HSBC NA Q4 2004 8-K
HSBC Holdings PLC
28 February 2005
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: FEBRUARY 28, 2005
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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, ILLINOIS 60070
(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, 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.
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, 2004.
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: February 28, 2005
EXHIBIT 99
HSBC FINANCE CORPORATION
QUARTERLY FINANCIAL SUPPLEMENT - DECEMBER 31, 2004
INDEX PAGE NO.
----- --------
Basis of Reporting.......................................... 2
Consolidated Statements of Income - Owned Basis:
Three Months.............................................. 4
Twelve Months............................................. 6
Receivables Analysis........................................ 8
Financial Highlights - Managed Basis:
Three Months.............................................. 9
Twelve Months............................................. 10
Credit Quality/Credit Loss Reserves - Managed Basis......... 11
Reconciliations to GAAP Financial Measures:
Revenues, Average Interest-Earning Assets and Net Interest
Income:
Three Months........................................... 12
Twelve Months.......................................... 13
Selected Financial Ratios................................. 14
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................................... 19
Nonperforming Assets................................... 19
HSBC Finance Corporation
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RESTATEMENT
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HSBC Finance Corporation has restated its consolidated financial statements for
the previously reported quarterly periods ended March 31, 2004, June 30, 2004
and September 31, 2004; and the period March 29, 2003 through December 31, 2003.
This Quarterly Financial Supplement includes all adjustments relating to the
restatement for these prior periods. See Note 3, "Restatement," to our
consolidated financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2004 for further discussion of the restatement.
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 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 income, provision for credit
losses and fee income related to receivables securitized are reclassified from
securitization 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 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. As the level of our securitized
receivables falls over time, managed basis and owned basis results will
eventually converge, and we will only report owned basis results.
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 2004 on Form 10-K for
further discussion of these items.
2
HSBC Finance Corporation
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A reconciliation of net income to operating net income follows:
THREE MONTHS ENDED YEAR ENDED
---------------------------------- ---------------------
12/31/04 9/30/04 12/31/03 12/31/04 12/31/03
(RESTATED) (RESTATED) (RESTATED)
------------------------------------------------------------------------------------------------------
(IN MILLIONS)
Net income................................ $712 $325 $592 $1,940 $1,603
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 --
HSBC acquisition related costs and other
merger related items incurred by HSBC
Finance Corporation, after-tax.......... -- -- -- -- 167
---- ---- ---- ------ ------
Operating net income...................... $410 $325 $592 $1,638 $1,770
==== ==== ==== ====== ======
PREDECESSOR AND SUCCESSOR PERIODS
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HSBC Finance Corporation'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
December 31, 2003) to present "combined" results for the year ended December 31,
2003.
RECLASSIFICATIONS
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Certain reclassifications have been made to prior period amounts to conform to
the current period presentation. Immaterial adjustments have been made to
decrease finance income and increase securitization revenue as reported in prior
periods. These adjustments reflect corrections after discovery of a system
programming error in the posting of finance income between owned receivables and
receivables serviced with limited recourse. Reported net income for all prior
periods was not affected by these adjustments.
3
HSBC Finance Corporation
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CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS
THREE MONTHS
% CHANGE FROM
THREE MONTHS ENDED PRIOR
----------------------------------- --------------
9/30/04 12/31/03
12/31/04 (RESTATED) (RESTATED) QTR. YEAR
----------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income.................. $ 3,001 $ 2,779 $ 2,625 8.0% 14.3%
Interest expense................................... 918 810 669 13.3 37.2
-------- -------- -------- ----- -----
NET INTEREST INCOME................................ 2,083 1,969 1,956 5.8 6.5
Provision for credit losses........................ 1,286 1,123 917 14.5 40.2
-------- -------- -------- ----- -----
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES........................................... 797 846 1,039 (5.8) (23.3)
-------- -------- -------- ----- -----
Other revenues:
Securitization revenue........................... 127 267 347 (52.4) (63.4)
Insurance revenue................................ 221 203 193 8.9 14.5
Investment income................................ 30 36 45 (16.7) (33.3)
Derivative income................................ 263 72 107 100+ 100+
Fee income....................................... 282 302 281 (6.6) .4
Taxpayer financial services income............... 8 (3) (1) 100+ 100+
Other income..................................... 164 163 158 .6 3.8
Gain on bulk sale of private label receivables... 663 - - 100.0 100.0
-------- -------- -------- ----- -----
TOTAL OTHER REVENUES............................... 1,758 1,040 1,130 69.0 55.6
-------- -------- -------- ----- -----
Costs and expenses:
Salaries and fringe benefits..................... 472 472 507 - (6.9)
Sales incentives................................. 104 91 64 14.3 62.5
Occupancy and equipment expenses................. 86 77 104 11.7 (17.3)
Other marketing expenses......................... 199 174 142 14.4 40.1
Other servicing and administrative expenses...... 209 235 280 (11.1) (25.4)
Support services from HSBC affiliates............ 194 183 - 6.0 100.0
Amortization of acquired intangibles............. 85 83 84 2.4 1.2
Policyholders' benefits.......................... 113 93 90 21.5 25.6
-------- -------- -------- ----- -----
TOTAL COSTS AND EXPENSES........................... 1,462 1,408 1,271 3.8 15.0
-------- -------- -------- ----- -----
Income before income tax expense................... 1,093 478 898 100+ 21.7
Income tax expense................................. 381 153 306 100+ 24.5
-------- -------- -------- ----- -----
NET INCOME......................................... $ 712 $ 325 $ 592 100+% 20.3%
======== ======== ======== ===== =====
Gain on bulk sale of private label receivables,
after-tax........................................ (423) - - (100.0) (100.0)
Adoption of FFIEC charge-off policies for domestic
private label and MasterCard and Visa portfolios,
after-tax........................................ 121 - - 100.0 100.0
-------- -------- -------- ----- -----
Operating net income(1)............................ $ 410 $ 325 $ 592 26.2% (30.7)%
======== ======== ======== ===== =====
---------------
(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.
