Household 10-Q (3/3)
HSBC Holdings PLC
04 August 2003
In accordance with the guidelines for accounting for business combinations, the
purchase price paid by HSBC Holdings plc ("HSBC") plus related purchase
accounting adjustments have been "pushed-down" and recorded in our financial
statements for periods subsequent to March 28, 2003, resulting in a new basis of
accounting reflecting the fair market value of our assets and liabilities for
the "successor" period beginning March 29, 2003. These fair value adjustments
represent current estimates and are subject to further adjustment as our
valuation data is finalized. To assist in the comparability of our financial
results, this quarterly financial supplement combines the "predecessor period"
(January 1 to March 28, 2003) with the "successor period" (March 29 to March 31,
2003 and March 29 to June 30, 2003) to present "combined" results for the three
months ended March 31, 2003 and "combined" year-to-date results for the six
months ended June 30, 2003.
Net operating earnings, a non-GAAP financial measure, is provided for comparison
of our operating trends only and should be read in conjunction with our owned
basis GAAP financial information. The operating results, percentages and ratios
exclude the following after-tax income and (expenses):
$ 43.3 million income related to purchase accounting adjustments incurred in the three months ended
June 30, 2003.
$ 47.3 million income related to the discontinuation of the shortcut method of accounting for our
interest rate swaps under SFAS No. 133 due to the merger in the three months ended
June 30, 2003.
$(167.3) million expense related to HSBC acquisition related costs and other merger related items
incurred by Household in the three months ended March 31, 2003.
We monitor our operations and evaluate trends on a managed basis which assumes
that securitized receivables have not been sold and are still on our balance
sheet. We manage our operations on a managed basis because the receivables that
we securitize are subjected to underwriting standards comparable to our owned
portfolio, are serviced by operating personnel without regard to ownership and
result in a similar credit loss exposure for us. In addition, we fund our
operations, review our operating results and make decisions about allocating
resources such as employees and capital on a managed basis. As a result, we
include managed basis information in this quarterly financial supplement as we
believe this information will facilitate investors' understanding of our results
and trends.
1
--------------------------------------------------------------------------------
Quarterly Financial Supplement-June 30, 2003
Quarterly Highlights % Change
Three Months Ended from Prior
-------------------------------------------------------
6/30/03 3/31/03(1) 6/30/02 Qtr. Year
--------- ---------- --------- ---- ----
($ millions)
Summary Owned Income Statement
Owned-basis net interest margin and other $ 2,835.6 $ 2,873.6 $ 2,659.5 (1.3)% 6.6 %
revenues
Owned-basis provision for credit losses 1,039.3 1,009.6 850.9 2.9 22.1
Costs and expenses, excluding acquisition 1,247.4 1,223.6 1,051.5 1.9 18.6
related costs
HSBC acquisition related costs incurred by - 198.2 - (100.0) -
Household
--------- ---------- --------- ---- ----
Income before income taxes 548.9 442.2 757.1 24.1 (27.5)
Income taxes 184.9 186.8 249.7 (1.0) (26.0)
--------- ---------- --------- ---- ----
Net income $ 364.0 $ 255.4 $ 507.4 42.5 % (28.3)%
--------- ---------- --------- ---- ----
Net operating earnings, excluding merger $ 273.4 $ 422.7 $ 507.4 (35.3)% (46.1)%
related items(2)
--------- ---------- --------- ---- ----
Selected Financial Ratios
Owned Basis:
Return on average common shareholder's(s') 9.3% 9.8% 22.9% (5.1)% (59.4)%
equity
Return on average common shareholder's(s') 6.9 17.1 22.9 (59.6) (69.9)
equity, excluding merger related items(2)
Return on average owned assets 1.32 1.02 2.18 29.4 (39.4)
Return on average owned assets, excluding 1.07 1.69 2.18 (36.7) (50.9)
merger related items(2)
Net interest margin 8.51 7.29 7.62 16.7 11.7
Net interest margin, excluding merger 7.40 7.26 7.62 1.9 (2.9)
related items(2)
--------- ---------- --------- ---- ----
Managed Basis:
Return on average managed assets 1.08% .82% 1.78% 31.7 % (39.3)%
Return on average managed assets, excluding .87 1.36 1.78 (36.0) (51.1)
merger related items(2)
Efficiency ratio 34.3 41.7 32.1 (17.7) 6.9
Efficiency ratio, excluding merger related 34.4 35.5 32.1 (3.1) 7.2
items(2)
Net interest margin 9.23 8.30 8.55 11.2 8.0
Net interest margin, excluding merger 8.35 8.27 8.55 1.0 (2.3)
related items(2)
Common and preferred equity to managed 11.94 11.94 7.98 - 49.6
assets(3)
Tangible equity to tangible managed assets 6.66 6.98 7.94 (4.6) (16.1)
(3)(4)
Tangible common equity to tangible managed 4.51 4.79 6.39 (5.8) (29.4)
assets(3)(4)
--------- ---------- --------- ---- ----
--------
(1) In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus
related purchase accounting adjustments have been "pushed-down" and recorded in our financial statements for
periods subsequent to March 28, 2003, resulting in a new basis of accounting reflecting the fair market value of
our assets and liabilities for the "successor" period beginning March 29, 2003. To assist in the comparability
of our financial results, this quarterly financial supplement combines the "predecessor period" (January 1 to
March 28, 2003) with the "successor period" (March 29 to March 31, 2003) to present "combined" quarterly results
for the three months ended March 31, 2003.
