HSBC Fin Corp Q1 2005 8K
HSBC Holdings PLC
16 May 2005
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MAY 16, 2005
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COMMISSION FILE NUMBER 1-8198
HSBC FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-1052062
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2700 SANDERS ROAD, PROSPECT HEIGHTS, ILLINOIS 60070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 564-5000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Financial supplement pertaining to the financial results of HSBC Finance
Corporation for the quarter ended March 31, 2005. The information shall not be
deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the Exchange Act), or otherwise incorporated by reference into
any filing pursuant to the Securities Act of 1933, as amended, or the Exchange
Act except as otherwise expressly stated in such a filing.
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
NO. EXHIBIT
--- -------
99 Quarterly Financial Supplement for the quarter ended March
31, 2005.
SIGNATURE
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HSBC FINANCE CORPORATION
(Registrant)
By: /s/ Patrick D. Schwartz
------------------------------------
Patrick D. Schwartz
Vice President-Deputy General
Counsel-Corporate
Dated: May 16, 2005
EXHIBIT 99
HSBC FINANCE CORPORATION
QUARTERLY FINANCIAL SUPPLEMENT - MARCH 31, 2005
INDEX PAGE NO.
----- --------
Basis of Reporting.......................................... 2
Consolidated Statements of Income - Owned Basis:
Three Months.............................................. 3
Receivables Analysis........................................ 5
Financial Highlights - Managed Basis:
Three Months.............................................. 6
Credit Quality/Credit Loss Reserves - Managed Basis......... 7
Reconciliations to GAAP Financial Measures:
Revenues, Average Interest-Earning Assets and Net Interest
Income:
Three Months........................................... 8
Selected Financial Ratios................................. 9
Credit Quality/Credit Loss Reserves:
Two-Months-and-Over Contractual Delinquency............ 11
Quarter-to-Date Charge-offs, Net of Recoveries......... 11
Real Estate Charge-offs and REO Expense................ 13
Credit Loss Reserves................................... 14
Nonperforming Assets................................... 14
HSBC Finance Corporation
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BASIS OF REPORTING
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NON-GAAP FINANCIAL MEASURES
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This Quarterly Financial Supplement includes financial information which is
presented on a non-GAAP basis as discussed below. Information included in this
Quarterly Financial Supplement is intended to supplement and should not be
considered a substitute for owned basis reporting. This Quarterly Financial
Supplement should be read in conjunction with the owned basis information
reported in our Quarterly Report on Form 10-Q.
See "Reconciliations to GAAP Financial Measures" for quantitative
reconciliations of non-GAAP financial information to the equivalent owned basis
GAAP financial information.
MANAGED BASIS REPORTING We monitor our operations and evaluate trends on a
managed basis (a non-GAAP financial measure), which assumes that securitized
receivables have not been sold and are still on our balance sheet. We manage and
evaluate 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.
When reporting on a managed basis, net interest income, provision for credit
losses and fee income related to receivables securitized are reclassified from
securitization revenue in our owned statement of income into the appropriate
caption. Additionally, charge-off and delinquency associated with these
receivables are included in our managed basis credit quality statistics.
Debt analysts, rating agencies and others also evaluate our operations on a
managed basis for the reasons discussed above and have historically requested
managed basis information from us. We believe that managed basis information
enables investors and other interested parties to better understand the
performance and quality of our entire managed loan portfolio and is important to
understanding the quality of originations and the related credit risk inherent
in our owned and securitized portfolios. As the level of our securitized
receivables falls over time, managed basis and owned basis results will
eventually converge, and we will only report owned basis results.
OPERATING RESULTS, PERCENTAGES AND RATIOS Certain percentages and ratios have
been presented on an operating basis and have been calculated using "operating
net income", a non-GAAP financial measure. "Operating net income" is net income
excluding certain nonrecurring items shown in the table below. These
nonrecurring items are also excluded in calculating our operating basis
efficiency ratios. We believe that excluding these nonrecurring items helps
readers of our financial statements to better understand the results and trends
of our underlying business. See our Annual Report for 2004 on Form 10-K for
further discussion of these items.
