NatWest Group plc American Depositary Shares, (each representing two (2) Ordinary Shares) 2026 Q3 Earnings Call

Morning, and thank you for joining us today. I will start with a short introduction. Katie will take you through our third quarter financial performance, and then we will open up for questions. As I said at the half year, we are building a diversified business that benefits from structural growth drivers so that we can deliver strong returns on a sustainable basis. Our track record demonstrates the success of our strategy, with three clear priorities driving our performance. First, disciplined growth. Our three businesses are working in collaboration to drive sustained momentum across the group. This marks the eighth consecutive year in which we expect to deliver growth in customer assets and liabilities of more than 4%. Second, we continue to increase our operating leverage through simplification. This gives us a significant competitive advantage as the most efficient large bank in the U.K.

Third, as we actively manage capital and risk, we expect to generate more than 200 basis points of capital for the third year running in 2026. This gives us the flexibility to continue to invest in our business, support customers, and deliver attractive returns to shareholders. In short, by driving disciplined growth, leveraging simplification, and actively managing capital and risk, we are delivering industry-leading returns, with an average return on tangible equity of more than 17% over the past four years. Our third quarter continued this strong momentum, so let me turn to the headlines. Customer assets and liabilities grew 14.2%, well above our target of more than 4%. Within this, customer lending grew 7.7%. This growth was disciplined and broad-based across all three of our businesses, with a strong performance in Commercial & Institutional, driven by infrastructure, renewables, housing, and technology.

Growth in retail and private banking was driven mainly by mortgage lending, which increased 4% or GBP 8.3 billion, as we grew our stock share from 12.5% to 12.7% over the first nine months. Customer deposits grew 4.3% in a competitive market. This reflects further growth in current accounts, as well as operational balances that bring strong relationship and liquidity value. In retail banking, we are delivering on our strategy of growing savings with the launch of new easy access products and channels. There was also good growth from mid to large corporates. Assets under management and administration more than doubled to GBP 132 billion, supported by our acquisition of Evelyn Partners. This includes new flows of GBP 1 billion since the deal completed at the end of June, with positive flows in both businesses. We are excited about the growth opportunity that Evelyn Partners represents for the group.

The integration is on track, and we look forward to providing further insight into private banking and wealth management at our spotlight in November. We continue to increase operating leverage, with income growth of 9.3%, well ahead of cost growth of 4.8%, and with a cost income ratio of 45.7%, down 2.1 percentage points as we move towards our 2028 target. Continued growth, strong operating leverage, and a low cost of risk have resulted in earnings per share of 57.4 pence, up 13.2%, and a 9.4% uplift in TNAV per share, excluding Evelyn Partners. We generated high levels of capital at 208 basis points. Our balance sheet is strong, with a capital ratio of 13.5%, and our return on tangible equity remains industry-leading at 20.2%. With that, I'd like to hand over to Katie to take you through the results.

Thank you, Paul. I'll cover the third quarter using the second quarter as a comparator. Our third quarter performance was driven by broad-based growth, driving sustained income momentum and continued high returns. Income, excluding notable items, increased 3.1% to GBP 4.6 billion, and total operating costs grew 2.8% to GBP 2.1 billion, with the cost income ratio improving further to 45.1%. The impairment charge was GBP 277 million, equivalent to 24 basis points of loans. This resulted in operating profit of GBP 2.2 billion. Profit attributable to ordinary shareholders was GBP 1.5 billion, and we delivered a return on tangible equity of 21.6%. Turning now to income. Income, excluding notable items, grew 3.1% to GBP 4.6 billion as a result of growth in customer assets and liabilities, or CAL, higher non-interest income from the inclusion of Evelyn Partners, and an extra day in the quarter.

Net interest margin was broadly stable at 250 basis points, in line with our expectations, as deposit margin expansion was offset by ongoing mortgage repricing, lending mix, and our regular annual review of customer repayment habits. Non-interest income grew 7.9%, or GBP 75 million, supported by the inclusion of Evelyn Partners and a gain on the sale of our SME consultancy business, Mentor. This was partly offset by the non-repeat of accelerated insurance income in retail banking in the second quarter. We now expect the Bank of England base rates to increase to 4% in the fourth quarter. As you are aware, given the lateness in the year, the resulting benefit in 2026 will be modest, and we continue to expect full-year income, excluding notable items, of around GBP 17.9 billion. Turning now to CAL. We continue to deliver a strong performance across our three businesses.

