citizens automobile finance inc

Citizens Financial Group A N N UA L R E PO RT 2 0 0 7 New Prospects Unetixs Vascular Brandywine Realty Trust General Bearing Adler Planetarium 2007 HIGHLIGHTS ◆ Continuing its track record of making sensible and successful bank acquisitions in key markets, Citizens on February 1, 2007 completed its purchase of GreatBanc, Inc. This 26th CFG bank acquisition since 1988 expanded Charter One’s presence in Illinois, particularly in the greater Chicago marketplace. ◆ In a difficult year that saw most banks’ earnings decline, Citizens did well relative to its competitors and continued to grow favorable deposit volume. Loans increased by four percent over the prior year, driven by strong growth in commercial loans, which were up 13 percent. ◆ Our commercial/corporate banking partnership with RBS was amplified during 2007, with enhanced product capabilities in the areas of debt-raising, cross-border finance and global transaction/payments services for our corporate customers. ◆ Citizens launched its first Bank of China partnership campaign, enabling families in Boston, Chicago, Detroit and Philadelphia to send money to relatives in China using discounted wire services for wire transfers of $1,000 or more. ◆ Citizens continued its strong commitment to small businesses by maintaining the No. 1 U.S. Small Business Administration lender status in New England for the seventh consecutive year and in Pennsylvania and Delaware for the sixth consecutive year. Nationally, we were the seventh-most-active SBA lender with more than 3,100 approved loans totaling in excess of $112 million. ◆ Citizens Bank and Charter One introduced eStatements, adding convenience as well as helping the environment by reducing the use of paper. Retail customers elected to switch to electronic statements for close to a half million accounts by year-end. eStatements are an automatic service for new customers. ◆ As the nation’s secondlargest supermarket banker, we continued our New York state expansion into metropolitan New York City and onto Long Island. We opened the first five of our new Stop & Shop branches on Long Island – with up to 40 scheduled to open in Nassau and Suffolk counties by the end of 2009. ◆ Citizens ranked first on the Dave Thomas Foundation for Adoption’s list of the 100 Best Adoption-Friendly Workplaces in America. It also ranked No. 1 within the financial services sector. Total Assets billions of dollars Pre-tax Contribution millions of dollars 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 07 Note: Citizens’ results are as reported by its parent company, The Royal Bank of Scotland Group plc (“RBS”), and are based on International Financial Reporting Standards (“IFRS”) and include the asset-finance business of the RBS NY Branch, the U.S. portion of RBS Corporate Banking. Pre-tax contribution is defined as earnings before taxation, amortization of intangibles, and acquisition costs. C H A I R M A N’S M E S S A G E While we faced the same economic challenges as our peers in the financial services industry over the past year, we were able to position CFG for its next phase of successful growth. We are working every day to better serve our more than five million corporate and personal banking customers, Citizens’ 24,000 colleagues and the thousands of local communities we serve throughout our primary 13-state footprint. We have contributed to innovation in our industry and to the economies of the states where we do business – and we have been true to the belief that we are part of those communities where we live and work. Over the past year, we added more strength to our senior management team and enhanced our product and service offerings for customers. We took significant steps that enable us to work even more closely with our partners at other RBS divisions in North America and abroad in order to service our customers in today’s increasingly complex global marketplace. In March 2008, RBS Americas CEO Ellen Alemany was also named CEO of Citizens Financial Group and James G. Connolly was named our company’s President. Now that I have stepped back, handing day-to-day responsibility at Citizens to Ellen and Jim and their terrific team, I am amazed when I look at how far we’ve come. When I joined as President and CEO in April 1992, Citizens was a relatively small New England bank with fewer than 2,000 colleagues, about 50 branches in Rhode Island and southeastern Massachusetts, and $4 billion in assets. We had 14 consecutive years of rapid growth and record profitability, with the full confidence and support of RBS. We have contributed to innovation in our industry and to the economies of the states where we do business – and we have been true to the belief that we are part of those communities where we live and work. In 2007, we saw that Citizens was not immune to the economic turmoil that beset our nation – the banking industry and the consumer and commercial mortgage markets in particular. As we head into 2008, the banking environment continues to be difficult for consumer-related businesses, particularly deposit taking and consumer lending. Our 2007 pre-tax contribution to RBS earnings was $2.6 billion, down nine percent from the prior year. Most of the adverse impact came from a $349 million rise in our loanloss provision due to higher than expected charge-offs and prudent buildup of balance sheet reserves. We are pleased that our conservative credit policies, careful expense controls, and historic avoidance of subprime lending kept our earnings decrease to single digits. We continued to grow favorable deposit volume. Average loans increased by four percent over the prior year, driven by strong growth in commercial loans, which were up 13 percent. I am proud of what we have accomplished together, and I am very pleased with the focus and direction of our company. CFG’s strength and stability have served it well this past year and, I am confident, will continue to do so in the months and years ahead. I want to thank our colleagues, our directors, our valued customers and community partners for your encouragement, continuing friendship and long-standing support. Lawrence K. Fish Chairman Citizens Financial Group, Inc. RBS Americas 1 C E O’S M E S S A G E It is an honor and a privilege to have been named CEO of Citizens Financial Group. I very quickly have come to appreciate Citizens’ great strength: it enjoys the expertise and support of RBS, one of the world’s greatest companies, yet delivers its products and services with a community focus – and is an engaged part of the community. That commitment distinguishes Citizens from all of its larger competitors. I see that and hear it from our colleagues, customers and community leaders no matter where I travel within the Citizens Bank/Charter One footprint. 2007 Citizens consolidated substantially all of our existing national and state bank charters into a single national charter called RBS Citizens, N.A. on September 1, 2007. This complex step more consistently aligns our activities and procedures across the Citizens Bank/Charter One franchise. It improves our operating efficiency and capital management, streamlines accounting and financial reporting, and reduces the number of regulatory exams. Through our partnership with Stop & Shop Supermarket Co., Citizens Bank continued its expansion into metropolitan New York City and onto Long Island. The first five branches on Long Island opened in the fall of 2007, with up to 40 scheduled to open in Nassau and Suffolk counties by the end of 2009. Citizens Financial Group continued our commitment This is a very exciting time for our company in the wake of the October 10, 2007 acquisition of ABN AMRO by RBS and its consortium partners. RBS has since restructured its business lines to encourage more collaboration across the divisions of RBS Americas, and with other RBS teams globally. With the addition of ABN AMRO, our company’s footprint will grow dramatically from fewer than 20 to more than 50 countries around the world. In addition, we gain a world-class global transaction banking business that will benefit our customers enormously in today’s global economy by providing the tools and expertise to help them do business virtually anywhere in the world. Over the past 20 years, RBS’s businesses in the United States have grown to a significant size, whether measured by assets, payroll or profits. These businesses comprise roughly 30 percent of overall RBS Group assets and 20 percent of deposits. Our combined full-time equivalent now exceeds 25,000 out of RBS’s more than 170,000 employees. The addition of Canadian and South American offices of ABN AMRO offers further growth potential to RBS Americas. Innovation and transformation were at the heart of Citizens Financial Group’s performance and its numerous 2 successes. I view 2007 as the year we began building a bridge between our company’s successful past and its very promising future. We continue to think and act locally, working as a team on behalf of our customers and their varied banking needs – around the corner and around the globe. Our new operating structure will offer our customers many more sophisticated solutions to their financing needs. to small businesses by maintaining our No. 1 U.S. Small Business Administration lender status in New England for the seventh consecutive year and in Pennsylvania and Delaware for the sixth consecutive year. Nationally, CFG was the seventh-most-active lender. We approved more than 3,100 loans totaling in excess of $112 million. Innovation CFG’s Manufacturing Group – the “engine room” of our company that supplies systems and support in the areas of account processing, technology, property and purchasing – launched several major initiatives benefiting our company and customers.  