HSBC USA Q3 8-K
HSBC Holdings PLC
14 November 2005
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
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PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: NOVEMBER 14, 2005
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COMMISSION FILE NUMBER 1-7436
HSBC USA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2764867
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
452 FIFTH AVENUE, NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 525-3735
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 7.01. REGULATION FD DISCLOSURE
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Financial supplement pertaining to the financial results of HSBC Finance
Corporation and HSBC USA Inc. for the quarter and nine months ended September
30, 2005. The information included in the financial supplement with respect to
HSBC Finance Corporation and HSBC USA Inc. on a combined basis is presented on
an International Financial Reporting Standards ("IFRS") basis. The information
included in the financial supplement with respect to HSBC Finance Corporation is
presented on a management basis and an IFRS management basis. IFRS basis is a
non-GAAP financial measure that represents U.S. GAAP as adjusted in accordance
with IFRS. Management basis is a non-GAAP financial measure derived from U.S.
GAAP reported results that eliminates, among other things, mortgage and private
label receivable transfers to HSBC Bank USA, N.A., an affiliate of HSBC Finance
Corporation, and related intercompany activities, as well as the intercompany
fees paid to HSBC Bank USA, N.A. as the originating lender for HSBC Finance
Corporation's income tax refund anticipation loan program, and assumes that
securitized receivables have not been sold and remain on our balance sheet. IFRS
management basis is a non-GAAP financial measure that represents management
basis as adjusted in accordance with IFRS.
This information shall not be deemed to be "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 Financial supplement.
2
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 USA INC.
(Registrant)
By: /s/ Joseph R. Simpson
------------------------------------
Joseph R. Simpson
Chief Accounting Officer
Dated: November 14, 2005
(LARGE HSBC LOGO)
HSBC Finance Corporation
and
HSBC USA Inc.
Supplement to the Forms 10-Q for the period ended September 30, 2005
November, 2005
Forward Looking Statements
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THIS DOCUMENT, AND SUBSEQUENT DISCUSSION, CONTAINS CERTAIN FORWARD-LOOKING
INFORMATION WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND BUSINESS OF HSBC HOLDINGS PLC, HSBC FINANCE CORPORATION, HSBC USA INC.
AND HSBC NORTH AMERICA HOLDINGS INC. THIS INFORMATION REPRESENTS
EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS AND IS SUBJECT TO UNKNOWN
RISKS AND UNCERTAINTIES. THIS INFORMATION SPEAKS ONLY AS OF THE DATE ON
WHICH IT IS PROVIDED. ADDITIONAL DETAILED INFORMATION CONCERNING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY IS AVAILABLE
IN THE HSBC HOLDINGS PLC ANNUAL REPORT, HSBC FINANCE CORPORATION ANNUAL
REPORT ON FORM 10-K, AND HSBC USA INC. ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2004. PLEASE FURTHER BE ADVISED THAT REGULATION FD
PROHIBITS HSBC REPRESENTATIVES FROM ANSWERING CERTAIN, SPECIFIC QUESTIONS
DURING THE Q&A SESSION.
(SMALL HSBC LOGO)
2
Basis of Reporting
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o INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSS") Prior to January 1,
2005, HSBC Holdings plc ("HSBC") reported results on a U.K. GAAP basis.
The European Union has determined that all European listed companies will
be required to prepare their consolidated financial statements using IFRSs
by 2005. As a result, HSBC began reporting its financial results under
IFRSs rather than U.K. GAAP with its release of interim financial results
for the six months ended June 30, 2005.
o HSBC FINANCE CORPORATION - MANAGED BASIS (a non-GAAP financial measure)
assumes that securitized customer loans have not been sold and remain on
our balance sheet.
o HSBC FINANCE CORPORATION - MANAGEMENT BASIS In addition to managed basis
reporting, we also monitor our operations and evaluate trends on a
Management basis (a non-GAAP financial measure). Management basis
reporting, in addition to the managed basis adjustments, assumes that the
Mortgages and Private Label customer loans transferred to HSBC's U.S.
banking subsidiary, HSBC Bank USA, N.A. ("HSBC Bank USA"), have not been
sold and remain on the balance sheet, and that the funding facility with
HSBC Bank USA as the originating lender for our taxpayer refund
anticipation loan program is not in place. We also monitor our operations
and evaluate trends on a management basis because the customer loan sales
to HSBC Bank USA were conducted primarily to more appropriately fund prime
customer loans within the HSBC Group and such customer loans continue to
be managed and serviced by
(SMALL HSBC LOGO)
3
Basis of Reporting - continued
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o MANAGEMENT BASIS - CONTINUED
us without regard to ownership. Furthermore, we also review operating
results and make decisions about allocating resources such as employees on
a management basis. When reporting on a management basis, net interest
income, fee income and loan impairment charges are adjusted to include the
activity associated with these customer loans transferred to HSBC Bank
USA. Gains on sales and the related servicing fees are eliminated along
with the funding facility fees paid to HSBC Bank USA. We believe that
management basis information enables readers, investors and other
interested parties to better understand the overall performance and
related trends of our consumer finance business.
