Household Int. Form 8-K

HSBC Holdings PLC 19 November 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 8-K Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: November 14, 2003 ---------------- HOUSEHOLD INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 1-8198 86-1052062 (State of incorporation) (Commission File Number) (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 -------------------------------------------------------------------------------- Item 7. Financial Statements and Exhibits (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 September 30, 2003. Item 12. Results of Operations and Financial Condition Financial supplement pertaining to the financial results of Household International, Inc., for the quarter and nine months ended September 30, 2003. 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. -------------------------------------------------------------------------------- SIGNATURE 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. HOUSEHOLD INTERNATIONAL, INC. (Registrant) By: /s/ PATRICK D. SCHWARTZ Patrick D. Schwartz Vice President-General Counsel Treasury and Corporate Law Dated: November 14, 2003 -------------------------------------------------------------------------------- Quarterly Financial Supplement-September 30, 2003 On March 28, 2003, HSBC Holdings plc ("HSBC") acquired Household International, Inc. ("Household"). 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. This has resulted 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. Information for all "predecessor" periods prior to the merger are presented using our historical basis of accounting, which impacts comparability to our "successor" periods. 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 September 30, 2003) to present "combined" results for the nine months ended September 30, 2003. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition to GAAP financial results, this Quarterly Financial Supplement includes references to the following information which is presented on a non-GAAP basis: 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 expenses. These nonrecurring expenses are also excluded in calculating our "normalized" efficiency ratios. We believe that excluding nonrecurring items helps readers of our financial statements to better understand the results and trends of our underlying business. A reconciliation of net income to operating net income follows: Three Months Ended Nine Months Ended 9/30/03 6/30/03 9/30/02 9/30/03 9/30/02 ($ millions) Net income $ 471.5 $ 364.0 $ 221.2 $ 1,090.9 $ 1,219.6 HSBC acquisition related costs and other merger - - - 167.3 - related items incurred by Household, after-tax Settlement charge and related expenses, after-tax - - 333.2 - 333.2 Operating net income $ 471.5 $ 364.0 $ 554.4 $ 1,258.2 $ 1,552.8 Net income during both the quarter and nine months ended September 30, 2003 were positively impacted by purchase accounting adjustments and by the discontinuation of the shortcut method of accounting for our interest rate swaps under SFAS No. 133 due to the merger. Amortization of purchase accounting adjustments increased net income by $32.1 million for the three months ended September 30, 2003, $43.3 million for the three months ended June 30, 2003, and $75.4 million for the nine months ended September 30, 2003. The loss of the shortcut method of accounting for our interest rate swaps also increased net income by $3.7 million for the three months ended September 30, 2003, $47.3 million for the three months ended June 30, 2003, and $51.0 million for the nine months ended September 30, 2003. During the third quarter, we completed the restructure of substantially all of our interest rate swap portfolio to regain use of the shortcut method of accounting and to reduce the potential volatility of future earnings. 1 -------------------------------------------------------------------------------- Quarterly Financial Supplement-September 30, 2003 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 margin, provision for credit losses and fee income related to receivables securitized and sold are reclassified from securitization revenue in our owned statements 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, which enables investors and other interested parties to better understand the performance and quality of our entire managed loan portfolio, is important to understanding the quality of originations and the related credit risk inherent in our owned portfolio. Equity Ratios Tangible shareholder's(s') equity to tangible managed assets (" TETMA") and tangible common equity to tangible managed assets are non-GAAP financial ratios that are calculated for and used by certain rating agencies as a measure to evaluate capital adequacy. These ratios may differ from similarly named measures presented by other companies. The most directly comparable GAAP financial measure is common and preferred equity to owned assets. We also monitor our equity ratios excluding the impact of purchase accounting adjustments. We do so because we believe that the purchase accounting adjustments represent non-cash transactions which do not affect our business operations, cash flows or ability to meet our debt obligations. Our company obligated mandatorily redeemable preferred securities of subsidiary trusts are considered equity in the TETMA calculation because of their long-term subordinated nature and our ability to defer dividends. Our Adjustable Conversion-Rate Equity Security Units, which exclude purchase accounting adjustments, are also considered equity in the TETMA calculation because they include obligations to purchase HSBC ordinary shares in 2006. See pages 19 to 26 for quantitative reconciliations of non-GAAP financial information to the equivalent owned basis GAAP financial information. 