Final Results

Royal Bank of Scotland Group PLC 1 March 2001 PART 1 THE ROYAL BANK OF SCOTLAND GROUP plc FOREWORD TO PRO FORMA RESULTS The acquisition of NatWest has had a significant effect on the Group's financial position and as a consequence, comparisons with the prior year on a statutory basis (which only includes NatWest from 6 March 2000) are of limited benefit. In order to provide shareholders with additional relevant and meaningful information, pro forma results have been prepared on the basis described on page 19. The pro forma results assume that the acquisition of NatWest took place on 1 January 1999. This approach facilitates meaningful comparisons with the prior year and provides a benchmark against which the Group's future performance can be judged. Following the acquisition of NatWest the accounting year end has been changed to 31 December. Consequently, statutory results for the Group have been prepared for the 15 months to 31 December 2000. The statutory results are also being announced at this time and are set out in a separate report. Page 1 of 32 FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 31 DECEMBER 2000 - PRO FORMA BASIS 31 December 31 December 2000 1999 Increase £m £m % Total income 12,358 11,065 12 --------- --------- Total expenses 6,614 6,563 1 --------- --------- Operating profit before provisions 5,046 3,901 29 --------- --------- Profit before tax, goodwill amortisation and integration costs 4,401 3,359 31 --------- --------- Profit before tax 3,332 2,670 25 --------- --------- Cost:income ratio 53.5% 59.3% n/a --------- --------- Adjusted earnings per ordinary share 102.0p 78.3p 30 --------- --------- Viscount Younger, Chairman of The Royal Bank of Scotland Group plc said:- 'Following the acquisition of NatWest our profit, on a pro forma basis, has increased to £4,401 million. For The Royal Bank of Scotland Group a decade of growth has culminated in a year of outstanding achievement. We have successfully completed what is the first stage in delivering to shareholders and customers the benefits which we set out in the course of our bid for NatWest. We have exceeded the targets we set then and we remain on course to deliver the revenue gains and cost savings we forecast. 'The acquisition of NatWest has created a larger group which combines scale and financial strength with an innovation and growth culture, and gives us strategic options to create additional value for shareholders. These results demonstrate our determination and ability to deliver to the full the potential of the enlarged Group.' Page 2 of 32 CONTENTS PAGE PRO FORMA RESULTS Overview of results 4 Consolidated profit and loss account 5 Consolidated balance sheet 7 Acquisition of NatWest 8 Divisional performance 9 - Corporate Banking and Financial Markets 10 - Retail Banking 11 - Retail Direct 12 - Manufacturing 13 - Wealth Management 14 - Direct Line Insurance Group 15 - Ulster Bank 16 - Citizens 17 - Central items 18 Notes 19 Integration information 23 Consolidated profit and loss account - by half year 24 Divisional performance - by half year 25 Average balance sheet 26 Average interest rates, yields, spreads and margins 27 Risk elements in lending 28 Market risk 29 Regulatory ratios and other information 30 INDEPENDENT REVIEW REPORT BY THE AUDITORS 31 CONTACTS 32 Page 3 of 32 OVERVIEW OF RESULTS (pro forma basis) Profit before tax, goodwill amortisation and integration costs increased by 31%, £1,042 million, from £3,359 million to £4,401 million. Net interest income increased by 12%, £655 million, to £5,929 million. Good growth was achieved in both corporate and personal lending and deposits. Average interest-earning assets of the Group's banking business increased by 11% including a 20% growth in average loans and advances to customers. Net interest margin of the banking business was maintained at 3.0%. Non-interest income, excluding general insurance, grew by 8%, £391 million, to £5,450 million. Fees and commissions receivable increased by 13%, £482 million, to £4,079 million. Dealing profits were up by 10%, £104 million, to £ 1,131 million. Other operating income at £998 million was down 7%, £75 million, due to restructuring costs in the life assurance businesses and one-off income in the prior year. General insurance premium income, after