To provide an additional layer of security for Retail and Small Business customers, we introduced the “Safe with Citizens” and “Safe with Charter One” online banking product. More than 1.35 million customers have enrolled in the multifactor authentication program, reducing their vulnerability to online bill payment fraud. In the five months following implementation, we reduced reported bill-payment fraud losses by more than $100,000. RBS Americas RBS Americas was created in March 2007 to foster collaboration across business units (Citizens Financial Group, RBS Greenwich Capital and our other Global Banking and Markets units including Corporate Banking, Leveraged Finance, Project Finance, and Loan and High-Yield Markets). ABN AMRO’s Business Unit North America has brought us new, important capabilities in Equities, Emerging Markets and Transaction Banking, as well as a world-class global cash management platform. We already have worked with our new ABN AMRO colleagues to achieve some very important customer successes that further strengthened our client relationships. Our new leadership structure takes advantage of our combined economies of scale, particularly as we continue to grow the commercial and corporate side of our overall business. Working together, we have the size and power of  We also introduced eStatements, which allowed Citizens Bank and Charter One customers to switch to electronic statements for close to a half million retail accounts. eStatements are now an automatic service for new customers – adding convenience as well as helping the environment by reducing the use of paper. Our commitment to our colleagues and the communities we serve has never been stronger and also has seen its share of innovation; for example:  We launched Colleagues in Action to recognize employees who perform exemplary volunteer service to the community. Thirty-four colleagues were honored as individuals or in teams. Fifteen different nonprofits throughout our footprint, for which these employees volunteer, each received a $2,500 grant from the Citizens Charitable Foundation.  The Citizens Bank Foundation created a $1 million Economic Empowerment Initiative in July, which will allow five Philadelphia agencies to expand their capacity to provide job training, job placement and technical assistance and support for small businesses. It is the latest initiative to be developed under the Citizens Bank Neighborhood Investment Program for Philadelphia. You’ll find many more examples in our Community Impact section starting on page 22. 3 the fifth-largest commercial banking company in the United States. RBS is now one of the world’s largest banks. Globally the RBS/ABN AMRO combination transforms our company into a leader across many product categories; for example, we become No. 1 in the world in Global Securitizations, European Leveraged Loans, Global Product Finance, EMEA Syndicated Loans, Euro-Denominated Bonds, and International-Covered Bonds, No. 2 in Emerging Markets Syndicated Credits, and No. 3 in Global Bonds and Loans, and Foreign Exchange. Rather quickly, we have assembled a team of top-flight executives who are helping manage our businesses in a more unified way, with even more local decisionmaking. Ultimately, our new operating structure will offer our customers many more sophisticated solutions to their financing needs. As we leverage our strengths, we look forward to putting them to work for you and your company. Ellen Alemany Chief Executive Officer Citizens Financial Group, Inc. RBS Americas P R E S I D E N T ’S M E S S A G E Citizens is at a very exciting point in its history. We are poised for significant growth because of the range of products and services we now can offer our customers. RBS’s ABN AMRO transaction means our customers will have access to a world-class suite of integrated treasury management, transaction banking and commercial payments solutions no matter where they do business. We reorganized our company’s core business lines during 2007 into four primary business groups – Commercial Markets, Commercial Real Estate Finance, Consumer and Business Banking, and Payments and Lending Services – to help accelerate our growth in these areas, which are our key strengths. Our strategic partnership with Bank of China continues to amplify our global reach for commercial and retail customers when conducting business in the third-largest trading nation in the world. Citizens’ first Bank of China partnership campaign enabled families in Boston, Chicago, Detroit and Philadelphia to send money to relatives in China using discounted services for wire transfers of $1,000 or more. And we continue to acquaint our commercial customers with the ways in which Citizens Bank and Charter One can open bank accounts and access a wide range of financial services as they establish subsidiary companies or joint ventures in China. We are delivering world-class products and services to our customers with the worldwide backing of RBS through a community-based local delivery network in our 13-state footprint in New England, the Mid-Atlantic and the Midwest. The Citizens Bank/Charter One footprint includes more than 30 percent of the U.S. population, and we are energized by the market opportunities in 2008 and beyond. We will continue to demonstrate that we are a solid, conservative institution that can be relied on through good times and tough times alike. We are proud that we have been able to maintain our commitments to the markets and communities we serve. 4 Consumer Banking’s new “Find Your Fit” campaign is focused on finding the Citizens Bank and Charter One products and services that best fit a customer’s needs now and in the future. Colleagues in our more than 1,600 branches are using the Fit campaign’s “Choose Your Payment” option to help customers find the appropriate loan product to fit their monthly payment needs. Our success is driven by Our Credo’s three focal points: customers, colleagues and community. The Credo is rooted in our desire to do well in a sustainable way – by helping our personal and business customers achieve success, as well as cultivating strong relationships between our communities and internal business partners. We will continue to demonstrate that we are a solid, conservative institution that can be relied on through good times and tough times alike. We are proud that we have been able to maintain our commitments to the markets and communities we serve. James G. Connolly President Citizens Financial Group, Inc. We can help you build, grow and innovate. Our four major business groups – Commercial Markets, Commercial Real Estate Finance, Consumer and Business Banking, and Payments and Lending Services – have a well-developed and successful core strategy of building deep, long-term customer relationships in which we are a trusted advisor and primary banking partner. CO R P O R AT E B A N K I N G MIDDLE-MARKET BANKING Following the October 10, 2007 acquisition of ABN AMRO by an RBS Group-led consortium, our various Corporate Banking teams have access to an unsurpassed set of international product capabilities delivered via a truly global network linking offices in more than 50 countries. No matter whether a company is a small business or a large corporation, its banking partner must be able to analyze business needs in an international context to help that company operate with optimum performance in today’s global economy. Our seasoned relationship managers can select from a powerful array of global financial instruments to meet their clients’ needs with flexible, innovative and timely solutions. Local delivery of an international network of products and services, and a strong commitment to relationship banking, help us meet the complex needs of local companies operating in global markets. Our partnership with the Bank of China continues to amplify our global reach. With its extensive branch network, industry-acknowledged trade finance expertise and cash management capabilities, Bank of China has proven to be an ideal partner in helping our customers conduct business in the third-largest trading nation in the world. Similar working partnerships with RBS Greenwich Capital’s Credit Markets Group and Loan Markets syndications Vice President Eric M. Nygren of Citizens Bank’s Middle-Market Lending team in Rhode Island checks in with President Peter Moscovita (left) of Unetixs Vascular, an international leader in the design, manufacture and marketing of instrumentation for treatment of vascular disease. 6 CO M M E R C I A L R E A L E STAT E F I N A N C E SPECIALIZED LENDING team provide great benefit to our customers. The RBS Credit Markets Group provides a wide array of debt underwriting and placement services including the development of complex structured products that are tailored to the specific needs of issuers. The Loan Markets team’s experienced salespeople and traders are focused on the structuring, distribution, and secondary trading of loans ranging from large corporate to highly structured/leveraged transactions across the United States. As one of the top arrangers of syndicated finance in the world, RBS’s rapid growth in the Loan Markets sector has positioned Citizens Bank and Charter One to provide their client base with first-rate support in the U.S. syndicated loan markets. Middle-Market Banking Citizens Bank and Charter One Middle-Market relationship managers have dedicated themselves to developing and supporting long-term relationships with companies gener- ating revenues between $10 million and $500 million in New England, the Mid-Atlantic and the Midwest. Our relationship managers have a keen awareness of the increasing competitive pressures on this market segment. With access to the expanded information resources and products of RBS, they are vital partners to their customers in helping them achieve success. Mid-Corporate Banking Working tirelessly to build and strengthen our relationships with corporations generating annual revenues from $500 million to $2 billion, Mid-Corporate relationship managers develop a thorough understanding of our customers’ complex needs in an intensely competitive international marketplace. We have the competitive advantage of proximity to our customers located throughout New England, the Mid-Atlantic and the Midwest. Combined with long-term relationships, this local service makes us the corporate Howard M. Sipzner (right), Executive Vice President and Chief Financial Officer of Brandywine Realty Trust in Radnor, Pennsylvania, with Senior Vice Presidents Charlie J. Cooke and Kellie E. Anderson of Citizens Bank’s Commercial Real Estate Finance team in Philadelphia. Senior Vice President Rufus D. Heard is a member of Charter One’s Health Care Lending team in Ohio. 7 C O R P O R AT E B A N K I N G bankers of choice. We offer creative ideas and access to a wide array of global products from throughout Citizens Bank, Charter One, ABN AMRO, Bank of China and RBS, including interest-rate risk management products, private equity capital, private placements, high-yield debt instruments, asset finance, securitization, global liquidity management, trade finance and loan syndications. Commercial Real Estate Finance CFG’s Commercial Real Estate Finance Group leverages the strength and