o HSBC FINANCE CORPORATION - IFRS MANAGEMENT BASIS (a non-GAAP financial
measure) represents Management Basis plus IFRS adjustments.
o HSBC USA INC. - IFRS represents HSBC USA Inc. U.S. GAAP results plus IFRS
adjustments.
o INTERNATIONAL ACCOUNTING STANDARDS ("IAS") LITE MANAGEMENT BASIS excludes
application of: IAS 32, "Financial Instruments: Disclosure and
Presentation;" IAS 39, "Financial Instruments: Recognition and
Measurement;" and IFRS 4, "Insurance Contracts."
(SMALL HSBC LOGO)
4
HSBC Finance Corporation and HSBC USA Inc.
Third Quarter 2005 Highlights - IFRS (A Non-GAAP Measure)
--------------------------------------------------------------------------------
- Strong underlying business performance supported by good credit
experience, customer loan growth and expense trends
- Impacts of Hurricane Katrina ("Katrina") resulted in $206 million
(before tax) of incremental loan impairment charges and $11 million
(before tax) of foregone operating income in the quarter
- Expect higher bankruptcy loan impairment charges in the region of
$200 million (before tax) in the fourth quarter due to U.S.
bankruptcy legislation, substantially covered by existing allowances
- Excluding impacts of Katrina, but including additional loan
impairment charges for bankruptcy, combined profit for the period
for HSBC Finance Corporation and HSBC USA Inc. increased 10%
compared to Q3 04 and 4% on a year-to-date basis
(SMALL HSBC LOGO)
5
HSBC Finance Corporation and HSBC USA Inc.
Profit For the Period - IFRS (A Non-GAAP Measure)
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(MILLIONS $)
----------------------
Q3 05 Q3 04
IFRS IAS Lite
----------------------
Profit for the Period:
HSBC Finance Corporation $ 388 $ 517
HSBC USA Inc. 228 337
-------- --------
Sub-total 616 854
Profit for the Period related to transferred assets (1) 72 (99)
-------- --------
Combined Profit for the Period 688 755
Katrina impact, net of Tax Expense 139 --
-------- --------
Combined Profit for the Period, adjusted $ 827 $ 755
======== ========
(1) Primarily relates to eliminations of affiliated transactions from the
transfer of assets between HSBC Finance Corporation and HSBC USA Inc.
(SMALL HSBC LOGO)
6
HSBC Finance Corporation and HSBC USA Inc.
Profit for the Period - IFRS (A Non-GAAP Measure)
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(MILLIONS $)
Nine months ended September 30,
-------------------------------
2005 2004
IFRS IAS Lite
-------------------------------
Profit for the Period:
HSBC Finance Corporation $ 1,794 $ 1,918
HSBC USA Inc. 724 967
-------- --------
Sub-total 2,518 2,885
Profit for the Period related to transferred assets (1) 233 (105)
-------- --------
Combined Profit for the Period 2,751 2,780
Katrina impact, net of Tax Expense 139 --
-------- --------
Combined Profit for the Period, adjusted $ 2,890 $ 2,780
======== ========
(1) Primarily relates to eliminations of affiliated transactions from the
transfer of assets between HSBC Finance Corporation and HSBC USA Inc.
(SMALL HSBC LOGO)
7
HSBC FINANCE CORPORATION AND HSBC USA INC.