4
HSBC Finance Corporation
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SECURITIZATION REVENUE
THREE MONTHS ENDED
-----------------------------
12/31/04 9/30/04 12/31/03
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Net initial gains(1)........................................ $ - $ - $ 84
Net replenishment gains(1).................................. 69 112 139
Servicing revenue and excess spread......................... 58 155 124
---- ---- ----
Total....................................................... $127 $267 $347
==== ==== ====
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(1) Net of our estimate of probable credit losses under the recourse provisions.
RECEIVABLES SECURITIZED
THREE MONTHS ENDED
-----------------------------
12/31/04 9/30/04 12/31/03
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(IN MILLIONS)
Auto finance................................................ $ - $ - $ 516
MasterCard/Visa(1).......................................... - - -
Private label............................................... - - 1,000
Personal non-credit card.................................... - - 1,620
---- ---- ------
Total....................................................... $ - $ - $3,136
==== ==== ======
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(1) MasterCard and Visa are registered trademarks of MasterCard International,
Incorporated and VISA USA Inc., respectively.
5
HSBC Finance Corporation
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CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS
TWELVE MONTHS
TWELVE MONTHS ENDED
----------------------
12/31/03(1)
12/31/04 (RESTATED) % CHANGE
-----------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income........................... $10,945 $10,242 6.9%
Interest expense............................................ 3,143 2,928 7.3
------- ------- ------
NET INTEREST INCOME......................................... 7,802 7,314 6.7
Provision for credit losses................................. 4,334 3,967 9.3
------- ------- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 3,468 3,347 3.6
------- ------- ------
Other revenues:
Securitization revenue.................................... 1,008 1,461 (31.0)
Insurance revenue......................................... 839 746 12.5
Investment income......................................... 137 196 (30.1)
Derivative income......................................... 511 286 78.7
Fee income................................................ 1,091 1,064 2.5
Taxpayer financial services income........................ 217 185 17.3
Other income.............................................. 607 381 59.3
Gain on bulk sale of private label receivables............ 663 - 100.0
------- ------- ------
TOTAL OTHER REVENUES........................................ 5,073 4,319 17.5
------- ------- ------
Costs and expenses:
Salaries and fringe benefits.............................. 1,886 1,998 (5.6)
Sales incentives.......................................... 363 263 38.0
Occupancy and equipment expenses.......................... 323 400 (19.3)
Other marketing expenses.................................. 636 548 16.1
Other servicing and administrative expenses............... 868 1,149 (24.5)
Support services from HSBC affiliates..................... 750 - 100.0
Amortization of acquired intangibles...................... 363 258 40.7
Policyholders' benefits................................... 412 377 9.3
HSBC acquisition related costs incurred by HSBC Finance
Corporation............................................. - 198 (100.0)
------- ------- ------
TOTAL COSTS AND EXPENSES.................................... 5,601 5,191 7.9
------- ------- ------
Income before income tax expense............................ 2,940 2,475 18.8
Income tax expense.......................................... 1,000 872 14.7
------- ------- ------
NET INCOME.................................................. $ 1,940 $ 1,603 21.0%
======= ======= ======
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
HSBC acquisition related costs incurred by HSBC Finance
Corporation, after-tax.................................... - 167 (100.0)
------- ------- ------
Operating net income(2)..................................... $ 1,638 $ 1,770 (7.5)%
======= ======= ======
---------------
(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 December 31, 2003) to present "combined" results for the
twelve months ended December 31, 2003. See "Basis of Reporting" for
additional information regarding the "successor" period and "predecessor"
period.
(2) 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.
6
HSBC Finance Corporation
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SECURITIZATION REVENUE
TWELVE MONTHS ENDED
-----------------------
12/31/04 12/31/03(1)
-------------------------------------------------------------------------------------
(IN MILLIONS)
Net initial gains(2)........................................ $ 25 $ 176
Net replenishment gains(2).................................. 414 548
Servicing revenue and excess spread......................... 569 737
------ ------
Total....................................................... $1,008 $1,461
====== ======
---------------
(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 December 31, 2003) to present "combined" results for the
twelve months ended December 31, 2003. See "Basis of Reporting" for
additional information regarding the "successor" period and "predecessor"
period.
(2) Net of our estimate of probable credit losses under the recourse provisions.