market knowledge of experienced real estate lenders throughout the CFG franchise. Our bankers deliver specialized financial solutions through a network of regional offices located throughout the Citizens Bank and Charter One footprint. We bank the best-known real estate developers, merchant builders and investors within each region. Government Banking The Government Banking division was No. 4 in national market share with $13.6 billion in public deposits as of June 30, 2007. The division is the primary sales, marketing and service delivery group to government entities throughout our 13-state footprint. Citizens Bank and Charter One’s seasoned government banking professionals have the expertise and local regulatory knowledge to tailor banking solutions to meet the unique needs of government entities. Our relationship managers provide a range of services to state governments, counties, municipalities, public schools, trustees, commissions, authorities and districts. Our teams have proven track records in implementing effective, targeted strategies for cash management, investment management, lending and other banking needs. RBS Asset Finance As one of the leading bank-affiliated lessor/lenders in the United States with a portfolio of $5.5 billion, RBS Asset Vice President Cintia Hood of International Foreign Exchange Sales is based in Philadelphia. including tenant escrows, remote deposit and cash management products for commercial real estate companies. Brandywine Realty Trust in Radnor, Pennsylvania selected the Citizens/RBS Greenwich Capital teams over its two existing agents to be the Lead Arranger for a $150 million unsecured term loan. Brandywine is a real estate investment trust focused on the ownership, management and development of Class A, suburban and urban office properties in select markets throughout the United States. Our ability to deliver the fully underwritten transaction quickly in an uncertain economic climate – and our local presence in the company’s market – were the determining factors in our selection. Finance provides our customers with a significant depth of resources and services. They include equipment acquisition, recapitalization, working capital and liquidity, and balance sheet management. Industry-specific experts cover business aviation, public finance, structured products, cross-border, and indirect sales. Fresenius Medical Care is the North American operating subsidiary of a Germany-based parent that is an RBS customer. As the largest provider of dialysis services in the United States, the company makes large purchases of dialysis equipment throughout the year financed via true We continue to engage the expertise of our commercial real estate colleagues at RBS Greenwich Capital for a collective delivery of resources unsurpassed in the industry. The credit products we offer include acquisition and development loans, bridge financing, permanent mortgage financing, single family infrastructure and housing lines, as well as letters of credit and revolving lines of credit. We also offer a complete array of customized deposit products 8 GENERAL BEARING under The General and Hyatt trademarks. It supplies original equipment manufacturers G eneral Bearing Corporation is a specialized ball bearing manufacturer that sources, assembles and distributes a variety of bearing components and bearing products General Bearing CEO David Gussack (third from left) meets with his Citizens Bank commercial bankers: Senior Vice President Michael Coulter and Vice President Anthony M. Selvaggio, and Vice President George Wenzhen Qin (left) of CFG’s China Initiative, who is on executive loan from Bank of China for two years. and the industrial aftermarket principally in the United States and Canada. The company, headquartered in West Nyack, New York, has been operating in China since 1987, where it has six joint ventures in three provinces. Three of those ventures had existing simple bank accounts with Bank of China for several years. The development of Citizens’ relationship with General Bearing clearly demonstrates the value of having a dedicated in-house China Team that helps both the neophyte and the veteran navigate through the complex economic, regulatory and social environments in China. The launch of our Citizens/Bank of China partnership in 2007 gave a significant boost to our persistent calling effort on General Bearing. Discussions to bring Citizens into the company’s bank group were renewed in March 2007. As a result, Citizens’ $22.5 million share of a $45 million credit facility closed in early April. In late April the China Team arranged to have General Bearing’s CEO meet with the Deputy General Manager of Bank of China’s Shanghai branch. CEO David Gussack was very impressed with Bank of China’s capabilities, its understanding of General Bearing’s credit needs and its responsiveness. A one-year Chinese renminbi (RMB) line of credit has since closed, additional operating accounts have been opened, three-year RMB financing is under discussion and the relationship management across three provinces has been centralized in the Shanghai office. As a result, the company has greater efficiencies in funds flow and access to debt financing in China. 9 EMERITUS HOUSE project in Cleveland. The development was a collaboration by Charter One, the City of Cleveland, the State of Ohio, the Famicos C harter One’s commercial real estate team financed the historic Emeritus House Charter One Senior Vice President Keith S. Burgess (left), Beth Graham of the Famicos Foundation and Ronald Van Johnson of the Phillis Wheatley Association’s board of trustees in the Emeritus House school for music. Foundation and the Phillis Wheatley Association, a service organization serving the black community since the early 1900s. Emeritus House serves people in the community through 56 units of affordable housing for seniors and the disabled, a child care center, a school of music, administrative offices and space for recreation. The Charter One team, led by Senior Vice President Keith Burgess of Community Development Lending, provided a $5.5 million construction loan towards the $10 million historic renovation project. “Charter One’s commitment to affordable housing and serving the community helped enable us to provide much-needed renovations to upgrade our historic facility,” said Jacquelyn Bradshaw, Executive Director of the Phillis Wheatley Association. “We will be able to continue to expand our outstanding services to seniors, the disabled, youth and families in the neighborhood.” The historic renovation included new community and recreation space, a computer center, upgraded senior apartments, increased energy efficiency and improved handicapped accessibility. “Charter One is a true community bank. The bank’s participation in the renovation of Emeritus House is an investment in history and people,” said John Anoliefo, Executive Director of Famicos Foundation. Along with community-based projects, Citizens Bank and Charter One’s Commercial Real Estate Finance teams are involved in financing affordable housing, downtown redevelopment, and commercial and residential projects, as well as initiatives by major developers across the company’s principal footprint and across the United States. 10 C O R P O R AT E B A N K I N G leases. Working with RBS to meet the company’s specific documentation requirements, we put in place a $14 million long-term True Lease Agreement to meet its needs. RBS Business Capital As one of the largest providers of asset-based financing in the United States, RBS Business Capital offers a variety of secured financial solutions designed to maximize our clients’ borrowing capability and flexibility. In addition to credit solutions, we draw on the strengths of Citizens Financial Group and RBS to provide a wide array of non-credit products, services and debt capital raising solutions to our clients. We do this through a dedicated network of eight offices throughout the United States. MVP Group International, Inc., headquartered in Charleston, South Carolina, is a leading designer, manufacturer and marketer of scented candles and home fragrance products sold directly to specialty and mass-market retailers. As a result of our long-term relationship with the company, RBS Business Capital was able to satisfy the company’s request to refinance its existing debt from another financial institution and provide long-term financing for growth opportunities. The Business Capital team underwrote and arranged a $60 million Revolving Credit Facility and helped the company reduce operating costs by providing interest-rate risk management, cash management, credit card processing and international trade services. Dealer Financial Services We offer a full range of inventory and real estate financing for auto, truck and camping/recreational vehicle dealerships and related entities. We have extensive experience providing resources and on-site consultative support to help dealerships thrive. Our services include floor planning, mortgages and acquisition financing, a variety of deposit products and cash management services, a state-of-the-art online dealer access system, and innovative options through Citizens Auto Finance for indirect loans for new and used autos to help qualify more customers. Our commitment is reflected in our relationship approach, high level of service, experience and rapid response to financing requests. collars and combinations and variations of these instruments. Backed by RBS, one of the world’s top providers of interest rate derivatives, we have outstanding resources available to our customers. Fidelity National Information Services was one of the many beneficiaries of those resources. We developed an 11 Senior Vice President Jaime P. Buenaventura is Managing Director of Citizens’ Interest-Rate Risk Management Group. Wealth Management We deliver comprehensive wealth management solutions for individuals and institutions. Our offerings for individuals include investment management, deposit and credit products, retirement, tax and estate planning services, trust and philanthropic services, estate settlement and administrative support. Through our institutional platform, we provide investment management, 401(k), 403(b), profit sharing and other qualified and nonqualified retirement plans, escrow and custody accounts to private and public companies, not-for-profit organizations, government entities, professional firms and partnerships. Global Markets / Interest-Rate Risk Management Interest rate exposure