HSBC FinCorp Q4 2005 8K
HSBC Holdings PLC
06 March 2006
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
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PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MARCH 6, 2006
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COMMISSION FILE NUMBER 1-8198
HSBC FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-1052062
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2700 SANDERS ROAD, PROSPECT HEIGHTS, 60070
ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 564-5000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
( ) Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Financial supplement pertaining to the financial results of HSBC Finance
Corporation for the quarter and year ended December 31, 2005. The information
included in the financial supplement is presented on a managed basis, which is a
non-GAAP financial measure that assumes that securitized receivables have not
been sold and remain on our balance sheet.
This information shall not be deemed to be "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange
Act), or otherwise incorporated by reference into any filing pursuant to the
Securities Act of 1933, as amended, or the Exchange Act except as otherwise
expressly stated in such a filing.
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
NO. EXHIBIT
--- -------
99 Quarterly Financial Supplement for the quarter and year
ended December 31, 2005
SIGNATURE
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HSBC FINANCE CORPORATION
(Registrant)
By: /s/ Patrick D. Schwartz
------------------------------------
Patrick D. Schwartz
Vice President-Deputy General
Counsel-Corporate
Dated: March 6, 2006
EXHIBIT 99
HSBC FINANCE CORPORATION
QUARTERLY FINANCIAL SUPPLEMENT -- DECEMBER 31, 2005
INDEX PAGE NO.
----- --------
Basis of Reporting.......................................... 2
Consolidated Statements of Income -- Owned Basis:
Three Months.............................................. 3
Twelve Months............................................. 5
Receivables Analysis........................................ 7
Financial Highlights -- Managed Basis:
Three Months.............................................. 8
Twelve Months............................................. 9
Credit Quality/Credit Loss Reserves -- Managed Basis........ 10
Reconciliations to GAAP Financial Measures:
Revenues, Average Interest-Earning Assets and Net Interest
Income:
Three Months......................................... 11
Twelve Months........................................ 12
Selected Financial Ratios................................. 13
Credit Quality/Credit Loss Reserves:
Two-Months-and-Over Contractual Delinquency............ 14
Quarter-to-Date Charge-offs, Net of Recoveries......... 14
Real Estate Charge-offs and REO Expense................ 16
Credit Loss Reserves................................... 17
Nonperforming Assets................................... 17
HSBC Finance Corporation
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BASIS OF REPORTING
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NON-GAAP FINANCIAL MEASURES
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This Quarterly Financial Supplement includes financial information which is
presented on a non-GAAP basis as discussed below. Information included in this
Quarterly Financial Supplement is intended to supplement and should not be
considered a substitute for owned basis reporting. This Quarterly Financial
Supplement should be read in conjunction with the owned basis information
reported in our Annual Report on Form 10-K.
See "Reconciliations to GAAP Financial Measures" for quantitative
reconciliations of non-GAAP financial information to the equivalent owned basis
GAAP financial information.
MANAGED BASIS REPORTING We have historically monitored our operations and
evaluated trends on a managed basis (a non-GAAP financial measure), which
assumes that securitized receivables have not been sold and remain on our
balance sheet. This is 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 and make decisions
about allocating resources such as capital on a managed basis.
When reporting on a managed basis, net interest income, provision for
credit losses and fee income related to receivables securitized are reclassified
from securitization related revenue in our owned statement of income into the
appropriate caption. Additionally, charge-off and delinquency associated with
these receivables are included in our managed basis credit quality statistics.
Debt analysts, rating agencies and fixed income investors have also
historically evaluated 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 such investors and other
interested parties to better understand the performance and quality of our
entire loan portfolio and is important to understanding the quality of
originations and the related credit risk inherent in our owned and securitized
portfolios. As the level of our securitized receivables falls over time, managed
basis and owned basis results will eventually converge.
OPERATING RESULTS, PERCENTAGES AND RATIOS Certain percentages and ratios
have been presented on an operating basis and have been calculated using
"operating net income", a non-GAAP financial measure. "Operating net income" is
net income excluding certain nonrecurring items shown in the table below. These
nonrecurring items are also excluded in calculating our operating basis
efficiency ratios. We believe that excluding these nonrecurring items helps
readers of our financial statements to better understand the results and trends
of our underlying business. See our Annual Report for 2005 on Form 10-K for
further discussion of these items.
A reconciliation of net income to operating net income follows:
THREE MONTHS ENDED TWELVE MONTHS ENDED
----------------------------- -------------------
12/31/05 9/30/05 12/31/04 12/31/05 12/31/04
---------------------------------------------------------------------------------------------------
(IN MILLIONS)
Net income.................................... $393 $281 $712 $1,772 $1,940
Gain on bulk sale of private label
receivables, after-tax...................... -- -- (423) -- (423)
Adoption of FFIEC charge-off policies for
domestic private label and MasterCard and
Visa portfolios, after-tax.................. -- -- 121 -- 121
---- ---- ---- ------ ------
Operating net income.......................... $393 $281 $410 $1,772 $1,638
==== ==== ==== ====== ======
2
HSBC Finance Corporation
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CONSOLIDATED STATEMENTS OF INCOME -- OWNED BASIS
THREE MONTHS
% CHANGE FROM
THREE MONTHS ENDED PRIOR
----------------------------- --------------
12/31/05 9/30/05 12/31/04 QTR. YEAR
-------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income................ $3,725 $3,402 $3,001 9.5% 24.1%
Interest expense:
HSBC affiliates................................ 206 222 130 (7.2) 58.5
Non-affiliates................................. 1,221 1,017 788 20.1 54.9
------ ------ ------ ----- ------
NET INTEREST INCOME.............................. 2,298 2,163 2,083 6.2 10.3
Provision for credit losses...................... 1,310 1,361 1,286 (3.7) 1.9
------ ------ ------ ----- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES......................................... 988 802 797 23.2 24.0
------ ------ ------ ----- ------