2 -------------------------------------------------------------------------------- HOUSEHOLD INTERNATIONAL, INC. Quarterly Financial Supplement-September 30, 2003 Index Page --- No. Quarterly Highlights 4 Year-to-Date Highlights 5 Consolidated Statements of Income-Owned Basis: Three Months 6 Nine Months 8 Credit Quality/Credit Loss Reserves-Owned Basis 10 Balance Sheet Data 11 Receivables Analysis 12 Supplemental Managed Basis Information: Revenues, Average Interest-Earning Assets and Net Interest Margin 14 Credit Quality/Credit Loss Reserves-Managed Basis 16 Restructuring Statistics 17 Reconciliation to GAAP Basis Results: Selected Financial Ratios 19 Revenues, Average Interest-Earning Assets and Net Interest Margin 20 Credit Quality/Credit Loss Reserves: Two-Months-and-Over Contractual Delinquency 22 Quarter-to-Date Charge-offs, Net of Recoveries 22 Real Estate Charge-offs and REO Expense 24 Credit Loss Reserves 24 Nonperforming Assets 25 Equity Ratios 26 3 -------------------------------------------------------------------------------- Quarterly Highlights Three Months Ended % Change from Prior 9/30/03 6/30/03 9/30/02 Qtr. Year ($ millions) Summary Owned Income Statement Net interest margin and other revenues $ 2,965.2 $ 2,835.6 $ 2,860.1 4.6 % 3.7 % Provision for credit losses on owned 1,001.3 1,039.3 973.0 (3.7 ) 2.9 receivables Costs and expenses, excluding settlement 1,252.7 1,247.4 1,059.9 .4 18.2 charge and related expenses Settlement charge and related expenses - - 525.0 - (100.0 ) Income before income taxes 711.2 548.9 302.2 29.6 100+ Income taxes 239.7 184.9 81.0 29.6 100+ - - - - - Net income $ 471.5 $ 364.0 $ 221.2 29.5 % 100+ % Operating net income(1) $ 471.5 $ 364.0 $ 554.4 29.5 % (15.0 ) % Selected Financial Ratios Owned Basis: Return on average common shareholder's 11.8 % 9.3 % 9.5 % 26.9 % 24.2 % (s') equity Return on average owned assets 1.68 1.32 .88 27.3 90.9 Efficiency ratio 40.3 42.0 53.8 (4.0 ) (25.1 ) Net interest margin 8.41 8.51 7.46 (1.2 ) 12.7 Common and preferred equity to owned 14.66 14.54 9.53 .8 53.8 assets Managed Basis:(1) Return on average managed assets 1.39 % 1.08 % .72 % 28.7 % 93.1 % Efficiency ratio 35.2 34.3 45.6 2.6 (22.8 ) Net interest margin 9.12 9.23 8.35 (1.2 ) 9.2 Tangible equity to tangible managed 6.79 6.66 7.95 2.0 (14.6 ) assets ("TETMA")(2) Tangible common equity to tangible 4.71 4.51 6.16 4.4 (23.5 ) managed assets(2) Excluding Nonrecurring Items:(1) Owned Basis: Return on average common shareholder's 11.8 % 9.3 % 24.7 % 26.9 % (52.2 ) % (s') equity Return on average owned assets 1.68 1.32 2.22 27.3 (24.3 ) Efficiency ratio, normalized 40.3 42.0 34.7 (4.0 ) 16.1 Managed Basis: Return on average managed assets 1.39 1.08 1.81 28.7 (23.2 ) Efficiency ratio, normalized 35.2 34.3 29.4 2.6 19.7 - - - - - -------- (1) These non-GAAP financial measures are provided for comparison of our operating trends and should be read in conjunction with our owned basis GAAP financial information. Refer to pages one and two for a discussion of non-GAAP financial information and pages 19 to 20 for quantitative reconciliations to the equivalent GAAP basis financial measure. (2) 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 owned assets, the most directly comparable GAAP financial measure, is also presented in the table above. Excluding the impact of "push-down" accounting on our assets and common shareholder's equity, TETMA would have been 8.80 percent at September 30, 2003 and 8.72 percent at June 30, 2003 and tangible common equity to tangible managed assets would have been 6.76 percent at September 30, 2003 and 6.61 percent at June 30, 2003. Refer to pages one and two for a discussion of non-GAAP financial information and page 26 for quantitative reconciliations to the equivalent GAAP basis financial measure. 4 -------------------------------------------------------------------------------- Year-to-Date Highlights Nine Months Ended % 9/30/03 9/30/02 Change (1) ($ millions) Summary Owned Income Statement Net interest margin and other revenues $ 8,674.4 $ 8,255.6 5.1 % Provision for credit losses on owned receivables 3,050.2 2,746.9 11.0 Costs and expenses, excluding HSBC acquisition related costs and 3,723.7 3,178.9 17.1 settlement charge and related expenses HSBC acquisition related costs incurred by Household 198.2 - 100.0 Settlement charge and related expenses - 525.0 (100.0 ) Income before income taxes 1,702.3 1,804.8 (5.7 ) Income taxes 611.4 585.2 4.5 - - - Net income $ 1,090.9 $ 1,219.6 (10.6 )% - - - Operating net income(2) $ 1,258.2 $ 1,552.8 (19.0 )% Selected Financial Ratios Owned Basis: Return on average common shareholder's(s') equity 10.4 % 18.5 % (43.8 ) % Return on average owned assets 1.35 1.72 (21.5 ) Efficiency ratio 43.3 43.0 .7 Net interest margin 8.08 7.62 6.0 Managed Basis:(2) Return on average managed assets 1.11 % 1.40 % (20.7 )% Efficiency ratio 37.0 36.7 .8 Net interest margin 8.89 8.54 4.1 Excluding Nonrecurring Items:(2) Owned Basis: Return on average common shareholder's(s') equity 12.1 % 23.7 % (48.9 )% Return on average owned assets 1.56 2.19 (28.8 ) Efficiency ratio, normalized 41.0 36.4 12.6 Managed Basis: Return on average managed assets 1.27 1.78 (28.7 ) Efficiency ratio, normalized 35.0 31.1 12.5 -------- (1) 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 September 30, 2003) to present "combined" results for the nine months ended September 30, 2003. Refer to page one for additional information regarding the "successor period" and "predecessor period". (2) These non-GAAP financial measures are provided for comparison of our operating trends and should be read in conjunction with our owned basis GAAP financial information. Refer to pages one and two for a discussion of non-GAAP financial information and pages 19 and 21 for quantitative reconciliations to the equivalent GAAP basis financial measure. 