RELATED PARTY TRANSACTIONS

As of June 30, 2015, the Company was an indirect subsidiary of RBS. The tables and discussions below present the financial statement effects of significant transactions with RBS.

In September 2014, the Company entered into certain agreements that established a framework for its ongoing relationship with RBS. Specifically, the Company entered into the following agreements with RBS: Separation and Shareholder Agreement, Registration Rights Agreement, Trade Mark License Agreement, Amended and Restated Master Services Agreement, and Transitional Services Agreements. These agreements were filed as exhibits in Part II, Item 6 — Exhibits to the Company’s quarterly report on Form 10-Q/A filed November 14, 2014.

The following is a summary of borrowed funds from RBS:



(dollars in millions)	Interest Rate	Maturity Date	June 30, 2015	December 31, 2014
Subordinated debt	5.158%	June 2023	$333		$333
	4.771%	October 2023	333	333
	4.691%	January 2024	334	334
	4.153%	July 2024	333	333
	4.023%	October 2024	333	333
	4.082%	January 2025	334	334

The following table presents total interest expense recorded on subordinated debt with RBS:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2015		2014		2015		2014
Interest expense on subordinated debt		$20		$13		$40		$25

The Company enters into interest rate swap agreements with RBS for the purpose of reducing the Company’s exposure to interest rate fluctuations. The following table presents a summary of these swap agreements:



	June 30, 2015				December 31, 2014
(dollars in millions)	Notional		Fixed Rates	Maturity Date	Notional		Fixed Rates	Maturity Date
Receive-fixed swaps		$4,750	1.66% to 2.04%	2019 - 2023		$4,750	1.66% to 2.04%	2019 - 2023
Pay-fixed swaps	2,500		2.03% to 4.30%	2016 - 2023	1,000		4.18% to 4.30%	2016
Total		$7,250				$5,750

The following table presents net interest income (expense) recorded by the Company in relation to interest rate swap agreements with RBS:



	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2015		2014			2015		2014
The effect of related party interest rate swap agreements on net interest income (expense)		$3		($10	)		$6		($21	)

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 $8.5 billion and $9.8 billion at June 30, 2015 and December 31, 2014, respectively.

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 $4.0 billion and $4.7 billion at June 30, 2015 and December 31, 2014, respectively.

The following table presents the income (expense) recorded by the Company in relation to the interest rate swap and cap agreements and foreign exchange contracts with RBS:



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2015			2014			2015			2014
The effect of related party interest rate swap and cap agreements on other income		$18			($82	)		($50	)		($135	)
The effect of related party foreign exchange contracts on foreign exchange and trade finance fees		($19	)		($1	)		$16			($7	)

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. Also, the Company receives certain services provided by RBS and by certain RBS entities, the fees for which were recorded in outside services expense.

The following table presents the effect of the related party fees on total fee income and outside services:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2015		2014		2015		2014
The effect of related party service and referral fees, net of occupancy expense, on total fee income		$3		$3		$7		$8
The effect of related party service fees on outside services		$3		$8		$5		$16

The Company paid $21 million and $10 million in regular common stock dividends to RBS for the three months ended June 30, 2015 and 2014, respectively, and $60 million and $35 million for the six months ended June 30, 2015 and 2014, 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 entered into credit facilities with directors and executive officers and their immediate families, as well as their affiliated companies. Outstanding loan balances amounted to $125 million and $126 million at June 30, 2015 and December 31, 2014, respectively.