RECEIVABLES SECURITIZED
TWELVE MONTHS ENDED
----------------------
12/31/04 12/31/03(1)
------------------------------------------------------------------------------------
(IN MILLIONS)
Auto finance................................................ $ - $1,523
MasterCard/Visa............................................. 550 670
Private label............................................... 190 1,250
Personal non-credit card.................................... - 3,320
---- ------
Total....................................................... $740 $6,763
==== ======
---------------
(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 December 31, 2003) to present "combined" results for the
twelve months ended December 31, 2003. See "Basis of Reporting" for
additional information regarding the "successor" period and "predecessor"
period.
7
HSBC Finance Corporation
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RECEIVABLES ANALYSIS
END-OF-PERIOD RECEIVABLES
% CHANGE FROM PRIOR
--------------------
12/31/04 9/30/04 12/31/03 QTR. YEAR
--------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
OWNED RECEIVABLES:
Real estate secured(1)................... $ 64,820 $ 58,726 $ 51,221 10.4% 26.5%
Auto finance............................. 7,544 6,823 4,138 10.6 82.3
MasterCard/Visa.......................... 14,635 11,666 11,182 25.5 30.9
Private label(2)......................... 3,411 14,000 12,604 (75.6) (72.9)
Personal non-credit card................. 16,128 14,888 12,832 8.3 25.7
Commercial and other..................... 317 334 401 (5.1) (20.9)
-------- -------- -------- ------ ------
Total owned receivables.................... 106,855 106,437 92,378 .4 15.7
-------- -------- -------- ------ ------
RECEIVABLES SERVICED WITH LIMITED RECOURSE:
Real estate secured...................... 81 165 194 (50.9) (58.2)
Auto finance............................. 2,679 3,060 4,675 (12.5) (42.7)
MasterCard/Visa.......................... 7,583 8,843 9,967 (14.2) (23.9)
Private label(2)......................... - 3,921 5,261 (100.0) (100.0)
Personal non-credit card................. 3,882 4,186 6,104 (7.3) (36.4)
-------- -------- -------- ------ ------
Total receivables serviced with limited
recourse................................. 14,225 20,175 26,201 (29.5) (45.7)
-------- -------- -------- ------ ------
MANAGED RECEIVABLES:(3)
Real estate secured...................... 64,901 58,891 51,415 10.2 26.2
Auto finance............................. 10,223 9,883 8,813 3.4 16.0
MasterCard/Visa.......................... 22,218 20,509 21,149 8.3 5.1
Private label(2)......................... 3,411 17,921 17,865 (81.0) (80.9)
Personal non-credit card(4).............. 20,010 19,074 18,936 4.9 5.7
Commercial and other..................... 317 334 401 (5.1) (20.9)
-------- -------- -------- ------ ------
Total managed receivables.................. $121,080 $126,612 $118,579 (4.4)% 2.1%
======== ======== ======== ====== ======
---------------
(1) Real estate secured receivable levels reflect sales to HSBC Bank USA, N.A.
of $.9 billion on March 31, 2004 and $2.8 billion on December 31, 2003.
(2) Private label receivable levels reflect the bulk sale of domestic private
label receivables in December 2004 of $12.2 billion ($15.6 billion on a
managed basis) to HSBC Bank USA, N.A.
(3) Managed basis reporting is a non-GAAP financial measure. See "Basis of
Reporting" for a discussion on the use of non-GAAP financial information.
(4) Personal non-credit card receivables are comprised of the following:
12/31/04 9/30/04 12/31/03
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Domestic personal unsecured................................. $10,725 $10,054 $ 9,966
Union Plus personal unsecured............................... 474 510 714
Personal homeowner loans.................................... 4,582 4,587 4,639
Foreign unsecured........................................... 4,229 3,923 3,617
------- ------- -------
Total....................................................... $20,010 $19,074 $18,936
======= ======= =======
8
HSBC Finance Corporation
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FINANCIAL HIGHLIGHTS - MANAGED BASIS(1)
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
THREE MONTHS ENDED % CHANGE
---------------------------------------------------------- FROM PRIOR
9/30/04 12/31/03 ------------
12/31/04 (2) (RESTATED) (2) (RESTATED) (2) QTR. YEAR
------------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income..............$ 3,601 10.64% $ 3,494 10.79% $ 3,472 11.11% 3.1% 3.7%
Interest expense.................................1,050 3.10 944 2.91 803 2.57 11.2 30.8
-------- ----- -------- ----- -------- ----- -----
-----
NET INTEREST INCOME..............................2,551 7.54% 2,550 7.88% 2,669 8.54% -- (4.4)
Provision for credit losses......................1,305 891 1,748 46.5 (25.3)
-------- -------- -------- ----- -----
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES...................................... $ 1,246 $ 1,659 $ 921 (24.9)% 35.3%
======== ======== ======== ===== =====
Other revenues:
Insurance revenue............................$ 221 $ 203 $ 193 8.9% 14.5%
Investment income............................ 30 36 45 (16.7) (33.3)
Fee income................................... 437 498 482 (12.2) (9.3)
Securitization revenue....................... (477) (742) 264 (35.7) (100)+