reinsurance, increased by 34%, £247 million, to £979 million. Total income increased by 12%, £1,293 million, to £12,358 million. Operating expenses, excluding goodwill amortisation and integration costs, were up 1%, £51 million, to £6,614 million. Staff expenses were down £72 million to £3,440 million. Staff numbers fell by 7,300 (9,000 excluding the impact of businesses acquired) to 94,000. Other expenses were up 4%, £123 million, to £3,174 million. Group cost:income ratio improved from 59.3% to 53.5%. General insurance claims, after reinsurance, increased by 16%, £97 million, to £698 million. Operating profit before provisions increased by 29%, £1,145 million to £5,046 million. Provisions for bad and doubtful debts were up 14%, £76 million, to £602 million reflecting growth in lending. Total provisions at 31 December 2000 were 83% of risk elements in lending, against 80% at 31 December 1999. Amounts written off investments increased from £16 million to £43 million. Goodwill arising on the acquisition of NatWest was £11,390 million. This is calculated after net positive fair value adjustments amounting to £386 million. This goodwill is being amortised over its estimated economic life of 20 years, resulting in a charge of £570 million per annum. Integration costs, which is expenditure incurred in respect of cost reduction and income enhancement targets, were £434 million for the year compared with £ 113 million for the year ended 31 December 1999. The tax charge was £1,171 million, equivalent to 35% of profit before tax of £ 3,332 million. Adjusting for goodwill amortisation, the effective tax rate was 30%. Profit attributable to ordinary shareholders, after tax, minority interests and preference dividends increased by 26%, from £1,415 million to £1,779 million. Adjusted earnings per share increased by 30%, from 78.3p to 102.0p. Total dividend, up 16% to 33.0p per ordinary share, is covered 3.1 times by adjusted pro forma earnings. Group post-tax return on equity, excluding goodwill, increased from 30.6% to 37.0%. Group total assets were £320 billion at 31 December 2000, of which £248 billion related to banking business and £72 billion to the trading business. Loans and advances to customers at the year end were £168 billion, up 17%. Capital ratios at 31 December 2000 were 6.9% (tier 1) and 11.5% (total). Page 4 of 32 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2000 (pro forma basis) 31 December 31 December 2000 1999 £m £m Interest receivable 14,626 12,368 Interest payable 8,697 7,094 --------- --------- Net interest income 5,929 5,274 --------- --------- Dividend income 46 37 Fees and commissions receivable 4,079 3,597 Fees and commissions payable (804) (675) Dealing profits 1,131 1,027 Other operating income 998 1,073 --------- --------- 5,450 5,059 General insurance - earned premiums 1,346 929 - reinsurance (367) (197) --------- --------- Non-interest income 6,429 5,791 --------- ---------- Total income 12,358 11,065 --------- ---------- Administrative expenses - staff costs 3,440 3,512 - premises and equipment 839 892 - other 1,566 1,405 Depreciation of tangible fixed assets 769 754 --------- --------- Operating expenses 6,614 6,563 --------- --------- Profit before other operating charges 5,744 4,502 General insurance - gross claims 982 764 - reinsurance (284) (163) --------- --------- Operating profit before provisions 5,046 3,901 Provisions for bad and doubtful debts 602 526 Amounts written off investments 43 16 --------- --------- Group operating profit before goodwill amortisation and integration costs 4, 401 3,359 Goodwill amortisation 635 576 Integration costs 434 113 --------- --------- Group profit before tax 3,332 2,670 Tax 1,171 917 --------- --------- Group profit after tax 2,161 1,753 --------- --------- See page 19 for the basis of preparation of the pro forma results Page 5 of 32 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2000 (pro forma basis) 31 December 31 December 2000 1999 £m £m Group profit after tax 2,161 1,753 Minority interests 54 43 -------- -------- Profit after minority interests 2,107 1,710 Preference dividends 328 295 -------- -------- Profit attributable to ordinary shareholders 1,779 1,415 -------- -------- Basic earnings per ordinary share 66.9p 53.6p -------- -------- Adjusted earnings per