Household Intnl 8-K
HSBC Holdings PLC
17 May 2004
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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: May 17, 2004
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HOUSEHOLD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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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
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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 March 31, 2004.
Item 12. Results of Operations and Financial Condition
Financial supplement pertaining to the financial results of Household
International, Inc., for the quarter ended March 31, 2004. 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.
1
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: May 17, 2004
2
Exhibit 99
HOUSEHOLD
Quarterly Financial Supplement--March 31, 2004
Index Page No.
----- --------
Basis of Reporting................................................... 2
Quarterly Highlights................................................. 4
Consolidated Statements of Income--Owned Basis:
Three Months...................................................... 5
Credit Quality/Credit Loss Reserves--Owned Basis..................... 7
Balance Sheet Data................................................... 8
Receivables Analysis................................................. 9
Supplemental Managed Basis Information:
Revenues, Average Interest-Earning Assets and Net Interest Margin. 11
Credit Quality/Credit Loss Reserves--Managed Basis................ 12
Restructuring Statistics.......................................... 13
Reconciliations to GAAP Financial Measures:
Selected Financial Ratios......................................... 14
Revenues, Average Interest-Earning Assets and Net Interest Margin. 15
Credit Quality/Credit Loss Reserves:
Two-Months-and-Over Contractual Delinquency................... 16
Quarter-to-Date Charge-offs, Net of Recoveries................ 16
Real Estate Charge-offs and REO Expense....................... 18
Credit Loss Reserves.......................................... 18
Nonperforming Assets.......................................... 19
Equity Ratios..................................................... 20
Basis of Reporting
Household's acquisition by HSBC on March 28, 2003 has resulted in a new
basis of accounting reflecting the fair value of our assets and liabilities for
the "successor" period beginning March 29, 2003. Information for all
"predecessor" periods prior to the merger are presented using our historical
basis of accounting, which impacts comparability with the "successor" period
beginning March 29, 2003. To assist in the comparability of our financial
results and to make it easier to discuss and understand our results of
operations, this Quarterly Financial Supplement combines the "predecessor"
period (January 1 to March 28, 2003) with the "successor" period (March 29 to
March 31, 2003) to present "combined" results for the quarter ended March 31,
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 items. These nonrecurring items are
also excluded in calculating our operating basis 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
------------------------
($ millions) 3/31/04 12/31/03 3/31/03
------------ ------- -------- -------
Net income................................................... $481.1 $574.3 $255.4
HSBC acquisition related costs and other merger related items
incurred by Household, after-tax........................... -- -- 167.3
------ ------ ------
Operating net income......................................... $481.1 $574.3 $422.7
====== ====== ======
Amortization of HSBC merger-related purchase accounting adjustments were not
significant during the three months ended March 31, 2004 and 2003 and increased
net income by $34.1 million during the three months ended December 31, 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 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
enables investors and other interested parties to better understand the
performance and quality of our entire managed loan portfolio and is important
to understanding the quality of originations and the related credit risk
inherent in our owned and securitized portfolios.
Equity Ratios Tangible shareholder's equity to tangible managed assets
("TETMA"), tangible shareholder's equity plus owned loss reserves to tangible
managed assets ("TETMA + Owned Reserves") and
2
tangible common equity to tangible managed assets are non-GAAP financial
measures that are used by Household management or certain rating agencies 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.
Preferred securities issued by certain non-consolidated trusts are
considered equity in the TETMA and TETMA + Owned Reserves calculations because
of their long-term subordinated nature and the ability to defer dividends. Our
Adjustable Conversion-Rate Equity Security Units, which exclude purchase
accounting adjustments, are also considered equity in these calculations
because they include investor obligations to purchase HSBC ordinary shares in
2006.
See "Reconciliations to GAAP Financial Measures" for quantitative
reconciliations of non-GAAP financial information to the equivalent GAAP basis
financial measure.
3
Quarterly Highlights
% Change from
Three Months Ended Prior
Summary Owned Income Statement ------------------------------ --------------
3/31/04 12/31/03 3/31/03 (1) Qtr. Year
($ millions) -------- -------- ----------- ----- ------
Net interest margin and other revenues................ $3,060.4 $3,055.6 $2,873.6 .2 % 6.5 %
Provision for credit losses on owned receivables...... 927.8 916.7 1,009.6 1.2 (8.1)
Costs and expenses, excluding acquisition related costs.1,410.7 1,268.8 1,223.6 11.2 15.3
HSBC acquisition related costs incurred by Household.. -- -- 198.2 -- (100.0)
------ -------- -------- ----- ------
Income before income taxes............................ 721.9 870.1 442.2 (17.0) 63.3
Income taxes.......................................... 240.8 295.8 186.8 (18.6) 28.9
-------- -------- -------- ----- ------
Net income............................................ $ 481.1 $ 574.3 $ 255.4 (16.2)% 88.4%
======== ======== ======== ===== ======
Operating net income (2).............................. $ 481.1 $ 574.3 $ 422.7 (16.2)% 13.8%
======== ======== ======== ===== ======
Selected Financial Ratios
Owned Basis:
Return on average common shareholder's equity...... 11.0 % 13.9 % 10.0 % (20.9)% 10.0%
Return on average owned assets..................... 1.61 1.95 1.02 (17.4) 57.8
Efficiency ratio.................................. 44.0 39.8 47.8 10.6 (7.9)
Net interest margin................................ 7.65 8.14 7.29 (6.0) 4.9
Common and preferred equity to owned assets........ 15.66 14.82 14.72 5.7 6.4
-------- -------- -------- ----- ------
Managed Basis: (2)
Return on average managed assets................... 1.33 % 1.62 % .82 % (17.9)% 62.2%
Efficiency ratio................................... 40.6 31.1 41.7 30.5 (2.6)
Net interest margin................................ 8.47 8.78 8.30 (3.5) 2.0
Risk adjusted revenue.............................. 7.11 7.42 7.18 (4.2) (1.0)
Tangible equity to tangible managed assets
("TETMA") (3).................................... 7.72 7.08 6.90 9.0 11.9
Tangible equity plus owned loss reserves to tangible
managed assets ("TETMA + Owned Reserves") (3).... 10.67 9.94 9.79 7.3 9.0
Tangible common equity to tangible managed assets (3) 5.64 5.08 4.71 11.0 19.7
-------- -------- -------- ----- ------
Excluding Nonrecurring Items: (2)
Owned Basis:
Return on average common shareholder's equity..... 11.0 % 13.9 % 17.1 % (20.9)% (35.7)%
Return on average owned assets.................... 1.61 1.95 1.68 (17.4) (4.2)
Efficiency ratio, normalized...................... 44.0 39.8 40.6 10.6 8.4
Managed Basis:
Return on average managed assets.................. 1.33 1.62 1.36 (17.9) (2.2)
Efficiency ratio, normalized...................... 40.6 31.1 35.4 30.5 14.7
--------
(1) To assist in the comparability of our financial results, the "predecessor"
period (January 1 to March 28, 2003) has been combined with the "successor"
period (March 29 to March 31, 2003) to present "combined" results for the
three months ended March 31, 2003. See "Basis of Reporting" 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. See "Basis of Reporting" for a discussion on
the use of non-GAAP financial information and "Reconciliations to GAAP
Financial Measures" for quantitative reconciliations to the equivalent GAAP
basis financial measure.
