RBS 2005 Annual Report Download - page 80

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Operating and financial review
Operating and financial review continued
Citizens
Pro forma
2005 2004
£m £m
Net interest income 2,122 1,619
Non-interest income 1,142 659
Total income 3,264 2,278
Expenses
– staff costs 819 591
– other 739 501
1,558 1,092
Contribution before impairment losses 1,706 1,186
Impairment losses 131 117
Contribution 1,575 1,069
31 December 1 January
2005 2005
US$bn US$bn
Total assets 158.8 141.7
Loans and advances to customers – gross 104.6 91.7
Customer deposits 106.3 99.2
Weighted risk assets 106.4 93.5
Average exchange rate – US$/£ 1.820 1.832
Spot exchange rate – US$/£ 1.721 1.935
Citizens performed well in 2005, delivering a strong underlying
performance in challenging market conditions both from the
old Citizens franchise and from Charter One. Total income, in
US dollars, rose by 42% to $5,940 million and contribution by
46% to $2,867 million, including a full year’s contribution from
Charter One. Excluding Charter One and other acquisitions,
income rose by 6% and contribution by 10%, despite the
impact of the flattening of the yield curve, which reduced net
interest margin and the rate of growth in net interest income.
We have grown our customer numbers in both personal and
business segments, with Charter One increasing its small
business and corporate customer base by 10%. Co-operation
between Citizens and RBS Corporate Markets is yielding good
results. Citizens’ new international cash management service
has already won nearly 300 new accounts with existing RBS
customers, bringing in more than $80 million of new core
deposits.
Our cards businesses, which are only active in the prime and
superprime segments, have made good progress. Credit card
balances increased by 19% to $2.5 billion, as RBS National
launched into a number of new channels such as Charter One
branches. RBS Lynk, our merchant acquiring business,
increased its customer base by 24%.
The integration of Charter One progressed well and all phases
of the IT conversion were completed in July 2005, five months
ahead of schedule. This involved the conversion to Citizens’
systems of over 750 branches and three million customer
accounts spread over a wide geography. Despite the focus on
the integration process, Charter One achieved good growth in
business volumes, with loans and advances up 18% over the
course of the year and customers deposits up 10%.
Net interest income increased by 30% to $3,861 million. This
reflected strong growth in both lending and deposits.
Excluding acquisitions, average lending increased by 13% or
$6.7 billion, with robust growth in secured consumer lending,
and average customer deposits by 9% or $5.7 billion. However,
as a consequence of the flattening yield curve, net interest
income excluding acquisitions was only 3% higher at $2,534
million.
Non-interest income was up 72% to $2,079 million. Excluding
acquisitions, non-interest income grew by 15% to $1,004
million, benefiting from higher fee income, increased student
loan and leasing activities, and investment gains.
Expenses were up 42% to $2,834 million. Expense growth,
excluding acquisitions, was contained to 5%.
Impairment losses, including acquisitions, were up $25 million
to $239 million. Credit quality overall remained stable. More
than 90% of our personal sector lending is secured, and as a
result there was minimal impact from the change in US
bankruptcy laws in 2005.