ordinary share (Note 6) 102.0p 78.3p -------- -------- See page 19 for the basis of preparation of the pro forma results Page 6 of 32 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2000 Actual Pro forma 31 December 31 December 2000 1999 £m £m Assets Cash and balances at central banks 3,049 3,281 Items in course of collection from other banks 2,961 3,494 Treasury bills and other eligible bills 3,316 3,500 Loans and advances to banks 32,061 38,863 Loans and advances to customers 168,076 143,142 Debt securities 57,789 52,412 Equity shares 1,553 1,428 Interests in associated undertakings 83 116 Intangible fixed assets 12,080 11,250 Tangible fixed assets 6,121 6,175 Other assets 18,034 13,166 Prepayments and accrued income 4,182 2,995 ----------- ----------- 309,305 279,822 Long-term assurance assets attributable to 10,699 10,069 policyholders ----------- ----------- Total assets 320,004 289,891 ----------- ----------- Liabilities Deposits by banks 35,130 35,252 Items in the course of transmission to other banks 1,707 2,233 Customer accounts 177,302 151,475 Debt securities in issue 19,407 26,312 Other liabilities 32,959 24,200 Accruals and deferred income 7,172 5,479 Provisions for liabilities and charges - deferred taxation 1,224 1,209 - other provisions 306 321 Subordinated liabilities - dated loan capital 6,316 6,505 - undated loan capital including convertible debt 4,120 4,419 Minority interests - equity (34) 212 - non-equity 580 525 Shareholders' funds including non-equity interests 23,116 21,680 ----------- ----------- 309,305 279,822 Long-term assurance liabilities to policyholders 10,699 10,069 ----------- ----------- Total liabilities 320,004 289,891 ----------- ----------- Memorandum items: Contingent liabilities and commitments 105,102 90,198 ----------- ----------- See page 19 for the basis of preparation of the pro forma results Page 7 of 32 ACQUISITION OF NATWEST £m £m Consideration paid: Issue of 1,563.5 million new 25 pence ordinary shares to NatWest ordinary shareholders (Note a) 13,462 Payment of cash to NatWest ordinary shareholders (Note b) 7,110 Issue of loan notes to NatWest ordinary shareholders (Note b) 239 Fees and expenses related to the acquisition 176 --------- 20,987 --------- Net assets acquired: Shareholders' funds 9,699 Less: preference shares (488) -------- NatWest net assets as at 6 March 2000 (Note c) 9,211 -------- Fair value adjustments: Goodwill in NatWest (533) Disposal of businesses: (Note d) - Gartmore 866 - Other 271 ------- 1,137 Pension fund surplus 1,070 Contingent asset 70 Fixed assets excluding property (40) Property (262) Financial instruments (516) Other (504) Tax on fair value adjustments (36) -------- Total fair value adjustments 386 -------- Adjusted net assets acquired 9,597 -------- Goodwill arising on acquisition (Note e) 11,390 --------- Notes (a) The 'Consideration paid' information above is based on the closing price on the London Stock Exchange on 3 March 2000, the trading day immediately prior to the offer for NatWest being declared unconditional in all respects, of 861 pence per RBSG ordinary share of 25 pence. (b) NatWest ordinary shareholders had the right to receive, for each NatWest share held, 0.968 new RBSG 25 pence ordinary shares plus 400 pence in cash or loan notes. A 'Partial cash alternative' was also offered, which, for each NatWest share held, consisted of 0.92 new 25 pence ordinary shares plus 450 pence in cash or loan notes. (c) Net assets acquired at 6 March 2000 include £51 million relating to proceeds from the subsequent exercise of outstanding options. (d) The fair value adjustment relating to the disposal of businesses reflects the excess of sale proceeds over the net tangible asset value of these businesses in NatWest's consolidated balance sheet at 6 March 2000. (e) In the Group's interim results, the goodwill arising on the acquisition of NatWest was estimated to be £11,200 million, based on preliminary fair value adjustments. Subsequently, further fair value adjustments have been identified resulting in a revision to the goodwill figure to £11,390 million. This is being amortised over its estimated economic life of 20 years, resulting in a charge of £570 million per annum. Page 8 of 32 DIVISIONAL PERFORMANCE (pro forma basis) The results of each division before goodwill amortisation and integration costs are detailed below. 