can be a risk for any company. Our seasoned professionals will help manage companies’ risk with tailored hedging products both domestically and cross-border. They work to identify interest rate exposure, set objectives for hedging, consider the instruments available, and propose solutions that incorporate companies’ individual risk management criteria. Hedging instruments include options, forwards, swaps, swaptions, caps, floors, C O R P O R AT E B A N K I N G interest-rate risk management solution for the company’s Revolving Credit Facility and Term Loans totaling $4.6 billion. Taking advantage of the inverted swap curve, Citizens Bank met FIS’ objective by leading a $1 billion swap syndication and managing the entire risk process in a single hedge transaction. Payment Services / Trade Finance Specialized Lending Understanding the needs and challenges of select industry sectors enables us to provide customized solutions to an array of targeted niche businesses. The teams of experts that work in partnership with those businesses include Not-for-Profit/Health Care, Professionals Banking, Private Equity, Technology, Franchise Operators, Fuel Distribution, Energy & Utilities, Security Alarm, Insurance and Publishing. We offer trade financing services to U.S. companies and the U.S. operations of foreign companies that are involved in importing and exporting. Those services require a thorough understanding of cross-border issues. Full knowledge of regulatory constraints and the impact of tax and accounting codes, as well as complete familiarity with the economies of parent company countries, make our trade finance specialists valuable partners to these subsidiaries. Customized solutions to finance or secure payment through international transactions include import and export letters of credit, documentary collections, bankers’ acceptances and standby letters of credit. In addition, we are a Delegated-Authority Lender for the U.S. Export-Import Bank. Payment Services / Cash Management With more than 25,000 customers and $7 billion of client funds being invested on an overnight basis, Citizens is one of the largest providers of cash management services in the United States. Our domestic and international services are designed to accelerate collections of accounts receivables, manage the distribution of funds and provide enhanced short-term liquidity. Our Money Manager GPS™ Web-based technology provides real-time account information access so our customers can monitor their funds flow and initiate Senior Vice President Lucy J. Czyz of Charter One’s Not-for-Profit team visits Adler Planetarium President Paul Knappenberger (center) and CFO Michael LoPresti. Its museum collections include several of the world’s oldest-known telescopes. (See cover photo of a handtooled leather gasket from a telescope made in Italy c. 1630.) ment platforms for the requisite currencies. In addition, Citizens offers CBForex™, a Web-enabled foreign exchange trading platform to execute spot and forwards contracts, as well as online foreign currency account reporting and withdrawal capabilities. foreign or domestic transactions. The combined strength of the RBS/ABN AMRO global liquidity engines enhance what is already acknowledged by our customers as a powerful and efficient infrastructure. Tasty Baking Company, a Philadelphia-based business icon, recognized this effectiveness by moving its primary cash management business to Citizens Bank when we assumed the role of agent on its $35 million revolving line of credit and $55 million revolver/term loan to support the relocation of its bakery. In addition, the company uses our card processing subsidiary, RBS Lynk, for all of its merchant card collections. Global Markets / Foreign Exchange Changes in foreign exchange rates or unexpected market volatility are risks that our Global Markets teams are trained to address. They help companies develop strategies for managing this risk with international treasury solutions tailored to each customer’s situation. These solutions include high-yield structures, funding vehicles and pay- 12 I N V E R N E S S M E D I C A L I N N OVAT I O N S , I N C . B y developing new capabilities in near-patient diagnosis, monitoring and health management, Inverness Medical Innovations enables individuals Senior Vice President Cindy C. Chen of Citizens Bank’s Mid-Corporate Banking team meets with Inverness Medical Innovations Chief Financial Officer Dave Teitel. to take charge of improving their health and quality of life. A global leader in rapid point-of-care diagnostics, Inverness’s products, as well as its new product development efforts, focus on infectious disease, cardiology, oncology, drugs of abuse and women’s health. Headquartered in Waltham, Massachusetts, Inverness has research and development facilities in Germany, Israel, the United Kingdom and the United States, with manufacturing sites in China and Japan, the United Kingdom and the United States. In the past year, Inverness has acquired several companies including Biosite, Cholestech, HemoSense, Alere Medical, Redwood Toxicology and ParadigmHealth. Citizens’ Mid-Corporate Banking team was able to assist Inverness through these strategic acquisitions as a co-documentation agent in the company’s $1.05 billion revolving line of credit and term loan that closed in June 2007. Since 2002, Citizens has accommodated Inverness’s cash management needs through its acquisitions, as well as joint ventures with companies including Proctor & Gamble. By anticipating the company’s needs, Citizens has added services like EZ Deposit and GPS eStatements, allowing the company to focus on growing its business. “As a company committed to advancing health through technology, development and acquisitions, we rely on the support of a financial partner like Citizens Bank,” said Ron Zwanziger, Chairman, CEO and President, Inverness Medical Innovations, Inc. “Citizens understands our business needs and helps us with our goal of making positive contributions in the health care industry.” 13 Exceptional Service Delivered Locally How do you build brand loyalty? It starts with having a great brand, solid products and terrific customers. But something deeper makes a company successful. In our case, local decisionmaking and customer familiarity are key. That’s why we have talented local presidents and teams of bankers on the ground throughout our 13-state footprint. They know their communities and they know their customers. They pride themselves on their responsiveness and sense of responsibility. That dedication has enabled our company to build and grow relationships with our customers and community partners who work so hard to achieve their own corporate, personal and community goals. Local delivery means timely decisionmaking and access to senior management as we work to build – and strengthen – those relationships. How, you ask? We answer the phone. We call you back. We get to know you. We work to understand your business – and your financial needs. And we always thank you for doing business with us. 14 LOCAL LEADERSHIP Joseph J. MarcAurele Rhode Island Ralph J. Papa Pennsylvania Robert M. Curley New York Scott C. Swanson Illinois Robert E. Smyth Massachusetts Daniel K. Fitzpatrick Delaware, Eastern Pennsylvania and New Jersey Cathleen A. Schmidt New Hampshire and Vermont Randall G. Stickler Ohio Richard M. Barry Connecticut Sandra E. Pierce Indiana and Michigan Connecticut Richard M. Barry President • Branches 51 • ATMs 60 Delaware Daniel K. Fitzpatrick President • Branches 26 • ATMs 45 Illinois Scott C. Swanson President • Branches 121 • ATMs 352 Indiana Sandra E. Pierce President • Branches 66 • ATMs 72 Massachusetts Robert E. Smyth President • Branches 258 • ATMs 617 Michigan Sandra E. Pierce President • Branches 119 • ATMs 134 New Hampshire Cathleen A. Schmidt President • Branches 78 • ATMs 160 (also includes commercial loan office in Maine) New York Robert M. Curley President • Branches 219 • ATMs 275 Ohio Randall G. Stickler President • Branches 160 • ATMs 299 Pennsylvania Ralph J. Papa Chairman • Branches 417 • ATMs 700 Daniel K. Fitzpatrick President Eastern Pennsylvania (also includes a commercial loan office and 4 ATMs in Virginia) Rhode Island Joseph J. MarcAurele President • Branches 77 • ATMs 148 Vermont Cathleen A. Schmidt President • Branches 27 • ATMs 24 New Jersey Daniel K. Fitzpatrick President • Branches 15 • ATMs 32 15 CONSUMER AND BUSINESS BANKING Citizens Bank and Charter One retail branches extend unparalleled service and convenience options to our customers. Our focus on convenience is emphasized by nearly 2,500 customer touch points including nearly 1,100 traditional branches, more than 520 in-store branches and more than 3,500 ATMs, plus electronic bill pay, online banking and our 24/7 PhoneBank. In 2007, Citizens Bank/Charter One introduced a revolutionary way to help our branch colleagues better know and grow their customer relationships. The Customer Relationship Review system helps us be “not your typical bank” by personalizing recommendations based on each customer’s wants/needs, providing an effective and consistent customer experience, and eliminating the need for a paper profile. This strategic enhancement ensures colleagues are equipped to uncover further banking opportunities that lead to increased customer satisfaction. We offer our customers highly competitive products and services designed with their financial needs in mind. The Debit Rewards program continues to reward customers for their everyday purchases. Product packaging, introduced Our branches distributed 10.7 million lollipops and 552,000 dog biscuits last year. Pik C. Lam manages Citizens Bank’s branch in West Hempstead, New York, the first of more than 40 branches that are scheduled to open in Stop & Shop supermarkets on Long Island over the next two years. 16 OUR CONSUMER BANKING PHILOSOPHY Developing innovative ways to meet the needs of our growing customer base is paramount to our success. These innovations ensure that our customers receive the highly personalized service they deserve when and where it is most convenient for them. Our efficient and knowledgeable colleagues deliver on this service promise every day. early in 2007, has aligned our Circle and Circle Gold banking products into comprehensive account packages. These packages provide customers with competitively priced options for a complete financial relationship. Our Premium Money Market and High-Yield Savings accounts offer other alternatives for customers looking for liquidity and higher rates. Leveraging and expanding our in-store partnerships has been a key part of our household growth in 2007. Our Retail Partnership Delivery Group’s innovative marketing programs, such as our current fuelperks! co-branded debit rewards program with Giant Eagle Supermarkets, have solidified CFG’s position as the nation’s second-largest supermarket banker. In 2007, Citizens Bank continued its Lucinda A. Prigionieri is manager of Citizens Bank’s Downtown branch in Hartford, Connecticut. 