Derivative income............................ 263 72 107 100+ 100+
Taxpayer financial services income........... 8 (3) (1) 100+ 100+
Other income................................. 164 163 158 .6 3.8
Gain on bulk sale of private label receivables. 663 - - 100.0 100.0
-------- -------- -------- ----- ----
TOTAL OTHER REVENUES........................ $ 1,309 $ 227 $ 1,248 100+ 4.9%
======== ======== ======== ===== =====
Average managed receivables
Real estate secured......................... $61,543 $ 57,741 $ 53,845 6.6% 14.3%
Auto finance................................ 10,052 9,598 8,628 4.7 16.5
MasterCard/Visa............................. 21,221 20,441 20,323 3.8 4.4
Private label............................... 17,858 17,626 17,058 1.3 4.7
Personal non-credit card.................... 19,593 18,928 18,866 3.5 3.9
Commercial and other........................ 321 336 403 (4.5) (20.3)
Purchase accounting fair value adjustments.. 243 295 444 (17.6) (45.3)
-------- -------- -------- ----- -----
Average managed receivables................ $130,831 $124,965 $119,567 4.7% 9.4%
Average noninsurance investments........... 3,889 3,878 4,793 .3 (18.9)
Other interest-earning assets.............. 660 654 637 .9 3.6
-------- -------- -------- ----- -----
Average managed interest-earning assets.... $135,380 $129,497 $124,997 4.5% 8.3%
======== ======== ======== ===== =====
SELECTED FINANCIAL RATIOS:
Return on average managed assets........... 1.87% .89% 1.67% 100+% 12.0%
Efficiency ratio............................ 36.0 49.0 30.8 (26.5)% 16.9
Net interest margin......................... 7.54 7.88 8.54 (4.3)% (11.7)
Risk adjusted revenue....................... 8.37 6.66 7.51 25.7% 11.5
EXCLUDING NONRECURRING ITEMS/OPERATING BASIS:
Return on average managed assets............. 1.07 .89 1.67 20.2% (35.9)
Efficiency ratio............................. 42.2 49.0 30.8 (13.9)% 37.0
Risk adjusted revenue........................ 7.32 6.66 7.51 9.6% (2.8)
======== ======== ======== ===== =====
---------------
(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
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1)
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
TWELVE MONTHS
TWELVE MONTHS ENDED
--------------------------------------
12/31/03(3)
12/31/04 (2) (RESTATED) (2) % CHANGE
---------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income..................... $ 13,928 10.83% $ 13,682 11.55% 1.8%
Interest expense...................................... 3,671 2.86 3,494 2.95 5.1
-------- ----- -------- ----- ------
NET INTEREST INCOME................................... 10,257 7.97% 10,188 8.60% .7
Provision for credit losses........................... 4,522 6,242 (27.6)
-------- -------- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES.............................................. $ 5,735 $ 3,946 45.3%
======== ======== ======
Other revenues:
Insurance revenue................................... $ 839 $ 746 12.5%
Investment income................................... 137 196 (30.1)
Fee income.......................................... 1,836 1,779 3.2
Securitization revenue.............................. (2,004) 147 (100+)
Derivative income (expense)......................... 511 286 78.7
Taxpayer financial services income.................. 217 185 17.3
Other income........................................ 607 381 59.3
Gain on bulk sale of private label receivables...... 663 - 100.0
-------- -------- ------
TOTAL OTHER REVENUES.................................. $ 2,806 $ 3,720 (24.6)%
======== ======== ======
Average managed receivables
Real estate secured................................. $ 56,462 $ 50,124 12.6%
Auto finance........................................ 9,432 7,918 19.1
MasterCard/Visa..................................... 20,674 19,272 7.3
Private label....................................... 17,579 16,016 9.8
Personal non-credit card............................ 18,986 19,041 (.3)
Commercial and other................................ 354 430 (17.7)
Purchase accounting fair value adjustments.......... 319 397 (19.6)
-------- -------- ------
Average managed receivables........................... $123,806 $113,198 9.4%
Average noninsurance investments...................... 4,203 4,651 (9.6)
Other interest-earning assets......................... 650 629 3.3
-------- -------- ------
Average managed interest-earning assets............... $128,659 $118,478 8.6%
======== ======== ======
SELECTED FINANCIAL RATIOS:
Return on average managed assets...................... 1.33% 1.19% 11.8%
Efficiency ratio...................................... 41.0 35.6 15.2
Net interest margin................................... 7.97 8.60 (7.3)
Risk adjusted revenue................................. 7.30 7.18 1.7
EXCLUDING NONRECURRING ITEMS/OPERATING BASIS:(4)
Return on average managed assets...................... 1.12 1.32 (15.2)
Efficiency ratio...................................... 42.9 34.1 25.8
Risk adjusted revenue................................. 7.03 7.18 (2.1)
-------- -------- ------
(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.
(3) 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 December 31, 2003) to present "combined" results for the
twelve months ended December 31, 2003. See "Basis of Reporting" for
additional information regarding the "successor" period and "predecessor"
period.
(4) 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.