31 December 31 December Profit increase/ 2000 1999 (decrease) £m £m % Corporate Banking and Financial 2,730 2,491 10 Markets Retail Banking 2,467 2,144 15 Retail Direct 373 302 24 ------- ------- Contribution before manufacturing 5,570 4,937 13 costs Manufacturing (1,660) (1,866) 11 -------- -------- Operating profit 3,910 3,071 27 Wealth Management 405 328 23 Direct Line Insurance Group 201 100 101 Ulster Bank 200 166 20 Citizens 349 258 35 Central items (664) (564) (18) -------- -------- Group operating profit before goodwill 4,401 3,359 31 amortisation and integration costs -------- -------- Page 9 of 32 CORPORATE BANKING AND FINANCIAL MARKETS (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 1,793 1,758 Non-interest income 2,856 2,663 -------- -------- Total income 4,649 4,421 Direct expenses - staff costs 998 1,034 - other 698 687 -------- -------- Contribution before provisions 2,953 2,700 Provisions for bad and doubtful debts 180 193 Amounts written off investments 43 16 -------- -------- Contribution 2,730 2,491 -------- -------- Direct cost:income ratio (%) 36.5 38.9 Total assets (£bn) 191.1 176.3 Employees at period end - permanent 12,400 14,000 - temporary 700 600 --------- --------- - total 13,100 14,600 --------- --------- Corporate Banking and Financial Markets provides an integrated range of products and services to its mid-sized and large corporate and institutional customers in the UK and overseas including corporate and commercial banking, treasury and capital markets products, structured and leveraged finance, trade finance, leasing and factoring. Contribution was up 10%, £239 million to £2,730 million. Total income was up 5%, £228 million to £4,649 million. Net interest income was up 2%, £35 million to £1,793 million. In the first half of 1999, NatWest Financial Markets benefited from favourable market conditions. Adjusting for this, underlying net interest income increased by 8%. Non-interest income was up 7%, £193 million, to £2,856 million reflecting higher volumes, increased corporate activity and the benefits of the enlarged customer base. Specialist businesses such as Leveraged Finance, Structured Finance and Asset Finance, which provide innovative and sophisticated products to meet customers' business requirements, grew strongly. Within non-interest income, net fee income was up 8%, and dealing profits were 11% higher. Direct expenses were down £25 million to £1,696 million, primarily due to lower staff costs. Staff numbers fell by 10%, 1,500, to 13,100. The direct cost:income ratio improved from 38.9% to 36.5%. Provisions for bad and doubtful debts were £180 million, down 7%, £13 million, on 1999 when a small number of large provisions were taken. Amounts written off investments were £43 million (1999: £16 million), reflecting a restructuring of the development capital investment portfolio. Page 10 of 32 RETAIL BANKING (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 2,418 2,221 Non-interest income 1,128 1,084 -------- -------- Total income 3,546 3,305 Direct expenses - staff costs 736 819 - other 210 224 -------- -------- Contribution before provisions 2,600 2,262 Provisions for bad and doubtful debts 133 118 -------- -------- Contribution 2,467 2,144 -------- -------- Direct cost:income ratio (%) 26.7 31.6 Total assets (£bn) 57.9 51.9 Employees at period end - permanent 27,700 32,300 - temporary 1,200 2,000 --------- --------- - total 28,900 34,300 --------- --------- Retail Banking provides a wide range of banking, insurance and other related financial services to individuals and small businesses. These services are delivered from a network of RBS and NatWest branches throughout Great Britain and through alternative distribution channels. Contribution before integration costs increased by 15%, £323 million to £2,467 million. Total income was up 7%, £241 million to £3,546 million. Net interest income was 9%, £197 million higher at £2,418 million. Loans to customers, including mortgages, were up 12% to £43.1 billion. Total mortgage lending was £24.8bn, up 8%. Deposits were 8%, £3.8 billion higher. Non-interest income increased by 4%, £44 million to £1,128 million, with the growth in fee income being partly offset by the impact of the one-off restructuring