(2) This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in
conjunction with our owned basis GAAP financial information. For the three months ended June 30, 2003, the
operating results, percentages and ratios exclude $43.3 million (after-tax) of income related to purchase
accounting adjustments and $47.3 million (after-tax) of income related to the discontinuation of the shortcut
method of accounting for our interest rate swaps under SFAS No. 133 due to the merger. For the three months
ended March 31, 2003, the operating results, percentages and ratios exclude $167.3 million (after-tax) of HSBC
acquisition related costs and other merger related items incurred by Household.
(3) Represents a non-GAAP financial ratio that is used by certain rating agencies as a measure of capital adequacy.
The ratio may differ from similarly named measures presented by other companies. Common and preferred equity to
total managed assets, the most directly comparable GAAP financial measure, is also presented in the table above.
(4) Excluding the impact of "push-down" accounting on our assets and common shareholder's equity, TETMA would have
been 8.72 percent at June 30, 2003 and 8.78 percent at March 31, 2003. Tangible common equity to tangible
managed assets would have been 6.61 percent at June 30, 2003 and 6.60 percent at March 31, 2003.
2
--------------------------------------------------------------------------------
Quarterly Financial Supplement-June 30, 2003
Year-to-Date Highlights
Six Months Ended
-----------------------------------------
6/30/03(1) 6/30/02 % Change
---------- --------- --------
($ millions)
Summary Owned Income Statement
Owned-basis net interest margin and other revenues $ 5,709.2 $ 5,395.5 5.8 %
Owned-basis provision for credit losses 2,048.9 1,773.9 15.5
Costs and expenses, excluding acquisition related costs 2,471.0 2,119.0 16.6
HSBC acquisition related costs incurred by Household 198.2 - 100
---------- --------- --------
Income before income taxes 991.1 1,502.6 (34.0)
Income taxes 371.7 504.2 (26.3)
---------- --------- --------
Net income $ 619.4 $ 998.4 (38.0)%
---------- --------- --------
Net operating earnings, excluding merger related items(2) $ 696.1 $ 998.4 (30.3)%
---------- --------- --------
Selected Financial Ratios
Owned Basis:
Return on average common shareholder's(s') equity 9.5% 23.2% (59.1)%
Return on average common shareholder's(s') equity, 10.8 23.2 (53.4)
excluding merger related items(2)
Return on average owned assets 1.18 2.18 (45.9)
Return on average owned assets, excluding merger related 1.38 2.18 (36.7)
items(2)
Net interest margin 7.91 7.72 2.5
Net interest margin, excluding merger related items(2) 7.33 7.72 (5.1)
---------- --------- --------
Managed Basis:
Return on average managed assets .96% 1.77% (45.8)%
Return on average managed assets, excluding merger related 1.11 1.77 (37.3)
items(2)
Efficiency ratio 37.9 32.0 18.4
Efficiency ratio, excluding merger related items(2) 35.0 32.0 9.4
Net interest margin 8.76 8.64 1.4
Net interest margin, excluding merger related items(2) 8.31 8.64 (3.8)
---------- --------- --------
--------
(1) In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus
related purchase accounting adjustments have been "pushed-down" and recorded in our financial statements for
periods subsequent to March 28, 2003, resulting in a new basis of accounting reflecting the fair market value of
our assets and liabilities for the "successor" period beginning March 29, 2003. To assist in the comparability
of our financial results, the quarterly financial supplement combines the "predecessor period" (January 1 to
March 28, 2003) with the "successor period" (March 29 to June 30, 2003) to present "combined" year-to-date
results for the six months ended June 30, 2003.
(2) This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in
conjunction with our owned basis GAAP financial information. For the six months ended June 30, 2003, the
operating results, percentages and ratios exclude $43.3 million (after-tax) of income related to purchase
accounting adjustments, $47.3 million (after-tax) of income related to the discontinuation of the shortcut
method of accounting for our interest rate swaps under SFAS No. 133 due to the merger, and $167.3 million
(after-tax) of HSBC acquisition related costs and other merger related items incurred by Household.
3
--------------------------------------------------------------------------------
HOUSEHOLD INTERNATIONAL, INC.