10
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. 12/31/04 9/30/04 12/31/03
-------------------------------------------------------------------------------------------------
Real estate secured............................................ 2.97% 3.30% 4.35%
Auto finance................................................... 2.96 2.74 3.84
MasterCard/Visa................................................ 3.98 4.44 4.16
Private label.................................................. 4.13 4.76 4.94
Personal non-credit card....................................... 9.30 9.52 10.69
---- ---- -----
TOTAL.......................................................... 4.24% 4.59% 5.39%
==== ==== =====
QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES
AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 12/31/04 9/30/04 12/31/03
---------------------------------------------------------------------------------------------------------------------
Real estate secured...................................................... 1.04% 1.19% .94%
Auto finance............................................................. 4.47 6.04 6.27
MasterCard/Visa(2)....................................................... 7.54 6.92 7.03
Private label(2)......................................................... 9.22 4.85 4.95
Personal non-credit card................................................. 8.55 10.12 10.05
---- ----- -----
TOTAL.................................................................... 4.61% 4.38% 4.39
==== ===== =====
Real estate charge-offs and REO expense as a percent of average managed real estate
secured receivables.................................................... 1.17% 1.31% 1.37%
==== ===== =====
CREDIT LOSS RESERVES
12/31/04 9/30/04 12/31/03
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Reserves for managed receivables at beginning of quarter.... $ 5,199 $ 5,699 $ 5,733
Provision for credit losses................................. 1,305 891 1,748
Charge-offs, net of recoveries.............................. (1,502) (1,363) (1,304)
Other, net.................................................. (487) (28) (10)
------- ------- -------
Reserves for managed receivables at end of quarter.......... $ 4,515 $ 5,199 $ 6,167
======= ======= =======
Reserves as a percent of managed receivables................ 3.73% 4.11% 5.20%
------- ------- -------
NONPERFORMING ASSETS
12/31/04 9/30/04 12/31/03
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Nonaccrual managed receivables.............................. $3,558 $3,476 $4,009
Accruing managed receivables 90 or more days delinquent..... 607 1,201 1,215
Renegotiated commercial loans............................... 2 1 2
------ ------ ------
Total nonperforming managed receivables..................... 4,167 4,678 5,226
Real estate owned........................................... 587 601 631
------ ------ ------
TOTAL NONPERFORMING ASSETS.................................. $4,754 $5,279 $5,857
====== ====== ======
Managed credit loss reserves as a percent of nonperforming
managed receivables....................................... 108.4% 111.1% 118.0%
------ ------ ------
---------------
(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) 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
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.
11
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
THREE MONTHS
THREE MONTHS ENDED 9/30/04
THREE MONTHS ENDED 12/31/04 (RESTATED)
----------------------------------- -----------------------------------
SERVICED WITH SERVICED WITH
LIMITED LIMITED
OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED
---------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other
interest income........ $ 3,001 $ 600 $ 3,601 $ 2,779 $ 715 $ 3,494
Interest expense........ 918 132 1,050 810 134 944
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME..... 2,083 468 2,551 1,969 581 2,550
Provision for credit
losses................. 1,286 19 1,305 1,123 (232) 891
-------- ------- -------- -------- ------- --------
NET INTEREST INCOME
AFTER PROVISION FOR
CREDIT LOSSES.......... $ 797 $ 449 $ 1,246 $ 846 $ 813 $ 1,659
======== ======= ======== ======== ======= ========
Other revenues:
Securitization
revenue.............. $ 127 $ (604) $ (477) $ 267 $(1,009) $ (742)
Insurance revenue...... 221 - 221 203 - 203
Investment income...... 30 - 30 36 - 36
Fee income............. 282 155 437 302 196 498
Derivative income...... 263 - 263 72 - 72
Taxpayer financial
services income...... 8 - 8 (3) - (3)
Other income........... 164 - 164 163 - 163
Gain on bulk sale of
private label
receivables.......... 663 - 663 - - -
-------- ------- -------- -------- ------- --------
TOTAL OTHER REVENUES.... $ 1,758 $ (449) $ 1,309 $ 1,040 $ (813) $ 227
======== ======= ======== ======== ======= ========
Average receivables:
Real estate secured.... $ 61,445 $ 98 $61,543 $ 57,570 $ 171 $57,741
Auto finance........... 7,191 2,861 $10,052 6,238 3,360 9,598
MasterCard/Visa........ 13,009 8,212 $21,221 11,251 9,190 20,441
Private label.......... 14,349 3,509 $17,858 13,310 4,316 17,626
Personal non-credit
card................. 15,671 3,922 $19,593 14,423 4,505 18,928
Commercial and other... 321 - $ 321 336 - 336
Purchase accounting
fair value
adjustments.......... 243 - $ 243 295 - 295
-------- ------- -------- -------- ------- --------
Average receivables..... $112,229 $18,602 $130,831 $103,423 $21,542 $124,965
Average noninsurance
investments............ 3,889 - 3,889 3,878 - 3,878