17 CONSUMER AND BUSINESS BANKING Small Business We offer small business customers a variety of proven business solutions that can help them grow their business. Our teams are dedicated to serving their customers with the best possible business and personal financial solutions – anytime and anywhere. Business Banking officers continue to form the backbone of our success by taking customer service to a whole new level through one-on-one customer interactions at the customer’s location. This enables the Business Banking officer to provide customers with great solutions and bring banking to them. Customers appreciate this tremendous convenience, which is key to building and strengthening long-term banking relationships with Citizens Bank and Charter One. In an effort to make the customer experience truly Rita Ross ia a Teller at the Newburgh branch in Livonia, Michigan. memorable, Business Banking officers are now equipped to complete loan applications faster, gain real-time updates on loan status and receive conditional approvals through wireless technology. Citizens Financial Group continued our commitment to small businesses by maintaining our No. 1 U.S. Small Business Administration lender status in New England for the seventh consecutive year and in Pennsylvania and New York Stop & Shop expansion into metropolitan New York City and onto Long Island. The first five branches on Long Island opened in the fall of 2007. Plans for additional expansion include up to 40 branches in Nassau and Suffolk Counties by the end of 2009. An investment portfolio is an important piece in a customer’s complete financial relationship. Customers seeking advice on education savings, retirement or wealth preservation and growth can work with any one of our highly qualified financial consultants. CFG also offers competitive lending products and services that help our customers achieve their goal of homeownership. Home buyers can be confident that they are receiving service and support from qualified professionals committed to providing the highest level of customer service. Through the Consumer Banking delivery network, CFG’s Payments and Lending Services Group provides customers with highly competitive products and services designed to fit their lending needs at all stages in life. Special offerings, including the Energy Efficiency Loan and rate discount promotions, helped more than 700,000 customers get the loans they needed in 2007. Our Auto Finance, Education Finance and National Home Equity divisions also saw significant volume growth in 2007. Coleen C. Paradissis, a Financial Consultant at Charter One Investment Services, is based in Rocky River, Ohio. 18 NEW PROSPECTS and shoe store located in uptown Park Ridge, Illinois, for 10 years before deciding to buy it in 1996. A my DeGrazio started working part time at New Prospects during the summer of 1986 when she was 15. She worked for this small, family-owned retail clothing As a new business owner, her first few years were challenging, but as time passed, she built a loyal customer base – and a strong reputation for product quality. When she learned that the branch next door to her very popular store was closing, DeGrazio decided it was time to look for a new bank. As she shopped the banks in her neighborhood, one of her colleagues suggested Charter One. She was introduced to John Golden, who is Business Banking Director for Illinois/Indiana – and a resident of Park Ridge. As Golden learned about DeGrazio’s business goals and prior banking services, he identified specific financial areas where Charter One could help her save time and money. She needed to address seasonal cash flow needs – and obtain an operating checking account without excessive transaction fees. Affordable credit card processing with timely deposits to her checking account was also very important. With the assistance of RBS Lynk Sales Manager Thomas Kastner, now a Senior Business Banking Officer, Charter One provided solutions to meet New Prospects’ financial services needs. “Many of the large banks wanted to nickel and dime me for each product, service and transaction, but Charter One provided everything that I needed – at a competitive price. I am very happy with my relationship with Charter One,” DeGrazio said. New Prospects owner Amy DeGrazio is visited by her Charter One business bankers, Senior Vice President John Golden (left) and Senior Business Banking Officer Thomas Kastner. 19 CONSUMER AND BUSINESS BANKING Delaware for the sixth consecutive year. Nationally, CFG was the seventh most-active lender. We were able to approve more than 3,100 loans totaling in excess of $112 million. Our success is driven by the desire to help our business customers achieve their own business success. By cultivating strong relationships with customers and our internal business partners, we have been able to deliver on our commitment to quality performance. Innovative products and support structure allow our Citizens Bank and Charter One business banking officers to effectively meet the needs of our customers – and exceed their expectations. Card Products and Services CFG’s payments-focused businesses continue to grow and provide innovative products that help our many personal and corporate card users, as well as the array of merchant businesses across the United States that accept credit, debit and gift cards as payment for customer purchases of goods and services. RBS Card Services, formerly RBS National Bank, issues consumer and commercial credit cards under the RBS, Citizens Bank and Charter One brands, developing innovative product offerings for customers. Expanded product offerings are being made increasingly available to bank customers through our Citizens Bank and Charter One branches and other key customer touch points. New rewards-based products introduced in the branch network in July, including cash back, gas rebate and travel/merchandise rewards, enable our personal and small business card members to select rewards options that better address their needs. In 2007, RBS Lynk further reinforced its position as one of the nation’s fastest-growing, top 10 transaction acquirers, processing 32 percent more transactions than in 2006. The company’s record-setting pace was fueled by a comprehensive, tiered sales strategy that realized significant gains in key markets – including new contracts with such noted national clients as Wakefern Food, Murphy Oil, Hyvee, Do It Best and Price Chopper. Focus on select industries (petroleum, restaurant, retail and grocery) helped RBS Lynk’s national sales channel grow its processing volume by 73 percent. As the second-largest processor of ATM transactions in the United States, RBS Lynk continued to grow its customer base despite a declining market – continuing its position as an industry leader. Additionally, the company’s prepaid initiatives – including deeper market penetration and increased card issuance – experienced steady growth. Citizens Bank and RBS Lynk provided all collection and card-processing services for the “Idol Gives Back” charity event sponsored by the “American Idol” show aired on TV’s Fox Network on April 24 and 25, 2007. They processed an estimated 700,000 credit card and lockbox payments totaling more than $70 million that benefited the Charity Projects Entertainment Fund. Our joint-venture partnership with The Kroger Co., one of the largest grocery retailers in the United States, The Debit Rewards program continued to expand in 2007, exceeding one million Citizens Bank and Charter One enrolled customers by year-end. Additional enhancements included a merchant network that offers up to 10 Everyday Points for each dollar spent at participating merchants and the opportunity for customers to redeem Debit Rewards points for deposits into their checking and savings accounts. experienced further growth, selling more than two million product items during the year. The Kroger Personal Finance product range was also extended during 2007 to 14 products including a range of insurance products, pre-paid cards and gift cards. 20 OUR CREDO Customers Hug the customer. Smile. Say thank you. Return phone calls and e-mails in a timely manner. Do whatever you can every day, in every way, to provide world-class service. Consistently exceed customer expectations. Always honor our commitment to customers. Give customers a reason to say, “Wow, I love these people.” In short, treat the customer the way you would love to be treated all the time. Colleagues We want our company to be the best place to work in the world. The environment will be extraordinarily caring, like an extension of your own family. We will be supportive in times of personal difficulty, create opportunities for professional growth, and always make an effort to listen and act on your ideas. Every colleague will be treated with dignity and respect at all times. Credo Day, October 16, 2007, marked the fifth anniversary of Our Credo, the summation of CFG’s long-standing commitment to customers, colleagues and community. Among its many activities across the company, 29 Charter One Illinois colleagues volunteered at the Greater Chicago Food Depository shucking more than 3,600 pounds of corn to be distributed to Chicago’s needy residents. Community We believe great companies have a moral core. We care deeply about our communities, and we demonstrate this commitment every day by volunteering where there is need. We respect the law at all times, and always conduct ourselves with integrity. All of our work must be ethical and honest. By giving back, and conducting ourselves with integrity, our customers and colleagues will be proud of us, and our company. 