A reconciliation of net income to operating net income follows:
THREE MONTHS ENDED
----------------------------
3/31/05 12/31/04 3/31/04
------------------------------------------------------------------------------------------
(IN MILLIONS)
Net income.................................................. $626 $ 712 $470
Gain on bulk sale of private label receivables, after-tax... - (423) -
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios, after-tax....... - 121 -
---- ----- ----
Operating net income........................................ $626 $ 410 $470
==== ===== ====
2
HSBC Finance Corporation
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CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS
THREE MONTHS
% CHANGE FROM
THREE MONTHS ENDED PRIOR
------------------------------- -------------
3/31/05 12/31/04 3/31/04 QTR. YEAR
--------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income..................... $2,950 $3,001 $2,528 (1.7)% 16.7%
Interest expense...................................... 1,062 918 708 15.7 50.0
------ ------ ------ ----- ----
NET INTEREST INCOME................................... 1,888 2,083 1,820 (9.4) 3.7
Provision for credit losses........................... 841 1,286 928 (34.6) (9.4)
------ ------ ------ ----- ----
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES.............................................. 1,047 797 892 31.4 17.4
------ ------ ------ ----- ----
Other revenues:
Securitization revenue.............................. 85 127 348 (33.1) (75.6)
Insurance revenue................................... 221 221 211 - 4.7
Investment income................................... 33 30 41 10.0 (19.5)
Derivative income................................... 260 263 52 (1.1) 100+
Fee income.......................................... 306 282 265 8.5 15.5
Taxpayer financial services income.................. 243 8 206 100+ 18.0
Other income........................................ 314 164 100 91.5 100+
Gain on bulk sale of private label receivables...... - 663 - (100.0) -
------ ------ ------ ----- ----
TOTAL OTHER REVENUES.................................. 1,462 1,758 1,223 (16.8) 19.5
------ ------ ------ ----- ----
Costs and expenses:
Salaries and fringe benefits........................ 497 472 485 5.3 2.5
Sales incentives.................................... 82 104 78 (21.2) 5.1
Occupancy and equipment expenses.................... 87 86 83 1.2 4.8
Other marketing expenses............................ 180 199 132 (9.5) 36.4
Other servicing and administrative expenses......... 258 209 226 23.4 14.2
Support services from HSBC affiliates............... 209 194 177 7.7 18.1
Amortization of acquired intangibles................ 107 85 116 25.9 (7.8)
Policyholders' benefits............................. 122 113 113 8.0 8.0
------ ------ ------ ----- ----
TOTAL COSTS AND EXPENSES.............................. 1,542 1,462 1,410 5.5 9.4
------ ------ ------ ----- ----
Income before income tax expense...................... 967 1,093 705 (11.5) 37.2
Income tax expense.................................... 341 381 235 (10.5) 45.1
------ ------ ------ ----- ----
NET INCOME............................................ $ 626 $ 712 $ 470 (12.1)% 33.2%
====== ====== ====== ===== ====
Gain on bulk sale of private label receivables,
after-tax........................................... - (423) - 100.0 -
Adoption of FFIEC charge-off policies for domestic
private label and MasterCard and Visa portfolios,
after-tax........................................... - 121 - (100.0) -
------ ------ ------ ----- ----
Operating net income(1)............................... $ 626 $ 410 $ 470 52.7% 33.2%
====== ====== ====== ===== ====
---------------
(1) Operating net income is a non-GAAP financial measure which is provided for
comparison of our operating trends and should be read in conjunction with
our owned basis GAAP financial information. See "Basis of Reporting" for a
discussion on the use of non-GAAP financial information and "Reconciliations
to GAAP Financial Measures" for quantitative reconciliations to the
equivalent GAAP basis financial measure.
3
HSBC Finance Corporation
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SECURITIZATION REVENUE
THREE MONTHS ENDED
----------------------------
3/31/05 12/31/04 3/31/04
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(IN MILLIONS)
Net initial gains(1)........................................ $ - $ - $ 3
Net replenishment gains(1).................................. 53 69 120
Servicing revenue and excess spread......................... 32 58 225
--- ---- ----
Total....................................................... $85 $127 $348
=== ==== ====
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(1) Net of our estimate of probable credit losses under the recourse provisions.
RECEIVABLES SECURITIZED
THREE MONTHS ENDED
----------------------------
3/31/05 12/31/04 3/31/04
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(IN MILLIONS)
Auto finance................................................ $ - $ - $ -
MasterCard/Visa(1).......................................... - - 50
Personal non-credit card.................................... - - -
--- ---- ----
Total....................................................... $ - $ - $ 50
=== ==== ====
---------------
(1) MasterCard and Visa are registered trademarks of MasterCard International,
Incorporated and VISA USA Inc., respectively.