(3) TETMA, TETMA + Owned Reserves and tangible common equity to tangible
managed assets are non-GAAP financial ratios that are used by Household
management and certain rating agencies to evaluate capital adequacy and may
differ from similarly named measures presented by other companies. Common
and preferred equity to owned assets is the most directly comparable GAAP
financial measure. Our equity ratios excluding the impact of "push-down"
accounting on our assets and common shareholder's equity would have been as
follows:
March 31, 2004 December 31, 2003 March 31, 2003
-------------- ----------------- --------------
TETMA............................................ 9.66% 8.89% 8.78%
TETMA + Owned Reserves........................... 12.61 11.76 11.70
Tangible common equity to tangible managed assets 7.61 6.93 6.60
See "Basis of Reporting" for a discussion on the use of non-GAAP financial
measures and "Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
4
Consolidated Statements of Income - Owned Basis
Three Months
% Change from
Three Months Ended Prior
----------------------------- --------------
3/31/04 12/31/03 3/31/03 (1) Qtr. Year
($ millions) -------- -------- ----------- ----- ------
Finance and other interest income.................... $2,542.8 $2,637.8 $2,545.0 (3.6)% (.1)%
Interest expense..................................... 637.3 593.9 912.0 7.3 (30.1)
-------- -------- -------- ----- ------
Net interest margin.................................. 1,905.5 2,043.9 1,633.0 (6.8) 16.7
Provision for credit losses on owned receivables..... 927.8 916.7 1,009.6 1.2 (8.1)
-------- -------- -------- ----- ------
Net interest margin after provision for credit losses 977.7 1,127.2 623.4 (13.3) 56.8
-------- -------- -------- ----- ------
Securitization revenue............................... 333.7 334.7 441.1 (.3) (24.3)
Insurance revenue.................................... 210.9 192.4 177.3 9.6 19.0
Investment income.................................... 40.8 44.2 81.3 (7.7) (49.8)
Fee income........................................... 267.6 281.6 288.6 (5.0) (7.3)
Other income......................................... 301.9 158.8 252.3 90.1 19.7
-------- -------- -------- ----- ------
Total other revenues................................. 1,154.9 1,011.7 1,240.6 14.2 (6.9)
-------- -------- -------- ----- ------
Salaries and fringe benefits......................... 485.8 507.4 508.6 (4.3) (4.5)
Sales incentives..................................... 78.6 64.6 39.1 21.7 100+
Occupancy and equipment expenses..................... 82.7 103.6 101.2 (20.2) (18.3)
Other marketing expenses............................. 131.7 141.3 143.5 (6.8) (8.2)
Other servicing and administrative expenses.......... 226.1 279.6 322.9 (19.1) (30.0)
Support services from affiliates..................... 177.4 -- -- 100.0 100.0
Amortization of acquired intangibles................. 115.6 82.8 14.3 39.6 100+
Policyholders' benefits.............................. 112.8 89.5 94.0 26.0 20.0
HSBC acquisition related costs incurred by Household. -- -- 198.2 -- (100.0)
-------- -------- -------- ----- ------
Total costs and expenses............................. 1,410.7 1,268.8 1,421.8 11.2 (.8)
-------- -------- -------- ----- ------
Income before income taxes........................... 721.9 870.1 442.2 (17.0) 63.3
Income taxes......................................... 240.8 295.8 186.8 (18.6) 28.9
-------- -------- -------- ----- ------
Net income........................................... $ 481.1 $ 574.3 $ 255.4 (16.2)% 88.4%
======== ======== ======== ===== ======
Operating net income (2)............................. $ 481.1 $ 574.3 $ 422.7 (16.2)% 13.8%
======== ======== ======== ===== ======
--------
(1) To assist in the comparability of our financial results, the "predecessor"
period (January 1 to March 28, 2003) has been combined with the "successor"
period (March 29 to March 31, 2003) to present "combined" results for the
three months ended March 31, 2003. See "Basis of Reporting" 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. See "Basis of Reporting" for a discussion on the use
of non-GAAP financial measures and "Reconciliations to GAAP Financial
Measures" for quantitative reconciliations to the equivalent GAAP basis
financial measure.
5
Securitization Revenue (1)
Three Months Ended
----------------------------
3/31/04 12/31/03 3/31/03 (2)
($ millions) ------- -------- -----------
Net initial gains.................. $ 2.9 $ 83.8 $ 35.3
Net replenishment gains............ 119.8 138.7 136.9
Servicing revenue and excess spread 211.0 112.2 268.9
------ ------ ------
Total.............................. $333.7 $334.7 $441.1
====== ====== ======
--------
(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 $112.3 million in the quarter ended
March 31, 2004, $137.4 million in the quarter ended December 31, 2003, and
$41.5 million in the quarter ended March 31, 2003.
(2) To assist in the comparability of our financial results, the "predecessor"
period (January 1 to March 28, 2003) has been combined with the "successor"
period (March 29 to March 31, 2003) to present "combined" results for the
three months ended March 31, 2003. See "Basis of Reporting" for additional
information regarding the "successor" period and "predecessor" period.
Receivables Securitized
Three Months Ended
----------------------------
3/31/04 12/31/03 3/31/03 (1)
($ millions) ------- -------- -----------
Auto finance............ -- $ 515.9 $ 410.8
MasterCard/Visa (2)..... $50.0 -- 320.0
Private label........... -- 1,000.0 --
Personal non-credit card -- 1,620.0 510.0
----- -------- --------
Total................... $50.0 $3,135.9 $1,240.8
===== ======== ========
--------
(1) To assist in the comparability of our financial results, the "predecessor"
period (January 1 to March 28, 2003) has been combined with the "successor"
period (March 29 to March 31, 2003) to present "combined" results for the
three months ended March 31, 2003. See "Basis of Reporting" for additional
information regarding the "successor" period and "predecessor" period.
(2) MasterCard and Visa are registered trademarks of MasterCard International,
Incorporated and VISA USA Inc., respectively.