5 -------------------------------------------------------------------------------- Consolidated Statements of Income-Owned Basis Three Months Three Months Ended % Change from Prior 9/30/03 6/30/03 9/30/02 Qtr. Year ($ millions) Finance and other interest income $ 2,575.5 $ 2,504.1 $ 2,710.9 2.9 % (5.0 )% Interest expense 556.5 558.8 999.0 (.4 ) (44.3 ) Net interest margin 2,019.0 1,945.3 1,711.9 3.8 17.9 Provision for credit losses on owned receivables 1,001.3 1,039.3 973.0 (3.7 ) 2.9 Net interest margin after provision for credit 1,017.7 906.0 738.9 12.3 37.7 losses Securitization revenue 381.9 282.6 556.3 35.1 (31.3 ) Insurance revenue 192.7 183.3 180.8 5.1 6.6 Investment income 37.0 33.2 47.6 11.4 (22.3 ) Fee income 299.5 259.7 261.7 15.3 14.4 Other income 35.1 131.5 101.8 (73.3 ) (65.5 ) Total other revenues 946.2 890.3 1,148.2 6.3 (17.6 ) Salaries and fringe benefits 493.3 488.6 456.6 1.0 8.0 Sales incentives 76.6 83.2 60.6 (7.9 ) 26.4 Occupancy and equipment expense 95.0 100.0 94.1 (5.0 ) 1.0 Other marketing expenses 128.1 135.2 135.4 (5.3 ) (5.4 ) Other servicing and administrative expenses 282.3 263.7 199.3 7.1 41.6 Amortization of acquired intangibles 82.4 78.3 12.7 5.2 100+ Settlement charge and related expenses - - 525.0 - (100.0 ) Policyholders' benefits 95.0 98.4 101.2 (3.5 ) (6.1 ) Total costs and expenses 1,252.7 1,247.4 1,584.9 .4 (21.0 ) Income before income taxes 711.2 548.9 302.2 29.6 100+ Income taxes 239.7 184.9 81.0 29.6 100+ Net income $ 471.5 $ 364.0 $ 221.2 29.5 % 100+ % - - Operating net income(1) $ 471.5 $ 364.0 $ 554.4 29.5 % (15.0 ) % -------- (1) 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. Refer to page one for a discussion of this non-GAAP financial measure and a quantitative reconciliation to the equivalent GAAP basis financial measure. 6 -------------------------------------------------------------------------------- Consolidated Statements of Income-Owned Basis Securitization Revenue (1) Three Months Ended 9/30/03 6/30/03 9/30/02 ($ millions) Net initial gains $ 24.5 $ 32.3 $ 78.6 Net replenishment gains 138.3 134.5 132.2 Servicing revenue and excess spread 219.1 115.8 345.5 Total $ 381.9 $ 282.6 $ 556.3 -------- (1) Our interest-only strip receivables, net of the related loss reserve and excluding the mark-to-market adjustment recorded in accumulated other comprehensive income (loss), decreased $79.6 million in the quarter ended September 30, 2003, decreased $192.7 million in the quarter ended June 30, 2003, and increased $51.2 million in the quarter ended September 30, 2002. Receivables Securitized Three Months Ended 9/30/03 6/30/03 9/30/02 ($ millions) Auto finance - $ 596.3 $ 986.0 MasterCard/Visa(1) $ 350.0 - 160.0 Private label - 250.0 390.0 Personal non-credit card 885.0 305.0 1,000.0 Total $ 1,235.0 $ 1,151.3 $ 2,536.0 -------- (1) MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively. 7 -------------------------------------------------------------------------------- Consolidated Statements of Income-Owned Basis Nine Months Nine Months Ended % 9/30/03(1) 9/30/02 Change ($ millions) Finance and other interest income $ 7,624.6 $ 7,856.5 (3.0 ) % Interest expense 2,027.3 2,918.7 (30.5 ) Net interest margin 5,597.3 4,937.8 13.4 Provision for credit losses on owned receivables 3,050.2 2,746.9 11.0 Net interest margin after provision for credit losses 2,547.1 2,190.9 16.3 Securitization revenue 1,105.6 1,598.0 (30.8 ) Insurance revenue 553.3 528.4 4.7 Investment income 151.5 137.8 9.9 Fee income 856.3 668.5 28.1 Other income 410.4 385.1 6.6 Total other revenues 3,077.1 3,317.8 (7.3 ) Salaries and fringe benefits 1,490.5 1,354.9 10.0 Sales incentives 198.9 182.3 9.1 Occupancy and equipment expense 296.2 279.6 5.9 Other marketing expenses 406.8 409.3 (.6 ) Other servicing and administrative expenses 868.9 635.1 36.8 Amortization of acquired intangibles 175.0 45.1 100+ HSBC acquisition related costs incurred by Household 198.2 - 100.0 Settlement charge and related expenses - 525.0 (100.0 ) Policyholders' benefits 287.4 272.6 5.4 Total costs and expenses 3,921.9 3,703.9 5.9 Income before income taxes 1,702.3 1,804.8 (5.7 ) Income taxes 611.4 585.2 4.5 Net income $ 1,090.9 $ 1,219.6 (10.6 ) % Operating net income(2) $ 1,258.2 $ 1,552.8 (19.0 ) % --- (1) 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 September 30, 2003) to present "combined" results for the nine months ended September 30, 2003. Refer to page one for additional information regarding the "successor period" and "predecessor period". (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. Refer to page one for a discussion of this non-GAAP financial measure and a quantitative reconciliation to the equivalent GAAP basis financial measure. 8 -------------------------------------------------------------------------------- Consolidated Statements of Income-Owned Basis Securitization Revenue (1) Nine Months Ended 9/30/03 9/30/02 ($ millions) Net initial gains $ 92.1 $ 226.8 Net replenishment gains 409.7 383.4 Servicing revenue and excess spread 603.8 987.8 Total $ 1,105.6 $ 1,598.0 -------- (1) Our interest-only strip receivables, net of the related loss reserve and excluding the mark-to-market adjustment recorded in accumulated other comprehensive income (loss), decreased $313.8 million in the nine months ended September 30, 2003 and increased $109.9 million in the nine months ended September 30, 2002. Receivables Securitized Nine Months Ended 9/30/03 9/30/02 ($ millions) Auto finance $ 1,007.1 $ 2,336.0 MasterCard/Visa 670.0 1,373.4 Private label 250.0 890.0 Personal non-credit card 1,700.0 2,352.7 Total $ 3,627.1 $ 6,952.1 9 -------------------------------------------------------------------------------- Credit Quality/Credit Loss Reserves-Owned Basis Two-Months-and-Over Contractual Delinquency As a percent of owned consumer receivables, excludes commercial. 9/30/03 6/30/03 9/30/02(1) Real estate secured 4.20 % 4.27 % 3.22 % Auto finance 2.14 2.49 3.33 MasterCard/Visa 5.99 5.97 6.36 Private label 5.59 5.45 6.84 Personal non-credit card 9.96 9.39 8.38 - - - Total 5.36 % 5.38 % 4.87 % -------- (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 in our personal non-credit card portfolio was overstated due to a calculation error. As a result, total two-months-and-over contractual delinquency was also overstated in the period. The correct percentages are included in the table above. The managed two-months-and-over contractual delinquency ratios reported were correct. Quarter-to-Date Charge-offs, Net of Recoveries As a percent of average owned consumer receivables, annualized, excludes 9/30/03 6/30/03 9/30/02 commercial. Real estate secured .91 % 1.03 % 1.03 % Auto finance 4.62 5.30 5.50 MasterCard/Visa 8.61 10.43 9.21 Private label 5.35 6.41 6.65 Personal non-credit card 10.55 9.87 8.96 - - - Total 3.98 % 4.34 % 3.98 % - - - Real estate charge-offs and REO expense as a percent of average owned real 1.35 % 1.46 % 1.38 % estate secured receivables - - - Credit Loss Reserves 9/30/03 6/30/03 9/30/02 ($ millions) Reserves for owned receivables at beginning of quarter $ 3,658.6 $ 3,483.1 $ 2,983.3 Provision for credit losses 1,001.3 