4
HSBC Finance Corporation
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RECEIVABLES ANALYSIS
END-OF-PERIOD RECEIVABLES
% CHANGE FROM
PRIOR
---------------
3/31/05 12/31/04 3/31/04 QTR. YEAR
----------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
OWNED RECEIVABLES:
Real estate secured(1).................... $ 68,486 $ 64,820 $ 52,440 5.7% 30.6%
Auto finance.............................. 8,107 7,544 4,936 7.5 64.2
MasterCard/Visa........................... 15,554 14,635 10,788 6.3 44.2
Private label(2).......................... 3,130 3,411 11,759 (8.2) (73.4)
Personal non-credit card.................. 16,608 16,128 13,343 3.0 24.5
Commercial and other...................... 276 317 384 (12.9) (28.1)
-------- -------- -------- ----- ------
Total owned receivables..................... 112,161 106,855 93,650 5.0 19.8
-------- -------- -------- ----- ------
RECEIVABLES SERVICED WITH LIMITED RECOURSE:
Real estate secured....................... 73 81 182 (9.9) (59.9)
Auto finance.............................. 2,175 2,679 4,093 (18.8) (46.9)
MasterCard/Visa........................... 6,140 7,583 9,536 (19.0) (35.6)
Private label(2).......................... - - 5,261 - (100.0)
Personal non-credit card.................. 3,098 3,882 5,285 (20.2) (41.4)
-------- -------- -------- ----- ------
Total receivables serviced with limited
recourse.................................. 11,486 14,225 24,357 (19.3) (52.8)
-------- -------- -------- ----- ------
MANAGED RECEIVABLES:(3)
Real estate secured....................... 68,559 64,901 52,622 5.6 30.3
Auto finance.............................. 10,282 10,223 9,029 .6 13.9
MasterCard/Visa........................... 21,694 22,218 20,324 (2.4) 6.7
Private label(2).......................... 3,130 3,411 17,020 (8.2) (81.6)
Personal non-credit card(4)............... 19,706 20,010 18,628 (1.5) 5.8
Commercial and other...................... 276 317 384 (12.9) (28.1)
-------- -------- -------- ----- ------
Total managed receivables................... $123,647 $121,080 $118,007 2.1% 4.8%
======== ======== ======== ===== ======
---------------
(1) Real estate secured receivable levels reflect sales to HSBC Bank USA, N.A.
of $.9 billion on March 31, 2004.
(2) Private label receivable levels reflect the bulk sale of domestic private
label receivables in December 2004 of $12.2 billion ($15.6 billion on a
managed basis) to HSBC Bank USA, N.A.
(3) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information.
(4) Personal non-credit card receivables are comprised of the following:
3/31/05 12/31/04 3/31/04
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(IN MILLIONS)
Domestic personal unsecured................................. $10,736 $10,725 $ 9,659
Union Plus personal unsecured............................... 426 474 640
Personal homeowner loans.................................... 4,390 4,582 4,580
Foreign unsecured........................................... 4,154 4,229 3,749
------- ------- -------
Total....................................................... $19,706 $20,010 $18,628
======= ======= =======
5
HSBC Finance Corporation
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FINANCIAL HIGHLIGHTS - MANAGED BASIS(1)
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
% CHANGE FROM
THREE MONTHS ENDED PRIOR
------------------------------------------------------ ---------------
3/31/05 (2) 12/31/04 (2) 3/31/04 (2) QTR. YEAR
-------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest
income........................... $ 3,391 10.78% $ 3,601 10.64% $ 3,417 10.94% (5.8)% (.8)%
Interest expense................... 1,171 3.72 1,050 3.10 843 2.70 11.5 38.9
-------- ----- -------- ----- -------- ----- ------ -----
NET INTEREST INCOME................ 2,220 7.06% 2,551 7.54% 2,574 8.24% (13.0) (13.8)
Provision for credit losses........ 871 1,305 1,181 (33.3) (26.2)
-------- -------- -------- ------ -----
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES................ $ 1,349 $ 1,246 $ 1,393 8.3% (3.2)%
======== ======== ======== ====== =====
Other revenues:
Insurance revenue................ $ 221 $ 221 $ 211 -% 4.7%
Investment income................ 33 30 41 10.0 (19.5)
Fee income....................... 397 437 462 (9.2) (14.1)
Securitization revenue........... (308) (477) (350) (35.4) (12.0)
Derivative income................ 260 263 52 (1.1) 100+
Taxpayer financial services
income......................... 243 8 206 100+ 18.0
Other income..................... 314 164 100 91.5 100+
Gain on bulk sale of private
label receivables.............. - 663 - (100.0) -
-------- -------- -------- ------ -----
TOTAL OTHER REVENUES............... $ 1,160 $ 1,309 $ 722 (11.4)% 60.7%
======== ======== ======== ====== =====
Average managed receivables
Real estate secured.............. $ 66,562 $ 61,543 $ 52,165 8.2% 27.6%
Auto finance..................... 10,242 10,052 8,902 1.9 15.1
MasterCard/Visa.................. 21,928 21,221 20,823 3.3 5.3
Private label.................... 3,227 17,858 17,471 (81.9) (81.5)
Personal non-credit card......... 19,827 19,593 18,857 1.2 5.1
Commercial and other............. 306 321 391 (4.7) (21.7)
Purchase accounting fair value
adjustments.................... 184 243 391 (24.3) (52.9)
-------- -------- -------- ------ -----
Average managed receivables........ $122,276 $130,831 $119,000 (6.5)% 2.8%
Average noninsurance investments... 2,,927 3,889 5,313 (24.7) (44.9)
Other interest-earning assets...... 666 660 641 .9 3.9
-------- -------- -------- ------ -----
Average managed interest-earning
assets........................... $125,869 $135,380 $124,954 (7.0)% .7%
======== ======== ======== ====== =====
SELECTED FINANCIAL RATIOS:
Return on average managed assets... 1.73% 1.87% 1.30% (7.5)% 33.1%
Efficiency ratio................... 43.59 36.00 40.75 21.1 7.0
Net interest margin................ 7.06 7.54 8.24 (6.4) (14.3)
Risk adjusted revenue.............. 8.17 8.37 7.06 (2.4) 15.7
EXCLUDING NONRECURRING ITEMS/
OPERATING BASIS:
Return on average managed assets... 1.73 1.07 1.30 61.7 33.1
Efficiency ratio................... 43.59 42.18 40.75 3.3 7.0
Risk adjusted revenue.............. 8.17 7.32 7.06 11.6 15.7
======== ======== ======== ====== =====
---------------
(1) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information and
"Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
(2) % Columns: comparison to average managed interest-earning assets,
annualized.