6
Credit Quality/Credit Loss Reserves--Owned Basis
Two-Months-and-Over Contractual Delinquency
As a percent of owned consumer 3/31/04 12/31/03 3/31/03
receivables, excludes commercial. -------- -------- --------
Real estate secured....................................................... 3.87% 4.33% 4.15%
Auto finance.............................................................. 1.68 2.51 2.75
MasterCard/Visa........................................................... 5.90 5.76 6.87
Private label............................................................. 5.38 5.42 6.06
Personal non-credit card.................................................. 9.64 10.01 9.23
-------- -------- --------
Total..................................................................... 5.01% 5.36% 5.50%
======== ======== ========
Quarter-to-Date Charge-offs, Net of Recoveries
As a percent of average owned consumer 3/31/04 12/31/03 3/31/03
receivables, annualized, excludes commercial. -------- -------- --------
Real estate secured....................................................... 1.15 % .94 % 1.12 %
Auto finance.............................................................. 4.65 3.36 7.71
MasterCard/Visa........................................................... 8.66 8.55 9.26
Private label............................................................. 5.29 5.05 6.27
Personal non-credit card.................................................. 11.17 10.11 9.04
-------- -------- --------
Total..................................................................... 4.17 % 3.75 % 4.22 %
======== ======== ========
Real estate charge-offs and REO expense as a percent of average owned real
estate secured receivables.............................................. 1.63 % 1.37 % 1.52 %
-------- -------- --------
Credit Loss Reserves
3/31/04 12/31/03 3/31/03
($ millions) -------- -------- --------
Reserves for owned receivables at beginning of quarter.................... $3,793.1 $3,779.2 $3,332.6
Provision for credit losses............................................... 927.8 916.7 1,009.6
Charge-offs, net of recoveries............................................ (970.4) (883.6) (873.9)
Other, net................................................................ 2.5 (19.2) 14.8
-------- -------- --------
Reserves for owned receivables at end of quarter.......................... $3,753.0 $3,793.1 $3,483.1
======== ======== ========
Reserves as a percent of owned receivables................................ 4.01 % 4.11 % 4.17 %
-------- -------- --------
7
Nonperforming Assets
3/31/04 12/31/03 3/31/03
($ millions) ---------- ---------- ----------
Nonaccrual owned receivables.................................. $ 3,003.2 $ 3,143.6 $ 2,880.3
Accruing owned receivables 90 or more days delinquent......... 876.1 904.5 877.9
Renegotiated commercial loans................................. 1.5 1.6 1.4
---------- ---------- ----------
Total nonperforming owned receivables......................... 3,880.8 4,049.7 3,759.6
Real estate owned............................................. 656.4 631.2 444.9
---------- ---------- ----------
Total nonperforming assets.................................... $ 4,537.2 $ 4,680.9 $ 4,204.5
========== ========== ==========
Owned credit loss reserves as a percent of nonperforming owned
receivables................................................. 96.7 % 93.7 % 92.6 %
---------- ---------- ----------
Balance Sheet Data
3/31/04 12/31/03 3/31/03
($ millions) ---------- ---------- ----------
Owned assets.................................................. $115,872.7 $119,153.9 $107,516.9
Owned receivables............................................. 93,650.0 92,378.2 83,438.4
Investment securities (1)..................................... 6,736.5 11,073.1 7,081.2
Managed assets (2)............................................ 140,229.6 145,354.3 131,772.6
Managed receivables (2)....................................... 118,006.9 118,578.6 107,694.1
Debt (3)...................................................... 92,193.4 96,407.6 85,680.1
Preferred stock............................................... 1,100.0 1,100.0 1,100.0
Common shareholder's equity................................... 17,048.6 16,560.3 14,723.3
--------
1) Includes amounts held in our credit card bank and other liquidity-related
portfolios as well as in our insurance business. The unusually high balance
at December 31, 2003 is the result of cash received from the $2.8 billion
real estate secured loan sale to HSBC Bank USA on December 31, 2003 as well
as excess liquidity.
(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. See "Basis of Reporting" for a discussion on
the use of non-GAAP financial measures and "Reconciliations to GAAP
Financial Measures" for quantitative reconciliations to the equivalent GAAP
basis financial measure.
(3) Includes junior subordinated notes issued to Household Capital Trusts of
$1,059.6 million at March 31, 2004 and $1,061.4 million at December 31,
2003, and preferred securities of Household Capital Trusts of $1,021.9
million at March 31, 2003.
8
Receivables Analysis
End-of-Period Receivables
% Change
from Prior
-------------
3/31/04 12/31/03 3/31/03 Qtr. Year
($ millions) ---------- ---------- ---------- ----- -----
Owned receivables:
Real estate secured (1)...................... $ 52,440.2 $ 51,221.0 $ 47,256.6 2.4% 11.0%
Auto finance................................. 4,936.3 4,138.1 2,156.2 19.3 100+
MasterCard/Visa.............................. 10,787.9 11,182.0 8,452.5 (3.5) 27.6
Private label................................ 11,759.1 12,603.8 11,189.4 (6.7) 5.1
Personal non-credit card..................... 13,343.4 12,832.0 13,927.0 4.0 (4.2)
Commercial and other......................... 383.1 401.3 456.7 (4.5) (16.1)
---------- ---------- ---------- ----- -----
Total owned receivables......................... 93,650.0 92,378.2 83,438.4 1.4 12.2
---------- ---------- ---------- ----- -----
Purchase accounting fair value adjustments...... 366.0 418.9 1,773.8 (12.6) (79.4)
Accrued finance charges......................... 1,362.9 1,432.4 1,503.5 (4.9) (9.4)
Credit loss reserve for owned receivables....... (3,753.0) (3,793.1) (3,483.1) (1.1) 7.7
Unearned credit insurance premiums and claims
reserves...................................... (688.6) (702.6) (847.2) (2.0) (18.7)
Interest-only strip receivables (2)............. 861.5 953.6 1,109.4 (9.7) (22.3)
Amounts due and deferred from receivables sales. 234.8 339.9 832.9 (30.9) (71.8)
---------- ---------- ---------- ----- -----
Total owned receivables, net.................... 92,033.6 91,027.3 84,327.7 1.1 9.1
---------- ---------- ---------- ----- -----
Receivables serviced with limited recourse:
Real estate secured.......................... 182.1 193.6 339.2 (5.9) (46.3)
Auto finance................................. 4,092.5 4,674.8 5,226.8 (12.5) (21.7)
MasterCard/Visa.............................. 9,535.7 9,966.7 9,941.8 (4.3) (4.1)
Private label................................ 5,261.3 5,261.3 3,577.1 -- 47.1
Personal non-credit card..................... 5,285.3 6,104.0 5,170.8 (13.4) 2.2
---------- ---------- ---------- ----- -----
Total receivables serviced with limited recourse 24,356.9 26,200.4 24,255.7 (7.0) .4
---------- ---------- ---------- ----- -----
Total managed receivables, net (3).............. $116,390.5 $117,227.7 $108,583.4 (.7)% 7.2%
========== ========== ========== ===== =====
--------
(1) We sold higher quality non-conforming real estate secured receivables to
HSBC Bank USA of $.9 billion on March 31, 2004 and $2.8 billion on December
31, 2003.
(2) Our estimate of the recourse obligation, which is netted in our
interest-only strip receivables, totaled $2.2 billion at March 31, 2004,
$2.4 billion at December 31, 2003, and $1.8 billion at March 31, 2003.
(3) This non-GAAP financial measure is provided for comparison of our operating
trends and should be read in conjunction with our owned basis GAAP
financial information. See "Basis of Reporting" for a discussion on the use
of non-GAAP financial measures.
9
End-of-Period Managed Receivables (1)
% Change
from Prior
------------
3/31/04 12/31/03 3/31/03 Qtr. Year
($ millions) ---------- ---------- ---------- ---- -----
Real estate secured (2)..... $ 52,622.3 $ 51,414.6 $ 47,595.8 2.3% 10.6%
Auto finance................ 9,028.8 8,812.9 7,383.0 2.4 22.3
MasterCard/Visa............. 20,323.6 21,148.7 18,394.3 (3.9) 10.5
Private label............... 17,020.4 17,865.1 14,766.5 (4.7) 15.3
Personal non-credit card (3) 18,628.7 18,936.0 19,097.8 (1.6) (2.5)
Commercial and other........ 383.1 401.3 456.7 (4.5) (16.1)
---------- ---------- ---------- ---- -----
Managed portfolio........... $118,006.9 $118,578.6 $107,694.1 (.5)% 9.6%
========== ========== ========== ==== =====
3/31/04 12/31/03 3/31/03
Percent of managed portfolio ------- -------- -------
Real estate secured....... 44.6% 43.4% 44.2%
Auto finance.............. 7.7 7.4 6.9
MasterCard/Visa........... 17.2 17.8 17.1
Private label............. 14.4 15.1 13.7
Personal non-credit card.. 15.8 16.0 17.7
Commercial and other...... .3 .3 .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. See "Basis of Reporting" for additional discussion on the use
of non-GAAP financial measures.