Other revenues:
Securitization related revenue................. 31 41 127 (24.4) (75.6)
Insurance revenue.............................. 239 229 221 4.4 8.1
Investment income.............................. 35 33 30 6.1 16.7
Derivative income (expense).................... (34) (53) 263 (35.8) (100+)
Fee income..................................... 469 439 282 6.8 66.3
Taxpayer financial services revenue
(expense)................................... 17 (1) 8 100+ 100+
Gain on receivable sales to HSBC affiliates.... 105 99 677 6.1 (84.5)
Servicing fees from HSBC affiliates............ 106 102 13 3.9 100+
Other income................................... 175 213 137 (17.8) 27.7
------ ------ ------ ----- ------
TOTAL OTHER REVENUES............................. 1,143 1,102 1,758 3.7 (35.0)
------ ------ ------ ----- ------
Costs and expenses:
Salaries and employee benefits................. 536 513 472 4.5 13.6
Sales incentives............................... 108 117 104 (7.7) 3.8
Occupancy and equipment expenses............... 82 83 86 (1.2) (4.7)
Other marketing expenses....................... 170 196 199 (13.3) (14.6)
Other servicing and administrative expenses.... 235 149 209 57.7 12.4
Support services from HSBC affiliates.......... 237 226 194 4.9 22.2
Amortization of intangibles.................... 65 90 85 (27.8) (23.5)
Policyholders' benefits........................ 109 109 113 -- (3.5)
------ ------ ------ ----- ------
TOTAL COSTS AND EXPENSES......................... 1,542 1,483 1,462 4.0 5.5
------ ------ ------ ----- ------
Income before income tax expense................. 589 421 1,093 39.9 (46.1)
Income tax expense............................... 196 140 381 40.0 (48.6)
------ ------ ------ ----- ------
NET INCOME....................................... $ 393 $ 281 $ 712 39.9% (44.8)%
====== ====== ====== ===== ======
Gain on bulk sale of private label receivables,
after-tax...................................... -- -- (423) -- 100.0
Adoption of FFIEC charge-off policies for
domestic private label and MasterCard and Visa
portfolios, after-tax.......................... -- -- 121 -- (100.0)
------ ------ ------ ----- ------
Operating net income(1).......................... $ 393 $ 281 $ 410 39.9% (4.1)%
====== ====== ====== ===== ======
---------------
(1) Operating net income is a non-GAAP financial measure which is provided for
comparison of our operating trends and should be read in conjunction with
our owned basis GAAP financial information. See "Basis of Reporting" for a
discussion on the use of non-GAAP financial information and "Reconciliations
to GAAP Financial Measures" for quantitative reconciliations to the
equivalent GAAP basis financial measure.
3
HSBC Finance Corporation
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SECURITIZATION RELATED REVENUE
THREE MONTHS ENDED
-----------------------------
12/31/05 9/30/05 12/31/04
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Net initial gains(1)........................................ $-- $-- $ --
Net replenishment gains(1).................................. 19 38 69
Servicing revenue and excess spread......................... 12 3 58
--- --- ----
Total....................................................... $31 $41 $127
=== === ====
---------------
(1) Net of our estimate of probable credit losses under the recourse provisions.
RECEIVABLES SECURITIZED
THREE MONTHS ENDED
-----------------------------
12/31/05 9/30/05 12/31/04
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Auto finance................................................ $ -- $ -- $ --
MasterCard/Visa(1).......................................... -- -- --
Private label............................................... -- -- --
----- ----- -----
Total....................................................... $ -- $ -- $ --
===== ===== =====
---------------
(1) MasterCard and Visa are registered trademarks of MasterCard International,
Incorporated and VISA USA Inc., respectively.
4
HSBC Finance Corporation
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CONSOLIDATED STATEMENTS OF INCOME -- OWNED BASIS
TWELVE MONTHS
TWELVE MONTHS ENDED
------------------------------
12/31/05 12/31/04 % CHANGE
-------- -------- --------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income........................... $13,216 $10,945 20.7%
Interest expense:
HSBC affiliates........................................... 713 343 100+
Non-affiliates............................................ 4,119 2,800 47.1
------- ------- ------
NET INTEREST INCOME......................................... 8,384 7,802 7.5
Provision for credit losses................................. 4,543 4,334 4.8
------- ------- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 3,841 3,468 10.8
------- ------- ------
Other revenues:
Securitization related revenue............................ 211 1,008 (79.1)
Insurance revenue......................................... 918 839 9.4
Investment income......................................... 134 137 (2.2)
Derivative income......................................... 249 511 (51.3)
Fee income................................................ 1,568 1,091 43.7
Taxpayer financial services revenue....................... 277 217 27.6
Gain on bulk sale of private label receivables............ -- 663 (100.0)
Gain on receivable sales to HSBC affiliates............... 413 39 100+
Servicing fees from HSBC affiliates....................... 409 24 100+
Other income.............................................. 652 544 19.9
------- ------- ------
TOTAL OTHER REVENUES........................................ 4,831 5,073 (4.8)
------- ------- ------
Costs and expenses:
Salaries and employee benefits............................ 2,072 1,886 9.9
Sales incentives.......................................... 397 363 9.4
Occupancy and equipment expenses.......................... 334 323 3.4
Other marketing expenses.................................. 731 636 14.9
Other servicing and administrative expenses............... 785 868 (9.6)
Support services from HSBC affiliates..................... 889 750 18.5
Amortization of intangibles............................... 345 363 (5.0)
Policyholders' benefits................................... 456 412 10.7
------- ------- ------
TOTAL COSTS AND EXPENSES.................................... 6,009 5,601 7.3
------- ------- ------
Income before income tax expense............................ 2,663 2,940 (9.4)
Income tax expense.......................................... 891 1,000 (10.9)
------- ------- ------
NET INCOME.................................................. $ 1,772 $ 1,940 (8.7)%
======= ======= ======
Gain on bulk sale of private label receivables, after-tax... -- (423) 100.0
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios, after-tax....... -- 121 (100.0)
------- ------- ------
Operating net income(1)..................................... $ 1,772 $ 1,638 8.2%
======= ======= ======
---------------
(1) Operating net income is a non-GAAP financial measure which is provided for
comparison of our operating trends and should be read in conjunction with
our owned basis GAAP financial information. See "Basis of Reporting" for a
discussion on the use of non-GAAP financial information and "Reconciliations
to GAAP Financial Measures" for quantitative reconciliations to the
equivalent GAAP basis financial measure.