Other interest-earning
assets................. 660 - 660 654 - 654
-------- ------- -------- -------- ------- --------
Average interest-earning
assets................. $116,778 $18,602 $135,380 $107,955 $21,542 $129,497
======== ======= ======== ======== ======= ========
Net interest income as a
percentage of average
interest-earning
assets................. 7.13% 10.06% 7.54% 7.29% 10.79% 7.88%
======== ======= ======== ======== ======= ========
THREE MONTHS ENDED 12/31/03
(RESTATED)
-----------------------------------
SERVICED WITH
LIMITED
OWNED RECOURSE(1) MANAGED
------------------------ -----------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other
interest income........ $ 2,625 $ 847 $ 3,472
Interest expense........ 669 134 803
-------- ------- --------
NET INTEREST INCOME..... 1,956 713 2,669
Provision for credit
losses................. 917 831 1,748
-------- ------- --------
NET INTEREST INCOME
AFTER PROVISION FOR
CREDIT LOSSES.......... $ 1,039 $ (118) $ 921
======== ======= ========
Other revenues:
Securitization
revenue.............. $ 347 $ (83) $ 264
Insurance revenue...... 193 - 193
Investment income...... 45 - 45
Fee income............. 281 201 482
Derivative income...... 107 - 107
Taxpayer financial
services income...... (1) - (1)
Other income........... 158 - 158
Gain on bulk sale of
private label
receivables.......... - - -
-------- ------- --------
TOTAL OTHER REVENUES.... $ 1,130 $ 118 $ 1,248
======== ======= ========
Average receivables:
Real estate secured.... $ 53,642 $ 203 $ 53,845
Auto finance........... 3,961 4,667 8,628
MasterCard/Visa........ 10,379 9,944 20,323
Private label.......... 12,564 4,494 17,058
Personal non-credit
card................. 13,606 5,260 18,866
Commercial and other... 403 - 403
Purchase accounting
fair value
adjustments.......... 444 - 444
-------- ------- --------
Average receivables..... $ 94,999 $24,568 $119,567
Average noninsurance
investments............ 4,793 - 4,793
Other interest-earning
assets................. 637 - 637
-------- ------- --------
Average interest-earning
assets................. $100,429 $24,568 $124,997
======== ======= ========
Net interest income as a
percentage of average
interest-earning
assets................. 7.79% 11.61% 8.54%
======== ======= ========
---------------
(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 revenue in our
owned statements of income into the appropriate caption.
12
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME
TWELVE MONTHS
Twelve Months Ended 12/31/03
TWELVE MONTHS ENDED 12/31/04 (Restated)
----------------------------------- ----------------------------------
SERVICED WITH Serviced
LIMITED with Limited
OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED
-----------------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
Finance and other interest income............ $ 10,945 $ 2,983 $13,928 $10,242 $ 3,440 $ 13,682
Interest expense............................. 3,143 528 3,671 2,928 566 3,494
-------- ------- -------- ------- ------- --------
NET INTEREST INCOME.......................... 7,802 2,455 10,257 7,314 2,874 10,188
Provision for credit losses.................. 4,334 188 4,522 3,967 2,275 6,242
-------- ------- -------- ------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES.............................. $ 3,468 $ 2,267 $ 5,735 $ 3,347 $ 599 $ 3,946
======== ======= ======== ======= ======= ========
Other revenues:
Securitization revenue..................... $ 1,008 $(3,012) $(2,004) $ 1,461 $(1,314) $ 147
Insurance revenue.......................... 839 - 839 746 - 746
Investment income.......................... 137 - 137 196 - 196
Fee income................................. 1,091 745 1,836 1,064 715 1,779
Derivative income.......................... 511 - 511 286 - 286
Taxpayer financial services income......... 217 - 217 185 - 185
Other income............................... 607 - 607 381 - 381
Gain on bulk sale of private label
receivables.............................. 663 - 663 - - -
-------- ------- -------- ------- ------- --------
TOTAL OTHER REVENUES......................... $ 5,073 $(2,267) $ 2,806 $ 4,319 $ (599) $ 3,720
======== ======= ======== ======= ======= ========
Average receivables:
Real estate secured........................ $ 56,303 $ 159 $56,462 $49,852 $ 272 $ 50,124
Auto finance............................... 5,785 3,647 9,432 2,920 4,998 7,918
MasterCard/Visa............................ 11,575 9,099 20,674 9,517 9,755 19,272
Private label.............................. 13,029 4,550 17,579 11,942 4,074 16,016
Personal non-credit card................... 14,194 4,792 18,986 14,009 5,032 19,041
Commercial and other....................... 354 - 354 430 - 430
Purchase accounting fair value
adjustments.............................. 319 - 319 397 - 397
-------- ------- -------- ------- ------- --------
Average receivables.......................... $101,559 $22,247 $123,806 $89,067 $24,131 $113,198
Average noninsurance investments............. 4,203 - 4,203 4,651 - 4,651
Other interest-earning assets................ 650 - 650 629 - 629
-------- ------- -------- ------- ------- --------
Average interest-earning assets.............. $106,412 $22,247 $128,659 $94,347 $24,131 $118,478
======== ======= ======== ======= ======= ========
Net interest income as a percentage of
average interest-earning assets............ 7.33% 11.04% 7.97% 7.75% 11.91% 8.60%
======== ======= ======== ======= ======= ========
---------------
(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.