Consolidated Statements of Income-Owned Basis
Three Months
% Change
Three Months Ended from Prior
---------------------------------------- ---------------
6/30/03 3/31/03(1) 6/30/02 Qtr. Year
--------- ----------- --------- ---- ----
($ millions)
Finance and other interest income $ 2,504.1 $ 2,545.0 $ 2,609.9 (1.6)% (4.1)%
Interest expense 558.8 912.0 980.9 (38.7) (43.0)
--------- ----------- --------- ---- ----
Net interest margin 1,945.3 1,633.0 1,629.0 19.1 19.4
Provision for credit losses on owned 1,039.3 1,009.6 850.9 2.9 22.1
receivables
--------- ----------- --------- ---- ----
Net interest margin after provision for 906.0 623.4 778.1 45.3 16.4
credit losses
--------- ----------- --------- ---- ----
Securitization revenue 282.6 441.1 523.4 (35.9) (46.0)
Insurance revenue 183.3 177.3 177.5 3.4 3.3
Investment income 33.2 81.3 44.0 (59.2) (24.5)
Fee income 259.7 297.1 190.3 (12.6) 36.5
Other income 131.5 243.8 95.3 (46.1) 38.0
--------- ----------- --------- ---- ----
Total other revenues 890.3 1,240.6 1,030.5 (28.2) (13.6)
--------- ----------- --------- ---- ----
Salaries and fringe benefits 488.6 508.6 453.0 (3.9) 7.9
Sales incentives 83.2 39.1 67.6 100+ 23.1
Occupancy and equipment expense 100.0 101.2 93.3 (1.2) 7.2
Other marketing expenses 135.2 143.5 133.5 (5.8) 1.3
Other servicing and administrative 263.7 322.9 204.1 (18.3) 29.2
expenses
Amortization of acquired intangibles 78.3 14.3 12.6 100+ 100+
HSBC acquisition related costs incurred - 198.2 - (100.0) -
by Household
Policyholders' benefits 98.4 94.0 87.4 4.7 12.6
--------- ----------- --------- ---- ----
Total costs and expenses 1,247.4 1,421.8 1,051.5 (12.3) 18.6
--------- ----------- --------- ---- ----
Income before income taxes 548.9 442.2 757.1 24.1 (27.5)
Income taxes 184.9 186.8 249.7 (1.0) (26.0)
--------- ----------- --------- ---- ----
Net income $ 364.0 $ 255.4 $ 507.4 42.5% (28.3)%
--------- ----------- --------- ---- ----
Net operating earnings, excluding merger $ 273.4 $ 422.7 $ 507.4 (35.3)% (46.1)%
related items(2)
--------- ----------- --------- ---- ----
Effective tax rate 33.7% 42.2% 33.0% (20.1)% 2.1%
--------- ----------- --------- ---- ----
Effective tax rate, excluding merger 32.8% 33.3% 33.0% (1.5)% (0.6)%
related items(2)
--------- ----------- --------- ---- ----
Securitization Revenue (3)
Three Months Ended
---------------------------------
6/30/03 3/31/03 6/30/02
------- ------- -------
($ millions)
Net initial gain $ 32.3 $ 35.3 $ 73.8
Net replenishment gains 134.5 136.9 127.0
Servicing revenue and excess spread 115.8 268.9 322.6
------- ------- -------
Total $ 282.6 $ 441.1 $ 523.4
------- ------- -------
4
--------------------------------------------------------------------------------
Receivables Securitized
Three Months Ended
---------------------------------------
6/30/03 3/31/03 6/30/02
--------- --------- ---------
($ millions)
Auto finance $ 596.3 $ 410.8 $ 925.0
MasterCard/Visa(4) - 320.0 613.4
Private label 250.0 - -
Personal non-credit card 305.0 510.0 450.0
--------- --------- ---------
Total $ 1,151.3 $ 1,240.8 $ 1,988.4
--------- --------- ---------
--------
(1) In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus
related purchase accounting adjustments have been "pushed-down" and recorded in our financial statements for
periods subsequent to March 28, 2003, resulting in a new basis of accounting reflecting the fair market value of
our assets and liabilities for the "successor" period beginning March 29, 2003. To assist in the comparability
of our financial results, this quarterly financial supplement combines the "predecessor period" (January 1 to
March 28, 2003) with the "successor period" (March 29 to March 31, 2003) to present "combined" quarterly results
for the three months ended March 31, 2003.
(2) This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in
conjunction with our owned basis GAAP financial information. For the three months ended June 30, 2003, the
operating results, percentages and ratios exclude $43.3 million (after-tax) of income related to purchase
accounting adjustments and $47.3 million (after-tax) of income related to the discontinuation of the shortcut
method of accounting for our interest rate swaps under SFAS No. 133 due to the merger. For the three months
ended March 31, 2003, the operating results, percentages and ratios exclude $167.3 million (after-tax) of HSBC
acquisition related costs and other merger related items incurred by Household.
(3) The change in our interest-only strip receivables, net of the related loss reserve and excluding the
mark-to-market adjustment recorded in accumulated other comprehensive income, was ($192.7) million for the
quarter ended 6/30/03, ($41.5) million for the quarter ended 3/31/03, and $29.8 million for the quarter ended
6/30/02.
(4) MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc.,
respectively.