5
HSBC Finance Corporation
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SECURITIZATION RELATED REVENUE
TWELVE MONTHS ENDED
-------------------
12/31/05 12/31/04
---------------------------------------------------------------------------------
(IN MILLIONS)
Net initial gains(1)........................................ $ -- $ 25
Net replenishment gains(1).................................. 154 414
Servicing revenue and excess spread......................... 57 569
---- ------
Total....................................................... $211 $1,008
==== ======
---------------
(1) Net of our estimate of probable credit losses under the recourse provisions.
RECEIVABLES SECURITIZED
TWELVE MONTHS ENDED
-------------------
12/31/05 12/31/04
---------------------------------------------------------------------------------
(IN MILLIONS)
Auto finance................................................ $ -- $ --
MasterCard/Visa............................................. -- 550
Private label............................................... -- 190
---- ----
Total....................................................... $ -- $740
==== ====
6
HSBC Finance Corporation
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RECEIVABLES ANALYSIS
END-OF-PERIOD RECEIVABLES
% CHANGE FROM
PRIOR
--------------
12/31/05 9/30/05 12/31/04 QTR. YEAR
----------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
OWNED RECEIVABLES:
Real estate secured........................ $ 82,826 $ 78,130 $ 64,820 6.0% 27.8%
Auto finance............................... 10,704 10,137 7,544 5.6 41.9
MasterCard/Visa............................ 24,110 18,974 14,635 27.1 64.7
Private label(1)........................... 2,520 2,777 3,411 (9.3) (26.1)
Personal non-credit card................... 19,545 18,484 16,128 5.7 21.2
Commercial and other....................... 208 220 317 (5.5) (34.4)
-------- -------- -------- ----- ------
Total owned receivables...................... 139,913 128,722 106,855 8.7 30.9
-------- -------- -------- ----- ------
RECEIVABLES SERVICED WITH LIMITED RECOURSE:
Real estate secured........................ -- -- 81 -- (100.0)
Auto finance............................... 1,192 1,474 2,679 (19.1) (55.5)
MasterCard/Visa............................ 1,875 3,615 7,583 (48.1) (75.3)
Private label(1)........................... -- -- -- -- --
Personal non-credit card................... 1,007 1,670 3,882 (39.7) (74.1)
-------- -------- -------- ----- ------
Total receivables serviced with limited
recourse................................... 4,074 6,759 14,225 (39.7) (71.4)
-------- -------- -------- ----- ------
MANAGED RECEIVABLES:(2)
Real estate secured........................ 82,826 78,130 64,901 6.0 27.6
Auto finance............................... 11,896 11,611 10,223 2.5 16.4
MasterCard/Visa............................ 25,985 22,589 22,218 15.0 17.0
Private label(1)........................... 2,520 2,777 3,411 (9.3) (26.1)
Personal non-credit card(3)................ 20,552 20,154 20,010 2.0 2.7
Commercial and other....................... 208 220 317 (5.5) (34.4)
-------- -------- -------- ----- ------
Total managed receivables.................... $143,987 $135,481 $121,080 6.3% 18.9%
======== ======== ======== ===== ======
---------------
(1) On December 29, 2004, we sold $12.2 billion of domestic private label
receivables ($15.6 billion on a managed basis) to HSBC Bank USA, N.A.
(2) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information.
(3) Personal non-credit card receivables are comprised of the following:
12/31/05 9/30/05 12/31/04
-----------------------------------------------------------------------------------------
(IN MILLIONS)
Domestic personal unsecured...............................
$12,190 $11,571 $10,725
Union Plus personal unsecured.............................
333 374 474
Personal homeowner loans..................................
4,384 4,360 4,582
Foreign unsecured.........................................
3,645 3,849 4,229
------- ------- -------
Total..................................................... $20,552 $20,154 $20,010
======= ======= =======
7
HSBC Finance Corporation
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FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1)
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
% CHANGE
THREE MONTHS ENDED FROM PRIOR
------------------------------------------------------ -------------
12/31/05 (2) 9/30/05 (2) 12/31/04 (2) QTR. YEAR
----------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest
income.......................... $ 3,933 10.88% $ 3,671 10.89% $ 3,601 10.64% 7.1% 9.2%
Interest expense.................. 1,502 4.15 1,331 3.95 1,050 3.10 12.8 43.0
-------- ----- -------- ----- -------- ----- ----- -----
NET INTEREST INCOME............... 2,431 6.73% 2,340 6.94% 2,551 7.54% 3.9 (4.7)
Provision for credit losses....... 1,358 1,338 1,305 1.5 4.1
-------- -------- -------- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES..... $ 1,073 $ 1,002 $ 1,246 7.1% (13.9)%
======== ======== ======== ===== =====
Other revenues:
Insurance revenue................. $ 239 $ 229 $ 221 4.4% 8.1%
Investment income................. 35 33 30 6.1 16.7
Fee income........................ 510 497 437 2.6 16.7
Securitization related revenue.... (95) (217) (477) (56.2) (80.1)
Derivative income (expense)....... (34) (53) 263 (35.8) (100+)
Taxpayer financial services
revenue (expense)............... 17 (1) 8 100+ 100+
Gain on receivable sales to HSBC
affiliates...................... 105 99 677 6.1 (84.5)
Servicing fees from HSBC
affiliates...................... 106 102 13 3.9 100+
Other income...................... 175 213 137 (17.8) 27.7
-------- -------- -------- ----- -----
TOTAL OTHER REVENUES.............. $ 1,058 $ 902 $ 1,309 17.3% (19.2)%
======== ======== ======== ===== =====
Average managed receivables
Real estate secured............... $ 81,332 $ 74,369 $ 61,543 9.4% 32.2%
Auto finance...................... 11,771 11,230 10,052 4.8 17.1
MasterCard/Visa................... 24,248 22,536 21,221 7.6 14.3
Private label..................... 2,708 2,840 17,858 (4.6) (84.8)
Personal non-credit card.......... 20,324 19,944 19,593 1.9 3.7
Commercial and other.............. 217 234 321 (7.3) (32.4)
Purchase accounting fair value
adjustments..................... 83 116 243 (28.4) (65.8)
-------- -------- -------- ----- -----
Average managed receivables....... $140,683 $131,269 $130,831 7.2% 7.5%
Average noninsurance
investments..................... 3,176 2,868 3,889 10.7 (18.3)
Other interest-earning assets..... 686 680 660 .9 3.9
-------- -------- -------- ----- -----
Average managed interest-earning
assets.......................... $144,545 $134,817 $135,380 7.2% 6.8%
======== ======== ======== ===== =====
SELECTED FINANCIAL RATIOS:
Return on average managed
assets.......................... 1.01% .75% 1.87% 34.7% (46.0)%
Efficiency ratio.................. 42.40 43.86 36.00 (3.3) 17.8
