Citibank 2009 Annual Report Download - page 103

93
Interest Revenue/Expense and Yields
Average Rates - Interest Revenue, Interest Expense and Net Interest Margin
2.43%
4.53%
6.51% 6.43% 6.42% 6.53% 6.29% 6.21% 6.14% 5.86%
5.31%
4.97%
4.59%
4.20%
2.65%
1.75%
2.95%
1.83%
3.24%
1.93%
3.33%
2.16%
3.26%
2.78%
3.23%
3.15%
3.28%
3.17%
3.75%
2.82%
4.36%
2.51%
4.42%
2.36%
4.42%
2.38%
Interest Revenue-Average Rate
Interest Expense-Average Rate
Net Interest Margin
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
4Q093Q092Q091Q094Q083Q082Q081Q084Q073Q072Q071Q07
Interest Revenue-Average Rate
Interest Expense-Average Rate
Net Interest Margin
In millions of dollars 2009 2008 (1) 2007 (1)
Change
2009 vs. 2008
Change
2008 vs. 2007
Interest revenue (2) $ 76,635 $ 106,499 $121,347 (28)% (12)%
Interest expense (3) 27,721 52,750 75,958 (47) (31)
Net interest revenue (2) (3) $ 48,914 $ 53,749 $ 45,389 (9)% 18%
Interest revenue—average rate 4.75% 6.13% 6.47% (138) bps (34) bps
Interest expense—average rate 1.92% 3.28% 4.43% (136) bps (115) bps
Net interest margin 3.03% 3.09% 2.42% (6) bps 67 bps
Interest-rate benchmarks:
Federal Funds rate—end of period 0.00-0.25%0.00-0.25% 4.25% —(400+) bps
Federal Funds rate—average rate 0.00-0.25%2.08% 5.05% —(297) bps
Two-year U.S. Treasury note—average rate 0.96% 2.01% 4.36% (105) bps (235) bps
10-year U.S. Treasury note—average rate 3.26% 3.66% 4.63% (40) bps (97) bps
10-year vs. two-year spread 230 bps 165 bps 27 bps
(1) Reclassified to conform to the current period’s presentation and to exclude discontinued operations.
(2) Excludes taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $752 million, $323 million, and $125 million for 2009, 2008, and 2007, respectively.
(3) Excludes expenses associated with hybrid financial instruments and beneficial interest in consolidated VIEs. These obligations are classified as Long-term debt and accounted for at fair value with changes recorded in
Principal transactions. In addition, the majority of the funding provided by Treasury to CitiCapital operations is excluded from this line.
A significant portion of Citi’s business activities are based upon gathering
deposits and borrowing money and then lending or investing those funds,
including market-making activities in tradable securities. Net interest
margin (NIM) is calculated by dividing annualized gross interest revenue less
gross interest expense by average interest earning assets.
During the second half of 2009, the yields across both the interest-earning
assets as well as the interest-bearing liabilities dropped significantly from the
same period in 2008. The lower asset yields more than offset the lower cost of
funds, resulting in slightly lower NIM compared to the prior-year period. The
narrowing of yields in Citi’s asset businesses due to the continued de-risking
of loan portfolios and expansion of loss mitigation efforts and the natural
compression of spreads in the deposit businesses, a result of the continued
low rates environment, negatively impacted NIM. The impact of these factors
was reduced by the lower asset base.