5
--------------------------------------------------------------------------------
Consolidated Statements of Income-Owned Basis
Six Months
Six Months Ended
-------- -----------------------
6/30/03(1) 6/30/02 %Change
----------- --------- ---------
($ millions)
Finance and other interest income $ 5,049.1 $ 5,145.6 (1.9)%
Interest expense 1,470.8 1,919.7 (23.4)
----------- --------- ---------
Net interest margin 3,578.3 3,225.9 10.9
Provision for credit losses on owned receivables 2,048.9 1,773.9 15.5
----------- --------- ---------
Net interest margin after provision for credit losses 1,529.4 1,452.0 5.3
----------- --------- ---------
Securitization revenue 723.7 1,041.7 (30.5)
Insurance revenue 360.6 347.6 3.7
Investment income 114.5 90.2 26.9
Fee income 556.8 406.8 36.9
Other income 375.3 283.3 32.5
----------- --------- ---------
Total other revenues 2,130.9 2,169.6 (1.8)
----------- --------- ---------
Salaries and fringe benefits 997.2 898.3 11.0
Sales incentives 122.3 121.7 0.5
Occupancy and equipment expense 201.2 185.5 8.5
Other marketing expenses 278.7 273.9 1.8
Other servicing and administrative expenses 586.6 435.8 34.6
Amortization of acquired intangibles 92.6 32.4 100+
HSBC acquisition related costs incurred by Household 198.2 - 100.0
Policyholders' benefits 192.4 171.4 12.3
----------- --------- ---------
Total costs and expenses 2,669.2 2,119.0 26.0
----------- --------- ---------
Income before income taxes 991.1 1,502.6 (34.0)
Income taxes 371.7 504.2 (26.3)
----------- --------- ---------
Net income $ 619.4 $ 998.4 (38.0)%
----------- --------- ---------
Net operating earnings, excluding merger related items(2) $ 696.1 $ 998.4 (30.3)%
----------- --------- ---------
Effective tax rate 37.5% 33.6% 11.6%
----------- --------- ---------
Effective tax rate, excluding merger related items(2) 33.2% 33.6% (1.2)%
----------- --------- ---------
Securitization Revenue(3)
Six Months Ended
----------------------
6/30/03 6/30/02
------- ---------
($ millions)
Net initial gain $ 67.6 $ 148.2
Net replenishment gains 271.4 251.2
Servicing revenue and excess spread 384.7 642.3
------- ---------
Total $ 723.7 $ 1,041.7
------- ---------
6
--------------------------------------------------------------------------------
Receivables Securitized
Six Months Ended
------------------------
6/30/03 6/30/02
--------- ---------
($ millions)
Auto finance $ 1,007.1 $ 1,350.0
MasterCard/Visa 320.0 1,213.4
Private label 250.0 500.0
Personal non-credit card 815.0 1,352.7
--------- ---------
Total $ 2,392.1 $ 4,416.1
--------- ---------
--------
(1) In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus
related purchase accounting adjustments have been "pushed-down" and recorded in our financial statements for
periods subsequent to March 28, 2003, resulting in a new basis of accounting reflecting the fair market value of
our assets and liabilities for the "successor" period beginning March 29, 2003. To assist in the comparability
of our financial results, the quarterly financial supplement combines the "predecessor period" (January 1 to
March 28, 2003) with the "successor period" (March 29 to June 30, 2003) to present "combined" year-to-date
results for the six months ended June 30, 2003.
(2) This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in
conjunction with our owned basis GAAP financial information. For the six months ended June 30, 2003, the
operating results, percentages and ratios exclude $43.3 million (after-tax) of income related to purchase
accounting adjustments, $47.3 million (after-tax) of income related to the discontinuation of the shortcut
method of accounting for our interest rate swaps under SFAS No. 133 due to the merger, and $167.3 million
(after-tax) of HSBC acquisition related costs and other merger related items incurred by Household.
(3) The change in our interest-only strip receivables, net of the related loss reserve and excluding the
mark-to-market adjustment recorded in accumulated other comprehensive income, was ($234.2) million for the six
months ended 6/30/03 and $58.8 million for the six months ended 6/30/02.