(2) We sold higher quality non-conforming real estate secured receivables to
HSBC Bank USA of $.9 billion on March 31, 2004 and $2.8 billion on December
31, 2003.
(3) Personal non-credit card receivables are comprised of the following:
3/31/04 12/31/03 3/31/03
($ millions) --------- --------- ---------
Domestic personal non-credit card.. $ 9,658.6 $ 9,966.3 $10,093.3
Union Plus personal non-credit card 640.4 713.8 977.6
Personal homeowner loans........... 4,580.3 4,638.8 4,927.3
Foreign non-credit card............ 3,749.4 3,617.1 3,099.6
--------- --------- ---------
Total.............................. $18,628.7 $18,936.0 $19,097.8
========= ========= =========
10
Supplemental Managed Basis Information
Revenues, Average Interest-Earning Assets and Net Interest Margin
Securitizations and sales of consumer receivables are a source of liquidity
for us. We continue to service the securitized receivables after such
receivables are sold and we retain a limited recourse obligation.
Securitizations impact the classification of revenues. When reporting on a
managed basis, net interest margin, provision for credit losses, and fee income
related to receivables securitized and sold are reclassified from
securitization revenue in our owned statements of income into the appropriate
caption.
Three Months
% Change
Three Months Ended from Prior
------------------------------------------------------ -------------
3/31/04 (1) 12/31/03 (1) 3/31/03 (2) (1) Qtr. Year
($ millions) ---------- ----- ---------- ----- ----------- ----- ----- -----
Finance and other interest
income.................... $ 3,416.6 10.94% $ 3,471.9 11.11% $ 3,423.0 12.04% (1.6)% (.2)%
Interest expense............ 772.0 2.47 728.2 2.33 1,064.4 3.74 6.0 (27.5)
---------- ----- ---------- ----- ---------- ----- ----- -----
Net interest margin......... 2,644.6 8.47% 2,743.7 8.78% 2,358.6 8.30% (3.6) 12.1
Provision for credit losses. 1,180.9 1,748.0 1,416.9 (32.4) (16.7)
---------- ---------- ---------- ----- -----
Net interest margin after
provision for credit
losses.................... $ 1,463.7 $ 995.7 $ 941.7 47.0% 55.4%
========== ========== ========== ===== =====
Insurance revenue........... $ 210.9 $ 192.4 $ 177.3 9.6 % 19.0%
Investment income........... 40.8 44.2 81.3 (7.7) (49.8)
Fee income.................. 464.9 483.0 443.2 (3.7) 4.9
Securitization revenue...... (349.6) 264.8 (31.8) (100+) 100+
Other income................ 301.9 158.8 252.3 90.1 19.7
---------- ---------- ---------- ----- -----
Total other revenues........ $ 668.9 $ 1,143.2 $ 922.3 (41.5)% (27.5)%
========== ========== ========== ===== =====
Average managed receivables:
Real estate secured...... $ 52,164.8 $ 53,844.9 $ 46,756.5 (3.1)% 11.6%
Auto finance............. 8,902.0 8,627.7 7,362.9 3.2 20.9
MasterCard/Visa.......... 20,823.0 20,322.6 18,676.4 2.5 11.5
Private label............ 17,470.5 17,058.5 14,839.1 2.4 17.7
Personal non-credit
card................... 18,857.3 18,866.3 19,398.0 -- (2.8)
Commercial and other..... 391.0 403.1 458.4 (3.0) (14.7)
Purchase accounting fair
value adjustments...... 390.5 443.7 57.2 (12.0) 100+
---------- ---------- ---------- ----- -----
Total....................... 118,999.1 119,566.8 107,548.5 (.5) 10.6
Average noninsurance
investments............... 5,313.2 4,792.8 5,551.9 10.9 (4.3)
Other interest-earning
assets.................... 641.2 637.4 619.9 .6 3.4
---------- ---------- ---------- ----- -----
Average managed interest-
earning assets............ $124,953.5 $124,997.0 $113,720.3 -- % 9.9%
========== ========== ========== ===== =====
--------
(1) % Columns: comparison to average managed interest-earning assets,
annualized.
(2) To assist in the comparability of our financial results, the "predecessor"
period (January 1 to March 28, 2003) has been combined with the "successor"
period (March 29 to March 31, 2003) to present "combined" results for the
three months ended March 31, 2003. See "Basis of Reporting" for additional
information regarding the "successor" period and "predecessor" period.
11
Supplemental Managed Basis Information
Credit Quality/Credit Loss Reserves--Managed Basis
Two-Months-and-Over Contractual Delinquency
As a percent of managed consumer 3/31/04 12/31/03 3/31/03
receivables, excludes commercial. --------- --------- ---------
Real estate secured.................................................... 3.89 % 4.35 % 4.18 %
Auto finance........................................................... 2.63 3.84 2.90
MasterCard/Visa........................................................ 4.35 4.16 4.57
Private label.......................................................... 4.98 4.94 5.77
Personal non-credit card............................................... 10.36 10.69 9.65
--------- --------- ---------
Total.................................................................. 5.06 % 5.39 % 5.36 %
========= ========= =========
Quarter-to-Date Charge-offs, Net of Recoveries
As a percent of average managed consumer 3/31/04 12/31/03 3/31/03
receivables, annualized, excludes commercial. --------- --------- ---------
Real estate secured.................................................... 1.15 % .94 % 1.12 %
Auto finance........................................................... 7.81 6.27 8.10
MasterCard/Visa........................................................ 7.08 7.03 7.01
Private label.......................................................... 5.06 4.95 5.91
Personal non-credit card............................................... 11.21 10.05 9.18
--------- --------- ---------
Total.................................................................. 4.88 % 4.39 % 4.75 %
========= ========= =========
Real estate charge-offs and REO expense as a percent of average managed
real estate secured receivables...................................... 1.63 % 1.37 % 1.52 %
--------- --------- ---------
Credit Loss Reserves
3/31/04 12/31/03 3/31/03
($ millions) --------- --------- ---------
Reserves for managed receivables at beginning of quarter............... $ 6,166.6 $ 5,733.2 $ 5,092.1
Provision for credit losses............................................ 1,180.9 1,748.0 1,416.9
Charge-offs, net of recoveries......................................... (1,441.9) (1,304.1) (1,272.3)
Other, net............................................................. 5.9 (10.5) 22.6
--------- --------- ---------
Reserves for managed receivables at end of quarter..................... $ 5,911.5 $ 6,166.6 $ 5,259.3
========= ========= =========
Reserves as a percent of managed receivables........................... 5.01 % 5.20 % 4.88 %
--------- --------- ---------
Nonperforming Assets
3/31/04 12/31/03 3/31/03
($ millions) --------- --------- ---------
Nonaccrual managed receivables......................................... $ 3,726.7 $ 4,009.2 $ 3,517.8
Accruing managed receivables 90 or more days delinquent................ 1,208.0 1,215.1 1,207.1
Renegotiated commercial loans.......................................... 1.5 1.6 1.4
--------- --------- ---------
Total nonperforming managed receivables................................ 4,936.2 5,225.9 4,726.3
Real estate owned...................................................... 656.4 631.2 444.9
--------- --------- ---------
Total nonperforming assets............................................. $ 5,592.6 $ 5,857.1 $ 5,171.2
========= ========= =========
Managed credit loss reserves as a percent of nonperforming managed
receivables.......................................................... 119.8 % 118.0 % 111.3 %
--------- --------- ---------
12
Supplemental Managed Basis Information
Restructuring Statistics
Our policies and practices for the collection of consumer receivables,
including our customer account management 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 policies and practices vary by product and are designed to
manage customer relationships, maximize collection opportunities and avoid
foreclosure or repossession if reasonably possible.