CAL increased by GBP 15.7 billion in the quarter, or 1.6%. This comprises GBP 8.1 billion of broad-based customer lending growth, GBP 5.8 billion of customer deposit growth, and a GBP 1.8 billion increase in assets under management and administration. I'll touch on each of these elements in turn. Strong loan growth of GBP 8.1 billion was broad-based. Retail banking and private banking and wealth management balances grew GBP 1.5 billion, or 0.6%. This included GBP 1.1 billion in mortgages and GBP 300 million in unsecured lending. Our mortgage stock share remained stable in the quarter at 12.7%. Commercial and institutional grew fastest at 4%, or GBP 6.6 billion. This was driven by corporate and institutions, where higher infrastructure and renewables lending was supported by structural growth trends such as digitization and decarbonization. There was also healthy demand in commercial mid-market from sectors such as commercial real estate, manufacturing, and social housing. Turning now to deposits. Customer deposits growth of GBP 5.8 billion was well-balanced across both personal and corporate customers.

Retail banking deposits grew GBP 3.1 billion as we attracted savings from the launch of new products and channels. There was continued modest sequential growth in current accounts. In Commercial & Institutional, deposits increased by GBP 3 billion, with growth across both commercial mid-market and large corporates. Our deposit mix remains broadly stable, with a slight increase in term deposits, now representing around 19% of the total. Turning now to assets under management. Assets under management and administration closed the quarter at GBP 132.4 billion, an increase of GBP 1.8 billion. This includes net inflows to assets under management of GBP 1 billion, assets under administration net flows of GBP 0.4 billion, and positive market performance of GBP 0.4 billion. The net inflows of GBP 1 billion are equivalent to 3.4% of opening AUM on an annualized basis, and were positive in both businesses.

Turning now to costs. We are pleased with further improvement in operating leverage in the quarter, as we grew income faster than costs. Other operating expenses of GBP 2.1 billion take the total for the first nine months to GBP 6.2 billion. We delivered GBP 420 million of gross cost savings year-on-year, giving us the capacity to continue investing in the business. These savings partly offset increased investment spend, the inclusion of Evelyn Partners, and higher people-related expenses, including our annual pay award. As you heard from Paul, our cost income ratio reduced by 2.1 percentage points to 45.7%. We continue to expect around GBP 300 million of costs from the Evelyn Partners acquisition this year, and have incurred GBP 156 million to date. Overall, we continue to expect other operating expenses of around GBP 8.5 billion for the full year. Turning now to impairments. Customers continue to demonstrate resilience, and our credit performance remains strong.

Our growth is being delivered with a consistent risk appetite, supporting a structurally low loan impairment rate. The impairment charge for the quarter was GBP 277 million, equivalent to 24 basis points of loans on an annualized basis. This brings the charge for the first nine months to 21 basis points, in line with our full-year guidance of below 25 basis points. The increase relative to the second quarter was driven by the non-repeat of releases in the retail portfolios. We carry economic uncertainty post-model adjustments of GBP 288 million, with total PMAs of GBP 315 million. Turning now to capital. Our disciplined approach to capital allocation supports strong and sustainable capital generation going forward. We ended the third quarter with a common equity tier one ratio of 14.7% before distributions.

142 basis points of capital was invested in our acquisition of Evelyn Partners, and as you know, this is a highly capital-generative business, and we generated 288 basis points through strong earnings, which was boosted by 47 basis points from RWA management. Our ongoing investment spend consumed 30 basis points, and organic lending growth absorbed 96 basis points. We are reporting a CET1 ratio of 13.5% after accruing 50% of attributable profit towards the final ordinary dividend. We continue to expect capital generation before distributions and the impact of Evelyn Partners of more than 240 basis points in 2026. We ended the quarter with GBP 200 billion of risk-weighted assets, including some positive CRD IV model updates in our retail portfolios. Turning now to our CET1 requirements. As you know, we continue to target a CET1 ratio of around 13%.

We can confirm today that our Pillar 2A requirements will be reduced by 76 basis points as of January 1, including Basel 3.1 offsets. 43 basis points of this relates to our CET1 requirement, taking our supervisory minimum from 11.6% to 11.1%. This was expected, and we took it into account when we changed our CET1 target to around 13%. Our total capital and CET1 ratios both remain strong and comfortably above minimum requirements. Turning now to guidance. Our 2026 guidance remains unchanged, with one enhancement. We now expect risk-weighted assets of around GBP 210 billion as at January 1, 2027. This takes into account Basel 3.1 and CRD IV impacts, as well as other movements such as anticipated growth and operational risk in the fourth quarter. We will continue to operate with a CET1 ratio of around 13%.

As we told you in July, we expect to announce our next buyback with our full-year results in February. With that, we will now open for questions.