6
HSBC Finance Corporation
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CREDIT QUALITY/CREDIT LOSS RESERVES - MANAGED BASIS(1)
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY
AS A PERCENT OF MANAGED CONSUMER RECEIVABLES, EXCLUDES COMMERCIAL. 3/31/05 12/31/04 3/31/04
------------------------------------------------------------------------------------------------
Real estate secured............................................ 2.64% 2.97% 3.89%
Auto finance................................................... 2.26 2.96 2.63
MasterCard/Visa................................................ 3.97 3.98 4.35
Private label.................................................. 4.71 4.13 4.98
Personal non-credit card....................................... 9.16 9.30 10.36
---- ---- -----
TOTAL.......................................................... 3.93% 4.24% 5.06%
==== ==== =====
QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES
AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 3/31/05 12/31/04 3/31/04
--------------------------------------------------------------------------------------------------------------------
Real estate secured...................................................... .87% 1.04% 1.15%
Auto finance............................................................. 5.82 4.47 7.81
MasterCard/Visa(2)....................................................... 6.56 7.54 7.08
Private label(2)......................................................... 4.18 9.22 5.06
Personal non-credit card................................................. 8.54 8.55 11.21
---- ---- -----
TOTAL.................................................................... 3.65% 4.61% 4.88%
==== ==== =====
Real estate charge-offs and REO expense as a percent of average managed real estate
secured receivables.................................................... 1.01% 1.17% 1.63%
==== ==== =====
CREDIT LOSS RESERVES
3/31/05 12/31/04 3/31/04
------------------------------------------------------------------------------------------
(IN MILLIONS)
Reserves for managed receivables at beginning of quarter.... $ 4,515 $ 5,199 $ 6,167
Provision for credit losses................................. 871 1,305 1,181
Charge-offs, net of recoveries.............................. (1,118) (1,502) (1,442)
Other, net.................................................. (26) (487) 6
------- ------- -------
Reserves for managed receivables at end of quarter.......... $ 4,242 $ 4,515 $ 5,912
======= ======= =======
Reserves as a percent of managed receivables................ 3.43% 3.73% 5.01%
------- ------- -------
NONPERFORMING ASSETS
3/31/05 12/31/04 3/31/04
------------------------------------------------------------------------------------------
(IN MILLIONS)
Nonaccrual managed receivables.............................. $3,387 $3,558 $3,726
Accruing managed receivables 90 or more days delinquent..... 579 607 1,208
Renegotiated commercial loans............................... 1 2 2
------ ------ ------
Total nonperforming managed receivables..................... 3,967 4,167 4,936
Real estate owned........................................... 509 587 656
------ ------ ------
TOTAL NONPERFORMING ASSETS.................................. $4,476 $4,754 $5,592
====== ====== ======
Managed credit loss reserves as a percent of nonperforming
managed receivables....................................... 106.9% 108.4% 119.8%
------ ------ ------
---------------
(1) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information and
"Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
(2) The adoption of charge-off policies in accordance with the Uniform Retail
Credit Classification and Account Management Policy issued by the Federal
Financial Institutions Examination Council for our domestic private label
and our MasterCard and Visa portfolios in December 2004 increased private
label net charge-offs by $197 million (442 basis points), MasterCard/Visa
net charge-offs by $5 million (10 basis points) and total consumer net
charge-offs by $202 million (62 basis points) during the quarter ended
December 31, 2004.