1,039.3 973.0 Charge-offs, net of recoveries (898.8 ) (931.2 ) (836.3 ) Other, net 18.1 67.4 7.3 Reserves for owned receivables at end of quarter $ 3,779.2 $ 3,658.6 $ 3,127.3 Reserves as a percent of owned receivables 4.06 % 4.14 % 3.72 % 10 -------------------------------------------------------------------------------- Credit Quality/Credit Loss Reserves-Owned Basis Nonperforming Assets 9/30/03 6/30/03 9/30/02 (1) ($ millions) Nonaccrual owned receivables $ 3,197.1 $ 3,021.2 $ 2,484.5 Accruing owned receivables 90 or more days delinquent 883.1 843.8 824.2 Renegotiated commercial loans 1.5 1.5 1.3 Total nonperforming owned receivables 4,081.7 3,866.5 3,310.0 Real estate owned 543.0 486.3 451.1 Total nonperforming assets $ 4,624.7 $ 4,352.8 $ 3,761.1 Owned credit loss reserves as a percent of nonperforming owned 92.6 % 94.6 % 94.5 % receivables -------- (1) As discussed in our quarterly report on Form 10-Q for the quarter ended March 31, 2003, nonaccrual owned receivables in our personal non-credit card portfolio were overstated due to a calculation error. As a result, total nonperforming owned receivables and total nonperforming assets were also overstated and credit loss reserves as a percent of nonperforming owned receivables was understated in the period. The correct amounts and percentages are included in the table above. The managed nonperforming asset statistics reported were correct. Balance Sheet Data 9/30/03 6/30/03 9/30/02 ($ millions) Owned assets $ 114,519.3 $ 111,579.4 $ 101,078.3 Owned receivables 93,027.9 88,307.0 84,164.2 Investment securities (1) 6,947.5 6,624.2 10,263.2 Managed assets (2) 138,628.2 135,847.6 124,485.7 Managed receivables (2) 117,136.8 112,575.2 107,571.6 Debt (3) 92,797.4 88,347.6 86,420.6 Preferred stock 1,100.0 1,100.0 1,193.2 Common shareholder's(s') equity 15,692.0 15,119.2 8,437.5 -------- (1) Includes amounts held in our credit card bank and other liquidity-related portfolios as well as in our insurance business. (2) These non-GAAP financial measures are provided for comparison of our trends and should be read in conjunction with our owned basis GAAP financial information. Refer to page two for a discussion of managed basis reporting and pages 12 to 13 and 26 for quantitative reconciliations to the equivalent GAAP basis financial measure. (3) Includes company obligated mandatorily redeemable preferred securities of subsidiary trusts of $1,020.6 million at September 30, 2003, $1,021.5 million at June 30, 2003, and $975.0 million at September 30, 2002. 11 -------------------------------------------------------------------------------- Receivables Analysis End-of-Period Receivables 9/30/03 6/30/03 9/30/02 % Change from Prior Qtr. Year ($ millions) Owned receivables: Real estate secured $ 52,768.9 $ 49,756.2 $ 48,535.4 6.1 % 8.7 % Auto finance 3,701.1 2,576.3 2,316.1 43.7 59.8 MasterCard/Visa 9,892.1 9,368.6 7,642.7 5.6 29.4 Private label 12,406.6 12,060.1 10,594.3 2.9 17.1 Personal non-credit card 13,850.3 14,115.2 14,602.1 (1.9 ) (5.1 ) Commercial and other 408.9 430.6 473.6 (5.0 ) (13.7 ) Total owned receivables 93,027.9 88,307.0 84,164.2 5.3 10.5 Purchase accounting fair value adjustments 475.7 537.0 - (11.4 ) 100.0 Accrued finance charges 1,557.6 1,538.6 1,540.7 1.2 1.1 Credit loss reserve for owned receivables (3,779.2 ) (3,658.6 ) (3,127.3 ) 3.3 20.8 Unearned credit insurance premiums and claims (674.5 ) (720.3 ) (833.1 ) (6.4 ) (19.0 ) reserves Interest-only strip receivables(1) 967.0 1,026.3 1,104.9 (5.8 ) (12.5 ) Amounts due and deferred from receivables 178.6 218.9 307.7 (18.4 ) (42.0 ) sales Total owned receivables, net 91,753.1 87,248.9 83,157.1 5.2 10.3 Receivables serviced with limited recourse: Real estate secured 214.0 237.0 507.8 (9.7 ) (57.9 ) Auto finance 4,699.6 5,285.3 5,024.7 (11.1 ) (6.5 ) MasterCard/Visa 9,927.1 9,604.8 9,873.5 3.4 .5 Private label 4,261.4 4,261.3 3,040.0 - 40.2 Personal non-credit card 5,006.8 4,879.8 4,961.4 2.6 .9 Total receivables serviced with limited 24,108.9 24,268.2 23,407.4 (.7 ) 3.0 recourse Total managed receivables, net(2) $ 115,862.0 $ 111,517.1 $ 106,564.5 3.9 % 8.7 % -------- (1) Our estimate of the recourse obligation, which is netted in our interest-only strip receivables, totaled $1,954.0 million at September 30, 2003, $1,980.3 million at June 30, 2003, and $1,561.5 million at September 30, 2002. (2) This non-GAAP financial measure is provided for comparison of our trends and should be read in conjunction with our owned basis GAAP financial information. Refer to page two for a discussion of managed basis reporting. 12 -------------------------------------------------------------------------------- Receivables Analysis End-of-Period Managed Receivables (1) 9/30/03 6/30/03 9/30/02 % Change from Prior Qtr. Year ($ millions) Real estate secured $ 52,982.9 $ 49,993.2 $ 49,043.2 6.0 % 8.0 % Auto finance 8,400.7 7,861.6 7,340.8 6.9 14.4 MasterCard/Visa 19,819.2 18,973.4 17,516.2 4.5 13.1 Private label 16,668.0 16,321.4 13,634.3 2.1 22.3 Personal non-credit card(2) 18,857.1 18,995.0 19,563.5 (.7 ) (3.6 ) Commercial and other 408.9 430.6 473.6 (5.0 ) (13.7 ) - - Managed portfolio $ 117,136.8 $ 112,575.2 $ 107,571.6 4.1 % 8.9 % Percent of managed portfolio 9/30/03 6/30/03 9/30/02 Real estate secured 45.2 % 44.4 % 45.6 % Auto finance 7.2 7.0 6.8 MasterCard/Visa 16.9 16.8 16.3 Private label 14.2 14.5 12.7 Personal non-credit card 16.1 16.9 18.2 Commercial and other .4 .4 .4 Managed portfolio 100.0 % 100.0 % 100.0 % -------- (1) This non-GAAP financial measure is provided for comparison of our trends and should be read in conjunction with our owned basis GAAP financial information. Refer to page two for a discussion of managed basis reporting. (2) Personal non-credit card receivables are comprised of the following: 9/30/03 6/30/03 9/30/02 ($ millions) Domestic personal unsecured $ 10,046.0 $ 10,076.3 $ 10,129.7 Union Plus personal unsecured 755.4 862.0 1,195.7 Personal homeowner loans 4,692.0 4,742.0 5,256.3 Foreign unsecured 3,363.7 3,314.7 2,981.8 Total $ 18,857.1 $ 18,995.0 $ 19,563.5 13 -------------------------------------------------------------------------------- Supplemental Managed Basis Information Revenues, Average Interest-Earning Assets and Net Interest Margin 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, and