HSBC Bk Canada FY2002 Results
HSBC Holdings PLC
13 February 2003
HSBC BANK CANADA
FOURTH QUARTER 2002 RESULTS - HIGHLIGHTS
* Net income ^ was C$260 million for the year ended 31 December 2002, an
increase of 21.5 per cent from C$214 million in the same period of 2001.
* Net income ^ was C$65 million for the quarter ended 31 December 2002, an
increase of 27.5 per cent from C$51 million in the fourth quarter of 2001.
* Return on average common equity was 16.4 per cent for the year ended 31
December 2002 and 15.9 per cent for the quarter ended 31 December 2002 compared
to 14.9 per cent and 13.3 per cent, respectively, for the same periods in 2001.
* The cost:income ratio was 56.4 per cent for the year ended 31 December 2002
and 57.7 per cent for the quarter ended 31 December 2002, compared with 60.0 per
cent and 64.0 per cent for the respective periods in 2001.
* Total assets of C$35.2 billion at 31 December 2002 compared to C$33.3 billion
at 31 December 2001.
* Total assets under administration were C$15.1 billion at 31 December 2002, of
which C$11.9 billion were funds under management and C$3.2 billion were custody
and administration accounts.
^ HSBC Bank Canada acquired Merrill Lynch HSBC Canada Inc. ('MLHSBC') on 31
October 2002. For financial reporting, the income and expenses of MLHSBC were
accounted for effective 1 July 2002, the date HSBC Group acquired full ownership
of MLHSBC, and have been recorded in the results for the fourth quarter of 2002.
Financial Commentary
HSBC Bank Canada recorded net income of C$260 million for the year ended 31
December 2002, an increase of C$46 million, or 21.5 per cent, from C$214 million
for the year ended 31 December 2001. Net income for the quarter ended 31
December 2002 was C$65 million compared to C$51 million for the fourth quarter
of 2001, an increase of 27.5 per cent. The increases in the year and fourth
quarter were primarily attributed to higher net interest income and other income
and lower salaries and benefits. These were partially offset by higher other
non-interest expenses.
Martin Glynn, President and Chief Executive Officer, said: "Overall we are
pleased with the results for the quarter and for the year ended 31 December
2002. Our retail and commercial banking businesses continued to perform well.
"A key focus for 2002 was to maintain our excellent customer service. I am very
pleased to report that HSBC Bank Canada was rated the highest for overall
quality of customer service amongst all banks included in the '2002 Customer
Service Index', an independent study conducted annually by Market Facts of
Canada. This distinction could only have been achieved through the hard work and
efforts of all our staff.
"In 2003 we will continue to focus on growing our core businesses. The
acquisition of MLHSBC during the quarter will be an advantage to our wealth
management business as clients will have more direct access to HSBC and will
benefit from HSBC's development of products and services. We will also reinforce
the HSBC brand in Canada, while working with our colleagues at HSBC Bank USA in
building North America's leading cross border financial institution."
Net interest income
Net interest income for the year ended 31 December 2002 was C$856 million, an
increase of C$102 million, or 13.5 per cent, from C$754 million for the year
ended 31 December 2001. For the quarter ended 31 December 2002 net interest
income was C$210 million, an increase of 6.6 per cent from C$197 million in the
same period of 2001. The increases benefited from the low interest rate
environment and buoyant economy in Canada during 2002. As a result, the housing
market was active and contributed to the strong growth in residential mortgages
during 2002.
The net interest margin, as a percentage of average interest earning assets,
increased to 2.79 per cent for the year ended 31 December 2002 from 2.70 per
cent for the same period in 2001. Margins benefited from the effect of lower
interest rates, particularly on funding costs, as maturing higher cost
borrowings were replaced with lower cost funds.
Other income
Other income increased 5.3 per cent to C$441 million for the year ended 31
December 2002 compared to C$419 million for the year ended 31 December 2001. For
the quarter ended 31 December 2002, other income was C$123 million, or 10.8 per
cent higher, compared to C$111 million for the same period in 2001. Excluding
the C$8 million of other income, primarily capital market fees, arising as a
result of the acquisition of MLHSBC, other income in the quarter ended 31
December 2002 increased by 3.6 per cent compared to the same period in 2001.