21 CO M M U N I T Y I M PAC T CFG has always been a good corporate citizen. In 2007, we invested more than $25 million in the thousands of communities that make up our footprint, creating sustainable development for nonprofit organizations and generating volunteer opportunities for our colleagues. Our “holistic” approach to community outreach harnesses the company’s resources to make a greater impact on smaller nonprofits. CFG understands that, to make a difference, it will take everyone working together, investing resources and building solutions to make the changes needed to address our neighborhoods’ toughest problems. This year, we launched or expanded a number of innovative programs that contribute to this goal. Tools for School The “Tools for School” program is a collaborative effort among colleagues of Citizens Bank, Charter One and RBS Card Services, which collects new school supplies each summer at branches throughout our footprint. The school supplies are then packaged and distributed to disadvantaged children before the start of the new school year. The program provides partnership opportunities with local media outlets and nonprofit agencies, as well as co-branding on support materials. Donations from CFG colleagues, customers and the general public, as well as lead gifts from the Citizens CFG colleagues are eager to volunteer at local nonprofit organizations to help with their needs and initiatives. 22 Charitable Foundation and partnerships with local youth agencies and media helped CFG to reach the following goals:  Delivered more than 30,000 backpacks filled with school supplies to children.  Provided local families with approximately $2.9 million in donated school supplies this academic year. Making Music Matter Charter One’s “Making Music Matter” program in Illinois raised more than $100,000 during the summer-long initiative, which will support four local nonprofits providing access to music and music education to Chicagoans of all ages. From June to September, colleagues volunteered at the Charter One Pavilion at Northerly Island – a popular music venue near downtown Chicago – to collect donations from concertgoers. Donations of gently used musical instruments and cash (matched by the Charter One Foundation) were accepted in 120 branches across Illinois. Champions in Action Our signature community program, Champions in Action®, recognizes small nonprofit organizations each quarter. The three-month partnership provides Champion recipients with $25,000 grants and complete access to CFG’s resources, including marketing, nonprofit banking and colleague volunteers. The program partners with local media outlets to provide TV and print exposure. The program celebrated its five-year anniversary in 2007, culminating with a celebration at Gillette Stadium in Foxborough, Massachusetts for colleagues, media partners, and past Champions in Action organizations from throughout New England. To date, the program and its partners have:  Invested $3,325,000 in 132 organizations.  Provided $1,997,150 in in-kind advertising. M A K I N G A N I M PAC T L O C A L LY A N D N AT I O N A L LY Here are a few of the many hundreds of CFG support initiatives during 2007:  Citizens and RBS Lynk were sole providers of collection and card-processing services for the “Idol Gives Back” charity event sponsored by the “American Idol” show April 24 and 25, 2007 on TV’s Fox Network. CFG and RBS Lynk processed an estimated 700,000 credit card and lockbox payments totaling more than $70 million to benefit the Charity Projects Entertainment Fund.  The Citizens Bank Foundation in New Hampshire announced its contribution of $85,000 to help homeless shelters across the state with their heating bills during the winter of 2007– 2008. It was the fourth year that the bank has partnered with the New Hampshire Coalition to End Homelessness on this initiative, bringing its total contribution to $307,000. Citizens’ support of the coalition’s homelessness initiatives helped garner the bank the coalition’s first “A Home for Everyone” Community Service Award, which recognizes outstanding community service contributions made to solving homelessness in New Hampshire.  Charter One launched an unsecured loan program to help low- to moderate-income homeowners in the Chicago area finance weatherization projects to help make their homes more energy-efficient. Now available year-round, the Charter One Energy Efficiency Loan offers select homeowners the ability to borrow $1,000 to $3,000 at a rate of 1% APR for as long as 84 months. A 3% APR is available for loans of $3,001 up to $10,000 for up to 84 months.  In collaboration with the City of Buffalo and various neighborhood organizations, Citizens Bank launched a comprehensive initiative to spur economic growth and neighborhood revitalization. Under the Citizens Bank Neighborhood Investment Program for Buffalo, Citizens committed $8.5 million in loans and grants over three years to encourage affordable housing, home improvement, economic development, financial literacy, and neighborhood stabilization and revitalization. Under the new partnership, Citizens Bank will provide $5.95 million for economic development and small business lending and $2.2 million for affordable housing and home improvement programs. Be Inspired Award winner Cheryl Nero, a specialist at CCO Mortgage, huddles with youngsters in the Glen Lea Youth Association in North Richmond, Virginia. One of Citizens’ 34 individual or shared award winners, she began volunteering with the association more than 10 years ago when her own children participated in its programs. CO M M U N I T Y I M PA C T Last year also brought an expansion of the Champions program to our parent company, RBS. Just as Manchester, New Hampshire was CFG’s pilot site in 2002, Manchester, England piloted the U.K. version of Champions in Action. Carving Out Hunger/Hunger Initiatives CFG has established programs across its footprint to prevent hunger in our local communities. These programs combine food and monetary donations from CFG, colleagues and customers with volunteerism to make a significant impact on families in need. More than $500,000 has been invested in the Carving Out Hunger program, including thousands of pounds of donated food, hundreds of volunteers and pro bono services. This program has grown from the 2005 Midwest launch to involvement in all 13 states. Charter One expanded its volunteer and media efforts to five regions across Ohio, with 100 colleagues volunteering at five food banks. Together, colleagues across CFG served more than 632,000 meals and provided 19,600 pounds of food to local families. Colleague Engagement and Support Colleagues in Action was launched in 2007 to brand colleague community involvement corporate-wide. As part of Colleagues in Action, CFG began a volunteer recognition program celebrating colleagues who perform exemplary community service. The Be Inspired Awards recognize colleagues who inspire others to engage in giving back to the community. Winners are chosen by local committees consisting of CFG colleagues and community leaders. CFG donates $2,500 on behalf of those recognized to nonprofits of the winners’ choosing, generating a total of $30,000 in annual financial support for these organizations in CFG’s service area. In 2007, CFG colleagues donated more than 280,000 volunteer hours to nonprofit organizations and initiatives in its 13-state Citizens Bank/Charter One footprint. In June 2007, Citizens Financial Group ranked No. 1 on the Dave Thomas Foundation for Adoption’s list of the 100 Best AdoptionFriendly Workplaces in America. Our Adoption Assistance Program provides colleagues with up to $20,960 per adoption and one week of paid leave. Since its inception in 1998 CFG has spent $627,000 helping colleagues adopt 117 children from at least 13 countries. The CFG Matching Gifts Program, which was highly requested by colleagues, was launched in August. It increases our monetary commitment to nonprofits, as well as colleague engagement and awareness of the company’s philanthropic initiatives. The program is open to full- and part-time colleagues with at least one year of employment, and annually matches dollar for dollar their contributions from $25 to $1,000 to 501(c)(3) nonprofit organizations. Community Service Sabbatical recipient Sarah Tomczak, senior teller at Citizens Bank’s Poultney, Vermont branch, helps Caley, daughter of a Teen Parent Education Program parent, with her reading at the Rutland County Parent Child Center. Sarah volunteered full time for three months at the agency. More than 65 CFG colleagues have participated since the sabbatical program was created to assist nonprofits with hands-on full-time involvement through paid, three-month leaves of absence. 24 FINANCIAL REVIEW EXECUTIVE POLICY COMMITTEE AND BOARDS OF DIRECTORS Citizens Financial Group, Inc. (“Citizens”) is a wholly owned subsidiary of The Royal Bank of Scotland Group plc (“RBS”). Citizens’ results are included in RBS’s financial reports under International Financial Reporting Standards (“IFRS”). The information contained in the charts in the Citizens’ 2007 Highlights inside the front cover and in the Chairman’s message is consistent with RBS’s reporting practices, and thus includes the asset finance business of RBS’s New York Branch. The information contained in the Financial Review section is presented in accordance with United States Generally Accepted Accounting Principles and excludes the asset finance business of RBS’s New York Branch. 