Net interest margin............... 6.73 6.94 7.54 (3.0) (10.7)
Risk adjusted revenue............. 6.81 7.34 8.37 (7.2) (18.6)
======== ======== ======== ===== =====
---------------
(1) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information and
"Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
(2) % Columns: comparison to average managed interest-earning assets, annualized
8
HSBC Finance Corporation
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FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1)
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
TWELVE MONTHS
TWELVE MONTHS ENDED
------------------------------------
12/31/05 (2) 12/31/04 (2) % CHANGE
-----------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income............. $ 14,483 10.83% $ 13,928 10.83% 4.0%
Interest expense.............................. 5,207 3.89 3,671 2.86 41.8
-------- ----- -------- ----- -----
NET INTEREST INCOME........................... 9,276 6.94% 10,257 7.97% (9.6)
Provision for credit losses................... 4,650 4,522 2.8
-------- -------- -----
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES...................................... 4,626 $ 5,735 (19.3)%
======== ======== =====
Other revenues:
Insurance revenue........................... $ 918 $ 839 9.4%
Investment income........................... 134 137 (2.2)
Fee income.................................. 1,831 1,836 (.3)
Securitization related revenue (expense).... (837) (2,004) (58.2)
Derivative income........................... 249 511 (51.3)
Taxpayer financial services revenue......... 277 217 27.6
Gain on receivable sales to HSBC
affiliates............................... 413 702 (41.2)
Servicing fees from HSBC affiliates......... 409 24 100+
Other income................................ 652 544 19.9
-------- -------- -----
TOTAL OTHER REVENUES.......................... $ 4,046 $ 2,806 44.2%
======== ======== =====
Average managed receivables
Real estate secured......................... $ 73,120 $ 56,462 29.5%
Auto finance................................ 10,937 9,432 16.0
MasterCard/Visa............................. 22,694 20,674 9.8
Private label............................... 2,948 17,579 (83.2)
Personal non-credit card.................... 19,956 18,986 5.1
Commercial and other........................ 255 354 (28.0)
Purchase accounting fair value
adjustments.............................. 134 319 (58.0)
-------- -------- -----
Average managed receivables................... $130,044 $123,806 5.0%
Average noninsurance investments.............. 3,018 4,203 (28.2)
Other interest-earning assets................. 676 650 4.0
-------- -------- -----
Average managed interest-earning assets....... $133,738 $128,659 3.9%
======== ======== =====
SELECTED FINANCIAL RATIOS:
Return on average managed assets.............. 1.19% 1.33% (10.5)%
Efficiency ratio.............................. 43.16 41.02 5.2
Net interest margin........................... 6.94 7.97 (12.9)
Risk adjusted revenue......................... 7.18 7.30 (1.6)
-------- -------- -----
---------------
(1) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information and
"Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
(2) % Columns: comparison to average managed interest-earning assets,
annualized.
9
HSBC Finance Corporation
--------------------------------------------------------------------------------
CREDIT QUALITY/CREDIT LOSS RESERVES -- MANAGED BASIS(1)
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY
AS A PERCENT OF MANAGED CONSUMER RECEIVABLES, EXCLUDES COMMERCIAL. 12/31/05 9/30/05 12/31/04
-------------------------------------------------------------------------------------------------
Real estate secured............................................ 2.72% 2.51% 2.97%
Auto finance................................................... 2.76 2.67 2.96
MasterCard/Visa(2)............................................. 3.52 4.13 3.98
Private label.................................................. 5.43 5.22 4.13
Personal non-credit card....................................... 9.54 9.36 9.30
---- ---- ----
TOTAL.......................................................... 3.89% 3.87% 4.24%
==== ==== ====
QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES
AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 12/31/05 9/30/05 12/31/04
---------------------------------------------------------------------------------------------------------------------
Real estate secured...................................................... .66% .75% 1.04%
Auto finance............................................................. 4.40 4.41 4.47
MasterCard/Visa(3)....................................................... 7.85 6.11 7.54
Private label(3)......................................................... 5.60 5.35 9.22
Personal non-credit card................................................. 7.59 8.15 8.55
---- ---- ----
TOTAL.................................................................... 3.31% 3.21% 4.61%
==== ==== ====
Real estate charge-offs and REO expense as a percent of average managed real estate
secured receivables.................................................... .78% .88% 1.17%
==== ==== ====
CREDIT LOSS RESERVES
12/31/05 9/30/05 12/31/04
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Reserves for managed receivables at beginning of quarter.... $ 4,571 $ 4,281 $ 5,199
Provision for credit losses................................. 1,358 1,338 1,305
Charge-offs................................................. (1,297) (1,185) (1,632)
Recoveries.................................................. 134 133 130
Other, net.................................................. (30) 4 (487)
------- ------- -------
Reserves for managed receivables at end of quarter.......... $ 4,736 $ 4,571 $ 4,515
======= ======= =======
Reserves as a percent of managed receivables................ 3.29% 3.37% 3.73%
------- ------- -------
NONPERFORMING ASSETS
12/31/05 9/30/05 12/31/04
-------- ------- --------
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Nonaccrual managed receivables.............................. $3,709 $3,541 $3,558
Accruing managed receivables 90 or more days delinquent..... 642 604 607
Renegotiated commercial loans............................... -- -- 2
------ ------ ------
Total nonperforming managed receivables..................... 4,351 4,145 4,167
Real estate owned........................................... 510 462 587
------ ------ ------
TOTAL NONPERFORMING ASSETS.................................. $4,861 $4,607 $4,754
====== ====== ======
Managed credit loss reserves as a percent of nonperforming
managed receivables....................................... 108.8% 110.3% 108.4%
---------------
(1) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information and
"Reconciliations to GAAP Financial Measures" for quantitative
reconciliations to the equivalent GAAP basis financial measure.