of the life assurance businesses. Direct expenses at £946 million were down 9%, £97 million as a result of integration savings which more than offset inflationary increases. Staff numbers were down 16%, 5,400, to 28,900. The direct cost:income ratio improved from 31.6% to 26.7%. Provisions for bad and doubtful debts were up 13%, £15 million at £133 million, reflecting lending growth. Page 11 of 32 RETAIL DIRECT (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 516 496 Non-interest income 565 475 ------- ----- Total income 1,081 971 Direct expenses - staff costs 154 153 - other 327 317 ------- ----- Contribution before provisions 600 501 Provisions for bad and doubtful debts 227 199 ----- ----- Contribution 373 302 ----- ----- Direct cost:income ratio (%) 44.5 48.4 Total assets (£bn) 14.4 10.7 Employees at period end - permanent 5,200 5,600 - temporary 600 600 ------- -------- - total 5,800 6,200 ------- ------- Retail Direct issues a comprehensive range of credit, charge and debit cards to personal and corporate customers and engages in merchant acquisition and processing facilities for retail businesses. It also includes: Tesco Personal Finance, Virgin Direct Personal Finance, Direct Line Financial Services, Lombard Direct, the Group's internet banking platform and Comfort Card European businesses, all of them offering products to customers through direct channels.. Contribution rose by 24%, £71 million to £373 million. Total income was up 11%, £110 million to £1,081 million. Net interest income was up 4%, £20 million to £516 million. The benefits of higher lending volumes in all parts of the division were partially offset by reduced interest rates charged by NatWest cards and lower rate introductory offers for new customers. The number of cards in issue was 10.42 million, an increase of 16%. The turnover of merchant acquisition business increased 19%. Tesco Personal Finance increased both personal loans and savings volumes. Non-interest income increased 19%, £90 million to £565 million primarily as a result of higher fee income in the cards businesses. Direct expenses at £481 million were 2%, £11 million higher, as a result of increased business volumes and marketing activity. The direct cost:income ratio improved from 48.4% to 44.5%. Provisions for bad and doubtful debts increased by 14%, £28 million to £227 million, due to the increase in lending. Page 12 of 32 MANUFACTURING (pro forma basis) 31 December 31 December 2000 1999 £m £m Staff costs 490 637 Other costs 1,170 1,229 -------- -------- Total manufacturing costs 1,660 1,866 -------- -------- Analysis: Information technology development and services 723 927 Property 486 483 Customer support operations 350 338 Other 101 118 -------- -------- Total manufacturing costs 1,660 1,866 -------- -------- Employees at period end - permanent 17,200 18,500 - temporary 2,000 2,300 --------- --------- - total 19,200 20,800 --------- --------- Manufacturing supports the customer facing businesses of Corporate Banking and Financial Markets, Retail Banking and Retail Direct and provides operational technology, account management, money transmission, property and other services. Total manufacturing costs of £1,660 million, were 11%, £206 million lower. The reduction reflects improved efficiency and the positive effects of integrating RBS and NatWest operations resulting in lower expenditure in a number of areas. In particular technology costs were down 22%, £204 million as a consequence of the integration initiatives. The programme to centralise all back-office work out of NatWest branches in England and Wales was completed five months earlier than planned by NatWest. Rationalisation of processing centres led to the closure of nine centres. Staff numbers fell by 8%, 1,600, to 19,200. Page 13 of 32 WEALTH MANAGEMENT (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 425 380 Non-interest income 463 402 ----- ----- Total income 888 782 Expenses - staff costs 303 270 - other 185 187 ----- ----- Profit before provisions 400 325 Net release of provisions for bad and doubtful debts 5 3 ----- ----- Profit before integration costs 405 328 ----- ----- Cost:income ratio (%) 55.0 58.4 Total assets (£bn) 10.4 9.8 Employees at period end - permanent 6,200 6,200 - temporary 600 600 ------- ------- - total 6,800 