The tables below summarize approximate restructuring statistics in our
managed basis domestic portfolio. We report our 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. Our restructure statistics are compiled using certain
assumptions and estimates and we continue to enhance our ability to capture
restructure data across all business units. When comparing restructuring
statistics from different periods, the fact that our restructure policies and
practices will change over time, that exceptions are made to those policies and
practices, and that our data capture methodologies will be enhanced over time,
should be taken into account. Further, to the best of our knowledge, most of
our competitors do not disclose account restructuring, reaging, loan rewriting,
forbearance, modification, deferment or extended payment information comparable
to the information we have disclosed, and the lack of such disclosure by other
lenders may limit the ability to draw meaningful conclusions about us and our
business based solely on data or information regarding account restructuring
statistics or policies.
Total Restructured by Restructure Period -- Domestic Portfolio--(1) 3/31/04 12/31/03 3/31/03
(Managed Basis) ------- -------- -------
Never restructured..................................... 84.7% 84.4% 83.3%
Restructured:
Restructured in the last 6 months................... 6.2 6.7 7.5
Restructured in the last 7-12 months................ 3.9 3.8 3.6
Previously restructured beyond 12 months.............. 5.2 5.1 5.6
----- ----- -----
Total ever restructured (2)......................... 15.3 15.6 16.7
----- ----- -----
Total.................................................. 100.0% 100.0% 100.0%
===== ===== =====
Total Restructured by Product -- Domestic Portfolio--(1)
(Managed Basis) 3/31/04 12/31/03 3/31/03
($ millions) ------------------------- -------------- --------------
Real estate secured................ $ 9,506.0 18.9% $ 9,548.5 19.4% $ 9,163.4 20.0%
Auto finance....................... 1,255.0 13.9 1,295.5 14.7 1,247.7 16.9
MasterCard/Visa.................... 504.6 2.8 583.7 3.1 549.2 3.4
Private label...................... 990.0 7.0 1,064.6 7.1 1,225.8 9.6
Personal non-credit card........... 3,913.3 26.3 4,074.9 26.6 4,127.5 25.8
--------- ---- --------- ---- --------- ----
Total (2).......................... $16,168.9 15.3% $16,567.2 15.6% $16,313.6 16.7%
========= ==== ========= ==== ========= ====
--------
(1) Excludes foreign businesses, commercial and other. Amounts also 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 14.4 percent at March 31, 2004, 14.7
percent at December 31, 2003, and 15.8 percent at March 31, 2003.
The amount of domestic and foreign managed receivables in forbearance,
modification, credit card services approved consumer credit counseling
accommodations, rewrites or other customer account management techniques for
which we have reset delinquency and that is not included in the restructured or
delinquency statistics was approximately $1.0 billion or .8 percent of managed
receivables at March 31, 2004, $1.0 billion or .9 percent of managed
receivables at December 31, 2003 and $1.1 billion or 1.0 percent of managed
receivables at March 31, 2003.
13
Reconciliations to GAAP Financial Measures
Selected Financial Ratios
Three Months Ended
----------------------------------
3/31/04 12/31/03 3/31/03
($ millions) ---------- ---------- ----------
Return on Average Common Shareholder's Equity:
Net income.......................................................... $ 481.1 $ 574.3 $ 255.4
Dividends on preferred stock..................................... (17.9) (17.9) (22.2)
---------- ---------- ----------
Net income available to common shareholders......................... $ 463.2 $ 556.4 $ 233.2
HSBC acquisition related costs incurred by Household................ -- -- 167.3
---------- ---------- ----------
Operating net income available to common shareholders............... $ 463.2 $ 556.4 $ 400.5
---------- ---------- ----------
Average common shareholder's equity................................. $ 16,800.4 $ 16,050.5 $ 9,354.6
---------- ---------- ----------
Return on average common shareholder's equity....................... 11.0% 13.9 % 10.0 %
Return on average common shareholder's equity, operating basis...... 11.0 13.9 17.1
---------- ---------- ----------
Return on Average Assets:
Net income.......................................................... $ 481.1 $ 574.3 $ 255.4
Operating net income................................................ 481.1 574.3 422.7
---------- ---------- ----------
Average assets:
Owned basis...................................................... $119,461.5 $117,659.5 $100,437.9
Serviced with limited recourse................................... 25,277.4 24,568.1 24,155.3
---------- ---------- ----------
Managed basis.................................................... $144,738.9 $142,227.6 $124,593.2
---------- ---------- ----------
Return on average owned assets...................................... 1.61 % 1.95 % 1.02 %
Return on average owned assets, operating basis..................... 1.61 1.95 1.68
Return on average managed assets.................................... 1.33 1.62 .82
Return on average managed assets, operating basis................... 1.33 1.62 1.36
---------- ---------- ----------
Efficiency Ratio:
Total costs and expenses less policyholders' benefits............... $ 1,297.9 $ 1,179.3 $ 1,327.8
HSBC acquisition related costs incurred by Household............. -- -- (198.2)
---------- ---------- ----------
Total costs and expenses less policyholders' benefits, excluding
nonrecurring items............................................. $ 1,297.9 $ 1,179.3 $ 1,129.6
---------- ---------- ----------
Net interest margin and other revenues
less policyholders' benefits:
Owned basis...................................................... $ 2,947.6 $ 2,966.1 $ 2,779.6
Serviced with limited recourse................................... 253.1 831.3 407.3
---------- ---------- ----------
Managed basis.................................................... $ 3,200.7 $ 3,797.4 $ 3,186.9
---------- ---------- ----------
Owned basis efficiency ratio........................................ 44.0 % 39.8 % 47.8 %
Owned basis efficiency ratio, operating basis....................... 44.0 39.8 40.6
Managed basis efficiency ratio...................................... 40.6 31.1 41.7
Managed basis efficiency ratio, operating basis..................... 40.6 31.1 35.4
---------- ---------- ----------
Managed Basis Risk Adjusted Revenue:
Net interest margin................................................. $ 2,644.6 $ 2,743.7 $ 2,358.6
Other revenues, excluding securitization revenue.................... 1,018.5 878.4 954.1
Less: Net charge-offs............................................... (1,441.9) (1,304.1) (1,272.3)
---------- ---------- ----------
Risk adjusted revenue............................................... $ 2,221.2 $ 2,318.0 $ 2,040.4
Average interest-earning assets..................................... 124,953.5 124,997.0 113,720.3
---------- ---------- ----------
Managed basis risk adjusted revenue................................. 7.11% 7.42% 7.18 %