(2) In December 2005, we completed the acquisition of Metris which included
receivables of $5.3 billion. Excluding the receivables from the Metris
acquisition from this calculation, our consumer delinquency ratio for our
MasterCard/Visa portfolio was 3.79% and total consumer delinquency was
3.95%.
(3) The adoption of charge-off policies in accordance with the Uniform Retail
Credit Classification and Account Management Policy issued by the Federal
Financial Institutions Examination Council for our domestic private label
(excluding retail sales contracts at our consumer lending business) and our
MasterCard and Visa portfolios in December 2004 increased private label net
charge-offs by $197 million (442 basis points), MasterCard/Visa net
charge-offs by $5 million (10 basis points) and total consumer net
charge-offs by $202 million (62 basis points) during the quarter ended
December 31, 2004.
10
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
THREE MONTHS ENDED 12/31/05 THREE MONTHS ENDED 9/30/05
----------------------------------- -----------------------------------
SERVICED WITH SERVICED WITH
LIMITED LIMITED
OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED
------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income...... $ 3,725 $ 208 $ 3,933 $ 3,402 $ 269 $ 3,671
Interest expense....................... 1,427 75 1,502 1,239 92 1,331
-------- ------ -------- -------- ------- --------
NET INTEREST INCOME.................... 2,298 133 2,431 2,163 177 2,340
Provision for credit losses............ 1,310 48 1,358 1,361 (23) 1,338
-------- ------ -------- -------- ------- --------
NET INTEREST INCOME AFTER PROVISION for
CREDIT LOSSES......................... $ 988 $ 85 $ 1,073 $ 802 $ 200 $ 1,002
Other revenues:
Securitization related revenue........ $ 31 $ (126) $ (95) $ 41 $ (258) $ (217)
Insurance revenue..................... 239 -- 239 229 -- 229
Investment income..................... 35 -- 35 33 -- 33
Fee income............................ 469 41 510 439 58 497
Derivative income (expense)........... (34) -- (34) (53) -- (53)
Taxpayer financial services revenue
(expense)........................... 17 -- 17 (1) -- (1)
Gain on receivable sales to HSBC
affiliates.......................... 105 -- 105 99 -- 99
Servicing fees from HSBC affiliates... 106 -- 106 102 -- 102
Other income.......................... 175 -- 175 213 -- 213
-------- ------ -------- -------- ------- --------
TOTAL OTHER REVENUES................... $ 1,143 $ (85) $ 1,058 $ 1,102 $ (200) $ 902
Average receivables:
Real estate secured................... $ 81,332 $ -- $ 81,332 $ 74,369 $ -- $ 74,369
Auto finance.......................... 10,420 1,351 11,771 9,585 1,645 11,230
MasterCard/Visa....................... 21,143 3,105 24,248 18,442 4,094 22,536
Private label......................... 2,708 -- 2,708 2,840 -- 2,840
Personal non-credit card.............. 19,023 1,301 20,324 17,904 2,040 19,944
Commercial and other.................. 217 -- 217 234 -- 234
Purchase accounting fair value
adjustments......................... 83 -- 83 116 -- 116
-------- ------ -------- -------- ------- --------
Average receivables.................... $134,926 $5,757 $140,683 $123,490 $ 7,779 $131,269
Average noninsurance investments....... 3,176 -- 3,176 2,868 -- 2,868
Other interest-earning assets.......... 686 -- 686 680 -- 680
-------- ------ -------- -------- ------- --------
Average interest-earning assets........ $138,788 $5,757 $144,545 $127,038 $ 7,779 $134,817
Net interest income as a percentage of
average interest-earning assets....... 6.62% 9.24% 6.73% 6.81% 9.10% 6.94%
======== ====== ======== ======== ======= ========
THREE MONTHS ENDED 12/31/04
-----------------------------------
SERVICED WITH
LIMITED
OWNED RECOURSE(1) MANAGED
--------------------------------------- -----------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income...... $ 3,001 $ 600 $ 3,601
Interest expense....................... 918 132 1,050
-------- ------- --------
NET INTEREST INCOME.................... 2,083 468 2,551
Provision for credit losses............ 1,286 19 1,305
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION for
CREDIT LOSSES......................... $ 797 $ 449 $ 1,246
Other revenues:
Securitization related revenue........ $ 127 $ (604) $ (477)
Insurance revenue..................... 221 -- 221
Investment income..................... 30 -- 30
Fee income............................ 282 155 437
Derivative income (expense)........... 263 -- 263
Taxpayer financial services revenue
(expense)........................... 8 -- 8
Gain on receivable sales to HSBC
affiliates.......................... 677 -- 677
Servicing fees from HSBC affiliates... 13 -- 13
Other income.......................... 137 -- 137
-------- ------- --------
TOTAL OTHER REVENUES................... $ 1,758 $ (449) $ 1,309
Average receivables:
Real estate secured................... $ 61,445 $ 98 $ 61,543
Auto finance.......................... 7,191 2,861 10,052
MasterCard/Visa....................... 13,009 8,212 21,221
Private label......................... 14,349 3,509 17,858
Personal non-credit card.............. 15,671 3,922 19,593
Commercial and other.................. 321 -- 321
Purchase accounting fair value
adjustments......................... 243 -- 243
-------- ------- --------
Average receivables.................... $112,229 $18,602 $130,831
Average noninsurance investments....... 3,889 -- 3,889
Other interest-earning assets.......... 660 -- 660
-------- ------- --------
Average interest-earning assets........ $116,778 $18,602 $135,380
Net interest income as a percentage of
average interest-earning assets....... 7.13% 10.06% 7.54%
======== ======= ========
---------------
(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 related revenue
in our owned statements of income into the appropriate caption.