Other income in the fourth quarter of 2002 included a one-time gain of C$17
million realised on the sale of the bank's shareholding in the Toronto Stock
Exchange. Capital market fees in the fourth quarter of 2002 were lower than the
same period in 2001 as a result of the restructuring of the institutional equity
business in the first half of 2002 and the continuing weakness in equity
markets.
Excluding capital market fees, trading revenue, securitisation income, the
MLHSBC acquisition and the one-time gain, other income from the bank's other
lines of business decreased 3.9 per cent for the quarter and increased 5.0 per
cent for the year ended 31 December 2002 compared to the same periods in 2001.
Non-interest expenses
Non-interest expenses were C$730 million, or 3.7 per cent higher, for the year
ended 31 December 2002 compared to C$704 million for the year ended 31 December
2001. For the quarter ended 31 December 2002, non-interest expenses decreased
3.0 per cent to C$191 million compared to C$197 million for the same period in
2001. Excluding the C$9 million of non-interest expenses arising as a result of
the acquisition of MLHSBC, non-interest expenses in the quarter ended 31
December 2002 decreased by 7.6 per cent compared to the same period in 2001.
Salaries and benefits in the fourth quarter of 2002 were lower than the same
period in 2001 due to lower performance-based compensation and lower headcount
reduction related costs. Other non-interest expenses in the fourth quarter of
2002 were higher than the same period in 2001 due to a one-time charge for
rationalisation of leased office space. In addition, marketing costs were higher
due to campaigns to increase brand awareness. Offsetting these increases were
higher commodity tax and one-off operating expenses in the fourth quarter of
2001.
Continued cost containment measures and the restructuring of the institutional
equity business have resulted in a significant decrease in the cost:income
ratio. The cost:income ratio for the fourth quarter of 2002 was 57.7 per cent
compared to 64.0 per cent for the same period in 2001. On an annual basis, the
cost:income ratio was 56.4 per cent (54.0 per cent excluding restructuring
costs) compared to 60.0 per cent for the same period in 2001.
Provision for income taxes
The provision for income taxes was C$164 million for the year ended 31 December
2002 compared to C$147 million for the same period in 2001. The effective tax
rate decreased to 38.7 per cent from 40.7 per cent for the same period in 2001
due to the lower tax rates in Canada for 2002. For the quarter ended 31 December
2002 the provision for income taxes was C$48 million compared to C$26 million in
2001 reflecting a number of one-off items in both periods.
Credit quality and provision for credit losses
The provision for credit losses was C$127 million for the year ended 31 December
2002 compared to C$92 million in the same period of 2001. The higher provision
levels in 2002 reflected the impact of an exposure within the telecommunications
sector in Canada. For the quarter ended 31 December 2002 the provision for
credit losses was C$25 million compared to C$30 million for the quarter ended 31
December 2001.
Total impaired loans decreased C$57 million, or 20.2 per cent, to C$225 million
at 31 December 2002 compared to C$282 million at 31 December 2001. The allowance
for credit losses was in excess of impaired loans by C$86 million compared to
C$33 million at the same time last year. As a result, the allowance for credit
losses as a percentage of impaired loans increased to 138 per cent at 31
December 2002 from 112 per cent at the same time last year. Overall, the
allowance for credit losses as a percentage of loans outstanding decreased to
1.29 per cent at 31 December 2002 from 1.42 per cent at the same time last year
reflecting a more conservative asset mix.
Balance sheet
Total assets at 31 December 2002 were C$35.2 billion, up C$1.9 billion from
C$33.3 billion at 31 December 2001. Loans increased by C$2.0 billion to C$23.9
billion due primarily to a C$1.4 billion increase in residential mortgages, net
of securitisations, and C$0.4 billion in loans to businesses and governments.