7
HSBC Finance Corporation
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RECONCILIATION TO GAAP FINANCIAL MEASURES
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
THREE MONTHS ENDED 3/31/05 THREE MONTHS ENDED 12/31/04
----------------------------------- -----------------------------------
SERVICED WITH SERVICED WITH
LIMITED LIMITED
OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED
----------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest
income........................ $ 2,950 $ 441 $ 3,391 $ 3,001 $ 600 $ 3,601
Interest expense............... 1,062 109 1,171 918 132 1,050
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME............ 1,888 332 2,220 2,083 468 2,551
Provision for credit losses.... 841 30 871 1,286 19 1,305
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES... $ 1,047 $ 302 $ 1,349 $ 797 $ 449 $ 1,246
======== ======= ======== ======== ======= ========
Other revenues:
Securitization revenue........ $ 85 $ (393) $ (308) $ 127 $ (604) $ (477)
Insurance revenue............. 221 - 221 221 - 221
Investment income............. 33 - 33 30 - 30
Fee income.................... 306 91 397 282 155 437
Derivative income............. 260 - 260 263 - 263
Taxpayer financial services
income...................... 243 - 243 8 - 8
Other income.................. 314 - 314 164 - 164
Gain on bulk sale of private
label receivables........... - - - 663 - 663
-------- ------- -------- -------- ------- --------
TOTAL OTHER REVENUES........... $ 1,462 $ (302) $ 1,160 $ 1,758 $ (449) $ 1,309
======== ======= ======== ======== ======= ========
Average receivables:
Real estate secured........... $ 66,485 $ 77 $66,562 $ 61,445 $ 98 $61,543
Auto finance.................. 7,779 2,463 10,242 7,191 2,861 10,052
MasterCard/Visa............... 15,079 6,849 21,928 13,009 8,212 21,221
Private label................. 3,227 - 3,227 14,349 3,509 17,858
Personal non-credit card...... 16,332 3,495 19,827 15,671 3,922 19,593
Commercial and other.......... 306 - 306 321 - 321
Purchase accounting fair value
adjustments................. 184 - 184 243 - 243
-------- ------- -------- -------- ------- --------
Average receivables............ $109,392 $12,884 $122,276 $112,229 $18,602 $130,831
Average noninsurance
investments................... 2,927 - 2,927 3,889 - 3,889
Other interest-earning
assets........................ 666 - 666 660 - 660
-------- ------- -------- -------- ------- --------
Average interest-earning
assets........................ $112,985 $12,884 $125,869 $116,778 $18,602 $135,380
======== ======= ======== ======== ======= ========
Net interest income as a
percentage of average
interest-earning assets....... 6.68% 10.31% 7.06% 7.13% 10.06% 7.54%
======== ======= ======== ======== ======= ========
THREE MONTHS ENDED 3/31/04
----------------------------------
SERVICED WITH
LIMITED
OWNED RECOURSE(1) MANAGED
------------------------------- ----------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest
income........................ $ 2,528 $ 889 $ 3,417
Interest expense............... 708 135 843
------- ------- --------
NET INTEREST INCOME............ 1,820 754 2,574
Provision for credit losses.... 928 253 1,181
------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES... $ 892 $ 501 $ 1,393
======= ======= ========
Other revenues:
Securitization revenue........ $ 348 $ (698) $ (350)
Insurance revenue............. 211 - 211
Investment income............. 41 - 41
Fee income.................... 265 197 462
Derivative income............. 52 - 52
Taxpayer financial services
income...................... 206 - 206
Other income.................. 100 - 100
Gain on bulk sale of private
label receivables........... - - -
------- ------- --------
TOTAL OTHER REVENUES........... $ 1,223 $ (501) $ 722
======= ======= ========
Average receivables:
Real estate secured........... $51,976 $ 189 $ 52,165
Auto finance.................. 4,511 4,391 8,902
MasterCard/Visa............... 11,129 9,694 20,823
Private label................. 12,209 5,262 17,471
Personal non-credit card...... 13,115 5,742 18,857
Commercial and other.......... 391 - 391
Purchase accounting fair value
adjustments................. 391 - 391
------- ------- --------
Average receivables............ $93,722 $25,278 $119,000
Average noninsurance
investments................... 5,313 - 5,313
Other interest-earning
assets........................ 641 - 641
------- ------- --------
Average interest-earning
assets........................ $99,676 $25,278 $124,954
======= ======= ========
Net interest income as a
percentage of average
interest-earning assets....... 7.30% 11.93% 8.24%
======= ======= ========
---------------
(1) When reporting on a managed basis, finance and other interest income,
interest expense, provision for credit losses and fee income related to
securitized receivables are reclassified from securitization revenue in our
owned statements of income into the appropriate caption.
