RBS 2007 Annual Report Download - page 62

RBS Group • Annual Report and Accounts 2007
60
Business review continued
2006 compared with 2005
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.
Business review