7
--------------------------------------------------------------------------------
Credit Quality/Credit Loss Reserves-Owned Basis
Two-Months-and-Over Contractual Delinquency
As a percent of owned consumer receivables, excludes commercial 6/30/03 3/31/03 6/30/02
(1)
------- ------- -------
Real estate secured 4.27% 4.15% 2.78%
Auto finance 2.49 2.75 2.99
MasterCard/Visa 5.97 6.87 6.13
Private label 5.45 6.06 6.19
Personal non-credit card 9.39 9.23 8.69
------- ------- -------
Total 5.38% 5.50% 4.53%
------- ------- -------
Quarter-to-Date Charge-offs, Net of Recoveries
As a percent of average owned consumer receivables, annualized, excludes 6/30/03 3/31/03 6/30/02
commercial
------- ------- -------
Real estate secured 1.03% 1.12% .85%
Auto finance 5.30 7.71 4.80
MasterCard/Visa 10.43 9.26 9.94
Private label 6.41 6.27 5.86
Personal non-credit card 9.87 9.04 8.59
------- ------- -------
Total 4.34% 4.22% 3.76%
------- ------- -------
Real estate charge-offs and REO expense as a percent of average owned real 1.46% 1.52% 1.23%
estate secured receivables
------- ------- -------
Credit Loss Reserves
6/30/03 3/31/03 6/30/02
---------- ---------- ---------
($ millions)
Reserves for owned receivables at beginning of quarter $ 3,483.1 $ 3,332.6 $ 2,876.6
Provision for credit losses 1,039.3 1,009.6 850.9
Charge-offs, net of recoveries (931.2) (873.9) (765.6)
Other, net 67.4 14.8 21.4
---------- ---------- ---------
Reserves for owned receivables at end of quarter $ 3,658.6 $ 3,483.1 $ 2,983.3
---------- ---------- ---------
Reserves as a percent of owned receivables 4.14% 4.17% 3.59%
---------- ---------- ---------
Nonperforming Assets
6/30/03 3/31/03 6/30/02(1)
--------- ------------ -----------
($ millions)
Nonaccrual owned receivables $ 3,021.2 $ 2,880.3 $ 2,316.4
Accruing owned receivables 90 or more days delinquent 843.8 877.9 750.6
Renegotiated commercial loans 1.5 1.4 1.4
--------- ------------ -----------
Total nonperforming owned receivables 3,866.5 3,759.6 3,068.4
Real estate owned 486.3 444.9 456.7
--------- ------------ -----------
Total nonperforming assets $ 4,352.8 $ 4,204.5 $ 3,525.1
--------- ------------ -----------
Owned credit loss reserves as a percent of nonperforming owned 94.6% 92.7% 97.2%
receivables
--------- ------------ -----------
8
--------------------------------------------------------------------------------
Balance Sheet Data
6/30/03 3/31/03 6/30/02
----------- ----------- -----------
($ millions)
Owned assets $ 111,579.4 $ 107,415.8 $ 96,806.3
Owned receivables 88,307.0 83,438.4 83,137.9
Investment securities (2) 6,624.2 7,081.2 8,229.7
Managed assets 135,847.6 131,671.5 119,129.0
Managed receivables 112,575.2 107,694.1 105,460.6
Debt (3) 88,347.6 85,680.1 83,454.9
Preferred stock 1,100.0 1,100.0 843.2
Common shareholder's(s') equity 15,119.2 14,622.2 8,661.2
----------- ----------- -----------
--------
(1) As discussed in our quarterly report on Form 10-Q for the quarter ended March 31, 2003, owned
two-months-and-over contractual delinquency for personal non-credit card and nonaccrual owned receivables, total
nonperforming owned receivables and total nonperforming assets for personal non-credit card receivables were
overstated due to a calculation error. As a result, credit loss reserves as a percentage of nonperforming owned
receivables was understated in the period. The correct amounts and percentages are included in the tables above.
The managed two-months-and-over contractual delinquency ratios and the managed nonperforming asset statistics
reported were correct.
(2) Includes amounts held in our credit card bank and other liquidity-related portfolios as well as in our insurance
business.
(3) Includes trust originated preferred securities of $1,021.5 million at June 30, 2003, $1,021.9 million at March
31, 2003, and $975.0 million at June 30, 2002.
9
--------------------------------------------------------------------------------
Receivables Analysis
End-of-Period Receivables
% Change
from Prior
--------------
6/30/03 3/31/03 6/30/02 Qtr. Year
----------- ------------ -------- ---- ----
($ millions)
Owned receivables:
Real estate secured $ 49,756.2 $ 47,256.6 $ 48,312.1 5.3% 3.0%
Auto finance 2,576.3 2,156.2 2,362.6 19.5 9.0
MasterCard/Visa 9,368.6 8,452.5 6,880.7 10.8 36.2
Private label 12,060.1 11,189.4 10,827.1 7.8 11.4
Personal non-credit card 14,115.2 13,927.0 14,272.6 1.4 (1.1)
Commercial and other 430.6 456.7 482.8 (5.7) (10.8)
----------- ------------ -------- ---- ----
Total owned receivables 88,307.0 83,438.4 83,137.9 5.8 6.2
----------- ------------ -------- ---- ----
Purchase accounting fair value 537.0 1,773.8 - (100+) 100.0
adjustments
Accrued finance charges 1,538.6 1,503.5 1,551.6 2.3 (0.8)
Credit loss reserve for owned (3,658.6) (3,483.1) (2,983.3) 5.0 22.6
receivables
Unearned credit insurance premiums and (720.3) (847.2) (878.0) (18.4) (21.3)
claims reserves
Interest-only strip receivables(1) 1,026.3 1,109.4 1,012.2 (7.5) 1.4
Amounts due and deferred from 218.9 832.9 292.6 (73.7) (25.2)
receivables sales
----------- ------------ -------- ---- ----
Total owned receivables, net 87,248.9 84,327.7 82,133.0 3.5 6.3
----------- ------------ -------- ---- ----
Receivables serviced with limited
recourse:
Real estate secured 237.0 339.2 575.4 (30.1) (58.8)
Auto finance 5,285.3 5,226.8 4,518.2 1.1 17.0
MasterCard/Visa 9,604.8 9,941.8 9,905.8 (3.4) (3.0)