Total deposits increased C$1.7 billion from C$26.7 billion at 31 December 2001
to C$28.4 billion at 31 December 2002. Deposits from individuals grew C$1.0
billion to C$14.4 billion and businesses and government deposits increased by
C$1.6 billion to C$13.2 billion over the same period.
Total assets under administration
Funds under management were C$11.9 billion at 31 December 2002 compared to C$9.4
billion at 30 September 2002 and C$9.6 billion at 31 December 2001. The
acquisition of MLHSBC added C$1.9 billion in funds under management as at 31
December 2002. Including custody and administration balances, total assets under
administration were C$15.1 billion compared with C$14.3 billion at 30 September
2002 and C$12.2 billion at 31 December 2001.
Capital ratios
The bank's tier 1 capital ratio was 8.4 per cent and the total capital ratio was
11.4 per cent at 31 December 2002. This compares with 8.6 per cent and 11.3 per
cent, respectively, at 31 December 2001. Ratios remained strong and afforded a
C$50 million dividend on common shares paid in the fourth quarter of 2002 and
C$200 million in total during 2002.
Dividends
A regular dividend of 39.0625 cents per share (totalling C$2 million) has been
declared on the Class 1 Preferred Shares - Series A. The dividend will be
payable in cash on 31 March 2003, for shareholders of record on 14 March 2003.
About HSBC Bank Canada
HSBC Bank Canada (HSB.PR.A - TSX), a subsidiary of HSBC Holdings plc, has more
than 160 offices. With over 8,400 offices in 81 countries and territories and
assets of US$746 billion at 30 June 2002, the HSBC Group is one of the world's
largest banking and financial services organisations. For more information about
HSBC Bank Canada and its products and services, visit our website at hsbc.ca.
Copies of HSBC Bank Canada's 2002 Annual Report will be sent to shareholders
during April 2003.
This document may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of HSBC Bank
Canada. These statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, competition,
technological change, global capital market activity, changes in government
monetary and economic policies, changes in prevailing interest rates, inflation
levels and general economic conditions in geographic areas where HSBC Bank
Canada operates.
Summary
Quarter ended Year ended
Figures in C$ millions 31 Dec02 30Sep02 31Dec01 31Dec02 31Dec01
(except per share amounts)
Earnings
Net income 65 78 51 260 214
Basic earnings per share 0.14 0.17 0.11 0.55 0.45
Performance ratios (%)
Return on average common
equity 15.9 20.1 13.3 16.4 14.9
Return on average assets 0.70 0.86 0.58 0.72 0.65
Net interest margin 2.63 2.84 2.66 2.79 2.70
Cost:income ratio 57.7 50.5 64.0 56.4 60.0
Other income:total income ratio 36.9 32.1 36.0 34.0 35.7
Credit information
Impaired loans 225 317 282
Allowance for credit losses
- Balance at end of period 311 373 315
- As a percentage of impaired % % %
loans 138 118 112
- As a percentage of loans % % %
outstanding 1.29 1.54 1.42
Average balances
Assets 35,750 35,196 33,637 34,828 31,847
Loans 23,658 23,293 22,101 22,976 21,152
Deposits 28,595 28,291 26,973 27,842 25,511
Common equity 1,553 1,502 1,464 1,538 1,386
Capital ratios (%)
Tier 1 8.4 8.3 8.6
Total capital 11.4 11.3 11.3
Total assets under administration ^
Funds under management 11,888 11,193 9,559
Custodial accounts 3,208 3,141 2,686
Total assets under administration 15,096 14,334 12,245
^ Amounts prior to 31 December 2002 have been restated to adjust for inter-company holdings of assets. Amounts for 30
September 2002 have been restated to adjust for the MLHSBC acquisition.