11
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
TWELVE MONTHS
TWELVE MONTHS ENDED 12/31/05 TWELVE MONTHS ENDED 12/31/04
----------------------------------- ----------------------------------
SERVICED WITH SERVICED
LIMITED WITH LIMITED
OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED
---------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest
income....................... $ 13,216 $ 1,267 $ 14,483 $ 10,945 $ 2,983 $ 13,928
Interest expense............... 4,832 375 5,207 3,143 528 3,671
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME............ 8,384 892 9,276 7,802 2,455 10,257
Provision for credit losses.... 4,543 107 4,650 4,334 188 4,522
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT
LOSSES....................... $ 3,841 $ 785 $ 4,626 $ 3,468 $ 2,267 $ 5,735
Other revenues:
Securitization related
revenue.................... $ 211 $(1,048) $ (837) $ 1,008 $(3,012) $ (2,004)
Insurance revenue............ 918 -- 918 839 -- 839
Investment income............ 134 -- 134 137 -- 137
Fee income................... 1,568 263 1,831 1,091 745 1,836
Derivative income............ 249 -- 249 511 -- 511
Taxpayer financial services
revenue.................... 277 -- 277 217 -- 217
Gain on receivable sales to
HSBC affiliates............ 413 -- 413 702 -- 702
Servicing fees from HSBC
affiliates................. 409 -- 409 24 -- 24
Other income................. 652 -- 652 544 -- 544
-------- ------- -------- -------- ------- --------
TOTAL OTHER REVENUES........... $ 4,831 $ (785) $ 4,046 $ 5,073 $(2,267) $ 2,806
Average receivables:
Real estate secured.......... $ 73,097 $ 23 $ 73,120 $ 56,303 $ 159 $ 56,462
Auto finance................. 9,074 1,863 10,937 5,785 3,647 9,432
MasterCard/Visa.............. 17,823 4,871 22,694 11,575 9,099 20,674
Private label................ 2,948 -- 2,948 13,029 4,550 17,579
Personal non-credit card..... 17,558 2,398 19,956 14,194 4,792 18,986
Commercial and other......... 255 -- 255 354 -- 354
Purchase accounting fair
value adjustments.......... 134 -- 134 319 -- 319
-------- ------- -------- -------- ------- --------
Average receivables............ $120,889 $ 9,155 $130,044 $101,559 $22,247 $123,806
Average noninsurance
investments.................. 3,018 -- 3,018 4,203 -- 4,203
Other interest-earning
assets....................... 676 -- 676 650 -- 650
-------- ------- -------- -------- ------- --------
Average interest-earning
assets....................... $124,583 $ 9,155 $133,738 $106,412 $22,247 $128,659
Net interest income as a
percentage of average
interest-earning assets...... 6.73% 9.74% 6.94% 7.33% 11.04% 7.97%
======== ======= ======== ======== ======= ========
---------------
(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 related revenue
in our owned statements of income into the appropriate caption.
12
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
SELECTED FINANCIAL RATIOS
THREE MONTHS ENDED TWELVE MONTHS ENDED
------------------------------ -------------------
12/31/05 9/30/05 12/31/04 12/31/05 12/31/04
------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
RETURN ON AVERAGE COMMON SHAREHOLDER'S EQUITY:
Net income.................................................. $ 393 $ 281 $ 712 $ 1,772 $ 1,940
Dividends on preferred stock............................... (21) (25) (18) (83) (72)
-------- -------- -------- -------- --------
Net income available to common shareholders................. $ 372 $ 256 $ 694 $ 1,689 $ 1,868
Gain on bulk sale of private label receivables, after-tax... -- -- (423) -- (423)
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios, after-tax........ -- -- 121 -- 121
-------- -------- -------- -------- --------
Operating net income available to common shareholders....... $ 372 $ 256 $ 392 $ 1,689 $ 1,566
-------- -------- -------- -------- --------
Average common shareholder's equity......................... $ 17,932 $ 16,973 $ 16,838 $ 16,936 $ 17,003
-------- -------- -------- -------- --------
Return on average common shareholder's equity............... 8.30% 6.03% 16.49% 9.97% 10.99%
Return on average common shareholder's equity, operating
basis...................................................... 8.30 6.03 9.31 9.97 9.21
======== ======== ======== ======== ========
RETURN ON AVERAGE ASSETS:
Net income.................................................. $ 393 $ 281 $ 712 $ 1,772 $ 1,940
Operating net income........................................ 393 281 410 1,772 1,638
-------- -------- -------- -------- --------
Average assets:
Owned basis................................................ $150,644 $141,765 $134,316 $139,800 $123,921
Serviced with limited recourse............................. 5,757 7,779 18,602 9,155 22,247
-------- -------- -------- -------- --------
Managed basis.............................................. $156,401 $149,544 $152,918 $148,955 $146,168
Return on average owned assets.............................. 1.04% .79% 2.12% 1.27% 1.57%
Return on average owned assets, operating basis............. 1.04 .79 1.22 1.27 1.32
Return on average managed assets............................ 1.01 .75 1.87 1.19 1.33
Return on average managed assets, operating basis........... 1.01 .75 1.07 1.19 1.12
======== ======== ======== ======== ========
EFFICIENCY RATIO:
Total costs and expenses less policyholders' benefits....... $ 1,433 $ 1,374 $ 1,349 $ 5,553 $ 5,189
-------- -------- -------- -------- --------
Net interest income and other revenues less policyholders'
benefits:
Owned basis................................................ $ 3,332 $ 3,156 $ 3,728 $ 12,759 $ 12,463
Serviced with limited recourse............................. 48 (23) 19 107 188
-------- -------- -------- -------- --------
Managed basis.............................................. $ 3,380 $ 3,133 $ 3,747 $ 12,866 $ 12,651
-------- -------- -------- -------- --------
Gain on bulk sale of private label receivables.............. -- -- (663) -- (663)
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios:
Owned basis................................................ -- -- 151 -- 151
Managed basis.............................................. -- -- 107 -- 107
Net interest income and other revenues less policyholders'
benefits, excluding nonrecurring items:
Owned basis................................................ $ 3,332 $ 3,156 $ 3,216 $ 12,759 $ 11,951
Serviced with limited recourse............................. 48 (23) (25) 107 144
-------- -------- -------- -------- --------
