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.

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.