserves; asset quality levels; year-end cash; investments; interest-sensitivity gap levels; regulatory compliance; satisfactory internal or external audits; financial ratings; shareholders’ equity; tier 1 capital; and liquidity);
(vi)      cash flow measures (including, but not limited to, cash flow or cash flow per share (before or after dividends); and cash flow return on investment);
(vii)      share price measures (including, but not limited to, share price; appreciation in and/or maintenance of share price; and market capitalization);
(viii)      strategic objectives (including, but not limited to, market share; debt reduction; operating efficiencies; customer satisfaction; customer growth; employee satisfaction; research and development achievements; branding; mergers and acquisitions; succession management; people development; management retention; dynamic market response; expense reduction initiatives; reductions in costs; risk management; regulatory compliance and achievements; implementation, completion or attainment of measurable objectives with respect to research, development, commercialization, products or projects, production volume levels, acquisitions and divestitures; factoring transactions; and recruiting and maintaining personnel); and

10
    

(ix)      other measures (including, but not limited to, economic value-added models or equivalent metrics; economic profit added; gross profits; economic profit; comparisons with various stock market indices; financial ratios (including those measuring liquidity, activity, profitability or leverage); cost of capital or assets under management; and financing and other capital raising transactions (including sales of the Company’s equity or debt securities; factoring transactions; sales or licenses of the Company’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions)).
Performance criteria may be measured on an absolute ( e.g. , plan or budget) or relative basis, may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments, may be based on a ratio or separate calculation of any performance criteria and may be made relative to an index or one or more of the performance goals themselves. Relative performance may be measured against a group of peer companies, a financial market index or other acceptable objective and quantifiable indices. Except in the case of an Award intended to qualify as Section 162(m) Compensation, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances render the performance objectives unsuitable, the Committee may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative. The Committee shall have the power to impose such other restrictions on Awards subject to this Section 9(b) as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for Section 162(m) Compensation or requirements of any applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. Notwithstanding any provision of the Plan to the contrary, with respect to any Award intended to be Section 162(m) Compensation, the Committee shall not be authorized to increase the amount payable under any Award to which this Section 9(b) applies upon attainment of such pre-established formula.
(c)      Settlement of Performance Awards shall be in cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined in the discretion of the Committee. The Committee shall specify the circumstances in which, and the extent to which, Performance Awards shall be paid or forfeited in the event of a Participant’s termination of service.
(d)      Unless otherwise provided in the applicable Award Agreement, the Committee may provide for the payment of dividend equivalents on Performance Awards either in cash or in additional Shares, subject in all cases to payment on a deferred and contingent basis based on the Participant’s earning of the Performance Shares upon achievement or satisfaction of performance conditions specified by the Committee with respect to which such dividend equivalents are paid.
(e)      Performance Awards shall be settled only after the end of the relevant Performance Period. The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a Performance Award but, to the extent required by Section 162(m) of the Code, may not exercise discretion to increase any amount payable to a Covered Employee in respect of a Performance Award intended to qualify as Section 162(m) Compensation. Any settlement that changes the form of payment from that originally specified shall be implemented in a manner such that

11
    

the Performance Award and other related Awards do not, solely for that reason, fail to qualify as Section 162(m) Compensation.
Section 10.      Deferred Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants Deferred Awards, which maybe a right to receive Shares or cash under the Plan (either independently or as an element of or supplement to any other Award under the Plan), including, as may be required by any applicable law or regulations or determined by the Committee, in lieu of any annual bonus that may be payable to a Participant under any applicable bonus plan or arrangement. The Committee shall determine the terms and conditions of such Deferred Awards, including, without limitation, the method of converting the amount of annual bonus into a Deferred Award, if applicable, and the form, vesting, settlement, forfeiture and cancellation provisions or any other criteria, if any, applicable to such Deferred Awards. Shares underlying a Share-denominated Deferred Award, which is subject to a vesting schedule or other conditions or criteria, including forfeiture or cancellation provisions, set by the Committee shall not be issued until or following the date that those conditions and criteria have been satisfied. Deferred Awards shall be subject to such restrictions as the Committee may impose (including any limitation on the right to vote a Share underlying a Deferred Award or the right to receive any dividend, dividend equivalent or other right), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. The Committee may determine the form or forms (including cash, Shares, other Awards, other property or any combination thereof) in which payment of the amount owing upon settlement of any Deferred Award may be made.
Section 11.      Other Cash-Based Awards and Other Share-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants Other Cash-Based Awards (either independently or as an element of or supplement to any other Award under the Plan) and Other Share-Based Awards. The Committee shall determine the terms and conditions of such Awards. Shares delivered pursuant to an Award in the nature of a purchase right granted under this Section 11 shall be purchased for such consideration, paid for at such times, by such methods and in such forms, including cash, Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, as the Committee shall determine; provided that the purchase price therefore shall not be less than the Fair Market Value of such Shares on the date of grant of such right.
Section 12.      Effect of Termination of Service or a Change of Control on Awards .
(a)      The Committee may provide, by rule or regulation or in any applicable Award Agreement, or may determine in any individual case, the circumstances in which, and the extent to which, an Award may be exercised, settled, vested, paid or forfeited in the event of the Participant’s termination of service prior to the end of a Performance Period or vesting, exercise or settlement of such Award.
(b)      In the event of a Change of Control, except as otherwise provided in an Award Agreement, the Committee may provide for: (i) continuation or assumption of such outstanding Awards under the Plan by the Company (if it is the surviving corporation) or by the surviving corporation or its parent; (ii) substitution by the surviving corporation or its parent of awards with substantially the same terms and value for such outstanding Awards (in the case of an Option or SAR Award, the Intrinsic Value at grant of such Substitute Award shall equal the Intrinsic Value of the Award); (iii) acceleration of the vesting (including the lapse of any restrictions, with any performance criteria or other performance conditions deemed met at target) or right to exercise such outstanding Awards immediately prior to or as of the date of the Change of Control, and the expiration of such outstanding Awards to the extent not timely exercised by the date of the Change of Control or other date thereafter designated by the Committee; or (iv) in