Private label 4,261.3 3,577.1 2,649.9 19.1 60.8
Personal non-credit card 4,879.8 5,170.8 4,673.4 (5.6) 4.4
----------- ------------ -------- ---- ----
Total receivables serviced with limited 24,268.2 24,255.7 22,322.7 0.1 8.7
recourse
----------- ------------ -------- ---- ----
Total managed receivables, net $ 111,517.1 $ 108,583.4 $ 104,455.7 2.7% 6.8%
----------- ------------ -------- ---- ----
End-of-Period Managed Receivables
% Change
from Prior
-------------
6/30/03 3/31/03 6/30/02 Qtr. Year
----------- ----------- ----------- ---- ----
($ millions)
Real estate secured $ 49,993.2 $ 47,595.8 $ 48,887.5 5.0% 2.3%
Auto finance 7,861.6 7,383.0 6,880.8 6.5 14.3
MasterCard/Visa 18,973.4 18,394.3 16,786.5 3.1 13.0
Private label 16,321.4 14,766.5 13,477.0 10.5 21.1
Personal non-credit card(2) 18,995.0 19,097.8 18,946.0 (0.5) 0.3
Commercial and other 430.6 456.7 482.8 (5.7) (10.8)
----------- ----------- ----------- ---- ----
Managed portfolio $ 112,575.2 $ 107,694.1 $ 105,460.6 4.5% 6.7%
----------- ----------- ----------- ---- ----
10
--------------------------------------------------------------------------------
Percent of managed portfolio 6/30/03 3/31/03 6/30/02
-------- -------- --------
Real estate secured 44.4% 44.2% 46.4%
Auto finance 7.0 6.9 6.5
MasterCard/Visa 16.8 17.1 15.9
Private label 14.5 13.7 12.8
Personal non-credit card 16.9 17.7 18.0
Commercial and other .4 .4 .4
-------- -------- --------
Managed portfolio 100.0% 100.0% 100.0%
-------- -------- --------
--------
(1) Our estimate of the recourse obligation totaled $1,980.3 million at 6/30/03, $1,776.2 million at 3/31/03, and
$1,385.6 million at 6/30/02.
(2) Personal non-credit card receivables are comprised of the following:
6/30/03 3/31/03 6/30/02
---------- ---------- ----------
($ millions)
Domestic personal unsecured $ 10,076.3 $ 10,093.3 $ 9,711.0
Union Plus personal unsecured 862.0 977.6 1,193.7
Personal homeowner loans 4,742.0 4,927.3 5,157.5
Foreign unsecured 3,314.7 3,099.6 2,883.8
---------- ---------- ----------
Total $ 18,995.0 $ 19,097.8 $ 18,946.0
---------- ---------- ----------
11
--------------------------------------------------------------------------------
Supplemental Managed Basis Information
Securitizations and sales of consumer receivables are a source of liquidity for
us. We continue to service the securitized receivables after such receivables
are sold and we retain a limited recourse obligation. Securitizations impact the
classification of revenues. When reporting on a managed basis, net interest
margin, provision for credit losses, fee income, and securitization revenue
related to receivables sold are reclassified from securitization revenue into
the appropriate caption.
Three Months
% Change
Three Months Ended from Prior
------------------------------------------------------------------------------------------------
6/30/03 (1) 3/31/03 (2) (1) 6/30/02 (1) Qtr. Year
------------------------------------------------------------------------------------------------
($ millions)
Finance and $ 3,368.1 11.67% $ 3,423.0 12.04% $ 3,418.2 12.81% (1.6)% (1.5)%
other interest
income
Interest expense 704.5 2.44 1,064.4 3.74 1,137.5 4.26 (33.8) (38.1)
-------------------------------------------------------------------------------------------------
Net interest 2,663.6 9.23% 2,358.6 8.30% 2,280.7 8.55% 12.9 16.8
margin
Provision for 1,656.3 1,416.9 1,278.4 16.9 29.6
credit losses
--------------------------------------------------------------------------------------------------
Net interest $ 1,007.3 $ 941.7 $ 1,002.3 7.0 % 0.5 %
margin after
provision for
credit losses
-------------------------------------------------------------------------------------------------
Insurance $ 183.3 $ 177.3 $ 177.5 3.4 % 3.3 %
revenue
Investment 33.2 81.3 44.0 (59.2) (24.5)
income
Fee income 427.0 451.8 355.3 (5.5) 20.2
Securitization 14.0 (31.9) 134.2 (100+) (89.6)
revenue
Other income 131.5 243.8 95.3 (46.1) 38.0
-------------------------------------------------------------------------------------------------
Total other $ 789.0 $ 922.3 $ 806.3 (14.5) % (2.1) %
revenues
-------------------------------------------------------------------------------------------------
Average managed
receivables:
Real estate $ 49,363.2 $ 46,801.4 $ 47,562.1 5.5 % 3.8 %
secured
Auto finance 7,623.9 7,364.0 6,684.8 3.5 14.0
MasterCard/Visa 19,002.1 18,681.4 16,730.6 1.7 13.6
Private label 15,936.7 14,840.4 13,385.5 7.4 19.1
Personal 18,786.9 19,402.7 18,393.1 (3.2) 2.1
non-credit card
Commercial and 186.8 458.6 491.5 (59.3) (62.0)
other
-------------------------------------------------------------------------------------------------
Total 110,899.6 107,548.5 103,247.6 3.1 7.4
Average 3,949.5 5,551.9 2,950.4 (28.9) 33.9
noninsurance
investments
Other 626.2 619.9 558.3 1.0 12.2
interest-earning
assets
-------------------------------------------------------------------------------------------------
Average managed $ 115,475.3 $ 113,720.3 $ 106,756.3 1.5 % 8.2 %
interest-earning
assets
-------------------------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
Six Months
Six Months Ended
-----------------------------------------------------------------------
6/30/03 (2) (1) 6/30/02 (1) % Change
-----------------------------------------------------------------------
($ millions)
Finance and other interest income $ 6,791.1 11.85% $ 6,795.4 12.95% (0.1)%