THIRD QUARTER 2005 KATRINA IMPACTS - IFRS (A NON-GAAP MEASURE)
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(MILLIONS $)
------------------------------------------
Loan Foregone
Impairment Operating Total
Charges Income Pre-tax
------------------------------------------
Consumer $ 125 $ -- $ 125
Cards 55 7 62
---------- ---------- ----------
HSBC Finance Corporation 180 7 187
HSBC USA Inc. 26 4 30
---------- ---------- ----------
Total Katrina Impact $ 206 $ 11 $ 217
========== ========== ==========
o Exposure
- $1.8 billion of managed customer loans
- $1.1 billion secured by Real Estate
o Estimates of loan impairment charges will be refined as more information
becomes available
(SMALL HSBC LOGO)
8
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HSBC Finance Corporation
(SMALL HSBC LOGO)
9
HSBC Finance Corporation -Third Quarter 2005 Highlights
IFRS Management Basis (A Non-GAAP Measure)
--------------------------------------------------------------------------------
o Strong underlying business performance
o Expect higher bankruptcy loan impairment charges in the region of $200
million (before tax) in the fourth quarter due to U.S. bankruptcy
legislation, substantially covered by existing allowances
o Adjusting for Katrina, but including additional loan impairment charges
for bankruptcy, profit for the period increased 3% from Q3 04 and 6%
year-to-date
o Customer loan growth of 19% year-over-year, with good organic growth
o NIM (Net Interest Margin) compression consistent with the current market
environment
o Higher RAR (Risk Adjusted Revenue) driven by credit quality improvements
and increased fee generation
o Improved underlying credit results driven by stronger analytics, improved
collections, portfolio mix and a favorable economy
- Charge-offs down 100 bps compared to Q3 04
- 2+ delinquency down 80 bps from September 30, 2004
o Improving expense trends
(SMALL HSBC LOGO)
10
HSBC Finance Corporation
IFRS Management Basis (A Non-GAAP Measure)
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(MILLIONS $)
-----------------------
Q3 05 Q3 04
IFRS IAS Lite
-----------------------
Net Interest Income $ 2,973 $ 2,839
Other Operating Income 614 692
-------- --------
Total Operating Income 3,587 3,531
Loan Impairment Charges 1,430 1,392
Loan Impairment Charges, Katrina related 205 --
Operating Expenses 1,295 1,290
-------- --------
Profit Before Tax 657 849
Tax Expense 233 306
-------- --------
Profit for the Period 424 543
Katrina impact, net of Tax Expense 138 --
-------- --------
Adjusted Profit for the Period $ 562 $ 543
======== ========
Cost Efficiency Ratio 36.1% 36.5%
Expenses/Average Customer Loans 3.4% 4.0%
(SMALL HSBC LOGO)
11
HSBC Finance Corporation
IFRS Management Basis (A Non-GAAP Measure)
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(MILLIONS $)
Nine months ended September 30,
-------------------------------
2005 2004
IFRS IAS Lite
-----------------------
Net Interest Income $ 8,807 $ 8,481
Other Operating Income 2,047 2,102
-------- --------
Total Operating Income 10,854 10,583
Loan Impairment Charges 3,751 3,890
Loan Impairment Charges, Katrina related 205 --
Operating Expenses 3,922 3,718
-------- --------
Profit Before Tax 2,976 2,975
Tax Expense 1,008 995
-------- --------
Profit for the Period 1,968 1,980
Katrina impact, net of Tax Expense 138 --
-------- --------
Adjusted Profit for the Period $ 2,106 $ 1,980
======== ========
Cost Efficiency Ratio 36.1% 35.1%
Expenses/Average Customer Loans 3.6% 4.0%
(SMALL HSBC LOGO)
12
HSBC Finance Corporation
Key Ratios - Management Basis (A Non-GAAP Measure)(1)
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Q3 04 Q4 04(2) Q1 05 Q2 05 Q3 05
----- -------- ----- ----- -----
NIM 7.75% 7.57% 7.13% 7.10% 6.90%
RAR(3) 6.40% 6.52% 6.71% 6.51% 6.60%
ROMA(3) 0.84% 0.74% 1.32% 1.14% 0.80%
(1) Derived from U. S. GAAP reported results and adjusted to management basis
as further described on pages 3 and 4.
(2) Excludes impact of initial FFIEC implementation.
(3) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS
133. Q3 05 ROMA includes the impact of Katrina $138 million net of tax
expense).
(SMALL HSBC LOGO)
13
HSBC Finance Corporation
Credit Quality - Management Basis (A Non-GAAP Measure)(1)
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(LINE GRAPH)
Q3 04 Q4 04 Q1 05 Q2 05 Q3 05
----- ----- ----- ----- -----
Charge-Offs(2) 4.23% 3.84% 3.56% 3.25% 3.20%
RAR(3) 6.40% 6.52% 6.71% 6.51% 6.60%
2+ Delinquency 4.44% 3.95% 3.68% 3.59% 3.60%
(1) Derived from U.S. GAAP reported results and adjusted to management basis
as further described on pages 3 and 4.
(2) Q4 04 excludes impact of initial FFIEC implementation.
(3) Excludes mark-to-market on derivatives which do not qualify as effective
hedges and ineffectiveness associated with qualifying hedges under SFAS
133.