========== ========== ==========
14
Reconciliations to GAAP Financial Measures
Revenues, Average Interest-Earning Assets and Net Interest Margin
Three Months Ended 3/31/04 Three Months Ended 12/31/03
----------------------------------- ------------------------------------
Serviced with Serviced with
Limited Limited
Owned Recourse (1) Managed Owned Recourse (1) Managed
($ millions) --------- ------------- ---------- ---------- ------------- ----------
Finance and other
interest income......... $ 2,542.8 $ 873.8 $ 3,416.6 $ 2,637.8 $ 834.1 $ 3,471.9
Interest expense......... 637.3 134.7 772.0 593.9 134.3 728.2
--------- --------- ---------- ---------- --------- ----------
Net interest margin...... 1,905.5 739.1 2,644.6 2,043.9 699.8 2,743.7
Provision for credit
losses.................. 927.8 253.1 1,180.9 916.7 831.3 1,748.0
--------- --------- ---------- ---------- --------- ----------
Net interest margin after
provision for credit
losses.................. $ 977.7 $ 486.0 $ 1,463.7 $ 1,127.2 $ (131.5) $ 995.7
========= ========= ========== ========== ========= ==========
Securitization revenue... $ 333.7 $ (683.3) $ (349.6) $ 334.7 $ (69.9) $ 264.8
Insurance revenue........ 210.9 -- 210.9 192.4 -- 192.4
Investment income........ 40.8 -- 40.8 44.2 -- 44.2
Fee income............... 267.6 197.3 464.9 281.6 201.4 483.0
Other income............. 301.9 -- 301.9 158.8 -- 158.8
--------- --------- ---------- ---------- --------- ----------
Total other revenues..... $ 1,154.9 $ (486.0) $ 668.9 $ 1,011.7 $ 131.5 $ 1,143.2
========= ========= ========== ========== ========= ==========
Average receivables...... $93,721.7 $25,277.4 $118,999.1 $ 94,998.7 $24,568.1 $119,566.8
Average noninsurance
investments............. 5,313.2 -- 5,313.2 4,792.8 -- 4,792.8
Other interest-earning
assets.................. 641.2 -- 641.2 637.4 -- 637.4
--------- --------- ---------- ---------- --------- ----------
Average interest-earning
assets.................. $99,676.1 $25,277.4 $124,953.5 $100,428.9 $24,568.1 $124,997.0
========= ========= ========== ========== ========= ==========
Net interest margin as a
percentage of average
interest-earning
assets.................. 7.65% 11.70% 8.47% 8.14% 11.39% 8.78%
========= ========= ========== ========== ========= ==========
Three Months Ended 3/31/03
-----------------------------------
Serviced with
Limited
Owned Recourse (1) Managed
($ millions) --------- ------------- ----------
Finance and other
interest income......... $ 2,545.0 $ 878.0 $ 3,423.0
Interest expense......... 912.0 152.4 1,064.4
--------- --------- ----------
Net interest margin...... 1,633.0 725.6 2,358.6
Provision for credit
losses.................. 1,009.6 407.3 1,416.9
--------- --------- ----------
Net interest margin after
provision for credit
losses.................. $ 623.4 $ 318.3 $ 941.7
========= ========= ==========
Securitization revenue... $ 441.1 $ (472.9) $ (31.8)
Insurance revenue........ 177.3 -- 177.3
Investment income........ 81.3 -- 81.3
Fee income............... 288.6 154.6 443.2
Other income............. 252.3 -- 252.3
--------- --------- ----------
Total other revenues..... $ 1,240.6 $ (318.3) $ 922.3
========= ========= ==========
Average receivables...... $83,393.2 $24,155.3 $107,548.5
Average noninsurance
investments............. 5,551.9 -- 5,551.9
Other interest-earning
assets.................. 619.9 -- 619.9
--------- --------- ----------
Average interest-earning
assets.................. $89,565.0 $24,155.3 $113,720.3
========= ========= ==========
Net interest margin as a
percentage of average
interest-earning
assets.................. 7.29% 12.02% 8.30%
========= ========= ==========
--------
(1) When reporting on a managed basis, finance and other interest income,
interest expense, provision for credit losses and fee income related to
securitized receivables are reclassified from securitization revenue in our
owned statements of income into the appropriate caption.
15
Reconciliations to GAAP Financial Measures
Credit Quality/Credit Loss Reserves
Two-Months-and-Over Quarter-to-Date Charge-offs,
Contractual Delinquency Net of Recoveries
-------------------------------------------------- ----------------------------------
Two-Months-and-Over Consumer Two-Months-and-Over Average
Contractual Receivables Contractual Net Consumer Net
Delinquency Outstanding Delinquency Charge-offs Receivables Charge-offs
($ millions) ------------------- ----------- ------------------- ----------- ----------- -----------
March 31, 2004
Owned:
First mortgage............ $ 2.2 $ 31.8 6.92% $ .4 $ 33.5 4.78%
Real estate secured....... 2,030.7 52,440.2 3.87 149.1 51,976.2 1.15
Auto finance.............. 82.8 4,936.3 1.68 52.4 4,511.2 4.65
MasterCard/Visa........... 636.9 10,787.9 5.90 240.9 11,129.0 8.66
Private label............. 632.5 11,759.1 5.38 161.4 12,209.2 5.29
Personal non-credit card.. 1,285.8 13,343.4 9.64 366.2 13,114.6 11.17
-------- ---------- ----- -------- ---------- -----
Total..................... $4,670.9 $ 93,298.7 5.01% $ 970.4 $ 92,973.7 4.17%
======== ========== ===== ======== ========== =====
Serviced with Limited
Recourse:
Real estate secured....... $ 18.3 $ 182.1 10.05% $ .5 $ 188.6 1.06%
Auto finance.............. 155.0 4,092.5 3.79 121.5 4,390.8 11.07
MasterCard/Visa........... 246.6 9,535.7 2.59 127.7 9,694.0 5.27
Private label............. 215.4 5,261.3 4.09 59.6 5,261.3 4.53
Personal non-credit card.. 645.0 5,285.3 12.20 162.2 5,742.7 11.30
-------- ---------- ----- -------- ---------- -----
Total..................... $1,280.3 $ 24,356.9 5.26% $ 471.5 $ 25,277.4 7.46%
======== ========== ===== ======== ========== =====
Managed:
First mortgage............ $ 2.2 $ 31.8 6.92% $ .4 $ 33.5 4.78%
Real estate secured....... 2,049.0 52,622.3 3.89 149.6 52,164.8 1.15
Auto finance.............. 237.8 9,028.8 2.63 173.9 8,902.0 7.81
MasterCard/Visa........... 883.5 20,323.6 4.35 368.6 20,823.0 7.08
Private label............. 847.9 17,020.4 4.98 221.0 17,470.5 5.06
Personal non-credit card.. 1,930.8 18,628.7 10.36 528.4 18,857.3 11.21
-------- ---------- ----- -------- ---------- -----
Total..................... $5,951.2 $117,655.6 5.06% $1,441.9 $118,251.1 4.88%
======== ========== ===== ======== ========== =====
December 31, 2003
Owned:
First mortgage............ $ 3.2 $ 35.0 9.14% $ .1 $ 35.4 1.13%
Real estate secured....... 2,216.9 51,221.0 4.33 126.3 53,642.1 .94
Auto finance.............. 104.0 4,138.1 2.51 33.3 3,961.1 3.36
MasterCard/Visa........... 643.7 11,182.0 5.76 221.9 10,379.1 8.55
Private label............. 683.7 12,603.8 5.42 158.6 12,563.8 5.05
Personal non-credit card.. 1,284.6 12,832.0 10.01 343.9 13,605.8 10.11
-------- ---------- ----- -------- ---------- -----
Total..................... $4,936.1 $ 92,011.9 5.36% $ 884.1 $ 94,187.3 3.75%
======== ========== ===== ======== ========== =====
Serviced with Limited
Recourse:
Real estate secured....... $ 21.4 $ 193.6 11.05% $ .8 $ 202.8 1.58%
Auto finance.............. 234.4 4,674.8 5.01 102.0 4,666.6 8.74
MasterCard/Visa........... 236.8 9,966.7 2.38 135.1 9,943.5 5.43
Private label............. 199.3 5,261.3 3.79 52.4 4,494.7 4.66
Personal non-credit card.. 740.0 6,104.0 12.12 130.2 5,260.5 9.90