12
    

the case of an Option or SAR Award, cancelation in consideration of a payment in cash or other consideration to the Participant who holds such Award in an amount equal to the Intrinsic Value of such Award (which may be equal to but not less than zero), which, if in excess of zero, shall be payable upon the effective date of such Change of Control. For the avoidance of doubt, in the event of a Change of Control, the Committee may, in its sole discretion, terminate any Option or SAR Awards for which the exercise or hurdle price is equal to or exceeds the per Share value of the consideration to be paid in the Change of Control transaction without payment of consideration therefor.
Section 13.      General Provisions Applicable to Awards .
(a)      Awards shall be granted for such cash or other consideration, if any, as the Committee determines; provided that in no event shall Awards be issued for less than such minimal consideration as may be required by applicable law.
(b)      Awards may, in the discretion of the Committee, be granted either alone or in addition to or in tandem with any other Award or any award granted under any other plan of the Company. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(c)      Subject to the terms of the Plan, payments or transfers to be made by the Company upon the grant, exercise or settlement of an Award may be made in the form of cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined by the Committee in its discretion at the time of grant, and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of dividend equivalents in respect of installment or deferred payments.
(d)      Except as may be permitted by the Committee (except with respect to Incentive Stock Options) or as specifically provided in an Award Agreement, (i) no Award and no right under any Award shall be assignable, alienable, saleable or transferable by a Participant otherwise than by will or pursuant to Section 13(e) and (ii) during a Participant’s lifetime, each Award, and each right under any Award, shall be exercisable only by such Participant or, if permissible under applicable law, by such Participant’s guardian or legal representative. The provisions of this Section 13(d) shall not apply to any Award that has been fully exercised or settled, as the case may be, and shall not preclude forfeiture of an Award in accordance with the terms thereof.
(e)      A Participant may designate a Beneficiary or change a previous Beneficiary designation only at such times as prescribed by the Committee, in its sole discretion, and only by using forms and following procedures approved or accepted by the Committee for that purpose.
(f)      All certificates for Shares and/or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the SEC, any stock market or exchange upon which such Shares or other securities are then quoted, traded or listed, and any applicable securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

13
    

(g)      The Committee may impose restrictions on any Award with respect to non-competition, confidentiality and other restrictive covenants as it deems necessary or appropriate in its sole discretion.
Section 14.      Amendments and Terminations .
(a)      Amendment or Termination of the Plan . Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan, the Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided, however , that no such amendment, alteration, suspension, discontinuation or termination shall be made without (i) shareholder approval if such approval is required by applicable law or the rules of the stock market or exchange, if any, on which the Shares are principally quoted or traded or (ii) subject to Section 5(c) and Section 12, the consent of the affected Participant, if such action would materially adversely affect the rights of such Participant under any outstanding Award, except (x) to the extent any such amendment, alteration, suspension, discontinuance or termination is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations or (y) to impose any “clawback” or recoupment provisions on any Awards in accordance with Section 18. Notwithstanding anything to the contrary in the Plan, the Committee may amend the Plan, or create sub-plans, in such manner as may be necessary to enable the Plan to achieve its stated purposes in any jurisdiction in a tax-efficient manner and in compliance with local rules and regulations.
(b)      Dissolution or Liquidation . In the event of the dissolution or liquidation of the Company, each Award shall terminate immediately prior to the consummation of such action, unless otherwise determined by the Committee.
(c)      Terms of Awards . The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate any Award theretofore granted, prospectively or retroactively, without the consent of any relevant Participant or holder or Beneficiary of an Award; provided , however , that, subject to Section 5(c) and Section 12, no such action shall materially adversely affect the rights of any affected Participant or holder or Beneficiary under any Award theretofore granted under the Plan, except (x) to the extent any such action is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations, or (y) to impose any “clawback” or recoupment provisions on any Awards in accordance with Section 18; provided further , that the Committee’s authority under this Section 14(c) is limited in the case of Awards subject to Section 9(b), as provided in Section 9(b). Except as provided in Section 9, the Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of events (including the events described in Section 5(c)) affecting the Company, or the financial statements of the Company, or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
(d)      No Repricing . Notwithstanding the foregoing, except as provided in Section 5(c), no action shall directly or indirectly, through cancellation and regrant or any other method, reduce, or have the effect of reducing, the exercise or hurdle price of any Award established at the time of grant thereof without approval of the Company’s shareholders.

