RELATED PARTY TRANSACTIONS AND SIGNIFICANT TRANSACTIONS WITH RBS

On November 3, 2015, RBS completed the sale of all of its remaining shares of CFG’s common stock. The parenthetical disclosures on the Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows as well as the tables and discussions below include significant related party transactions with RBS prior to the Company’s separation from RBS and significant transactions subsequent to the separation.

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. In connection with RBS’s exit of its ownership in our common stock in 2015, the Separation and Shareholder Agreement and the Registration Rights Agreement were terminated and the Trademark License Agreement was partially terminated.

The following is a summary of borrowed funds from RBS:



	Interest			Maturity	December 31,
(dollars in millions)	Rate			Date	2015	2014
Subordinated debt	5.158	%		June 2023	$333		$333
	4.771	%		October 2023	—	333
	4.691	%		January 2024	—	334
	4.153	%	⁽¹⁾	July 2024	250	333
	4.023	%		October 2024	333	333
	4.082	%		January 2025	334	334

⁽¹⁾Interest is payable until January 1, 2016 at a fixed rate per annum of 4.153% and at a fixed rate per annum of 3.750% thereafter.

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



	Year Ended December 31,
(in millions)	2015		2014		2013
Interest expense on subordinated debt		$76		$64		$16

On December 3, 2015, the Company repurchased $750 million of outstanding subordinated debt instruments held by RBS. The $3 million difference between the reacquisition price and the net carrying amount of the repurchased debt was recognized as a gain on extinguishment of the debt and is presented in other income in the Consolidated Statement of Operations. In November 2015, the Company entered into an agreement with RBS to purchase an additional $500 million of its subordinated notes held by RBS by July 30, 2016, subject to regulatory approval and ratings agency considerations.

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:



	December 31, 2015				December 31, 2014
(dollars in millions)	Notional		Fixed Rates	Maturity Date	Notional		Fixed Rates	Maturity Date
Receive-fixed swaps		$6,700	0.77% to 2.04%	2017 - 2023		$4,750	1.66% to 2.04%	2019 - 2023
Pay-fixed swaps	3,500		1.96% to 4.30%	2016 - 2023	1,000		4.18% to 4.30%	2016
Total		$10,200				$5,750

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



	Year Ended December 31,
(in millions)	2015		2014			2013
The effect of related party interest rate swap agreements on net interest income		$12		($27	)		($146	)

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 $6.5 billion and $9.8 billion at December 31, 2015 and 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 $3.6 billion and $4.7 billion at December 31, 2015 and 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:



	Year Ended December 31,
(in millions)	2015			2014			2013
The effect of related party interest rate swap and cap agreements on other income		($105	)		($209	)		($32	)
The effect of related party foreign exchange contracts on foreign exchange and trade finance fees	19			58			(15		)

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:



	Year Ended December 31,
(in millions)	2015		2014		2013
The effect of related party service and referral fees, net of occupancy expense, on total fee income		$10		$16		$26
The effect of related party service fees on outside services	11		22		20

The Company paid $71 million, $124 million and $185 million in regular common stock dividends to RBS for the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, in 2014 and 2013, the Company paid $666 million and $1.0 billion, respectively, of common stock dividends to RBS as part of exchange transactions.

Additionally, the Company has engaged in repurchases of its common stock directly from RBS. Refer to Note 13 “Stockholders’ Equity” for further information.

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. Extensions of credit amounted to $136 million and $126 million at December 31, 2015 and December 31, 2014, respectively.