13
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION TO GAAP FINANCIAL MEASURES
SELECTED FINANCIAL RATIOS
THREE MONTHS ENDED TWELVE MONTHS ENDED
---------------------------------- ---------------------
9/30/04 12/31/03 12/31/03
12/31/04 (RESTATED) (RESTATED) 12/31/04 (RESTATED)
----------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
RETURN ON AVERAGE COMMON SHAREHOLDER'S(S') EQUITY:
Net income.......................................... $ 712 $ 325 $ 592 $ 1,940 $ 1,603
Dividends on preferred stock...................... (18) (18) (18) (72) (76)
-------- -------- -------- -------- --------
Net income available to common shareholders......... $ 694 $ 307 $ 574 $ 1,868 $ 1,527
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 -
HSBC acquisition related costs incurred by HSBC
Finance Corporation, after-tax.................... - - - - 167
-------- -------- -------- -------- --------
Operating net income available to common
shareholders...................................... $ 392 $ 307 $ 574 $ 1,566 $ 1,694
-------- -------- -------- -------- --------
Average common shareholder's(s') equity............. $ 16,838 $ 17,367 $ 15,902 $ 17,003 $ 14,209
-------- -------- -------- -------- --------
Return on average common shareholder's(s') equity... 16.5% 7.1% 14.5% 11.0% 10.7%
Return on average common shareholder's(s') equity,
operating basis................................... 9.4 7.1 14.5 9.2 11.9
======== ======== ======== ======== ========
RETURN ON AVERAGE ASSETS:
Net income.......................................... $ 712 $ 325 $ 592 $ 1,940 $ 1,603
Operating net income................................ 410 325 592 1,638 1,770
-------- -------- -------- -------- --------
Average assets:
Owned basis....................................... $134,316 $124,512 $117,532 $123,921 $110,097
Serviced with limited recourse.................... 18,602 21,542 24,568 22,247 24,131
-------- -------- -------- -------- --------
Managed basis..................................... $152,918 $146,054 $142,100 $146,168 $134,228
-------- -------- -------- -------- --------
Return on average owned assets...................... 2.12% 1.04 2.02% 1.57% 1.46%
Return on average owned assets, operating basis..... 1.22 1.04 2.02 1.32 1.61
Return on average managed assets.................... 1.87 .89 1.67 1.33 1.19
Return on average managed assets, operating basis... 1.07 .89 1.67 1.12 1.32
======== ======== ======== ======== ========
14
HSBC Finance Corporation
--------------------------------------------------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
---------------------------------- ---------------------
9/30/04 12/31/03 12/31/03
12/31/04 (RESTATED) (RESTATED) 12/31/04 (RESTATED)
----------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
EFFICIENCY RATIO:
Total costs and expenses less policyholders'
benefits.......................................... $ 1,349 $ 1,315 $ 1,181 $ 5,189 $ 4,814
HSBC acquisition related costs incurred by HSBC
Finance Corporation............................. - - - - (198)
-------- -------- -------- -------- --------
Total costs and expenses less policyholders'
benefits, excluding nonrecurring items.......... $ 1,349 $ 1,315 $ 1,181 $ 5,189 $ 4,616
-------- -------- -------- -------- --------
Net interest income and other revenues less
policyholders' benefits:
Owned basis....................................... $ 3,728 $ 2,916 $ 2,996 $ 12,463 $ 11,256
Serviced with limited recourse.................... 19 (232) 831 188 2,275
-------- -------- -------- -------- --------
Managed basis..................................... $ 3,747 $ 2,684 $ 3,827 $ 12,651 $ 13,531
-------- -------- -------- -------- --------
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....................................... $ 3,216 $ 2,916 $ 2,996 $ 11,951 $ 11,256
Serviced with limited recourse.................... (25) (232) 831 144 2,275
-------- -------- -------- -------- --------
Managed basis..................................... $ 3,191 $ 2,684 $ 3,827 $ 12,095 $ 13,531
-------- -------- -------- -------- --------
Owned basis efficiency ratio........................ 36.1% 45.1% 39.4% 41.6% 42.8%
Owned basis efficiency ratio, operating basis....... 41.9 45.1 39.4 43.4 41.0
Managed basis efficiency ratio...................... 36.0 49.0 30.8 41.0 35.6
Managed basis efficiency ratio, operating basis..... 42.2 49.0 30.8 42.9 34.1
======== ======== ======== ======== ========
MANAGED BASIS RISK ADJUSTED REVENUE:
Net interest income................................. $ 2,551 $ 2,550 $ 2,669 $ 10,257 $ 10,188
Other revenues, excluding securitization revenue.... 1,786 969 984 4,810 3,573
Less: Net charge-offs............................... (1,502) (1,363) (1,304) (5,674) (5,254)
-------- -------- -------- -------- --------
Risk adjusted revenue............................... $ 2,835 $ 2,156 $ 2,349 $ 9,393 $ 8,507
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............................................. 2,481 2,156 2,349 9,039 8,507
-------- -------- -------- -------- --------
Average interest-earning assets..................... $135,380 $129,497 $124,997 $128,659 $118,478