-------- ---------- ----- -------- ---------- -----
Total..................... $1,431.9 $ 26,200.4 5.47% $ 420.5 $ 24,568.1 6.85%
======== ========== ===== ======== ========== =====
Managed:
First mortgage............ $ 3.2 $ 35.0 9.14% $ .1 $ 35.4 1.13%
Real estate secured....... 2,238.3 51,414.6 4.35 127.1 53,844.9 .94
Auto finance.............. 338.4 8,812.9 3.84 135.3 8,627.7 6.27
MasterCard/Visa........... 880.5 21,148.7 4.16 357.0 20,322.6 7.03
Private label............. 883.0 17,865.1 4.94 211.0 17,058.5 4.95
Personal non-credit card.. 2,024.6 18,936.0 10.69 474.1 18,866.3 10.05
-------- ---------- ----- -------- ---------- -----
Total..................... $6,368.0 $118,212.3 5.39% $1,304.6 $118,755.4 4.39%
======== ========== ===== ======== ========== =====
16
Reconciliations to GAAP Financial Measures
Two-Months-and-Over Quarter-to-Date Charge-offs,
Contractual Delinquency Net of Recoveries
-------------------------------------------------- ----------------------------------
Two-Months-and-Over Consumer Two-Months-and-Over Average
Contractual Receivables Contractual Net Consumer Net
Delinquency Outstanding Delinquency Charge-offs Receivables Charge-offs
($ millions) ------------------- ----------- ------------------- ----------- ----------- -----------
March 31, 2003
Owned:
First mortgage............ $ 4.4 $ 41.4 10.63% $ .1 $ 42.8 .93%
Real estate secured....... 1,959.9 47,256.6 4.15 129.6 46,385.1 1.12
Auto finance.............. 59.2 2,156.2 2.75 41.8 2,168.2 7.71
MasterCard/Visa........... 580.9 8,452.5 6.87 205.5 8,881.6 9.26
Private label............. 677.6 11,189.4 6.06 176.6 11,262.0 6.27
Personal non-credit card.. 1,285.1 13,927.0 9.23 320.3 14,180.7 9.04
-------- ---------- ----- -------- ---------- ----
Total..................... $4,567.1 $ 83,023.1 5.50% $ 873.9 $ 82,920.4 4.22%
======== ========== ===== ======== ========== ====
Serviced with Limited
Recourse:
Real estate secured....... $ 31.2 $ 339.2 9.20% $ 1.8 $ 371.4 1.94%
Auto finance.............. 155.1 5,226.8 2.97 107.2 5,194.7 8.25
MasterCard/Visa........... 259.0 9,941.8 2.61 121.8 9,794.8 4.97
Private label............. 174.7 3,577.1 4.88 42.5 3,577.1 4.75
Personal non-credit card.. 557.9 5,170.8 10.79 125.1 5,217.3 9.59
-------- ---------- ----- -------- ---------- ----
Total..................... $1,177.9 $ 24,255.7 4.86% $ 398.4 $ 24,155.3 6.60%
======== ========== ===== ======== ========== ====
Managed:
First mortgage............ $ 4.4 $ 41.4 10.63% $ .1 $ 42.8 .93%
Real estate secured....... 1,991.1 47,595.8 4.18 131.4 46,756.5 1.12
Auto finance.............. 214.3 7,383.0 2.90 149.0 7,362.9 8.10
MasterCard/Visa........... 839.9 18,394.3 4.57 327.3 18,676.4 7.01
Private label............. 852.3 14,766.5 5.77 219.1 14,839.1 5.91
Personal non-credit card.. 1,843.0 19,097.8 9.65 445.4 19,398.0 9.18
-------- ---------- ----- -------- ---------- ----
Total..................... $5,745.0 $107,278.8 5.36% $1,272.3 $107,075.7 4.75%
======== ========== ===== ======== ========== ====
17
Reconciliations to GAAP Financial Measures
Serviced with
Limited
Owned Recourse Managed
($ millions) --------- ------------- ----------
Real Estate Charge-offs and REO Expense:
Three months ended March 31, 2004
Real estate charge-offs and REO expense......................................... $ 212.1 $ .5 $ 212.6
Average real estate secured receivables......................................... 51,976.2 188.6 52,164.8
--------- --------- ----------
Real estate charge-offs and REO expense as a percentage of average real estate secured
receivables.................................................................... 1.63% 1.06% 1.63%
--------- --------- ----------
Three months ended December 31, 2003
Real estate charge-offs and REO expense......................................... $ 183.3 $ .8 $ 184.1
Average real estate secured receivables......................................... 53,642.1 202.8 53,844.9
--------- --------- ----------
Real estate charge-offs and REO expense as a percentage of average real estate secured
receivables.................................................................... 1.37% 1.58% 1.37%
--------- --------- ----------
Three months ended March 31, 2003
Real estate charge-offs and REO expense......................................... $ 176.2 $ 1.8 $ 178.0
Average real estate secured receivables......................................... 46,385.1 371.4 46,756.5
--------- --------- ----------
Real estate charge-offs and REO expense as a percentage of average real estate secured
receivables.................................................................... 1.52% 1.94% 1.52%
--------- --------- ----------
Credit Loss Reserves:
Three months ended March 31, 2004
Reserves for receivables at beginning of quarter................................ $ 3,793.1 $ 2,373.5 $ 6,166.6
Provision for credit losses..................................................... 927.8 253.1 1,180.9
Charge-offs, net of recoveries.................................................. (970.4) (471.5) (1,441.9)
Other, net...................................................................... 2.5 3.4 5.9
--------- --------- ----------
Reserves for receivables at end of quarter...................................... $ 3,753.0 $ 2,158.5 $ 5,911.5
========= ========= ==========
Receivables..................................................................... $93,650.0 $24,356.9 $118,006.9
Credit loss reserves as a percent of receivables................................ 4.01% 8.86% 5.01%
--------- --------- ----------
Three months ended December 31, 2003
Reserves for receivables at beginning of quarter................................ $ 3,779.2 $ 1,954.0 $ 5,733.2
Provision for credit losses..................................................... 916.7 831.3 1,748.0
Charge-offs, net of recoveries.................................................. (883.6) (420.5) (1,304.1)
Other, net...................................................................... (19.2) 8.7 (10.5)
--------- --------- ----------
Reserves for receivables at end of quarter...................................... $ 3,793.1 $ 2,373.5 $ 6,166.6
========= ========= ==========
Receivables..................................................................... $92,378.2 $26,200.4 $118,578.6
Credit loss reserves as a percent of receivables................................ 4.11% 9.06% 5.20%
--------- --------- ----------
Three months ended March 31, 2003
Reserves for receivables at beginning of quarter................................ $ 3,332.6 $ 1,759.5 $ 5,092.1
Provision for credit losses..................................................... 1,009.6 407.3 1,416.9
Charge-offs, net of recoveries.................................................. (873.9) (398.4) (1,272.3)
Other, net...................................................................... 14.8 7.8 22.6
--------- --------- ----------
Reserves for receivables at end of quarter...................................... $ 3,483.1 $ 1,776.2 $ 5,259.3
========= ========= ==========
Receivables..................................................................... $83,438.4 $24,255.7 $107,694.1
Credit loss reserves as a percent of receivables................................ 4.17% 7.32% 4.88%