8
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
SELECTED FINANCIAL RATIOS
THREE MONTHS ENDED
--------------------------------
3/31/05 12/31/04 3/31/04
---------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
RETURN ON AVERAGE COMMON SHAREHOLDER'S EQUITY:
Net income................................................. $ 626 $ 712 $ 470
Dividends on preferred stock............................. (18) (18) (18)
-------- -------- --------
Net income available to common shareholders................ $ 608 $ 694 $ 452
Gain on bulk sale of private label receivables,
after-tax................................................ - (423) -
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios, after-tax...... - 121 -
-------- -------- --------
Operating net income available to common shareholders...... $ 608 $ 392 $ 452
-------- -------- --------
Average common shareholder's equity........................ $ 16,170 $ 16,838 $ 16,645
-------- -------- --------
Return on average common shareholder's equity.............. 15.04% 16.49% 10.86%
Return on average common shareholder's equity, operating
basis.................................................... 15.04 9.31 10.86
======== ======== ========
RETURN ON AVERAGE ASSETS:
Net income................................................. $ 626 $ 712 $ 470
Operating net income....................................... 626 410 470
-------- -------- --------
Average assets:
Owned basis.............................................. $131,954 $134,316 $119,388
Serviced with limited recourse........................... 12,884 18,602 25,278
-------- -------- --------
Managed basis............................................ $144,838 $152,918 $144,666
-------- -------- --------
Return on average owned assets............................. 1.90% 2.12% 1.57%
Return on average owned assets, operating basis............ 1.90 1.22 1.57
Return on average managed assets........................... 1.73 1.87 1.30
Return on average managed assets, operating basis.......... 1.73 1.07 1.30
======== ======== ========
9
HSBC Finance Corporation
--------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------
3/31/05 12/31/04 3/31/04
---------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
EFFICIENCY RATIO:
Total costs and expenses less policyholders' benefits...... $ 1,420 $ 1,349 $ 1,297
-------- -------- --------
Net interest income and other revenues less policyholders'
benefits:
Owned basis.............................................. $ 3,228 $ 3,728 $ 2,930
Serviced with limited recourse........................... 30 19 253
-------- -------- --------
Managed basis............................................ $ 3,258 $ 3,747 $ 3,183
-------- -------- --------
Gain on bulk sale of private label receivables............. $ - $ 663 $ -
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios:
Owned basis.............................................. - 151 -
Managed basis............................................ - 107 -
Net interest income and other revenues less policyholders'
benefits, excluding nonrecurring items:
Owned basis.............................................. $ 3,228 $ 3,216 $ 2,930
Serviced with limited recourse........................... 30 (25) 253
-------- -------- --------
Managed basis............................................ $ 3,258 $ 3,191 $ 3,183
-------- -------- --------
Owned basis efficiency ratio............................... 43.99% 36.14% 44.27%
Owned basis efficiency ratio, operating basis.............. 43.99 41.95 44.27
Managed basis efficiency ratio............................. 43.59 36.00 40.75
Managed basis efficiency ratio, operating basis............ 43.59 42.24 40.75
======== ======== ========
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income........................................ $ 2,220 $ 2,551 $ 2,574
Other revenues, excluding securitization revenue........... 1,468 1,786 1,072
Less: Net charge-offs...................................... (1,118) (1,502) (1,442)
-------- -------- --------
Risk adjusted revenue...................................... $ 2,570 $ 2,835 $ 2,204
Gain on bulk sale of private label receivables........... - (663) -
Adoption of FFIEC charge-off policies for domestic
private label and MasterCard and Visa portfolios...... - 309 -
-------- -------- --------
Risk adjusted revenue, excluding nonrecurring items........ 2,570 2,481 2,204
-------- -------- --------
Average interest-earning assets............................ $125,869 $135,380 $124,954
-------- -------- --------
Managed basis risk adjusted revenue........................ 8.17% 8.37% 7.06%
Managed basis risk adjusted revenue, operating basis....... 8.17 7.32 7.06
======== ======== ========
10
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES
TWO-MONTHS-AND-OVER QUARTER-TO-DATE CHARGE-OFFS,
CONTRACTUAL DELINQUENCY NET OF RECOVERIES
------------------------------------------ ------------------------------------------
TWO-MONTHS- TWO-MONTHS-
AND-OVER CONSUMER AND-OVER AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-OFFS RECEIVABLES CHARGE-OFFS(1)
------------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
MARCH 31, 2005
OWNED:
First mortgage............... $ 1 $ 26 5.25% $ - $ 26 1.22%
Real estate secured.......... 1,797 68,486 2.62 144 66,485 .87