Interest expense 1,768.9 3.09 2,261.5 4.31 (21.8)
-----------------------------------------------------------------------
Net interest margin 5,022.2 8.76% 4,533.9 8.64% 10.8
Provision for credit losses 3,073.2 2,640.7 16.4
-----------------------------------------------------------------------
Net interest margin after
provision for credit losses $ 1,949.0 $ 1,893.2 2.9%
-----------------------------------------------------------------------
Insurance revenue $ 360.6 $ 347.6 3.7%
Investment income 114.5 90.2 26.9
Fee income 878.8 727.3 20.8
Securitization revenue (17.9) 280.0 (100+)
Other income 375.3 283.3 32.5
-----------------------------------------------------------------------
Total other revenues $ 1,711.3 $ 1,728.4 (1.0)%
-----------------------------------------------------------------------
Average managed receivables:
Real estate secured $ 48,082.3 $ 46,681.4 3.0%
Auto finance 7,494.0 6,607.7 13.4
MasterCard/Visa 18,841.8 16,810.7 12.1
Private label 15,388.6 13,503.5 14.0
Personal non-credit card 19,094.8 18,211.7 4.8
Commercial and other 322.6 493.9 (34.7)
-----------------------------------------------------------------------
Total 109,224.1 102,308.9 6.8
Average noninsurance investments 4,750.7 2,064.5 100+
Other interest-earning assets 623.0 548.3 13.6
-----------------------------------------------------------------------
Average managed interest-earning $ 114,597.8 $ 104,921.7 9.2%
assets
-----------------------------------------------------------------------
--------
(1) % Columns: comparison to average managed interest-earning assets, annualized.
(2) In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus
related purchase accounting adjustments have been "pushed-down" and recorded in our financial statements for
periods subsequent to March 28, 2003, resulting in a new basis of accounting reflecting the fair market value of
our assets and liabilities for the "successor" period beginning March 29, 2003. To assist in the comparability
of our financial results, the quarterly financial supplement combines the "predecessor period" (January 1 to
March 28, 2003) with the "successor period" (March 29 to March 31, 2003) to present "combined" quarterly results
for the three months ended March 31, 2003, and combines the "predecessor period" (January 1 to March 28, 2003)
with the "successor period" (March 29 to June 30, 2003) to present "combined" year-to-date results for the six
months ended June 30, 2003.
13
--------------------------------------------------------------------------------
Credit Quality/Credit Loss Reserves Information-Managed Basis
Two-Months-and-Over Contractual Delinquency
6/30/03 3/31/03 6/30/02
--------- --------- ---------
As a percent of managed consumer receivables, excludes
commercial
Real estate secured 4.31% 4.18% 2.82%
Auto finance 3.08 2.90 3.19
MasterCard/Visa 4.19 4.57 3.90
Private label 5.16 5.77 5.85
Personal non-credit card 10.04 9.65 9.06
--------- --------- ---------
Total 5.30% 5.36% 4.53%
--------- --------- ---------
Quarter-to-Date Charge-offs, Net of Recoveries
6/30/03 3/31/03 6/30/02
--------- --------- ---------
As a percent of average managed consumer receivables,
annualized, excludes commercial
Real estate secured 1.03% 1.12% .86%
Auto finance 6.69 8.10 6.17
MasterCard/Visa 7.90 7.01 7.54
Private label 6.26 5.91 5.38
Personal non-credit card 9.92 9.18 8.56
--------- --------- ---------
Total 4.89% 4.75% 4.26%
--------- --------- ---------
Real estate charge-offs and REO expense as a percent of 1.46% 1.52% 1.23%
average managed real estate secured receivables
--------- --------- ---------
Credit Loss Reserves
6/30/03 3/31/03 6/30/02
--------- --------- ---------
($ millions)
Reserves for managed receivables
at beginning of quarter $ 5,259.3 $ 5,092.1 $ 4,146.5
Provision for credit losses 1,656.3 1,416.9 1,278.4
Charge-offs, net of recoveries (1,343.5) (1,272.3) (1,092.7)
Other, net 66.8 22.6 36.7
--------- --------- ---------
Reserves for managed receivables at end of quarter $ 5,638.9 $ 5,259.3 $ 4,368.9
--------- --------- ---------
Reserves as a percent of managed receivables 5.01% 4.88% 4.14%
--------- --------- ---------
Nonperforming Assets
6/30/03 3/31/03 6/30/02
--------- --------- ---------
($ millions)
Nonaccrual managed receivables $ 3,703.2 $ 3,517.8 $ 2,877.6
Accruing managed receivables 90 or more days delinquent 1,140.1 1,207.1 1,008.8
Renegotiated commercial loans 1.5 1.4 -
--------- --------- ---------
Total nonperforming managed receivables 4,844.8 4,726.3 3,886.4
Real estate owned 486.3 444.9 456.7
--------- --------- ---------
Total nonperforming assets $ 5,331.1 $ 5,171.2 $ 4,343.1
--------- --------- ---------
Managed credit loss reserves as a percent of nonperforming managed 116.4% 111.3% 112.4%
receivables
--------- --------- ---------
14
--------------------------------------------------------------------------------
Restructuring Statistics
Our policies and practices for the collection of consumer receivables, including
our restructuring policies and practices, permit us to reset the contractual
delinquency status of an account to current, based on indicia or criteria which,
in our judgment, evidence continued payment probability. Such restructuring
policies and practices vary by product and are designed to manage customer
relationships, maximize collections and avoid foreclosure or repossession if
reasonably possible.