(SMALL HSBC LOGO)
14
HSBC Finance Corporation
IFRS Management Basis (A Non-GAAP Measure)
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Customer Loans
(MILLIONS $)
Sept 05 Increase/(Decrease)
---------------------------
%
---------------------------
Sept 05 June 05 Sept 04 June 05 Sept 04
------------------------------------ ---------------------------
Branch Real Estate $ 40,345 $ 39,081 $ 34,462 3% 17%
Correspondent Real Estate 42,774 38,049 29,484 12% 45%
-------- -------- -------- --------- ----------
Real Estate Secured 83,119 77,130 63,946 8% 30%
MasterCard/Visa (1) 22,605 22,192 20,520 2% 10%
Private Label 18,706 18,014 17,959 4% 4%
Auto Finance 11,628 10,838 9,904 7% 17%
Personal Non-credit Card 20,261 19,756 18,595 3% 9%
Commercial and Other 41 72 142 (43)% (71)%
-------- -------- -------- --------- ----------
Total Customer Loans $156,360 $148,002 $131,066 6% 19%
======== ======== ======== ========= ==========
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
(SMALL HSBC LOGO)
15
HSBC Finance Corporation
Third Quarter 2005 - Business Unit Highlights
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RETAIL BRANCH CHANNEL
(HFC/BENEFICIAL)
o Good growth in Real Estate Secured products, up 17% year-over-year
- Includes both near-prime and subprime segments
o Continued focus on junior liens and cross selling
o More granular pricing based on segmentation and risk
o Solid growth in unsecured loans, driven by successful direct mail
campaigns
CORRESPONDENT/
WHOLESALE CHANNEL
o Continued strong Real Estate Secured volumes; portfolio up 45%
year-over-year
o Expanded junior lien portfolio
o Expanded distribution through diversifying flow originators
o Enhanced market pricing segmentation
o Continued improvement in origination expense ratio
(SMALL HSBC LOGO)
16
HSBC Finance Corporation
Third Quarter 2005 - Business Unit Highlights
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CREDIT CARD
o Excellent quarter with strong profits, solid organic loan growth and good
operating income growth
o Expanded net interest margin by growing non-prime book and repricing
efforts
o Strong growth in fee and other operating income due to growing portfolio
and higher interchange
o Underlying credit quality good
o Risk adjusted revenue up sharply
o Continued focus on non-prime card sectors
o Pending Metris acquisition on track for a fourth quarter close
PRIVATE LABEL
o Signed two additional department store merchants, Neiman Marcus and Bon
Ton stores
o Growing commercial card capability including Office Max and Advanced Auto
Parts
o Continued strong merchant renewals
o Overall credit quality strong based on continued improvements in front-end
underwriting tools and collections management
(SMALL HSBC LOGO)
17
HSBC Finance Corporation
Third Quarter 2005 - Business Unit Highlights
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AUTO
o Strong organic growth, principally in the near-prime portfolio
o Benefit of mix shift is evident in results
o Expanded distribution through direct channel
o Optimized collections and active portfolio management
INTERNATIONAL
CANADA
o Customer loan growth strong
- Branch network's strong growth led by secured and unsecured products
- Growth initiatives in auto business and credit cards off to a good
start
o Continued branch expansion
o Credit quality stable
UK
o In response to difficult environment, focused on credit and loss
mitigation
o In retail branch, increased usage of risk-based pricing and proprietary
analytics for risk management
o Credit cards continued focus on risk-based pricing and credit line
management
(SMALL HSBC LOGO)
18
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HSBC USA Inc.
(SMALL HSBC LOGO)
19
HSBC USA Inc. - Third Quarter 2005 Highlights
IFRS (A Non-GAAP Measure)
--------------------------------------------------------------------------------
o Good core loan and deposit growth over 2004
- Commercial loan growth of 20%
- Total deposit growth of 17%
o Overall credit quality remains strong
o Adjusting for Katrina and non-recurring items in Q3 04, profit for Q3 05
increased 4%
- Non-recurring items primarily relate to gain on affiliate sale and
third party asset sale
- 2005 results also impacted by private label purchase premium
amortization
o Cost efficiency ratio increased from a year ago largely due to
non-recurring items in 2004, effects of private label transfer and impacts
of Corporate, Investment Banking and Markets (CIBM)
(SMALL HSBC LOGO)
20
HSBC USA Inc.
IFRS (A Non-GAAP Measure)
--------------------------------------------------------------------------------
(MILLIONS $)
Q3 05 Q3 04
IFRS IAS Lite
-----------------------
Net Interest Income $ 766 $ 693
Other Operating Income 412 371
-------- --------
Total Operating Income 1,178 1,064
Loan Impairment Charges 186 17
Loan Impairment Charges, Katrina related 26 --
Operating Expenses 597 499
-------- --------
Profit Before Tax 369 548
Tax Expense 141 211
-------- --------
Profit for the Period 228 337
Katrina impact, net of Tax Expense 19 --
-------- --------
Adjusted Profit for the Period $ 247 $ 337
======== ========
Cost Efficiency Ratio 50.7% 46.9%
(SMALL HSBC LOGO)
21
HSBC USA Inc.
IFRS (A Non-GAAP Measure)
--------------------------------------------------------------------------------
(MILLIONS $)
Nine months ended September 30,
-------------------------------
2005 2004
IFRS IAS Lite
-------------------------------
Net Interest Income $ 2,347 $ 2,021
Other Operating Income 1,127 1,023
-------- --------
Total Operating Income 3,474 3,044
Loan Impairment Charges 497 (7)
Loan Impairment Charges, Katrina related 26 --
Operating Expenses 1,786 1,545
-------- --------
Profit Before Tax 1,165 1,506
Tax Expense 441 539
-------- --------
Profit for the Period 724 967
Katrina impact, net of Tax Expense 19 --
-------- --------
Adjusted Profit for the Period $ 743 $ 967
======== ========
Cost Efficiency Ratio 51.4% 50.8%
(SMALL HSBC LOGO)
22
HSBC USA Inc.