Managed basis.............................................. $ 3,380 $ 3,133 $ 3,191 $ 12,866 $ 12,095
-------- -------- -------- -------- --------
Owned basis efficiency ratio................................ 43.01% 43.54% 36.19% 43.52% 41.64%
Owned basis efficiency ratio, operating basis............... 43.01 43.54 41.95 43.52 43.42
Managed basis efficiency ratio.............................. 42.40 43.86 36.00 43.16 41.02
Managed basis efficiency ratio, operating basis............. 42.40 43.86 42.28 43.16 42.90
======== ======== ======== ======== ========
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income......................................... $ 2,431 $ 2,340 $ 2,551 $ 9,276 $ 10,257
Other revenues, excluding securitization related revenue as
well as the mark-to-market on derivatives which do not
qualify as effective hedges and ineffectiveness associated
with qualifying hedges under SFAS No. 133.................. 1,193 1,185 1,786 4,686 4,810
Less: Net charge-offs....................................... (1,163) (1,052) (1,502) (4,361) (5,674)
-------- -------- -------- -------- --------
Risk adjusted revenue....................................... $ 2,461 $ 2,473 $ 2,835 $ 9,601 $ 9,393
Gain on bulk sale of private label receivables.............. -- -- (663) -- (663)
Adoption of FFIEC charge-off policies for domestic private
label and MasterCard and Visa portfolios................... -- -- 309 -- 309
-------- -------- -------- -------- --------
Risk adjusted revenue, excluding nonrecurring items......... $ 2,461 $ 2,473 $ 2,481 $ 9,601 $ 9,039
-------- -------- -------- -------- --------
Average interest-earning assets............................. $144,545 $134,817 $135,380 $133,738 $128,659
-------- -------- -------- -------- --------
Managed basis risk adjusted revenue......................... 6.81% 7.34% 8.37% 7.18% 7.30%
Managed basis risk adjusted revenue, operating basis........ 6.81 7.34 7.32 7.18 7.03
-------- -------- -------- -------- --------
13
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES
Two-Months-and-Over
Contractual Delinquency Quarter-to-Date Charge-offs,
------------------------------------------ Net of Recoveries
TWO-MONTHS- TWO-MONTHS- --------------------------------------
AND-OVER CONSUMER AND-OVER NET AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL CHARGE- CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) OFFS RECEIVABLES CHARGE-OFFS(1)
------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
DECEMBER 31, 2005
OWNED:
First mortgage............. $ 2 $ 21 8.41% $ -- $ 21 2.80%
Real estate secured........ 2,257 82,826 2.72 134 81,332 .66
Auto finance............... 250 10,704 2.34 89 10,420 3.42
MasterCard/Visa............ 884 24,110 3.66 422 21,143 7.99
Private label.............. 137 2,520 5.43 38 2,708 5.60
Personal non-credit card... 1,836 19,545 9.40 361 19,023 7.59
------ -------- ----- ------ -------- -----
Total...................... $5,366 $139,726 3.84% $1,044 $134,647 3.10%
====== ======== ===== ====== ======== =====
SERVICED WITH LIMITED
RECOURSE:
Real estate secured........ $ -- $ -- --% $ -- $ -- --%
Auto finance............... 79 1,192 6.63 40 1,351 11.84
MasterCard/Visa............ 30 1,875 1.60 54 3,105 6.96
Personal non-credit card... 125 1,007 12.41 25 1,301 7.69
------ -------- ----- ------ -------- -----
Total...................... $ 234 $ 4,074 5.74% $ 119 $ 5,757 8.27%
====== ======== ===== ====== ======== =====
MANAGED:
First mortgage............. $ 2 21 8.41% $ -- $ 21 2.80%
Real estate secured........ 2,257 82,826 2.72 134 81,332 .66
Auto finance............... 329 11,896 2.76 129 11,771 4.40
MasterCard/Visa............ 914 25,985 3.52 476 24,248 7.85
Private label.............. 137 2,520 5.43 38 2,708 5.60
Personal non-credit card... 1,961 20,552 9.54 386 20,324 7.59
------ -------- ----- ------ -------- -----
Total...................... $5,600 $143,800 3.89% $1,163 $140,404 3.31%
====== ======== ===== ====== ======== =====
SEPTEMBER 30, 2005
OWNED:
First mortgage............. $ 1 $ 22 6.04% $ -- $ 23 --%
Real estate secured........ 1,961 78,130 2.51 140 74,369 .75
Auto finance............... 212 10,137 2.09 78 9,585 3.25
MasterCard/Visa............ 846 18,974 4.46 288 18,442 6.24
Private label.............. 145 2,777 5.22 38 2,840 5.35
Personal non-credit card... 1,696 18,484 9.18 358 17,904 8.01
------ -------- ----- ------ -------- -----
Total...................... $4,861 $128,524 3.78% $ 902 $123,163 2.93%
====== ======== ===== ====== ======== =====
SERVICED WITH LIMITED
RECOURSE:
Real estate secured........ $ -- $ -- --% $ -- $ -- --%
Auto finance............... 98 1,474 6.65 46 1,645 11.19
MasterCard/Visa............ 87 3,615 2.41 56 4,094 5.47
Personal non-credit card... 191 1,670 11.44 48 2,040 9.41
------ -------- ----- ------ -------- -----
Total...................... $ 376 $ 6,759 5.56% $ 150 $ 7,779 7.71%
====== ======== ===== ====== ======== =====
MANAGED:
First mortgage............. $ 1 $ 22 6.04% $ -- $ 23 --%
Real estate secured........ 1,961 78,130 2.51 140 74,369 .75
Auto finance............... 310 11,611 2.67 124 11,230 4.41
MasterCard/Visa............ 933 22,589 4.13 344 22,536 6.11
Private label.............. 145 2,777 5.22 38 2,840 5.35
Personal non-credit card... 1,887 20,154 9.36 406 19,944 8.15
------ -------- ----- ------ -------- -----
Total...................... $5,237 $135,283 3.87% $1,052 $130,942 3.21%
====== ======== ===== ====== ======== =====
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
14
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED)
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY QUARTER-TO-DATE CHARGE-OFFS,
--------------------------------------------- NET OF RECOVERIES
TWO-MONTHS TWO-MONTHS- --------------------------------------
AND-OVER CONSUMER AND-OVER NET AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL CHARGE- CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) OFFS RECEIVABLES CHARGE-OFFS(1)
---------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
DECEMBER 31, 2004
OWNED:
First mortgage............. $ 1 $ 26 5.04% $ -- $ 26 --%
Real estate secured........ 1,920 64,820 2.96 159 61,445 1.04
Auto finance............... 156 7,544 2.07 49 7,191 2.73
MasterCard/Visa............ 714 14,635 4.88 275 13,009 8.44
Private label.............. 141 3,411 4.13 328 14,349 9.16
Personal non-credit card... 1,401 16,128 8.69 316 15,671 8.06
------ -------- ----- ------ -------- -----
Total...................... $4,333 $106,564 4.07% $1,127 $111,691 4.04%
