Citizens
| 2006 £m |
2005 £m |
|
| Net interest income | 2,085 | 2,122 |
| Non-interest income | 1,232 | 1,142 |
| Total income | 3,317 | 3,264 |
| Direct expenses | ||
| – staff costs | 803 | 819 |
| – other | 751 | 739 |
| 1,554 | 1,558 | |
| Contribution before impairment losses | 1,763 | 1,706 |
| Impairment losses | 181 | 131 |
| Operating profit | 1,582 | 1,575 |
| US$bn | US$bn | |
| Total assets | 162.2 | 158.8 |
| Loans and advances to customers – gross | ||
| – mortgages | 18.6 | 18.8 |
| – home equity | 34.5 | 31.8 |
| – other consumer | 23.2 | 24.8 |
| – corporate and commercial | 32.7 | 29.2 |
| Customer deposits | 106.8 | 106.3 |
| Risk-weighted assets | 113.1 | 106.4 |
| Average exchange rate – US$/£ | 1.844 | 1.820 |
| Spot exchange rate – US$/£ | 1.965 | 1.721 |
Citizens grew its total income by 3% to $6,115 million and its operating profit by 2% to $2,917 million. In sterling terms, Citizens total income increased by 2% to £3,317 million, while its operating profit rose slightly to £1,582 million.
We have achieved good growth in lending volumes, with average loans and advances to customers increasing by 10%. In business lending, average loans excluding finance leases increased by 15%, reflecting Citizens’ success in adding new mid-corporate customers and increasing its total number of business customers by 4% to 467,000. In personal lending, Citizens increased average mortgage and home equity lending by 14%, though the mortgage market slowed in the second half. Average credit card receivables, while still relatively small, increased by 19%.
We increased average customer deposits by 4%, although spot balances at the end of 2006 were little changed from the end of 2005. As interest rates rose further and the US yield curve inverted, we saw migration from low-cost checking and liquid savings to higher-cost term and time deposits. This migration is a principal reason for the decline in Citizens’ net interest margin to 2.72% in 2006, compared with 3.00% in 2005. The decline slowed over the course of the year, with net interest margin in the second half 6 basis points lower than in the first. Lower net interest margins more than offset the benefit of higher average loans and deposits, leaving net interest income marginally lower at $3,844 million.
Non-interest income rose by 9% to $2,271 million. Business and corporate fees rose strongly, with good results especially in foreign exchange, interest rate derivatives and cash management benefiting from increased activity with Corporate Markets. There was good progress in debit cards, where issuance has been boosted by the launch in September of our "Everyday Rewards" programme. Citizens has also become the US’s leading issuer of Paypass™ contactless debit cards, with 3.65 million cards issued. Our credit card customers increased by 20%, whilst RBS Lynk, our merchant acquiring business, also achieved significant growth, processing 40% more transactions than it did in 2005 and expanding its merchant base by 11%.
Tight cost control and a 5% reduction in headcount limited the increase in total expenses to only 1%, despite continued investment in growth opportunities such as mid-corporate banking, contactless debit cards, merchant acquiring and supermarket banking.
Citizens continued to expand its branch network. Our partnership with Stop & Shop Supermarkets has helped us to expand our supermarket banking franchise into New York, while in October we announced the purchase of GreatBanc, Inc., strengthening our position in the Chicago market and making us the 4th largest bank in the Chicago area, based on deposits. The acquisition was completed in February 2007.
Impairment losses totalled $333 million, representing just 0.31% of loans and advances to customers and illustrating the prime quality of our portfolio. Underlying strong credit quality remained unchanged as our portfolio grew, with risk elements in lending and problem loans representing 0.32% of loans and advances, the same level as in 2005. Our consumer lending is to prime customers with average FICO scores on our portfolios, including home equity lines of credit, in excess of 700, and 95% of lending is secured.
© 2007