Third Quarter 2005 - Business Unit Highlights
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PERSONAL FINANCIAL SERVICES (PFS)
o Good core loan and deposit growth
o On-line savings product being launched
o Mortgage results improved on strong retail origination volumes and
increased value of servicing rights
o Expanded customer service initiatives and established new distribution
channels, including 12 branch openings year to date
o Introduced HSBC Premier Investor, a high yield branch-based deposit
product, which added over $1 billion since Q3 04
o Expanded in niche markets (Chinese market campaign and Embassy banking
business)
COMMERCIAL BANKING (CMB)
o Expansion of small business relationships added loans of $450 million and
deposits of $1.3 billion since Q3 04. Continue to be the #1 SBA lender in
New York state.
o Loan growth from new geographic markets (e.g. Los Angeles, San Francisco,
Boston, Miami and Philadelphia)
o Added commercial real estate relationship managers in West Coast and
downstate New York, which added loans of $1.0 billion and deposits of over
$450 million since Q3 04
(SMALL HSBC LOGO)
23
HSBC USA Inc.
Third Quarter 2005 - Business Unit Highlights
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PRIVATE BANKING (PB)
o Strong operating income growth from Q3 04 and improved balance sheet mix;
loan growth of 24%
o Increasing rates provided opportunity for deposit growth
o Restructured Latin America business and established a global market
management team to better serve clients
CORPORATE. INVESTMENT BANKING
AND MARKETS (CIBM)
o Interest rate and yield curve pressures significantly reduced Money Market
and Balance Sheet Management income. Other operating income, particularly
in areas where investment has been made, such as global markets trading,
improved.
o Business investment strategy remains on course supported by financial and
client results. Cost build out mostly completed as platforms are largely
in place and benefits realization phase ongoing.
o Improved overall liquidity from Global Transaction Banking deposit
gathering initiatives
o Successfully priced the first two MBS whole loan deals and the first
agency CMO deal
o Won integrated NAFTA Payments and Cash Management mandate for major
corporate client in Logistics sector, an industry first
(SMALL HSBC LOGO)
24
(LARGE HSBC LOGO)
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APPENDIX
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RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
THREE MONTHS ENDED 9/30/05 Three Months Ended 9/30/04
------------------------------------------ -------------------------------
-----------
IFRS IAS Lite
MANAGEMENT IFRS Management IAS Lite
OWNED BASIS MANAGEMENT Owned Basis Management
(DOLLARS ARE IN MILLIONS) BASIS ADJUSTMENTS BASIS Basis Adjustments Basis
----------- ----------- ----------- ----------- ----------- ---------
Net interest income $ 2,163 $ 810 $ 2,973 $ 1,969 $ 870 $ 2,839
Other operating income 1,102 (488) 614 1,040 (348) 692
----------- ----------- ----------- ----------- --------- ---------
TOTAL OPERATING INCOME $ 3,265 $ 322 $ 3,587 $ 3,009 $ 522 $ 3,531
=========== =========== =========== ============ ======== =========
Loan impairment charges 1,181 249 1,430 1,123 269 1,392
Loan impairment charges, Katrina related 180 25 205 -- -- --
Operating expenses 1,483 (188) 1,295 1,408 (118) 1,290
----------- ----------- ----------- ----------- --------- ---------
Profit before tax 421 236 657 478 371 849
Tax expense 140 93 233 153 153 306
----------- ----------- ----------- ----------- --------- ---------
PROFIT FOR THE PERIOD $ 281 $ 143 $ 424 $ 325 $ 218 $ 543
=========== =========== =========== =========== ======== =========
Katrina impact, net of tax expense -- 138 138 -- -- --
----------- ----------- ----------- ----------- --------- ---------
ADJUSTED PROFIT FOR THE PERIOD $ 281 $ 281 $ 562 $ 325 $ 218 $ 543
=========== =========== =========== =========== ========= =========
COST EFFICIENCY RATIO:
Total operating expenses $ 1,483 $ (188) $ 1,295 $ 1,408 $ (118) $ 1,290
Policyholders' benefits (109) 109 -- (93) 93 --
----------- ----------- ----------- ----------- --------- ---------
Total operating expenses, excluding
policyholders' benefits 1,374 (79) 1,295 1,315 (25) 1,290