====== ======== ===== ====== ======== =====
SERVICED WITH LIMITED
RECOURSE:
Real estate secured........ $ 10 $ 81 12.35% $ 1 $ 98 4.08%
Auto finance............... 147 2,679 5.49 63 2,861 8.81
MasterCard/Visa............ 170 7,583 2.24 125 8,212 6.09
Private label.............. -- -- -- 83 3,509 9.46
Personal non-credit card... 461 3,882 11.88 103 3,921 10.51
------ -------- ----- ------ -------- -----
Total...................... $ 788 $ 14,225 5.54% $ 375 $ 18,601 8.06%
====== ======== ===== ====== ======== =====
MANAGED:
First mortgage............. $ 1 $ 26 5.04% $ -- $ 26 --%
Real estate secured........ 1,930 64,901 2.97 160 61,543 1.04
Auto finance............... 303 10,223 2.96 112 10,052 4.47
MasterCard/Visa............ 884 22,218 3.98 400 21,221 7.54
Private label.............. 141 3,411 4.13 411 17,858 9.22
Personal non-credit card... 1,862 20,010 9.30 419 19,592 8.55
------ -------- ----- ------ -------- -----
Total...................... $5,121 $120,789 4.24% $1,502 $130,292 4.61%
====== ======== ===== ====== ======== =====
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
15
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED)
SERVICED WITH
OWNED LIMITED RECOURSE MANAGED
--------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
REAL ESTATE CHARGE-OFFS AND REO EXPENSE:
THREE MONTHS ENDED DECEMBER 31, 2005
Real estate charge-offs and REO expense..................... $ 158 $-- $ 158
Average real estate secured receivables..................... 81,332 -- 81,332
------- --- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)................ .78% -- .78%
======= === =======
THREE MONTHS ENDED SEPTEMBER 30, 2005
Real estate charge-offs and REO expense..................... $ 163 $-- $ 163
Average real estate secured receivables..................... 74,369 -- 74,369
------- --- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)................ .88% -- .88%
======= === =======
THREE MONTHS ENDED DECEMBER 31, 2004
Real estate charge-offs and REO expense..................... $ 179 $ 1 $ 180
Average real estate secured receivables..................... 61,445 98 61,543
------- --- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)................ 1.17% -- 1.17%
======= === =======
---------------
(1)Certain percentages may not recompute from the dollar figures presented due
to rounding.
16
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED)
SERVICED WITH
OWNED LIMITED RECOURSE MANAGED
----------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
CREDIT LOSS RESERVES:
THREE MONTHS ENDED DECEMBER 31, 2005
Reserves for receivables at beginning of quarter............ $ 4,220 $ 351 $ 4,571
Provision for credit losses................................. 1,310 48 1,358
Charge-offs, net of recoveries.............................. (1,044) (119) (1,163)
Other, net.................................................. 35 (65) (30)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 4,521 $ 215 $ 4,736
Receivables................................................. $139,913 $ 4,074 $143,987
Credit loss reserves as a percent of receivables............ 3.23% 5.28% 3.29%
-------- ------- --------
THREE MONTHS ENDED SEPTEMBER 30, 2005
Reserves for receivables at beginning of quarter............ $ 3,756 $ 525 $ 4,281
Provision for credit losses................................. 1,361 (23) 1,338
Charge-offs, net of recoveries.............................. (902) (150) (1,052)
Other, net.................................................. 5 (1) 4
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 4,220 $ 351 $ 4,571
Receivables................................................. $128,722 $ 6,759 $135,481
Credit loss reserves as a percent of receivables............ 3.28% 5.19% 3.37%
-------- ------- --------
THREE MONTHS ENDED DECEMBER 31, 2004
Reserves for receivables at beginning of quarter............ $ 3,953 $ 1,246 $ 5,199
Provision for credit losses................................. 1,286 19 1,305
Charge-offs, net of recoveries.............................. (1,127) (375) (1,502)
Other, net.................................................. (487) -- (487)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,625 $ 890 $ 4,515
Receivables................................................. $106,855 $14,225 $121,080
Credit loss reserves as a percent of receivables............ 3.39% 6.26% 3.73%
-------- ------- --------
NONPERFORMING ASSETS:
DECEMBER 31, 2005
Nonaccrual receivables...................................... $ 3,533 $ 176 $ 3,709
Accruing receivables 90 or more days delinquent............. 621 21 642
Renegotiated commercial loans............................... -- -- --
-------- ------- --------
Total nonperforming receivables............................. 4,154 197 4,351
Real estate owned........................................... 510 -- 510
-------- ------- --------
Total nonperforming assets.................................. $ 4,664 $ 197 $ 4,861
Credit loss reserves as a percent of nonperforming
receivables............................................... 108.8% -- 108.8%
-------- ------- --------
SEPTEMBER 30, 2005
Nonaccrual receivables...................................... $ 3,273 $ 268 $ 3,541
Accruing receivables 90 or more days delinquent............. 563 41 604
Renegotiated commercial loans............................... -- -- --
-------- ------- --------
Total nonperforming receivables............................. 3,836 309 4,145
Real estate owned........................................... 462 -- 462
-------- ------- --------
Total nonperforming assets.................................. $ 4,298 $ 309 $ 4,607
Credit loss reserves as a percent of nonperforming
receivables............................................... 110.0% -- 110.3%
-------- ------- --------
DECEMBER 31, 2004
Nonaccrual receivables...................................... $ 3,012 $ 546 $ 3,558
Accruing receivables 90 or more days delinquent............. 507 100 607
Renegotiated commercial loans............................... 2 -- 2
-------- ------- --------
Total nonperforming receivables............................. 3,521 646 4,167
Real estate owned........................................... 587 -- 587
-------- ------- --------
Total nonperforming assets.................................. $ 4,108 $ 646 $ 4,754
Credit loss reserves as a percent of nonperforming
receivables............................................... 103.0% -- 108.4%
-------- ------- --------
17
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