fee income related to receivables securitized and sold are reclassified from securitization revenue in our owned statements of income into the appropriate caption. Three Months Three Months Ended % Change from Prior 9/30/03 (1) 6/30/03 (1) 9/30/02 (1) Qtr. Year ($ millions) Finance and other $ 3,418.9 11.43 % $ 3,368.1 11.67 % $ 3,553.6 12.42 % 1.5 % (3.8 )% interest income Interest expense 690.2 2.31 704.5 2.44 1,165.4 4.07 (2.0 ) (40.8 ) - - - - - - Net interest margin 2,728.7 9.12 % 2,663.6 9.23 % 2,388.2 8.35 % 2.4 14.3 Provision for credit 1,420.6 1,656.3 1,471.3 (14.2 ) (3.4 ) losses Net interest margin $ 1,308.1 $ 1,007.3 $ 916.9 29.9 % 42.7 % after provision for credit losses Insurance revenue $ 192.7 $ 183.3 $ 180.8 5.1 % 6.6 % Investment income 37.0 33.2 47.6 11.4 (22.3 ) Fee income 491.3 427.0 426.7 15.1 15.1 Securitization revenue (100.3 ) 14.0 213.3 (100+ ) (100+ ) Other income 35.1 131.5 101.8 (73.3 ) (65.5 ) Total other revenues $ 655.8 $ 789.0 $ 970.2 (16.9 )% (32.4 )% Average managed receivables: Real estate secured $ 51,274.3 $ 48,619.4 $ 49,286.4 5.5 % 4.0 % Auto finance 8,081.7 7,601.5 7,134.8 6.3 13.3 MasterCard/Visa 19,299.8 18,788.8 17,282.4 2.7 11.7 Private label 16,348.1 15,816.7 13,517.2 3.4 20.9 Personal non-credit 18,849.5 19,049.7 19,357.7 (1.1 ) (2.6 ) card Commercial and other 417.7 442.8 476.4 (5.7 ) (12.3 ) Purchase accounting 505.3 580.7 - (13.0 ) 100.0 fair value adjustments Total 114,776.4 110,899.6 107,054.9 3.5 7.2 Average noninsurance 4,308.9 3,949.5 6,828.6 9.1 (36.9 ) investments Other interest-earning 632.9 626.2 565.3 1.1 12.0 assets Average managed $ 119,718.2 $ 115,475.3 $ 114,448.8 3.7 % 4.6 % interest-earning assets -------- (1) % Columns: comparison to average managed interest-earning assets, annualized. 14 -------------------------------------------------------------------------------- Supplemental Managed Basis Information Revenues, Average Interest-Earning Assets and Net Interest Margin Nine Months Nine Months Ended % 9/30/03 (2) (1) 9/30/02 (1) Change ($ millions) Finance and other interest income $ 10,210.0 11.71 % $ 10,349.0 12.77 % (1.3 )% Interest expense 2,459.0 2.82 3,426.9 4.23 (28.2 ) Net interest margin 7,751.0 8.89 % 6,922.1 8.54 % 12.0 Provision for credit losses 4,493.8 4,112.0 9.3 Net interest margin after provision for $ 3,257.2 $ 2,810.1 15.9 % credit losses Insurance revenue $ 553.3 $ 528.4 4.7 % Investment income 151.5 137.8 9.9 Fee income 1,370.0 1,154.0 18.7 Securitization revenue (118.2 ) 493.3 (100+ ) Other income 410.4 385.1 6.6 Total other revenues $ 2,367.0 $ 2,698.6 (12.3 ) % Average managed receivables: Real estate secured $ 48,883.4 $ 47,549.7 2.8 % Auto finance 7,682.0 6,783.4 13.2 MasterCard/Visa 18,921.7 16,967.9 11.5 Private label 15,667.9 13,508.1 16.0 Personal non-credit card 19,099.1 18,593.7 2.7 Commercial and other 439.6 488.1 (9.9 ) Purchase accounting fair value 381.1 - 100.0 adjustments Total 111,074.8 103,890.9 6.9 Average noninsurance investments 4,603.4 3,652.5 26.0 Other interest-earning assets 626.3 554.0 13.1 Average managed interest-earning assets $ 116,304.5 $ 108,097.4 7.6 % -------- (1) % Columns: comparison to average managed interest-earning assets, annualized. (2) 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 September 30, 2003) to present "combined" results for the nine months ended September 30, 2003. Refer to page one for additional information regarding the "successor period" and "predecessor period". 15 -------------------------------------------------------------------------------- Supplemental Managed Basis Information Credit Quality/Credit Loss Reserves-Managed Basis Two-Months-and-Over Contractual Delinquency 9/30/03 6/30/03 9/30/02 As a percent of managed consumer receivables, excludes commercial. Real estate secured 4.23 % 4.31 % 3.26 % Auto finance 3.82 3.08 3.18 MasterCard/Visa 4.29 4.19 4.14 Private label 5.24 5.16 6.31 Personal non-credit card 10.42 10.04 8.89 Total 5.36 % 5.30 % 4.82 % Quarter-to-Date Charge-offs, Net of Recoveries 9/30/03 6/30/03 9/30/02 As a percent of average managed consumer receivables, annualized, excludes commercial. Real estate secured .91 % 1.03 % 1.03 % Auto finance 7.08 6.69 5.97 MasterCard/Visa 7.12 7.90 6.81 Private label 5.46 6.26 6.12 Personal non-credit card 10.72 9.92 8.99 Total 4.68 % 4.89 % 4.39 % Real estate charge-offs and REO expense as a percent of 1.36 % 1.46 % 1.37 % average managed real estate secured receivables Credit Loss Reserves 9/30/03 6/30/03 9/30/02 ($ millions) Reserves for managed receivables at beginning of quarter $ 5,638.9 $ 5,259.3 $ 4,368.9 Provision for credit losses 1,420.6 1,656.3 1,471.3 Charge-offs, net of recoveries (1,334.3 ) (1,343.5 ) (1,170.9 ) Other, net 8.0 66.8 19.5 Reserves for managed receivables at end of quarter $ 5,733.2 $ 5,638.9 $ 4,688.8 Reserves as a percent of managed receivables 4.89 % 5.01 % 4.36 % Nonperforming Assets 9/30/03 6/30/03 9/30/02 ($ millions) Nonaccrual managed receivables $ 3,943.8 $ 3,703.2 $ 3,054.7 Accruing managed receivables 90 or more days delinquent 1,187.8 1,140.1 1,091.5 Renegotiated commercial loans 1.5 1.5 1.3 Total nonperforming managed receivables 5,133.1 4,844.8 4,147.5 Real estate owned 543.0 486.3 451.1 Total nonperforming assets $ 5,676.1 $ 5,331.1 $ 4,598.6 Managed credit loss reserves as a percent of nonperforming 111.7 % 116.4 % 113.1 % managed receivables 16 -------------------------------------------------------------------------------- Supplemental Managed Basis Information 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. We monitor restructuring statistics on a managed basis only because the receivables that we securitize are subject to underwriting standards comparable to our owned portfolio, are serviced and collected without regard to ownership and result in a similar credit loss exposure for us. As discussed in our Form 10-Q for the quarter ended June 30, 2003, we implemented certain changes to our restructuring policies. These changes are intended to eliminate and/or streamline exception provisions to our existing policies and generally are effective for receivables originated or acquired after January 1, 2003. Receivables originated or acquired prior to January 1, 2003 generally are subject to the restructure