----------- ----------- ----------- ----------- --------- --------
Net interest income and
other operating income 3,265 322 3,587 3,009 522 3,531
Policyholders' benefits (109) 109 -- (93) 93 --
----------- ----------- ----------- ----------- --------- --------
Net interest income and other
operating income, excluding
policyholders' benefits $ 3,156 $ 431 $ 3,587 $ 2,916 $ 615 $ 3,531
----------- ----------- ----------- ----------- --------- --------
COST EFFICIENCY RATIO 43.5% -- 36.1% 45.1% -- 36.5%
=========== =========== =========== =========== ========= =========
ADJUSTED PROFIT FOR THE PERIOD GROWTH:
Profit for the period $ 281 $ 281 $ 562 $ 325 $ 218 $ 543
IFRS management basis profit for
the period growth:
9/30/05 compared to 9/30/04 3% --
=========== =========== =========== =========== ======== ========
1
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION INCOME STATEMENT
IFRS MANAGEMENT BASIS
NINE MONTHS ENDED 9/30/05 Nine Months Ended 9/30/04
------------------------------------------ -------------------------------
-----------
IFRS IAS Lite
MANAGEMENT IFRS Management IAS Lite
OWNED BASIS MANAGEMENT Owned Basis Management
(DOLLARS ARE IN MILLIONS) BASIS ADJUSTMENTS BASIS Basis Adjustments
Basis
----------- ----------- ----------- ---------- -------- ---------
Net interest income $ 6,086 $ 2,721 $ 8,807 $ 5,719 $ 2,762 $ 8,481
Other operating income 3,688 (1,641) 2,047 3,315 (1,213) 2,102
----------- ----------- ----------- ----------- -------- ---------
TOTAL OPERATING INCOME $ 9,774 $ 1,080 $ 10,854 $ 9,034 $ 1,549 $ 10,583
=========== =========== =========== =========== ======== =========
Loan impairment charges 3,053 698 3,751 3,048 842 3,890
Loan impairment charges, Katrina related 180 25 205 -- -- --
Operating expenses 4,467 (545) 3,922 4,139 (421) 3,718
----------- ----------- ----------- ----------- -------- ---------
Profit before tax 2,074 902 2,976 1,847 1,128 2,975
Tax expense 695 313 1,008 619 376 995
----------- ----------- ----------- ----------- -------- ---------
PROFIT FOR THE PERIOD $ 1,379 $ 589 $ 1,968 $ 1,228 $ 752 $ 1,980
=========== =========== =========== =========== ======== =========
Katrina impact, net of tax expense -- 138 138 -- -- --
ADJUSTED PROFIT FOR THE PERIOD $ 1,379 $ 727 $ 2,106 $ 1,228 $ 752 $ 1,980
=========== =========== =========== =========== ======== ========
COST EFFICIENCY RATIO:
Total operating expenses $ 4,467 $ (545) $ 3,922 $ 4,139 $ (421) $ 3,718
Policyholders' benefits (347) 347 -- (299) 299 --
----------- ----------- ----------- ----------- -------- --------
Total operating expenses, excluding
policyholders' benefits 4,120 (198) 3,922 3,840 (122) 3,718
----------- ----------- ----------- ----------- -------- --------
Net interest income and other
operating income 9,774 1,080 10,854 9,034 1,549 10,583
Policyholders' benefits (347) 347 -- (299) 299 --
=========== =========== =========== =========== ======== =========
Net interest income and other
operating income, excluding
policyholders' benefits $ 9,427 $ 1,427 $ 10,854 $ 8,735 $ 1,848 $ 10,583
----------- ----------- ----------- ----------- -------- ---------
COST EFFICIENCY RATIO 43.7% -- 36.1% 44.0% -- 35.1%
=========== =========== =========== =========== ======== =========
ADJUSTED PROFIT FOR THE PERIOD GROWTH:
Profit for the period $ 1,379 $ 727 $ 2,106 $ 1,228 $ 752 $ 1,980
IFRS management basis profit for
the period growth: 6%
=========== =========== =========== =========== ======== =========
2
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
(DOLLARS ARE IN MILLIONS)
RETURN ON AVERAGE ASSETS:
Profit for the period:
Owned basis $ 281 $ 325
Management basis adjustments 31 26
---------- ----------
Management basis $ 312 $ 351
---------- ----------
Adjusted profit for the period:
Owned basis $ 281 $ 325
Management basis adjustments 31 26
Derivative adjustments 43 (34)
---------- ----------
Management basis adjusted for derivatives $ 355 $ 317
---------- ----------
Average assets:
Owned basis $ 141,765 $ 124,512
Management basis adjustments 28,452 26,282
---------- ----------
Management basis $ 170,217 $ 150,794
---------- ----------
Return on average owned assets .8% 1.0%
Return on average management assets .7 .9
Return on average management assets, adjusted
for derivatives .8 .8
========== ==========
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income $ 2,340 $ 2,550