6,800 ------- ------- Wealth Management comprises Coutts Group, Adam & Company and the offshore banking businesses - The Royal Bank of Scotland International and NatWest Offshore. The Coutts Group brings together businesses that focus on private banking through the Coutts brand and the recently launched NatWest Private Banking brand. Adam & Company is a growing private bank operating primarily in Scotland. The Group's offshore businesses deliver retail banking services to local and expatriate customers, and a wide range of corporate banking and treasury services to corporate, intermediary and institutional clients. Profit before integration costs increased by 23%, £77 million to £405 million. Total income was up 14%, £106 million to £888 million. Net interest income grew by 12%, £45 million to £425 million, driven largely by higher deposits and loans principally in offshore banking. Non-interest income increased 15%, £61 million to £463 million reflecting strong growth in fee income in Coutts Group. Expenses were 7%, £31 million higher at £488 million, predominantly due to increased performance related staff costs. The cost income ratio, however, improved from 58.4% to 55.0%. There was a net recovery of provisions for bad and doubtful debts of £5 million (1999: recovery of £3 million). Page 14 of 32 DIRECT LINE INSURANCE GROUP (pro forma basis) 31 December 31 December 2000 1999 £m £m Earned premiums 1,346 929 Reinsurers' share (367) (197) ------- ------- Insurance premium income 979 732 Net interest income 98 72 Non-interest income 78 92 ------- ------- Total income 1,155 896 Expenses - staff costs 124 95 - other 132 100 Gross claims 982 764 Reinsurers' share (284) (163) ------- ------- Profit before goodwill amortisation and integration 201 100 costs ------- ------- In-force policies (000) - Motor 3,219 2,666 - Home 1,055 993 Combined operating ratio - DLI and Privilege 88.4 98.9 Total assets (£bn) 2.5 1.9 Insurance reserves (£m) 1,221 1,171 Employees at period end - permanent 6,600 5,700 - temporary 100 100 ------- ------- - total 6,700 5,800 ------- ------- Direct Line Insurance Group sells and underwrites retail and wholesale insurance on the telephone and the internet to customers. The Direct Division sells general insurance and motor breakdown services direct to the customer, whilst Green Flag is a leading wholesale provider of insurance and motoring related services. Profit before goodwill amortisation and integration costs doubled to £201 million. Total income was up 29%, £259 million to £1,155 million. Earned premiums grew strongly, up 45%, £417 million, to £1,346 million. Gross claims were 29%, £218 million higher at £982 million. Green Flag accounted for £136 million of the growth in earned premiums and £74 million of the increase in gross claims. Net premium income increased by 34% to £979 million and net claims rose 16% to £698 million. Expenses were up 31%, £61 million to £256 million. Of this increase, £33 million relates to Green Flag and £19 million relates to new ventures. Motor in-force policies have increased by 21% and home in-force policies are up 6% in the year ended 31 December 2000. Directline.com, a rapid on-line quote and buy internet facility for Direct Line's general insurance product achieved over 135,000 sales in 2000. Page 15 of 32 ULSTER BANK (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 294 270 Non-interest income 172 147 ----- ----- Total income 466 417 Expenses - staff costs 144 135 - other 103 99 ----- ----- Profit before provisions 219 183 Provisions for bad and doubtful debts 19 17 ----- ----- Profit before tax 200 166 ----- ----- Cost:income ratio (%) 53.0 56.1 Total assets (£bn) 11.1 9.2 Employees at period end - permanent 4,400 4,500 - temporary 200 400 ------- ------- - total 4,600 4,900 ------- ------- Average exchange rate - euro/£ 1.642 1.518 Spot exchange rate - euro/£ 1.606 1.609 Ulster Bank provides a comprehensive range of retail and wholesale financial services in Northern Ireland and the Republic of Ireland. Retail Banking has a network of branches throughout Ireland and operates in the personal, small business and wealth management sectors. Corporate Banking and Financial Markets provides a wide range of services and investment banking products in the corporate and institutional