and account management policies described in our 2002 Form 10-K. However, for ease of administration, in the third quarter our mortgage services business elected to adopt uniform policies for all products regardless of the date an account was originated or acquired. Implementation of the uniform policy has the effect of only counting restructures occurring on or after January 1, 2003 in assessing restructure eligibility for purposes of the limitation that no account may be restructured more than four times in a rolling 60 month period. However, mortgage services will continue to have the ability to report historical restructure statistics as set forth in the table below. Other business units may also elect to adopt uniform policies. Though we anticipate that these changes may result in some short term increase in delinquency which may lead to higher charge-offs, we do not expect the changes to have a significant impact on our business model or on our results of operations as currently most of these changes are generally expected to be phased in as new receivables are originated or acquired. The tables below 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. 17 -------------------------------------------------------------------------------- Supplemental Managed Basis Information Restructuring Statistics Total Restructured by Restructure Period-Domestic Portfolio (1) (Managed Basis) 9/30/ 6/30/ 9/30/ 03 03 02 Never restructured 84.2 % 83.7 % 83.9 % Restructured: Restructured in the last 6 months 7.3 7.2 6.6 Restructured in the last 7-12 months 3.5 3.8 4.9 Previously restructured beyond 12 months 5.0 5.3 4.6 Total ever restructured (2) 15.8 16.3 16.1 Total 100.0 % 100.0 % 100.0 % Total Restructured by Product-Domestic Portfolio (1) (Managed Basis) 9/30/03 6/30/03 9/30/02 ($ millions) Real estate secured $ 9,531.5 18.7 % $ 9,225.0 19.2 % $ 8,778.2 18.5 % Auto finance 1,268.5 15.1 1,360.1 17.3 1,189.2 16.2 MasterCard/Visa 578.1 3.3 579.6 3.5 535.4 3.4 Private label 1,090.7 7.7 1,146.3 8.3 1,237.5 10.4 Personal non-credit card 4,136.4 26.7 4,202.3 26.8 4,195.2 25.3 Total (2) $ 16,605.2 15.8 % $ 16,513.3 16.3 % $ 15,935.5 16.1 % -------- (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 14.9% at 9/30/03, 15.3% at 6/30/03, and 15.3% at 9/30/02. 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 or delinquency statistics was approximately $1.1 billion or 0.9 percent of managed receivables at September 30, 2003, $1.1 billion or 1.0 percent of managed receivables at June 30, 2003 and approximately $.8 billion or 0.8 percent of managed receivables at September 30, 2002. 18 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Selected Financial Ratios Three Months Ended Nine Months Ended 9/30/03 6/30/03 9/30/02 9/30/03 9/30/02 ($ millions) Return on Average Common Shareholder's(s') Equity: Net income $ 471.5 $ 364.0 $ 221.2 $ 1,090.9 $ 1,219.6 Dividends on preferred stock (17.8 ) (18.5 ) (16.6 ) (58.5 ) (40.6 ) Net income available to common $ 453.7 $ 345.5 $ 204.6 $ 1,032.4 $ 1,179.0 shareholders HSBC acquisition related costs - - - 167.3 - Settlement charge and related - - 333.2 - 333.2 expenses Operating net income available $ 453.7 $ 345.5 $ 537.8 $ 1,199.7 $ 1,512.2 to common shareholders Average common shareholder's $ 15,433.9 $ 14,830.9 $ 8,657.4 $ 13,265.7 $ 8,482.7 (s') equity Return on average common 11.8 % 9.3 % 9.5 % 10.4 % 18.5 % shareholder's(s') equity Return on average common 11.8 9.3 24.7 12.1 23.7 shareholder's(s') equity, operating basis Return on Average Assets: Net income $ 471.5 $ 364.0 $ 221.2 $ 1,090.9 $ 1,219.6 Operating net income 471.5 364.0 554.4 1,258.2 1,552.8 Average assets: Owned basis $ 112,095.2 $ 110,363.7 $ 100,064.4 $ 107,632.3 $ 94,496.2 Serviced with limited recourse 23,719.3 24,079.8 22,598.0 23,984.7 21,750.2 Managed basis $ 135,814.5 $ 134,443.5 $ 122,662.4 $ 131,617.0 $ 116,246.4 Return on average owned assets 1.68 % 1.32 % .88 % 1.35 % 1.72 % Return on average owned assets, 1.68 1.32 2.22 1.56 2.19 operating basis Return on average managed 1.39 1.08 .72 1.11 1.40 assets Return on average managed 1.39 1.08 1.81 1.27 1.78 assets, operating basis Efficiency Ratio: Total costs and expenses less $ 1,157.7 $ 1,149.0 $ 1,483.7 $ 3,634.5 $ 3,431.3 policyholders' benefits HSBC acquisition related costs - - - (198.2 ) - Settlement charge and related - - (525.0 ) - (525.0 ) expenses Total costs and expenses less $ 1,157.7 $ 1,149.0 $ 958.7 $ 3,436.3 $ 2,906.3 policyholders' benefits, excluding nonrecurring items Net interest margin and other revenues less policyholders' benefits: Owned basis $ 2,870.2 $ 2,737.2 $ 2,758.9 $ 8,387.0 $ 7,983.0 Serviced with limited recourse 419.3 617.0 498.3 1,443.6 1,365.1 Managed basis $ 3,289.5 $ 3,354.2 $ 3,257.2 $ 9,830.6 $ 9,348.1 Owned basis efficiency ratio 40.3 % 42.0 % 53.8 % 43.3 % 43.0 % Owned basis efficiency ratio, 40.3 42.0 34.7 41.0 36.4 normalized Managed basis efficiency ratio 35.2 34.3 45.6 37.0 36.7 Managed basis efficiency ratio, 35.2 34.3 29.4 35.0 31.1 normalized 19 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Revenues, Average Interest-Earning Assets and Net Interest Margin Three Months Three Months Three Months Ended 9/30/03 Ended 6/30/03 Ended 9/30/02 Serviced Managed Owned Serviced Managed Owned Serviced with with with Limited Limited Limited Owned Recourse Recourse Recourse Managed ($ millions) Finance and $ 2,575.5 $ 843.4 $ 3,418.9 $ 2,504.1 $ 864.0 $ 3,368.1 $ 2,710.9 $ 842.7 $ 3,553.6 other interest income Interest expense 556.5 133.7 690.2 558.8 145.7 704.5 999.0 166.4 1,165.4 Net interest 2,019.0 709.7 2,728.7 1,945.3 718.3 2,663.6 1,711.9 676.3 2,388.2 margin Provision for 1,001.3 419.3 1,420.6 1,039.3 617.0 1,656.3 973.0 498.3 1,471.3 credit losses Net interest $ 1,017.7 $ 290.4 $ 1,308.1 $ 906.0 $ 101.3 $ 1,007.3 $ 738.9 $ 178.0 $ 916.9 margin after provision for credit losses Securitization $ 381.9 $ (482.2 )$ (100.3 ) $ 282.6 $ (268.6 ) $ 14.0 $ 556.3 $ (342.9 ) $ 213.4 revenue Insurance 192.7 - 192.7 183.3 - 183.3 180.8 - 180.8 revenue Investment 37.0 - 37.0 33.2 - 33.2 47.6 - 47.6 income Fee income 299.5 191.8 491.3 259.7 167.3 427.0 261.7 164.9 426.6 Other income 35.1 - 35.1 131.5 - 131.5 101.8 - 101.8 Total other $ 946.2 $ (290.4 ) $ 655.8 $ 890.3 $ (101.3 ) $ 789.0 $ 1,148.2 $ (178.0 ) $ 970.2 revenues Average $ 91,057.1 $ 23,719.3 $ 114,776.4 $ 86,819.8 $ 24,079.8 $ 110,899.6 $ 84,456.9 $ 22,598.0 $107,054.9 receivables Average 4,308.9 - 4,308.9 3,949.5 - 3,949.5 6,828.6 - 6,828.6 noninsurance investments Other 632.9 - 632.9 626.2 - 626.2 565.3 - 565.3 interest-earning assets Average $ 95,998.9 $ 23,719.3 $ 119,718.2 $ 91,395.5 $ 24,079.8 $ 115,475.3 $ 91,850.8 $ 22,598.0 $114,448.8 interest-earning assets Net interest 8.41 % 11.97 % 9.12 % 8.51 % 11.93 % 9.23 % 7.46 % 11.97 % 8.35 % margin as a percentage of average interest-earning assets 20 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Revenues, Average Interest-Earning Assets and Net Interest Margin Nine Months Nine Months Ended 9/30/03 Ended 9/30/02 Owned Serviced Managed Owned Serviced Managed with with Limited Limited Recourse Recourse ($ millions) Finance and other $ 7,624.6 $ 2,585.4 $ 10,210.0 $ 7,856.5 $ 2,492.5 $ 10,349.0 interest income Interest expense 2,027.3 431.7 2,459.0 2,918.7 508.2 3,426.9 Net interest margin 5,597.3 2,153.7 7,751.0 4,937.8 1,984.3 6,922.1 Provision for credit 3,050.2 1,443.6 4,493.8 2,746.9 1,365.1 4,112.0 losses Net interest margin after $ 2,547.1 $ 710.1 $ 3,257.2 $ 2,190.9 $ 619.2 $ 2,810.1 provision for credit losses Securitization revenue $ 1,105.6 $ (1,223.8 ) $ (118.2 ) $ 1,598.0 $ (1,104.6 ) $ 493.4 Insurance revenue 553.3 - 553.3 528.4 - 528.4 Investment income 151.5 - 151.5 137.8 - 137.8 Fee income 856.3 513.7 1,370.0 668.5 485.4 1,153.9 Other income 410.4 - 410.4 385.1 - 385.1 Total other revenues $ 3,077.1 $ (710.1 ) $ 2,367.0 $ 3,317.8 $ (619.2 ) $ 2,698.6 Average receivables $ 87,090.1 $ 23,984.7 $ 111,074.8 $ 82,140.7 $ 21,750.2 $103,890.9 Average noninsurance 4,603.4 - 4,603.4 3,652.5 - 3,652.5 investments Other interest-earning 626.3 - 626.3 554.0 - 554.0 assets Average interest-earning $ 92,319.8 $ 23,984.7 $ 116,304.5 $ 86,347.2 $ 21,750.2 $ 108,097.4 assets Net interest margin as a 8.08 % 11.97 % 8.89 % 7.62 % 12.16 % 8.54 % percentage of average interest-earning assets 21 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Credit Quality/Credit Loss Reserves Two-Months-and-Over Quarter-to-Date Charge-offs, Contractual Delinquency Net of Recoveries Two-months- Consumer Two-months- Net Average Net and-Over Receivables and-Over Charge- Consumer Charge- offs Contractual Outstanding Contractual offs Receivables Delinquency Delinquency ($ millions) September 30, 2003 Owned: First mortgage $ 4.3 $ 36.9 11.65 % $ .1 $ 37.9 1.06 % Real estate secured 2,216.7 52,768.9 4.20 116.0 51,047.2 .91 Auto finance 79.3 3,701.1 2.14 36.0 3,113.0 4.62 MasterCard/Visa 592.9 9,892.1 5.99 208.7 9,697.3 8.61 Private label 693.2 12,406.6 5.59 161.8 12,106.7 5.35 Personal non-credit card 1,379.1 13,850.3 9.96 373.9 14,169.9 10.55 Total $ 4,965.5 $ 92,655.9 5.36 % $ 896.5 $ 90,172.0 3.98 % - Serviced with Limited Recourse: Real estate secured $ 25.0 $ 214.0 11.68 % $ 1.1 $ 227.1 1.94 % Auto finance 241.8 4,699.6 5.15 107.0 4,968.7 8.61 MasterCard/Visa 256.7 9,927.1 2.59 134.7 9,602.5 5.61 Private label 179.4 4,261.4 4.21 61.4 4,241.4 5.79 Personal non-credit card 586.1 5,006.8 11.71 131.3 4,679.6 11.22 - Total $ 1,289.0 $ 24,108.9 5.35 % $ 435.5 $ 23,719.3 7.34 % - Managed: First mortgage $ 4.3 $ 36.9 11.65 % $ .1 $ 37.9 1.06 % Real estate secured 2,241.7 52,982.9 4.23 117.1 51,274.3 .91 Auto finance 321.1 8,400.7 3.82 143.0 8,081.7 7.08 MasterCard/Visa 849.6 19,819.2 4.29 343.4 19,299.8 7.12 Private label 872.6 16,668.0 5.24 223.2 16,348.1 5.46 Personal non-credit card 1,965.2 18,857.1 10.42 505.2 18,849.5 10.72 - Total $ 6,254.5 $ 116,764.8 5.36 % $ 1,332.0 $ 113,891.3 4.68 % June 30, 2003 Owned: First mortgage $ 3.7 $ 38.9 9.51 % - $ 40.2 - Real estate secured 2,125.0 49,756.2 4.27 $ 124.1 48,333.2 1.03 % Auto finance 64.1 2,576.3 2.49 32.3 2,436.5 5.30 MasterCard/Visa 559.5 9,368.6 5.97 237.5 9,109.6 10.43 Private label 656.9 12,060.1 5.45 189.8 11,836.0 6.41 Personal non-credit card 1,324.8 14,115.2 9.39 347.5 14,081.0 9.87 Total $ 4,734.0 $ 87,915.3 5.38 % $ 931.2 $ 85,836.5 4.34 % Serviced with Limited Recourse: Real estate secured $ 28.9 $ 237.0 12.19 % $ 1.0 $ 286.2 1.40 % Auto finance 178.4 5,285.3 3.38 94.9 5,165.0 7.35 MasterCard/Visa 235.2 9,604.8 2.45 133.5 9,679.2 5.52 Private label 185.4 4,261.3 4.35 57.9 3,980.7 5.82 Personal non-credit card 583.0 4,879.8 11.95 125.0 4,968.7 10.06 - Total $ 1,210.9 $ 24,268.2 4.99 % $ 412.3 $ 24,079.8 6.85 % Managed: First mortgage $ 3.7 $ 38.9 9.51 % - $ 40.2 - Real estate secured 2,153.9 49,993.2 4.31 $ 125.1 48,619.4 1.03 % Auto finance 242.5 7,861.6 3.08 127.2 7,601.5 6.69 MasterCard/Visa 794.7 18,973.4 4.19 371.0 18,788.8 7.90 Private label 842.3 16,321.4 5.16 247.7 15,816.7 6.26 Personal non-credit card 1,907.8 18,995.0 10.04 472.5 19,049.7 9.92 Total $ 5,944.9 $ 112,183.5 5.30 % $ 1,343.5 $ 109,916.3 4.89 % 22 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Credit Quality/Credit Loss Reserves Two-Months-and-Over Quarter-to-Date Charge-offs, Contractual Delinquency Net of Recoveries Two-months- Consumer Two-months- Net Average Net and-Over Receivables and-Over Charge- Consumer Charge-offs Contractual Outstanding Contractual offs Receivables Delinquency Delinquency ($ millions) September 30, 2002 Owned: First mortgage $ 4.7 $ 49.7 9.46 % $ 1.6 $ 51.1 12.52 % Real estate secured 1,564.3 48,535.4 3.22 125.4 48,748.8 1.03 Auto finance 77.1 2,316.1 3.33 36.3 2,640.9 5.50 MasterCard/Visa 486.2 7,642.7 6.36 170.7 7,416.3 9.21 Private label 724.2 10,594.3 6.84 175.7 10,570.9 6.65 Personal non-credit card 1,223.9 14,602.1 8.38 327.0 14,603.6 8.96 Total $ 4,080.4 $ 83,740.3 4.87 % $ 836.7 $ 84,031.6 3.98 % Serviced with Limited Recourse: Real estate secured $ 33.9 $ 507.8 6.68 % $ 1.7 $ 537.6 1.26 % Auto finance 156.2 5,024.7 3.11 70.2 4,493.9 6.25 MasterCard/Visa 238.5 9,873.5 2.42 123.6 9,866.1 5.01 Private label 135.5 3,040.0 4.46 31.2 2,946.3 4.24 Personal non-credit card 515.1 4,961.4 10.38 107.9 4,754.1 9.08 Total $ 1,079.2 $ 23,407.4 4.61 % $ 334.6 $ 22,598.0 5.92 % Managed: First mortgage $ 4.7 $ 49.7 9.46 % $ 1.6 $ 51.1 12.52 % Real estate secured 1,598.2 49,043.2 3.26 127.1 49,286.4 1.03 Auto finance 233.3 7,340.8 3.18 106.5 7,134.8 5.97 MasterCard/Visa 724.7 17,516.2 4.14 294.3 17,282.4 6.81 Private label 859.7 