As detailed in our report on Form 10-Q for the quarterly period ended June 30,
2003, we intend to implement certain changes to the restructuring policies that
were disclosed in our Form 10-K for the year ended December 31, 2002. These
changes are intended to eliminate and/or streamline exception provisions to our
existing policies and will generally be effective for receivables originated or
acquired after January 1, 2003.
The following tables summarize approximate restructuring statistics in our
managed basis domestic portfolio. Our restructure statistics are compiled using
certain assumptions and estimates and we continue to enhance our ability to
capture restructure data across all business units. When comparing restructuring
statistics from different periods the fact that our restructure policies and
practices will change over time, that exceptions are made to those policies and
practices, and that our data capture methodologies will be enhanced over time,
should be taken into account. Further, to the best of our knowledge, most of our
competitors do not disclose account restructuring, reaging, loan rewriting,
forbearance, modification, deferment or extended payment information comparable
to the information we have disclosed, and the lack of such disclosure by other
lenders may limit the ability to draw meaningful conclusions about us and our
business based solely on data or information regarding account restructuring
statistics or policies.
Total Restructured by Restructure Period-Domestic Portfolio (1)
(Managed Basis)
6/30/03 3/31/03 6/30/02
------- ------- -------
Never restructured 83.7% 83.3% 83.3%
Restructured:
Restructured in the last 6 months 7.2 7.5 7.4
Restructured in the last 7-12 months 3.8 3.6 5.1
Previously restructured beyond 12 months 5.3 5.6 4.2
------- ------- -------
Total ever restructured (2) 16.3 16.7 16.7
------- ------- -------
Total 100.0% 100.0% 100.0%
------- ------- -------
Total Restructured by Product-Domestic Portfolio (1)
(Managed Basis)
6/30/03 3/31/03 6/30/02
------------------- --------------------- -------------
($ millions)
Real estate secured $ 9,225.0 19.2% $ 9,163.4 20.0% $ 9,045.1 19.1%
Auto finance 1,360.1 17.3 1,247.7 16.9 1,094.1 15.9
MasterCard/Visa 579.6 3.5 549.2 3.4 519.7 3.4
Private label 1,146.3 8.3 1,225.8 9.6 1,233.4 10.5
Personal non-credit card 4,202.3 26.8 4,127.5 25.8 4,352.8 27.1
---------- -------- ------------ ----- --------- -----
Total (2) $ 16,513.3 16.3% $ 16,313.6 16.7% $ 16,245.1 16.7%
---------- -------- ------------ ----- --------- -----
--------
(1) Excludes foreign businesses, commercial and other. Amounts include accounts as to which the delinquency status
has been reset to current for reasons other than restructuring (e.g. correcting the misapplication of a timely
payment).
(2) Total including foreign businesses was 15.3% at 6/30/03, 15.8% at 3/31/03, and 15.9% at 6/30/02.
15
--------------------------------------------------------------------------------
The amount of managed receivables in forbearance, modification, Credit Card
Services approved external debt management plans, rewrites or other account
management techniques for which we have reset delinquency and that is not
included in the restructured statistics above was approximately $1.1 billion or
1.0 percent of managed receivables at June 30, 2003, $1.0 billion or 0.9 percent
of managed receivables at March 31, 2003 and approximately $700 million or 0.7
percent of managed receivables at June 30, 2002.
16
This information is provided by RNS
The company news service from the London Stock Exchange
Monday, 13th May 2024
COMPANIES COVERED:
Latest directors dealings
- 6 hours ago Argentex Group
- 6 hours ago Centrica
- 8 hours ago OSB Group
- 8 hours ago Legal & General Group
- 8 hours ago Team17 Group