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying
hedges under SFAS No. 133 1,185 916
Less: Net charge-offs (1,052) (1,363)
---------- ----------
Risk adjusted revenue $ 2,473 $ 2,103
---------- ----------
Management basis adjustments:
Net interest income $ 339 $ 51
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying
hedges under SFAS No. 133 (89) (5)
Less: Net charge-offs (158) (2)
---------- ----------
Risk adjusted revenue, management basis adjustments $ 92 $ 44
---------- ----------
Management basis:
Net interest income $ 2,679 $ 2,601
Other operating income, excluding securitization
revenue and the mark-to-market on derivatives
which do not qualify as effective hedges and
ineffectiveness associated with qualifying
hedges under SFAS No. 133 1,096 911
Less: Net charge-offs (1,210) (1,365)
---------- ----------
Risk adjusted revenue, management basis $ 2,565 $ 2,147
---------- ----------
Average interest-earning assets:
Managed basis $ 134,817 $ 129,497
Management basis adjustments 20,806 4,719
---------- ----------
Management basis $ 155,623 $ 134,216
---------- ----------
Managed basis risk adjusted revenue 7.3% 6.5%
Management basis risk adjusted revenue 6.6 6.4
========== ==========
NET INTEREST INCOME:
Net interest income:
Owned basis $ 2,163 $ 1,969
Management basis adjustments 516 632
---------- ----------
Management basis $ 2,679 $ 2,601
---------- ----------
Average interest-earning assets:
Owned basis $ 127,038 $ 107,955
Management basis adjustments 28,585 26,261
---------- ----------
Management basis $ 155,623 $ 134,216
---------- ----------
Owned basis net interest margin 6.8% 7.3%
Management basis net interest margin 6.9 7.8
========== ==========
3
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION
MANAGEMENT BASIS
THREE MONTHS ENDED
------------------
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
(DOLLARS ARE IN MILLIONS)
CONSUMER NET CHARGE-OFF RATIO:
Consumer net charge-offs:
Owned basis $ 902 $ 969
Management basis adjustments 308 396
---------- ----------
Management basis $ 1,210 $ 1,365
---------- ----------
Average consumer receivables:
Owned basis $ 123,163 $ 102,821
Management basis adjustments 28,579 26,266
---------- ----------
Management basis $ 151,742 $ 129,087
---------- ----------
Owned basis consumer net charge-off ratio 2.9% 3.8%
Management basis consumer net charge-off ratio 3.2 4.2
========== ==========
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY RATIO:
Consumer 2+ delinquency:
Owned basis $ 4,861 $ 4,702
Management basis adjustments 830 1,117
---------- ----------
Management basis $ 5,691 $ 5,819
---------- ----------
Consumer receivables:
Owned basis $ 128,524 $ 106,130
Management basis adjustments 27,631 25,037
---------- ----------
Management basis $ 156,155 $ 131,167
---------- ----------
Owned basis consumer 2+ delinquency ratio 3.8% 4.4%
Management basis consumer 2+ delinquency ratio 3.6 4.4
========== ==========
4
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC FINANCE CORPORATION CUSTOMER LOANS
IFRS MANAGEMENT BASIS
AS AT SEPTEMBER 30, 2005 As at June 30, 2005 As at September 30, 2004
--------------------------------- --------------------------------- -------------------------
IFRS IFRS IFRS
MANAGEMENT IFRS Management IFRS Management IFRS
OWNED BASIS MANAGEMENT Owned Basis Management Owned Basis Management
(DOLLARS ARE IN MILLIONS) BASIS ADJUSTMENTS BASIS Basis Adjustments Basis Basis Adjust- Basis
ments
-------- ----------- ----------- -------- ----------- ----------- ------- -------- -------
Branch real estate $ 40,236 $ 109 $ 40,345 $ 39,091 $ (10) $ 39,081 $ 34,000 $ 462 $ 34,462
Correspondent real estate 37,894 4,880 42,774 32,839 5,210 38,049 24,726 4,758 29,484
-------- ----------- ----------- -------- ----------- ----------- -------- ----- ---------
Real estate secured 78,130 4,989 83,119 71,930 5,200 77,130 58,726 5,220 63,946
MasterCard/Visa (1) 18,974 3,631 22,605 17,421 4,771 22,192 11,666 8,854 20,520
Private label 2,777 15,929 18,706 2,905 15,109 18,014 14,000 3,959 17,959
Auto finance 10,137 1,491 11,628 8,997 1,841 10,838 6,823 3,081 9,904
Personal non-credit card 18,484 1,777 20,261 17,255 2,501 19,756 14,888 3,707 18,595
Commercial and other 220 (179) 41 253 (181) 72 334 (192) 142