14
    

Section 15.      Miscellaneous .
(a)      No Employee, Consultant, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of employees, Participants or holders or Beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient. Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
(b)      The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or to continue to provide services to, the Company or any Subsidiary. The receipt of any Award under the Plan is not intended to confer any rights on the receiving Participant except as set forth in the applicable Award Agreement.
(c)      Nothing contained in the Plan shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.
(d)      The Company shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to the Participant the amount (in cash, Shares, other Awards, other property, net settlement, or any combination thereof) of applicable withholding taxes due in respect of an Award, its exercise or settlement or any payment or transfer under such Award or under the Plan and to take such other action (including providing for elective payment of such amounts in cash or Shares by such Participant) as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes; provided that if the Committee allows the withholding or surrender of Shares to satisfy the Participant’s tax withholding obligations, the Company shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.
(e)      If any provision of the Plan or any Award Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award Agreement, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and any such Award Agreement shall remain in full force and effect.
(f)      Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company.
(g)      No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash or other securities shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

15
    

Section 16.      Effective Date of the Plan. The Plan shall be effective as of the Effective Date, subject to its approval by the Board and the shareholder(s) of the Company.
Section 17.      Term of the Plan. No Award shall be granted under the Plan after the earliest to occur of (i) the tenth-year anniversary of the Effective Date; (ii) the maximum number of Shares available for issuance under the Plan have been issued; or (iii) the Board terminates the Plan in accordance with Section 14(a). However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.
Section 18. Cancellation or “Clawback” of Awards . The Committee shall have full authority to implement any policies and procedures necessary to comply with Section 10D of the Exchange Act and any rules promulgated thereunder and any other regulatory regimes. Notwithstanding anything to the contrary contained herein, the Committee may, to the extent permitted by applicable law and stock exchange rules or by any applicable Company policy or arrangement, and shall, to the extent required, cancel or require reimbursement of any Awards granted to the Participant or any Shares issued or cash received upon vesting, exercise or settlement of any such Awards or sale of Shares underlying such Awards.
Section 19.      Section 409A of the Code. With respect to Awards subject to Section 409A of the Code, the Plan is intended to comply with the requirements of Section 409A of the Code and the regulations thereunder, and the provisions of the Plan and any Award Agreement shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything else in the Plan, if the Board considers a Participant to be a “specified employee” under Section 409A of the Code at the time of such Participant’s “separation from service” (as defined in Section 409A of the Code), and the amount hereunder is “deferred compensation” subject to Section 409A of the Code, any distribution that otherwise would be made to such Participant with respect to an Award as a result of such “separation from service” shall not be made until the date that is six months after such “separation from service,” except to the extent that earlier distribution would not result in such Participant’s incurring interest or additional tax under Section 409A of the Code. If the Award includes a “series of installment payments” (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Participant’s right to the series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment and if the Award includes “dividend equivalents” (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), the Participant’s right to the dividend equivalents shall be treated separately from the right to other amounts under the Award. Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code.
Section 20.      Successors and Assigns . The terms of the Plan shall be binding upon and inure to the benefit of the Company and any successor entity, including any successor entity contemplated by Section 12.
Section 21.      Governing Law . The Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without application of the conflicts of law principles thereof.


16
    
        
Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
_____________________________________________________________________________________________
I, Bruce Van Saun, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Citizens Financial Group, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2014
/s/ Bruce Van Saun _____________________________________
Bruce Van Saun
Chief Executive Officer



        
Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
_____________________________________________________________________________________________
I, John Fawcett, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Citizens Financial Group, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2014

/s/ John Fawcett ________________________________________
John Fawcett
Chief Financial Officer


        
Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
_____________________________________________________________________________________________
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Citizens Financial Group, Inc. (the "Company"), does hereby certify that:

1.
The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
    
2.
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: November 14, 2014

/s/ Bruce Van Saun
________________________________________
Bruce Van Saun
Chief Executive Officer





A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.




    

        
Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
_____________________________________________________________________________________________
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of Citizens Financial Group, Inc. (the "Company"), does hereby certify that:

1.
The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
    
2.
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: November 14, 2014


/s/ John Fawcett ________________________________________
John Fawcett
Chief Financial Officer



A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff on request.