Consolidated Statement of Income (Unaudited)
Quarter ended Year ended
Figures in C$ millions 31Dec02 30Sept02 31Dec01 31Dec02 31Dec01
(except per share amounts)
Interest and dividend income
Loans 331 322 329 1,270 1,448
Securities 29 26 30 110 153
Deposits with regulated
financial institutions 17 26 22 75 123
Total interest income 377 374 381 1,455 1,724
Interest expense
Deposits 158 142 176 564 938
Debentures 9 10 8 35 32
Total interest expense 167 152 184 599 970
Net interest income 210 222 197 856 754
Provision for credit losses 25 34 30 127 92
Net interest income after
provision for credit losses 185 188 167 729 662
Other income
Deposit and payment service charges 20 20 17 75 67
Credit fees 14 15 14 60 53
Capital market fees 19 15 28 69 92
Mutual fund and administration fees 13 15 12 58 57
Foreign exchange 13 15 12 53 49
Trade finance 7 7 6 27 24
Trading revenue 4 3 2 14 13
Securitization income 2 3 5 19 15
Other 31 12 15 66 49
Total other income 123 105 111 441 419
Net interest and other income 308 293 278 1,170 1,081
Non-interest expenses
Salaries and employee benefits 85 86 98 339 359
Premises and equipment 29 23 31 107 115
Other 75 56 68 254 230
Restructuring costs 2 - - 30 -
Total non-interest expenses 191 165 197 730 704
Income before taxes and non-
controlling interest in income of 117 128 81 440 377
trust
Provision for income taxes 48 46 26 164 147
Non-controlling interest in income
of trust 4 4 4 16 16
Net income 65 78 51 260 214
Preferred share dividends 2 2 2 8 8
Net income attributable to
common shares 63 76 49 252
206
Average common shares outstanding
(000's) 466,114 456,168 456,168 458,675 456,168
Basic earnings per share ($) 0.14 0.17 0.11 0.55 0.45
Condensed Consolidated Balance Sheet (Unaudited)
Figures in C$ millions At 31Dec02 At 31Dec01
Assets
Cash and deposits with Bank of Canada 417 466
Deposits with regulated financial institutions 3,317 3,261
3,734 3,727
Investment securities 2,875 2,474
Trading securities 870 1,153
3,745 3,627
Assets purchased under
reverse repurchase agreements 416 428
Loans
Businesses and government 11,949 11,575
Residential mortgage 9,809 8,377
Consumer 2,422 2,233
Allowance for credit losses (311 ) (315 )
23,869 21,870
Customers' liability under acceptances 2,374 2,571
Land, buildings and equipment 111 124
Other assets 940 913
3,425 3,608
Total assets 35,189 33,260
Liabilities and shareholders' equity
Deposits
Regulated financial institutions 758 1,747
Individuals 14,432 13,390
Businesses and governments 13,182 11,570
28,372 26,707
Subordinated debentures 528 447
Acceptances 2,374 2,571
Assets sold under repurchase agreements 28 7
Other liabilities 1,984 1,686
Non-controlling interest in trust and subsidiary 230 230
4,616 4,494
Shareholders' equity
Preferred shares 125 125
Common shares 950 935
Contributed surplus 165 165
433 387
Retained earnings
1,673 1,612
Total liabilities and shareholders' equity 35,189 33,260
Condensed Consolidated Statement of Cash Flows (Unaudited)
Quarter ended Year ended
Figures in C$ millions 31Dec02 30Sept02 31Dec01 31Dec02 31Dec01
Cash flows provided by/(used
in):
Operating activities 245 402 76 988 34
Financing activities 272 9 247 1,898 3,180
Investing activities (54 ) (938 ) (30 ) (2,387 ) (2,414 )
Increase/(decrease) in cash
and
cash equivalents 463 (527 ) 293 499 800
Cash and cash equivalents,
beginning of period 3,174 3,701 2,845 3,138 2,338
Cash and cash equivalents,
end of period 3,637 3,174 3,138 3,637 3,138
Represented by:
Cash resources per balance 3,734 3,693 3,727
sheet
Less non-operating deposits ^ (97 ) (519 ) (589 )
Cash and cash equivalents,
end of period 3,637 3,174 3,138
^ Non operating deposits are comprised primarily of cash which reprices after
90 days and cash restricted for recourse on securitisation transactions.
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