25 FINANCIAL REVIEW HIGHLIGHTS (dollars in millions) Balance Sheet Data: Total assets Investment securities Loans and leases: Consumer Residential mortgage Commercial and industrial Commercial real estate Lease financing Credit card Total loans and leases Allowance for loan and lease losses Goodwill and other intangible assets Deposits Federal funds purchased, securities sold under agreements to repurchase and short-term borrowings Borrowed funds Stockholder’s equity 2007 $159,940 28,078 55,125 18,222 22,501 9,817 2,993 2,404 111,062 978 13,701 102,197 2006 $160,831 29,449 54,921 18,433 18,302 8,618 2,763 2,569 105,606 757 13,744 99,955 December 31 2005* $157,335 33,752 54,135 17,427 15,614 8,170 2,944 2,514 100,804 827 13,947 99,942 2004* $138,360 29,979 46,440 13,588 13,346 8,255 3,323 2,079 87,031 956 14,223 92,960 2003* $78,835 25,219 26,084 1,628 11,425 4,371 1,033 28 44,569 476 4,955 57,670 14,594 17,555 22,351 10,267 24,451 23,548 9,844 23,149 22,053 6,468 13,600 20,850 7,694 3,900 8,760 (dollars in millions) Operating Data: Net interest income Provision for credit losses Provision for credit losses related to acquisition Noninterest income Noninterest expense Income before income taxes Net income Net income excluding acquisition costs, net of taxes Other Data: Return on average tangible assets† Return on average tangible common equity† Net interest margin Allowance for loan and lease losses as a % of total loans and leases Allowance for loan and lease losses as a % of nonperforming loans and leases Nonperforming loans and leases as a % of total loans and leases Capital ratios Risk-based capital ratios: Tier 1 Total Leverage ratio 2007 $4,054 683 – 2,102 3,199 2,274 1,489 1,500 Years ended December 31 2006 2005* $3,950 331 – 2,024 3,074 2,569 1,668 1,696 $3,970 239 – 1,918 3,378 2,271 1,489 1,717 2004* $2,983 238 74 1,172 2,282 1,560 1,020 1,088 2003* $2,171 133 – 858 1,639 1,257 835 856 1.02% 18.23 2.82 0.88 154 0.57 1.16% 22.92 2.83 0.72 217 0.33 1.28% 29.36 3.14 0.82 246 0.33 1.19% 36.37 3.46 1.10 364 0.30 1.31% 38.76 3.55 1.07 274 0.39 9.13 10.97 6.91 9.98 11.80 7.30 8.85 10.83 6.33 8.23 10.61 5.95 8.01 10.64 5.40 *Above financial data, excluding capital ratios, has been restated for the acquisition of RBS Asset Finance, Inc. †Return excludes acquisition costs, net of taxes 26 Summary In 2007, Citizens had net income of $1,489 million, a decrease of 11% from 2006 net income of $1,668 million. Though the overall results decreased during 2007, the core banking operations increased before provision for loan and lease losses. The additional provision for loan and lease losses reflects higher write-offs and a reserve for future losses in the current uncertain economy. Financial data for the years 2003 through 2005 have been restated to reflect the acquisition of RBS Asset Finance, Inc., which was accounted for as a pooling of interests. Acquisition On February 1, 2007, Citizens acquired GreatBanc, Inc. (“GreatBanc”), headquartered in Lisle, Illinois for approximately $177 million. This acquisition added 10 branches and assets of $1.2 billion, and expanded Charter One’s presence in the greater Chicago marketplace. Financial Condition Total assets at December 31, 2007 were $159.9 billion, compared to $160.8 billion at December 31, 2006. The change was related primarily to loan growth offset by a decrease in investments. Loans and leases at December 31, 2007 were $111.1 billion compared to $105.6 billion at December 31, 2006. The increase of $5.5 billion was due primarily to commercial loans. Goodwill and other intangible assets at December 31, 2007 and 2006 were $13.7 billion. Goodwill increased $137 million due to the acquisition of GreatBanc. Other intangible assets decreased $180 million due to amortization of $203 million offset by a $23 million increase in core deposit intangibles related to GreatBanc. Total deposits at December 31, 2007 were $102.2 billion, compared with $100.0 billion at December 31, 2006. The overall increase of $2.2 billion was due primarily to increases in money market and term deposits offset by decreases in regular savings and checking accounts. Capital Resources and Liquidity At December 31, 2007, Citizens’ leverage and total risk-based capital ratios were 6.91% and 10.97%, respectively. The comparable figures for the prior year were 7.30% and 11.80%. A common stock dividend of $2 billion was paid to RBS during 2007. Citizens continued to be deemed “well capitalized” following the dividend and at December 31, 2007, based upon regulatory definitions. Liquidity at Citizens is maintained to provide reliable, stable and cost effective sources of funding for asset growth and deposit fluctuations. Primary sources of liquidity are derived from growth in retail deposits, loan repayments and earnings. Additional sources of liquidity available to fund asset growth, including portfolio acquisitions, include the sale or pledging of Citizens’ investment portfolio, secured borrowings from the Federal Home Loan Bank and borrowings from RBS. Asset Quality and the Allowance for Loan and Lease Losses Nonperforming loans and leases totaled $636 million at December 31, 2007 compared to $349 million at December 31, 2006. Nonperforming loans and leases were 0.57% and 0.33% of total loans and leases at December 31, 2007 and 2006, respectively. Other real estate owned was $46 million at December 31, 2007, up $15 million from December 31, 2006. Total nonperforming assets as a percent of total assets were 0.43% and 0.24% at December 31, 2007 and 2006, respectively. Citizens’ allowance for loan and lease losses was $978 million at December 31, 2007, compared to $757 million at December 31, 2006. The ratio of allowance to total loans and leases was 0.88 % at December 31, 2007 compared to 0.72% at December 31, 2006. Net charge-offs were $520 million for the year ended December 31, 2007 compared to $338 million for the same period in 2006. For the year ended December 31, 2007, Citizens recorded provision for credit loss expense of $683 million compared to $331 million for the year ended December 31, 2006. Results of Operations Net income was $1,489 million and $1,668 million for the years ended December 31, 2007 and 2006, respectively. Net interest income for the 12-month period ended December 31, 2007 was $4,054 million compared to $3,950 million for the same period in 2006. The increase was due primarily to increased interest income from consumer and commercial loans and lower interest expense for borrowed funds, offset by a decrease in interest income from investment securities and higher interest expense for deposits. The net interest margin was 2.82% and 2.83% for the years ended December 31, 2007 and 2006, respectively. Noninterest income was $2,102 million for the year ended December 31, 2007 compared to $2,024 million for the same period in 2006, an increase of $78 million. The increase mainly resulted from improvements in deposit service charge and credit, ATM and debit card fee income. Noninterest expense was $3,199 million for the year ended December 31, 2007 compared to $3,074 million for the same period in 2006. The increase of $125 million resulted primarily from increases in outside services, occupancy and equipment, and other operating expenses. 27 FINANCIAL REVIEW C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E (in millions) Interest Income: Interest and fees on loans and leases: Consumer Commercial and industrial Residential mortgage Commercial real estate Credit card Loans held-for-sale Investment securities Federal funds sold and securities purchased under agreements to resell Interest-bearing deposits Total interest income Interest Expense: Deposits Federal funds purchased and securities sold under agreements to repurchase, and short-term borrowings Borrowed funds Total interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest Income: Service charges on deposits Credit card fees ATM and debit card Other net gains International fees Investment services revenue Other service fee income Customer derivatives Bank-owned life insurance Mortgage banking Trust income Net gains on sales of available-for-sale securities Insurance commissions Other income Total noninterest income Noninterest Expense: Salaries and employee benefits Outside services Occupancy expense Equipment and furniture Amortization of intangibles Promotional expense Acquisition costs Other operating expense Total noninterest expense Income before income taxes Provision for income taxes Net Income Years Ended December 31 2007 2006 $3,567 1,523 1,008 637 248 46 1,528 93 12 8,662 3,093 527 988 4,608 4,054 683 3,371 724 350 286 228 90 70 61 61 53 45 28 8 6 92 2,102 1,484 404 315 311 203 107 18 357 3,199 2,274 785 $1,489 $3,279 1,332 985 584 204 77 1,773 6 15 8,255 2,779 419 1,107 4,305 3,950 331 3,619 662 282 269 248 86 66 60 44 54 84 23 29 17 100 2,024 1,456 341 301 284 210 111 44 327 3,074 2,569 901 $1,668 28 FINANCIAL REVIEW C O N S O L I D AT E D B A L A N C E S H E E T S December 31 (in millions, except share data) Assets: Cash and due from banks Federal funds sold and securities purchased under agreements to resell Interest-bearing deposits Trading account assets Securities available-for-sale, at fair value Other investment securities Loans held-for-sale, at lower of cost or estimated fair value Loans and leases Less: Allowance for loan and lease losses Net loans and leases Goodwill Intangible assets Due from broker Premises and equipment Bank-owned life insurance Accrued interest receivable Federal, state and local income taxes receivable Mortgage servicing rights Deferred taxes, net Other assets Total Assets Liabilities and Stockholder’s Equity Liabilities: Deposits Federal funds purchased, securities sold under agreements to repurchase, and short-term borrowings Borrowed funds Federal, state and local income taxes payable Deferred taxes, net Due to broker Other liabilities Total Liabilities Stockholder’s Equity: Preferred stock: $1.00 par value, 30,000 shares authorized, 15,850 shares issued and outstanding in 2007 and 2006 Common stock: $.01 par value, 5,000 shares authorized, 2,883 shares issued and outstanding in 2007 and 2006 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Stockholder’s Equity Total Liabilities and Stockholder’s Equity 2007 $2,282 – 231 7 27,339 732 614 111,062 978 110,084 13,188 513 – 1,132 1,095 955 181 136 101 1,350 $159,940 2006 $2,355 3,250 232 8 28,127 1,314 449 105,606 757 104,849 13,051 693 1,628 1,198 1,048 916 166 150 – 1,397 $160,831 $102,197 14,594 17,555 417 – – 2,826 137,589 $99,955 10,267 24,451 76 655 104 1,775 137,283 1,585 1,585 – 15,223 6,506 (963) 22,351 $159,940 – 15,223 7,087 (347) 23,548 $160,831 29 CO R P O R AT E L E A D E R S H I P T E A M Ellen Alemany Chief Executive Officer James G. Connolly President Robert M. Mahoney Executive Vice Chairman Norman J. DeLuca Vice Chairman Payments and Lending Services Dana A. Drago Vice Chairman Consumer and Business Banking Robert D. Matthews Jr. Vice Chairman Commercial Markets William K. Wray Chief Information Officer Vice Chairman Manufacturing James B. Fitzgerald Chief Financial Officer Group Executive Vice President Accounting and Finance Thomas M. Metzger Chief Risk Officer Group Executive Vice President Risk Management Evelyn Tressitt Group Executive Vice President Human Resources 30 EXECUTIVE POLICY COMMITTEE Our company’s senior management team: Ellen Alemany* Chief Executive Officer James G. Connolly* President Robert M. Mahoney* Executive Vice Chairman Norman J. DeLuca* Vice Chairman Payments and Lending Services Dana A. Drago* Vice Chairman Consumer and Business Banking Robert D. Matthews Jr.