Auto finance................. 134 8,107 1.65 74 7,779 3.80
MasterCard/Visa.............. 716 15,554 4.60 270 15,079 7.17
Private label................ 148 3,130 4.71 34 3,227 4.18
Personal non-credit card..... 1,433 16,608 8.63 334 16,332 8.18
------ -------- ----- ------ -------- -----
Total........................ $4,229 $111,911 3.78% $ 856 $108,928 3.15%
====== ======== ===== ====== ======== =====
SERVICED WITH LIMITED
RECOURSE:
Real estate secured.......... $ 10 $ 73 13.70% $ 1 $ 77 5.19%
Auto finance................. 98 2,175 4.51 75 2,463 12.18
MasterCard/Visa.............. 146 6,140 2.38 90 6,849 5.26
Personal non-credit card..... 372 3,098 12.01 89 3,495 10.19
------ -------- ----- ------ -------- -----
Total........................ $ 626 $ 11,486 5.45% $ 255 $ 12,884 7.92%
====== ======== ===== ====== ======== =====
MANAGED:
First mortgage............... $ 1 $ 26 5.25% $ - $ 26 1.22%
Real estate secured.......... 1,807 68,559 2.64 145 66,562 .87
Auto finance................. 232 10,282 2.26 149 10,242 5.82
MasterCard/Visa.............. 862 21,694 3.97 360 21,928 6.56
Private label................ 148 3,130 4.71 34 3,227 4.18
Personal non-credit card..... 1,805 19,706 9.16 423 19,827 8.54
------ -------- ----- ------ -------- -----
Total........................ $4,855 $123,397 3.93% $1,111 $121,812 3.65%
====== ======== ===== ====== ======== =====
DECEMBER 31, 2004
OWNED:
First mortgage............... $ 1 $ 26 5.04% $ - $ 26 -%
Real estate secured.......... 1,920 64,820 2.96 159 61,445 1.04
Auto finance................. 156 7,544 2.07 49 7,191 2.73
MasterCard/Visa.............. 714 14,635 4.88 275 13,009 8.44
Private label................ 141 3,411 4.13 328 14,349 9.16
Personal non-credit card..... 1,401 16,128 8.69 316 15,671 8.06
------ -------- ----- ------ -------- -----
Total........................ $4,333 $106,564 4.07% $1,127 $111,691 4.04%
====== ======== ===== ====== ======== =====
SERVICED WITH LIMITED
RECOURSE:
Real estate secured.......... $ 10 $ 81 12.35% $ 1 $ 98 4.08%
Auto finance................. 147 2,679 5.49 63 2,861 8.81
MasterCard/Visa.............. 170 7,583 2.24 125 8,212 6.09
Private label................ - - - 83 3,509 9.46
Personal non-credit card..... 461 3,882 11.88 103 3,921 10.51
------ -------- ----- ------ -------- -----
Total........................ $ 788 $ 14,225 5.54% $ 375 $ 18,601 8.06%
====== ======== ===== ====== ======== =====
MANAGED:
First mortgage............... $ 1 $ 26 5.04% $ - $ 26 -%
Real estate secured.......... 1,930 64,901 2.97 160 61,543 1.04
Auto finance................. 303 10,223 2.96 112 10,052 4.47
MasterCard/Visa.............. 884 22,218 3.98 400 21,221 7.54
Private label................ 141 3,411 4.13 411 17,858 9.22
Personal non-credit card..... 1,862 20,010 9.30 419 19,592 8.55
------ -------- ----- ------ -------- -----
Total........................ $5,121 $120,789 4.24% $1,502 $130,292 4.61%
====== ======== ===== ====== ======== =====
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
11
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED)
QUARTER-TO-DATE CHARGE-OFFS,
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY NET OF RECOVERIES
-------------------------------------------- ------------------------------------------
TWO-MONTHS- TWO-MONTHS-
AND-OVER CONSUMER AND-OVER AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-OFFS RECEIVABLES CHARGE-OFFS(1)
-----------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
MARCH 31, 2004
OWNED:
First mortgage...... $ 2 $ 32 7.00% $ 1 $ 34 5.10%
Real estate
secured.......... 2,031 52,440 3.87 149 51,976 1.15
Auto finance........ 83 4,936 1.68 52 4,511 4.65
MasterCard/Visa..... 637 10,788 5.90 241 11,129 8.66
Private label....... 632 11,759 5.38 161 12,209 5.29
Personal non-credit
card............. 1,286 13,344 9.64 366 13,115 11.17
------ -------- ------ ------ -------- ------
Total............... $4,671 $ 93,299 5.01% $ 970 $ 92,974 4.17%
====== ======== ====== ====== ======== ======
SERVICED WITH
LIMITED RECOURSE:
Real estate
secured.......... $ 18 $ 182 10.05% $ 1 $ 189 1.06%
Auto finance........ 155 4,093 3.79 122 4,391 11.07
MasterCard/Visa..... 246 9,536 2.59 127 9,694 5.27
Private label....... 216 5,261 4.09 60 5,262 4.53
Personal non-credit
card............. 645 5,285 12.20 162 5,742 11.30
------ -------- ------ ------ -------- ------
Total............... $1,280 $ 24,357 5.26% $ 472 $ 25,278 7.46%
====== ======== ====== ====== ======== ======
MANAGED:
First mortgage...... $ 2 $ 32 7.00% $ 1 $ 34 5.10%
Real estate
secured.......... 2,049 52,622 3.89 150 52,165 1.15
Auto finance........ 238 9,029 2.63 174 8,902 7.81
MasterCard/Visa..... 883 20,324 4.35 368 20,823 7.08
Private label....... 848 17,020 4.98 221 17,471 5.06
Personal non-credit
card............. 1,931 18,629 10.36 528 18,857 11.21
------ -------- ------ ------ -------- ------
Total............... $5,951 $117,656 5.06% $1,442 $118,252 4.88%
====== ======== ====== ====== ======== ======
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
12
HSBC Finance Corporation
--------------------------------------------------------------------------------
SERVICED WITH
OWNED LIMITED RECOURSE MANAGED
-------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
REAL ESTATE CHARGE-OFFS AND REO EXPENSE:
THREE MONTHS ENDED MARCH 31, 2005
Real estate charge-offs and REO expense.................... $ 168 $ 1 $ 169
Average real estate secured receivables.................... 66,485 77 66,562
------- ---- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)............... 1.01% - 1.01%
======= ==== =======
THREE MONTHS ENDED DECEMBER 31, 2004
Real estate charge-offs and REO expense.................... $ 179 $ 1 $ 180
Average real estate secured receivables.................... 61,445 98 61,543
------- ---- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)............... 1.17% - 1.17%
======= ==== =======
THREE MONTHS ENDED MARCH 31, 2004
Real estate charge-offs and REO expense.................... $ 212 $ 1 $ 213
------- ---- -------
Average real estate secured receivables.................... 51,976 189 52,165
------- ---- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)............... 1.63% - 1.63%
======= ==== =======
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
13
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED)
SERVICED WITH
OWNED LIMITED RECOURSE MANAGED
----------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
CREDIT LOSS RESERVES:
THREE MONTHS ENDED MARCH 31, 2005
Reserves for receivables at beginning of quarter............ $ 3,625 $ 890 $ 4,515
Provision for credit losses................................. 841 30 871
Charge-offs, net of recoveries.............................. (863) (255) (1,118)
Other, net.................................................. (22) (4) (26)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,581 $ 661 $ 4,242
======== ======= ========
Receivables................................................. $112,161 $11,486 $123,647
Credit loss reserves as a percent of receivables............ 3.19% 5.75% 3.43%
-------- ------- --------
THREE MONTHS ENDED DECEMBER 31, 2004
Reserves for receivables at beginning of quarter............ $ 3,953 $ 1,246 $ 5,199
Provision for credit losses................................. 1,286 19 1,305
Charge-offs, net of recoveries.............................. (1,127) (375) (1,502)
Other, net.................................................. (487) - (487)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,625 $ 890 $ 4,515
======== ======= ========
Receivables................................................. $106,855 $14,225 $121,080
Credit loss reserves as a percent of receivables............ 3.39% 6.26% 3.73%
-------- ------- --------
THREE MONTHS ENDED MARCH 31, 2004
Reserves for receivables at beginning of quarter............ $ 3,793 $ 2,374 $ 6,167
Provision for credit losses................................. 928 253 1,181
Charge-offs, net of recoveries.............................. (970) (472) (1,442)
Other, net.................................................. 2 4 6
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,753 $ 2,159 $ 5,912
======== ======= ========
Receivables................................................. $ 93,650 $24,357 $118,007
Credit loss reserves as a percent of receivables............ 4.01% 8.86% 5.01%
-------- ------- --------
NONPERFORMING ASSETS:
MARCH 31, 2005
Nonaccrual receivables...................................... $ 2,956 $ 431 $ 3,387
Accruing receivables 90 or more days delinquent............. 499 80 579
Renegotiated commercial loans............................... 1 - 1
-------- ------- --------
Total nonperforming receivables............................. 3,456 511 3,967
Real estate owned........................................... 509 - 509
-------- ------- --------
Total nonperforming assets.................................. $ 3,965 $ 511 $ 4,476
======== ======= ========
Credit loss reserves as a percent of nonperforming
receivables............................................... 103.6% - 106.9%
-------- ------- --------
DECEMBER 31, 2004
Nonaccrual receivables...................................... $ 3,012 $ 546 $ 3,558
Accruing receivables 90 or more days delinquent............. 507 100 607
Renegotiated commercial loans............................... 2 - 2
-------- ------- --------
Total nonperforming receivables............................. 3,521 646 4,167
Real estate owned........................................... 587 - 587
-------- ------- --------
Total nonperforming assets.................................. $ 4,108 $ 646 $ 4,754
======== ======= ========
Credit loss reserves as a percent of nonperforming
receivables............................................... 103.0% - 108.4%
-------- ------- --------
MARCH 31, 2004
Nonaccrual receivables...................................... $ 3,003 $ 723 $ 3,726
Accruing receivables 90 or more days delinquent............. 876 332 1,208
Renegotiated commercial loans............................... 2 - 2
-------- ------- --------
Total nonperforming receivables............................. 3,881 1,055 4,936
Real estate owned........................................... 656 - 656
-------- ------- --------
Total nonperforming assets.................................. $ 4,537 $ 1,055 $ 5,592
======== ======= ========
Credit loss reserves as a percent of nonperforming
receivables............................................... 96.7% - 119.8%
-------- ------- --------
14
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