--------- --------- ----------
18
Reconciliations to GAAP Financial Measures
Serviced with
Limited
Owned Recourse Managed
($ millions) -------- ------------- --------
Nonperforming Assets:
March 31, 2004
Nonaccrual receivables.......................................... $3,003.2 $ 723.5 $3,726.7
Accruing receivables 90 or more days delinquent................. 876.1 331.9 1,208.0
Renegotiated commercial loans................................... 1.5 -- 1.5
-------- -------- --------
Total nonperforming receivables................................. 3,880.8 1,055.4 4,936.2
Real estate owned............................................... 656.4 -- 656.4
-------- -------- --------
Total nonperforming assets...................................... $4,537.2 $1,055.4 $5,592.6
======== ======== ========
Credit loss reserves as a percent of nonperforming receivables.. 96.7% -- 119.8%
-------- -------- --------
December 31, 2003
Nonaccrual receivables.......................................... $3,143.6 $ 865.6 $4,009.2
Accruing receivables 90 or more days delinquent................. 904.5 310.6 1,215.1
Renegotiated commercial loans................................... 1.6 -- 1.6
-------- -------- --------
Total nonperforming receivables................................. 4,049.7 1,176.2 5,225.9
Real estate owned............................................... 631.2 -- 631.2
-------- -------- --------
Total nonperforming assets...................................... $4,680.9 $1,176.2 $5,857.1
======== ======== ========
Credit loss reserves as a percent of nonperforming receivables.. 93.7% -- 118.0%
-------- -------- --------
March 31, 2003
Nonaccrual receivables.......................................... $2,880.3 $ 637.5 $3,517.8
Accruing receivables 90 or more days delinquent................. 877.9 329.2 1,207.1
Renegotiated commercial loans................................... 1.4 -- 1.4
-------- -------- --------
Total nonperforming receivables................................. 3,759.6 966.7 4,726.3
Real estate owned............................................... 444.9 -- 444.9
-------- -------- --------
Total nonperforming assets...................................... $4,204.5 $ 966.7 $5,171.2
======== ======== ========
Credit loss reserves as a percent of nonperforming receivables.. 92.6% -- 111.3%
-------- -------- --------
19
Reconciliations to GAAP Financial Measures
Equity Ratios
March 31, December 31, March 31,
2004 2003 2003
($ millions) ---------- ------------ ----------
Tangible common equity:
Common shareholder's equity....................................................... $ 17,048.6 $ 16,560.3 $ 14,723.3
Exclude:
Unrealized gains on cash flow hedging instruments.............................. (38.8) (97.4) (41.9)
Unrealized gains on investments and interest-only strip receivables............ (215.9) (167.0) (6.6)
Acquired intangibles........................................................... (2,749.4) (2,855.8) (1,880.0)
Goodwill....................................................................... (6,853.1) (6,697.0) (7,137.1)
---------- ---------- ----------
Tangible common equity............................................................ 7,191.4 6,743.1 5,657.7
Purchase accounting adjustments................................................... 2,482.4 2,426.4 2,203.0
---------- ---------- ----------
Tangible common equity, excluding purchase accounting adjustments................. $ 9,673.8 $ 9,169.5 $ 7,860.7
========== ========== ==========
Tangible shareholder's equity:
Tangible common equity............................................................ $ 7,191.4 $ 6,743.1 $ 5,657.7
Preferred stock................................................................... 1,100.0 1,100.0 1,100.0
Mandatorily redeemable preferred securities of Household Capital Trusts........... 1,029.4 1,031.2 1,021.9
Adjustable Conversion-Rate Equity Security Units.................................. 521.8 519.1 511.0
---------- ---------- ----------
Tangible shareholder's equity..................................................... 9,842.6 9,393.4 8,290.6
Purchase accounting adjustments................................................... 2,428.0 2,370.2 2,156.1
---------- ---------- ----------
Tangible shareholder's equity, excluding purchase accounting adjustments.......... $ 12,270.6 $ 11,763.6 $ 10,446.7
========== ========== ==========
Tangible shareholder's equity plus owned loss reserves:
Tangible shareholder's equity..................................................... $ 9,842.6 $ 9,393.4 $ 8,290.6
Owned loss reserves............................................................... 3,753.0 3,793.1 3,483.1
---------- ---------- ----------
Tangible shareholder's equity plus owned loss reserves............................ 13,595.6 13,186.5 11,773.7
Purchase accounting adjustments................................................... 2,428.0 2,370.2 2,156.1
---------- ---------- ----------
Tangible shareholder's equity plus owned loss reserves, excluding purchase accounting
adjustments...................................................................... $ 16,023.6 $ 15,556.7 $ 13,929.8
========== ========== ==========
Tangible managed assets:
Owned assets...................................................................... $115,872.7 $119,153.9 $107,516.9
Receivables serviced with limited recourse........................................ 24,356.9 26,200.4 24,255.7
---------- ---------- ----------
Managed assets.................................................................... 140,229.6 145,354.3 131,772.6
Exclude:
Acquired intangibles........................................................... (2,749.4) (2,855.8) (1,880.0)
Goodwill....................................................................... (6,853.1) (6,697.0) (7,137.1)
Derivative financial assets.................................................... (3,189.7) (3,117.7) (2,523.3)
---------- ---------- ----------
Tangible managed assets........................................................... 127,437.4 132,683.8 120,232.2
Purchase accounting adjustments................................................... (371.3) (431.2) (1,194.6)
---------- ---------- ----------
Tangible managed assets, excluding purchase accounting adjustments................ $127,066.1 $132,252.6 $119,037.6
========== ========== ==========
Equity ratios:
Common and preferred equity to owned assets....................................... 15.66 % 14.82 % 14.72 %
Tangible common equity to tangible managed assets................................. 5.64 5.08 4.71
Tangible shareholder's equity to tangible managed assets.......................... 7.72 7.08 6.90
Tangible shareholder's equity plus owned loss reserves to tangible managed assets. 10.67 9.94 9.79
Excluding purchase accounting adjustments:
Tangible common equity to tangible managed assets.............................. 7.61 6.93 6.60
Tangible shareholder's equity to tangible managed assets....................... 9.66 8.89 8.78
Tangible shareholder's equity plus owned loss reserves to tangible managed assets 12.61 11.76 11.70
---------- ---------- ----------
20
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