* Vice Chairman Commercial Markets William K. Wray* Chief Information Officer Vice Chairman Manufacturing Joseph Dewhirst Group Executive Vice President Treasury Christopher Y. Downs Group Executive Vice President Consumer Lending Services James B. Fitzgerald* Chief Financial Officer Group Executive Vice President Accounting and Finance Bradford B. Kopp Group Executive Vice President Strategy and Acquisitions, Investment Management Services Theresa M. McLaughlin Chief Marketing Officer Group Executive Vice President Marketing Thomas M. Metzger* Chief Risk Officer Group Executive Vice President Risk Management Edwin J. Santos General Auditor Group Executive Vice President Audit Maria Tedesco Group Executive Vice President Retail Banking Hal R. Tovin Group Executive Vice President Retail Partnership Delivery Evelyn Tressitt* Group Executive Vice President Human Resources Kenneth R. Martin Executive Vice President Business Banking Ben A. Barone President and Chief Executive Officer RBS Lynk Robert M. Curley President Citizens Bank, New York Daniel K. Fitzpatrick President and Chief Executive Officer Eastern Pennsylvania, New Jersey and Delaware Edward O. Handy III President Citizens Real Estate Finance Joseph J. MarcAurele President Citizens Bank, Rhode Island Ralph J. Papa Chairman Citizens Bank of Pennsylvania Sandra E. Pierce President Charter One, Indiana and Michigan Cathleen A. Schmidt President Citizens Bank, New Hampshire and Vermont Robert E. Smyth President Citizens Bank, Massachusetts Scott C. Swanson President Charter One, Illinois *member, Executive Management Committee 31 BOARDS OF DIRECTORS Citizens Financial Group, Inc. and RBS Citizens, N.A. Lawrence K. Fish Chairman Ellen Alemany Chief Executive Officer Citizens Financial Group, Inc. RBS Americas James G. Connolly President Johnny Cameron Chief Executive Corporate Markets The Royal Bank of Scotland Group plc James S. Davis Chairman and Chief Executive Officer New Balance Athletic Shoe, Inc. Francis A. Doyle President and Chief Executive Officer Connell Limited Partnership Edmond J. English Chief Executive Officer Bob’s Discount Furniture William P. Hankowsky Chairman, President & CEO Liberty Property Trust Charles J. (“Bud”) Koch Former Chairman Charter One Bank Dr. Graham B. Spanier President The Pennsylvania State University Shivan S. Subramaniam Chairman and Chief Executive Officer FM Global Citizens Bank of Pennsylvania Ralph J. Papa Chairman Daniel K. Fitzpatrick President Eastern Pennsylvania, New Jersey and Delaware Dr. Kim L. Allen Owner A Friend of the Family, Inc. David W. Curtis Executive Vice President Leon N. Weiner & Associates, Inc. Howard W. Hanna III Chairman Howard Hanna Real Estate Services Stanley A. Lowe President Pittsburgh Neighborhood Preservation Services Dian C. Taylor President and Chief Executive Officer Artesian Water Company Judith M. von Seldeneck Chief Executive Officer Diversified Search Companies Fred C. Young Former Chairman and Chief Executive Officer Black Box Network Services BANK BOARDS Rhode Island and Connecticut Richard M. Barry† President Connecticut Joseph J. MarcAurele‡ President Rhode Island John J. Bowen President Johnson & Wales University Dr. Robert L. Carothers President University of Rhode Island Thomas J. Celona President Thrifty Car Sales Edward Crowley President and Chief Operating Officer Dichello Distributors, Inc. David A. Duffy Chairman Rhode Island Convention Center Authority David M. Hirsch Chairman and Chief Executive Officer Vertex Distribution Lynn Fusco Hughes President Fusco Corporation Robert L. McCabe Former Chairman, President and Chief Executive Officer Narragansett Electric Company Rev. Brian J. Shanley, O.P.‡ President Providence College Dr. Lynda B. Smith Massachusetts Robert E. Smyth President Rev. Dr. Ray Hammond Pastor Bethel A.M.E. Church Gary R. Kaneb Chief Financial Officer H.P. Hood LLC Jonathan A. Kraft President and Chief Operating Officer The Kraft Group John D. McClellan Former President and Chief Executive Officer Sprague Energy Corp. Martha S. Samuelson President and CEO Analysis Group, Inc. Clayton H.W. Turnbull President The Waldwin Group New Hampshire Michael J. Gleason Chairman Cathleen A. Schmidt President New Hampshire and Vermont Stephen P. Barba Executive Director of University Relations Plymouth State University Gary A. Long President and Chief Operating Officer Public Service Company of New Hampshire John H. Morison III Chairman of the Board Hitchiner Manufacturing Co., Inc. Editor: Ken Franckling Design: Gilbert Design Associates, Inc. Principal Photographer: David O’Connor Printing: Dynagraf †Connecticut Board only ‡Rhode Island Board only 32 DAY & Z I M M E R M A N N ounded in 1901 and headquartered in Philadelphia, Day & Zimmermann Group, Inc. and its family of companies provide diversified services including engineering and construction, power maintenance, staffing, government services and products, and commercial security in more than 75 countries around the world. Day & Zimmermann has steadily grown to become one of the largest privately held family-owned businesses in America with revenues of $2 billion. For more than a decade, Citizens Bank has provided Day & Zimmermann with an array of services, which now include credit, cash management, interest-rate risk management, foreign exchange and international banking. F Day & Zimmermann Chairman and CEO Harold L. Yoh III (second from left) with Senior Vice President Anthony W. Watson of Citizens Bank’s Commercial Banking team in Philadelphia, and Day & Zimmermann CFO Joseph W. Ritzel with Vice President William Vespa of RBS Securities (right). As Day & Zimmermann has continued a rapid expansion in all five of its core business areas, it has needed a comprehensive yet flexible banking relationship to support its continued growth. In 2007, a team representing Citizens Bank and RBS Global Banking & Markets led a consortium of banks that provided substantial new financing arrangements. This package allowed Day & Zimmermann to move quickly to acquire a controlling stake in a fast-growing government services business – and to support future expansion opportunities. “Citizens has been a critical partner in the continued growth of Day & Zimmermann,” said Harold L. Yoh III, Chairman and CEO. “The team’s intimate knowledge of our business and its ability to quickly respond to our changing needs by leveraging the tremendous resources of RBS have allowed us to continue to pursue successful strategic acquisitions and diversify our services.”   e would like to thank the following great customers, and thousands W of others, for expanding their business with us over the past year... $150,000,000 Term Loan – FOR – $27,367,500 Direct Pay Letter of Credit plus Cash Management Services, Merchant Card Processing and Commercial Card Program – FOR – $75,000,000 Multi-Currency Revolving Line of Credit, lead bank, plus Cash Management and Deposit Services – FOR – $11,139,000 Total Credit Commitment plus Cash Management, Deposit and Interest-Rate Risk Management Services – FOR – The Student Conservation Association, Inc. Working Capital and Lease Line facilities plus Cash Management and Interest-Rate Protection Services – FOR – $23,000,000 Total Credit Commitment plus Interest Rate Swaps and Corporate Card Services – FOR – $11,400,000 Total Credit Commitment plus Cash Management, Deposit and Interest-Rate Risk Management Services – FOR – $2,500,000 Total Credit Commitment plus Cash Management, Interest-Rate Protection and Equipment Finance Services – FOR – $60,000,000 Revolving Credit Facility, Interest-Rate Risk Management, Cash Management, Credit Card Processing and International Services – FOR – The Panjwani Network an Illinois franchisee of Dunkin’ Donuts $33,000,000 Credit Facilities plus Cash Management and Deposit Services – FOR – $8,000,000 Credit Facilities, Cash Management, Deposit and Interest-Rate Protection Services – FOR – $29,000,000 Total Credit Facilities plus Cash Management, Global Trade, Interest-Rate Risk Management and Merchant Card Processing Services – FOR – a Medical Device Partners, Inc. company $25,000,000 Acquisition Term Loan, Working Capital Line of Credit and Equipment Financing – FOR – $10,000,000 Revolving Line of Credit – FOR – $20,000,000 Construction Lending – FOR – River Place II, LLC 34 $1,000,000,000 Swap Syndication – FOR – $6,100,000 Total Credit Commitment and Cash Management Services – FOR – $66,000,000 Commercial Real Estate Financing plus Interest-Rate Risk Management Services – FOR – Diversified Restaurant Holdings, Inc., a franchisee of $90,000,000 Senior Secured Credit Facility, agent, plus Job Bank Loan, International Currency Hedging, Cash Management, Depository and Credit Card Processing Services – FOR – $57,936,000 Letter of Credit and related Interest Rate Swap for tax-exempt bond transaction for new dormitory construction and other campus projects – FOR – $12,500,000 Commercial Real Estate Construction/Permanent Loan with Interest-Rate Risk Management – FOR – $14,000,000 Long-Term True Lease Agreements – FOR – $32,000,000 Total Credit Commitment plus Interest-Rate Swap, Bank at Work, Cash Management, Deposit, Foreign Exchange and Lockbox Services – FOR – $9,450,000 Acquisition and Redevelopment Loan – FOR – United West Twenty-Fifth, Ltd. $100,000,000 Dealer Financial Services and Total Credit Commitment – FOR – $17,151,706 Total Credit Commitment plus Interest-Rate Risk Management, Cash Management Services and Commercial Card Program – FOR – $40,000,000 Commercial Real Estate Credit Facilities plus Depository Services – FOR – $8,000,000 Commercial Line of Credit plus Cash Management, Deposit and Trust Services – FOR – $24,000,000 Total Credit Commitment plus Cash Management and Interest-Rate Risk Management Services – FOR – $3,000,000 Standby Letter of Credit plus Cash Management, Commercial Card and Merchant Services – FOR – Orion Care Services LLC 35 One Citizens Plaza Providence, Rhode Island 02903 Our Credo* Customers: Treat the customer the way you would love to be treated all the time. Colleagues: Do what it takes to make our company the best place to work in the world. Community: Show that you care deeply about the community. Conduct yourself ethically at all times. *See the full Credo on page 21. Citizens Financial Group’s Annual Report is printed on Environment® Paper. This 100 percent recycled paper reduces solid waste disposal and lessens landfill dependency. By utilizing this paper: • 336 trees were preserved for the future. • 238,340,000 BTUs of energy were conserved. • 972 pounds of waterborne waste were not created. • 15,815 pounds of solid waste were not generated. • 142,928 gallons of wastewater flow were saved. • 31,138 net pounds of greenhouse gasses were prevented from forming. CFG2007