13,634.3 6.31 206.9 13,517.2 6.12 Personal non-credit card 1,739.0 19,563.5 8.89 434.9 19,357.7 8.99 Total $ 5,159.6 $ 107,147.7 4.82 % $ 1,171.3 $ 106,629.6 4.39 % 23 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Credit Quality/Credit Loss Reserves Serviced with Limited Recourse Owned ($ millions) Managed Real Estate Charge-offs and REO Expense: Three months ended September 30, 2003 Real estate charge-offs and REO expense $ 172.8 $ 1.1 $ 173.9 Average real estate secured receivables 51,047.2 227.1 51,274.3 Real estate charge-offs and REO expense as a percentage of 1.35 % 1.94 % 1.36 % average real estate secured receivables Three months ended June 30, 2003 Real estate charge-offs and REO expense $ 176.3 $ 1.0 $ 177.3 Average real estate secured receivables 48,333.2 286.2 48,619.4 - Real estate charge-offs and REO expense as a percentage of 1.46 % 1.40 % 1.46 % average real estate secured receivables Three months ended September 30, 2002 Real estate charge-offs and REO expense $ 167.7 $ 1.7 $ 169.4 Average real estate secured receivables 48,748.8 537.6 49,286.4 Real estate charge-offs and REO expense as a percentage of 1.38 % 1.26 % 1.37 % average real estate secured receivables Credit Loss Reserves: Three months ended September 30, 2003 Reserves for receivables at beginning of quarter $ 3,658.6 $ 1,980.3 $ 5,638.9 Provision for credit losses 1,001.3 419.3 1,420.6 Charge-offs, net of recoveries (898.8 ) (435.5 ) (1,334.3 ) Other, net 18.1 (10.1 ) 8.0 Reserves for receivables at end of quarter $ 3,779.2 $ 1,954.0 $ 5,733.2 Receivables $ 93,027.9 $ 24,108.9 $ 117,136.8 Credit loss reserves as a percent of receivables 4.06 % 8.10 % 4.89 % Three months ended June 30, 2003 Reserves for receivables at beginning of quarter $ 3,483.1 $ 1,776.2 $ 5,259.3 Provision for credit losses 1,039.3 617.0 1,656.3 Charge-offs, net of recoveries (931.2 ) (412.3 ) (1,343.5 ) Other, net 67.4 (.6 ) 66.8 Reserves for receivables at end of quarter $ 3,658.6 $ 1,980.3 $ 5,638.9 Receivables $ 88,307.0 $ 24,268.2 $ 112,575.2 Credit loss reserves as a percent of receivables 4.14 % 8.16 % 5.01 % Three months ended September 30, 2002 Reserves for receivables at beginning of quarter $ 2,983.3 $ 1,385.6 $ 4,368.9 Provision for credit losses 973.0 498.3 1,471.3 Charge-offs, net of recoveries (836.3 ) (334.6 ) (1,170.9 ) Other, net 7.3 12.2 19.5 Reserves for receivables at end of quarter $ 3,127.3 $ 1,561.5 $ 4,688.8 Receivables $ 84,164.2 $ 23,407.4 $ 107,571.6 Credit loss reserves as a percent of receivables 3.72 % 6.67 % 4.36 % 24 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Credit Quality/Credit Loss Reserves Owned Serviced Managed with Limited Recourse ($ millions) Nonperforming Assets: September 30, 2003 Nonaccrual receivables $ 3,197.1 $ 746.7 $ 3,943.8 Accruing receivables 90 or more days delinquent 883.1 304.7 1,187.8 Renegotiated commercial loans 1.5 - 1.5 Total nonperforming receivables 4,081.7 1,051.4 5,133.1 Real estate owned 543.0 - 543.0 Total nonperforming assets $ 4,624.7 $ 1,051.4 $ 5,676.1 Credit loss reserves as a percent of nonperforming receivables 92.6 % - 111.7 % June 30, 2003 Nonaccrual receivables $ 3,021.2 $ 682.0 $ 3,703.2 Accruing receivables 90 or more days delinquent 843.8 296.3 1,140.1 Renegotiated commercial loans 1.5 - 1.5 Total nonperforming receivables 3,866.5 978.3 4,844.8 Real estate owned 486.3 - 486.3 Total nonperforming assets $ 4,352.8 $ 978.3 $ 5,331.1 Credit loss reserves as a percent of nonperforming receivables 94.6 % - 116.4 % September 30, 2002 Nonaccrual receivables $ 2,484.5 $ 570.2 $ 3,054.7 Accruing receivables 90 or more days delinquent 824.2 267.3 1,091.5 Renegotiated commercial loans 1.3 - 1.3 Total nonperforming receivables 3,310.0 837.5 4,147.5 Real estate owned 451.1 - 451.1 Total nonperforming assets $ 3,761.1 $ 837.5 $ 4,598.6 Credit loss reserves as a percent of nonperforming receivables 94.5 % - 113.1 % 25 -------------------------------------------------------------------------------- Reconciliation to GAAP Basis Results Equity Ratios 9/30/03 6/30/03 9/30/02 ($ millions) Tangible common equity: Common shareholder's(s') equity $ 15,692.0 $ 15,119.2 $ 8,437.5 Exclude: Unrealized (gains) losses on cash flow hedging instruments (46.3 ) 85.1 863.6 Minimum pension liability - - 25.6 Unrealized gains on investments and interest-only strip (113.4 ) (126.5 ) (305.6 ) receivables Acquired intangibles (2,917.9 ) (3,000.3 ) (405.3 ) Goodwill (6,629.5 ) (6,542.1 ) (1,122.1 ) Tangible common equity 5,984.9 5,535.4 7,493.7 Purchase accounting adjustments 2,563.5 2,580.1 - Tangible common equity, excluding purchase accounting $ 8,548.4 $ 8,115.5 $ 7,493.7 adjustments Tangible shareholder's(s') equity: Tangible common equity $ 5,984.9 $ 5,535.4 $ 7,493.7 Preferred stock 1,100.0 1,100.0 1,193.2 Company obligated mandatorily redeemable preferred 1,020.6 1,021.5 975.0 securities of subsidiary trusts Adjustable Conversion-Rate Equity Security Units 511.0 511.0 - Tangible shareholder's(s') equity 8,616.5 8,167.9 9,661.9 Purchase accounting adjustments 2,517.9 2,533.6 - Tangible shareholder's(s') equity, excluding purchase $ 11,134.4 $ 10,701.5 $ 9,661.9 accounting adjustments Tangible managed assets: Owned assets $ 114,519.3 $ 111,579.4 $ 101,078.3 Receivables serviced with limited recourse 24,108.9 24,268.2 23,407.4 Managed assets 138,628.2 135,847.6 124,485.7 Exclude: Acquired intangibles (2,917.9 ) (3,000.3 ) (405.3 ) Goodwill (6,629.5 ) (6,542.1 ) (1,122.1 ) Derivative financial assets (2,094.5 ) (3,601.3 ) (1,378.6 ) Tangible managed assets 126,986.3 122,703.9 121,579.7 Purchase accounting adjustments (471.3 ) 38.3 - Tangible managed assets, excluding purchase accounting $ 126,515.0 $ 122,742.2 $ 121,579.7 adjustments Equity ratios: Common and preferred equity to owned assets 14.66 % 14.54 % 9.53 % Common and preferred equity to managed assets 12.11 11.94 7.74 Tangible common equity to tangible managed assets 4.71 4.51 6.16 Excluding purchase accounting adjustments 6.76 6.61 6.16 Tangible shareholder's(s') equity to tangible managed 6.79 6.66 7.95 assets Excluding purchase accounting adjustments 8.80 8.72 7.95 26 This information is provided by RNS The company news service from the London Stock Exchange JBBIJ

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