Citizens boosts earnings in 2Q, but only after cuts

Citizens Financial Group has reduced its work force by 900 jobs since June 2006, helping the bank post $1.48 billion in earnings for the first half of 2007 – a 2-percent increase over the same period in 2006.
Many of the jobs shed by the Providence-based bank were the result of a divestment following Citizens’ purchase of Charter One Financial, based in Cleveland, according to Citizens Chief Financial Officer James B. Fitzgerald.
Other reductions were made by a mix of layoffs and attrition in the mortgage lending area, which has experienced soft demand since the housing market went on the decline.
Citizens employed 25,500 people as of June 2006, according to spokeswoman Kathy O’Donnell. That number has been reduced to 24,600 – or by 4 percent – as of June of this year.
Fitzgerald said last week that he didn’t have figures on how many of those job losses, if any, were in Rhode Island.
The reduction in work force was first disclosed on Aug. 3, when Citizens’ parent company, Royal Bank of Scotland Group plc, announced that net profits for RBS rose almost 20 percent in the first half of the year.
Citizens, as well as other banks throughout the industry, have experienced slowing profitability because of interest rate trends and a lack of demand for consumer products such as residential mortgages.
But RBS and Citizens executives sounded upbeat about the future.
The bank reported $3.08 billion in revenue for the first half of 2007, about 2.1 percent higher than the $3.01 billion in the first half of 2006.
“[Citizens], particularly corporate and commercial banking, made good progress in the first half of 2007 as the headwinds show signs of abating,” RBS said in a report of financial results for the first half of the year.
Citizens said the net interest margin stabilized at 2.75 percent in the first half of 2007, the same as it was in the first half of 2006, and six basis points higher than the second half of 2006.
Citizens noted that the stabilization comes even though customers continue to move their money from low-cost checking and liquid savings accounts to higher-cost term deposit products.
Fitzgerald said he expects that stability in the net interest margin to continue, and eventually rebound.
Net interest income was $1.93 billion for the first half of 2007, slightly higher than the $1.92 billion in the first half of 2006.
“Actually, that is a pretty good performance relative to our peers,” Fitzgerald said. “And we feel pretty good about it.”
At the same time, non-interest income was $1.15 billion, a 5.3-percent increase over the $1.09 billion from the same period a year ago.
Fitzgerald said much of that gain can be attributed to business and corporate non-interest income, particularly in the areas of leasing, foreign exchange, interest rate derivatives and cash management.
In addition, the bank reported that it had increased its credit-card customer base by 21 percent. And RBS Lynk, Citizens’ merchant acquiring business, added 8 percent more merchants and processed 30 percent more transactions than in 2006.
Despite the soft demand for consumer loan products, Citizens said there was a bright spot in lending for the first half of the year.
“We are particularly pleased with our performance and growth in corporate and commercial banking, especially in the Midwest, where we’ve had success in attracting new mid-corporate customers,” said Stephen Steinour, Citizens’ president and CEO, in a statement announcing the earnings results.
Citizens’ figures show that while its home-equity loan portfolio has increased 9.3 percent since June 2006, from $33.1 billion to $36.2 billion, the bank’s mortgage portfolio stands at $18.5 billion, down 4.6 percent from $19.4 billion a year ago. Likewise, other consumer loans are down 7.3 percent since June 2006, from $24.5 billion to $22.7 billion.
At the same time, however, the corporate and commercial portfolio stands at $34.6 billion, a 7.4-percent increase over the $32.2 billion from June 2006.
Average corporate and commercial loans, excluding finance leases, increased by 12 percent, which Citizens attributed to the bank’s success in adding new mid-corporate customers and increasing its total number of business customers by 3 percent to 473,000.
Citizens noted that shedding 900 jobs – or 4 percent of its work force – allowed the bank to keep expenses flat year over year.
The bank’s figures show that staff costs were reduced 1.7 percent in the first half of 2007 from the same period year, from $759 million to $746 million. Total operating expenses were $1.43 billion, slightly higher than in the first half of 2006. •

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