markets. Profit before tax of £200 million was 20%, £34 million higher, despite the adverse effect of exchange rate movements. At constant exchange rates profit before tax rose by 26%, £42 million. Total income increased by 12%, £49 million to £466 million. Net interest income rose by 9%, £24 million to £294 million reflecting strong volume growth in corporate, business and retail banking, particularly in the Republic of Ireland. Average interest-earning assets increased by 7%, £563 million. Average customer account balances were up 9%, £524 million. Non-interest income was up 17%, £25 million to £172 million reflecting increased fee income up 9%, and dealing profits up 15%. Expenses rose by 6%, £ 13 million to £247 million due mainly to increased staff costs. The cost: income ratio improved from 56.1% to 53.0%. Provisions for bad and doubtful debts were up 12%, £2 million, to £19 million. Page 16 of 32 CITIZENS (pro forma basis) 31 December 31 December 2000 1999 £m £m Net interest income 667 431 Non-interest income 247 145 ----- ----- Total income 914 576 Expenses - staff costs 290 166 - other 235 135 ----- ----- Profit before provisions 389 275 Provisions for bad and doubtful debts 40 17 ----- ----- Profit before goodwill amortisation 349 258 ----- ----- Cost:income ratio (%) 57.4 52.3 Total assets (£bn) - banking 20.3 14.0 Employees at period end - permanent 7,200 5,500 - temporary 100 100 ------- ------- - total 7,300 5,600 ------- ------- Average exchange rate -US$/£ 1.516 1.618 Spot exchange rate - US$/£ 1.493 1.617 Citizens is engaged in retail and corporate banking activities carried out through its branch network in the states of Rhode Island, Connecticut, Massachusetts and New Hampshire and is the second largest bank in New England. Profit before goodwill amortisation was up 35%, £91 million to £349 million. Of the increase, the acquisition of the commercial banking business of State Street in October 1999 and UST Corp. in January 2000 contributed an estimated £50 million after funding costs of £40m. Excluding the acquisitions, strong organic growth and the strengthening of the US dollar relative to sterling resulted in an increase in profit before goodwill amortisation of 16%, £41 million. Net interest income rose by 55%, £236 million, to £667 million due to organic loan and deposit growth and the acquisitions which added some £160 million after funding costs. Non-interest income was up 70%, £102 million to £247 million reflecting the acquisitions, which contributed approximately £50 million, and expansion of product lines especially in commercial areas. Expenses at £525 million were 74%, £224 million higher, due to the acquisitions, which added an estimated £150 million, and business expansion. Provisions for bad and doubtful debts were £40 million, including £10 million relating to the acquisitions, compared with £17 million in 1999 reflecting the increased level of loans. The increase in the cost:income ratio from 52.3% to 57.4% reflects the effect of the funding costs associated with the acquisitions together with higher long-term performance linked bonuses. Total assets were up 45%, £6.3 billion, of which £3.8 billion was due to acquisitions. Page 17 of 32 CENTRAL ITEMS (pro forma basis) 31 December 31 December 2000 1999 £m £m Funding costs (217) (210) Central department costs - staff costs (114) (149) - other (107) (119) Other corporate items - net (226) (86) ------- ------- Loss before goodwill amortisation and integration costs (664) (564) ------- ------- Employees at period end - permanent 1,400 2,000 - temporary 200 300 ------- ------- - total 1,600 2,300 ------- ------- As well as Group corporate functions, which support the Group Executive, central department costs and employee numbers quoted above include functions such as Human Resources and Internal Audit which provide services to the operating divisions. The loss before goodwill amortisation and integration costs increased by £100 million to £664 million. The increase includes restructuring costs of £44 million relating to Citizens' acquisition of UST in January 2000 and other corporate items which are held centrally. Staff numbers at 1,600 were 30%, 700 lower reflecting the impact of integration. Page 18 of 32 MORE TO FOLLOW

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