-------- ----------- ----------- -------- ----------- ----------- -------- ------ --------
TOTAL CUSTOMER LOANS $128,722 $ 27,638 $ 156,360 $118,761 $ 24,241 $ 148,002 $106,437$24,629 $131,066
======== =========== =========== ======== =========== =========== ======== ====== ========
(1) MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
5
RECONCILIATION TO GAAP FINANCIAL MEASURES
HSBC USA INC. INCOME STATEMENT
IFRS
THREE MONTHS ENDED 9/30/05 Three Months Ended 9/30/04
----------------------------------------- --------------------------------
---------
OWNED IFRS Owned IAS Lite
(DOLLARS ARE IN MILLIONS) BASIS ADJUSTMENTS IFRS Basis Adjustments IAS Lite
----------- ----------- ----------- ----------- ----------- --------
Net interest income $ 761 $ 5 $ 766 $ 698 $ (5) $ 693
Other operating income 505 (93) 412 362 9 371
----------- ----------- ----------- ----------- ----------- --------
TOTAL OPERATING INCOME $ 1,266 $ (88) $ 1,178 $ 1,060 $ 4 $ 1,064
=========== =========== =========== =========== ======== =========
Loan impairment charges 173 13 186 27 (10) 17
Loan impairment charges, Katrina related 26 -- 26 -- -- --
Operating expenses 673 (76) 597 480 19 499
----------- ----------- ----------- ----------- ------- ---------
Profit before tax 394 (25) 369 553 (5) 548
Tax expense 142 (1) 141 214 (3) 211
----------- ----------- ----------- ----------- ------- ---------
PROFIT FOR THE PERIOD $ 252 $ (24) $ 228 $ 339 $ (2) $ 337
=========== =========== =========== =========== ======= =========
Katrina impact, net of tax expense -- 19 19 -- -- --
Non-recurring items, net of tax expense -- -- -- -- (99) (99)
----------- ----------- ----------- ----------- ------- --------
ADJUSTED PROFIT FOR THE PERIOD $ 252 $ (5) $ 247 $ 339 $ (101) $ 238
=========== =========== =========== =========== ======= ===========
COST EFFICIENCY RATIO:
Total operating expenses $ 673 $ (76) $ 597 $ 480 $ 19 $ 499
Net interest income and other
operating income 1,266 (88) 1,178 1,060 4 1,064
----------- ----------- ----------- ----------- ------ -----------
COST EFFICIENCY RATIO 53.2% -- 50.7% 45.3% -- 46.9%
=========== =========== =========== =========== ====== =========
ADJUSTED PROFIT FOR THE PERIOD GROWTH:
Profit for the period $ 252 $ (5) $ 247 $ 339 $(101) $ 238
IFRS profit for the period growth:
9/30/05 compared to 9/30/04 4% --
=========== =========== =========== =========== ====== =========
NINE MONTHS ENDED 9/30/05 Nine Months Ended 9/30/04
----------------------------------------- --------------------------------
---------
OWNED IFRS Owned IAS Lite
(DOLLARS ARE IN MILLIONS) BASIS ADJUSTMENTS IFRS Basis Adjustments IAS Lite
----------- ----------- ----------- ---------- ----------- --------
Net interest income $ 2,321 $ 26 $ 2,347 $ 2,041 $ (20) $ 2,021
Other operating income 1,397 (270) 1,127 995 28 1,023
----------- ----------- ----------- ----------- -------- --------
TOTAL OPERATING INCOME $ 3,718 $ (244) $ 3,474 $ 3,036 $ 8 $ 3,044
=========== =========== =========== =========== ======== =========
Loan impairment charges 450 47 497 7 (14) (7)
Loan impairment charges, Katrina related 26 -- 26 -- -- --
Operating expenses 2,012 (226) 1,786 1,489 56 1,545
----------- ----------- ----------- ----------- -------- ---------
Profit before tax 1,230 (65) 1,165 1,540 (34) 1,506
Tax expense 450 (9) 441 551 (12) 539
----------- ----------- ----------- ----------- -------- ---------
PROFIT FOR THE PERIOD $ 780 $ (56) $ 724 $ 989 $ (22) $ 967
=========== =========== =========== =========== ======== =========
Katrina impact, net of tax expense -- 19 19 -- -- --
Non-recurring items, net of tax expense -- -- -- -- (99) (99)
----------- ----------- ----------- ----------- ------- ---------
ADJUSTED PROFIT FOR THE PERIOD $ 780 $ (37) $ 743 $ 989 $ (121) $ 868
=========== =========== =========== =========== ======= =========
COST EFFICIENCY RATIO:
Total operating expenses $ 2,012 $ (226) $ 1,786 $ 1,489 $ 56 $ 1,545
Net interest income and other
operating income 3,718 (244) 3,474 3,036 8 3,044
----------- ----------- ----------- ----------- ------- ---------
COST EFFICIENCY RATIO 54.1% -- 51.4% 49.0% -- 50.8%
=========== =========== =========== =========== ====== =========
6
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Monday, 20th May 2024
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