-------- -------- -------- -------- --------
Managed basis risk adjusted revenue................. 8.37% 6.66% 7.51% 7.30% 7.18%
Managed basis risk adjusted revenue, operating
basis............................................. 7.32 6.66 7.51 7.03 7.18
======== ======== ======== ======== ========
15
HSBC Finance Corporation
--------------------------------------------------------------------------------
RECONCILIATION 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- TWO-MONTHS-
AND-OVER CONSUMER AND-OVER AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-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%
====== ======== ====== ====== ======== ======
SEPTEMBER 30, 2004
OWNED:
First mortgage....................... $ 2 $ 27 5.78% $ - $ 28 .41%
Real estate secured.................. 1,921 58,726 3.27 171 57,570 1.19
Auto finance......................... 124 6,823 1.81 57 6,238 3.66
MasterCard/Visa...................... 681 11,666 5.84 239 11,251 8.50
Private label........................ 660 14,000 4.72 159 13,310 4.79
Personal non-credit card............. 1,314 14,888 8.83 343 14,423 9.50
------ -------- ------ ------ -------- ------
Total................................ $4,702 $106,130 4.43% $ 969 $102,820 3.77%
====== ======== ====== ====== ======== ======
SERVICED WITH LIMITED RECOURSE:
Real estate secured.................. $ 21 $ 165 12.73% $ - $ 171 -%
Auto finance......................... 146 3,060 4.77 88 3,360 10.48
MasterCard/Visa...................... 230 8,843 2.60 115 9,190 5.01
Private label........................ 193 3,921 4.92 55 4,316 5.10
Personal non-credit card............. 502 4,186 11.99 136 4,505 12.08
------ -------- ------ ------ -------- ------
Total................................ $1,092 $ 20,175 5.41% $ 394 $ 21,542 7.32%
====== ======== ====== ====== ======== ======
MANAGED:
First mortgage....................... $ 2 $ 27 5.78% $ - $ 28 .41%
Real estate secured.................. 1,942 58,891 3.30 171 57,741 1.19
Auto finance......................... 270 9,883 2.74 145 9,598 6.04
MasterCard/Visa...................... 911 20,509 4.44 354 20,441 6.92
Private label........................ 853 17,921 4.76 214 17,626 4.85
Personal non-credit card............. 1,816 19,074 9.52 479 18,928 10.12
------ -------- ------ ------ -------- ------
Total................................ $5,794 $126,305 4.59% $1,363 $124,362 4.38%
====== ======== ====== ====== ======== ======
---------------
(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)
QUARTER-TO-DATE CHARGE-OFFS,
TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY NET OF RECOVERIES
-------------------------------------------- ------------------------------------------
TWO-MONTHS- TWO-MONTHS-
AND-OVER CONSUMER AND-OVER AVERAGE
CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET
DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-OFFS RECEIVABLES CHARGE-OFFS(1)
----------------------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
DECEMBER 31, 2003
OWNED:
First mortgage..... $ 3 $ 35 9.14% $ - $ 35 1.13%
Real estate
secured......... 2,217 51,221 4.33 126 53,642 .94
Auto finance....... 104 4,138 2.51 33 3,961 3.36
MasterCard/Visa.... 644 11,182 5.76 222 10,379 8.55
Private label...... 683 12,604 5.42 159 12,564 5.05
Personal non-credit
card............ 1,285 12,832 10.01 344 13,606 10.11
------ -------- ------ ------ -------- ------
Total.............. $4,936 $ 92,012 5.36% $ 884 $ 94,187 3.75%
====== ======== ====== ====== ======== ======
SERVICED WITH
LIMITED
RECOURSE:
Real estate
secured......... $ 21 $ 194 11.05% $ 1 $ 203 1.58%
Auto finance....... 234 4,675 5.01 102 4,667 8.74
MasterCard/Visa.... 237 9,967 2.38 135 9,944 5.43
Private label...... 200 5,261 3.79 52 4,494 4.66
Personal non-credit
card............ 740 6,104 12.12 130 5,260 9.90
------ -------- ------ ------ -------- ------
Total.............. $1,432 $ 26,201 5.47% $ 420 $ 24,568 6.85%
====== ======== ====== ====== ======== ======
MANAGED:
First mortgage..... $ 3 $ 35 9.14% $ - $ 35 1.13%
Real estate
secured......... 2,238 51,415 4.35 127 53,845 .94
Auto finance....... 338 8,813 3.84 135 8,628 6.27
MasterCard/Visa.... 881 21,149 4.16 357 20,323 7.03
Private label...... 883 17,865 4.94 211 17,058 4.95
Personal non-credit
card............ 2,025 18,936 10.69 474 18,866 10.05
------ -------- ------ ------ -------- ------
Total.............. $6,368 $118,213 5.39% $1,304 $118,755 4.39%
====== ======== ====== ====== ======== ======
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
17
HSBC Finance Corporation
--------------------------------------------------------------------------------
SERVICED WITH
OWNED LIMITED RECOURSE MANAGED
-------------------------------------------------------------------------------------------------
(DOLLARS ARE IN MILLIONS)
REAL ESTATE CHARGE-OFFS AND REO EXPENSE:
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%
======= ===== =======
THREE MONTHS ENDED SEPTEMBER 30, 2004
Real estate charge-offs and REO expense.................... $ 189 $ - $ 189
Average real estate secured receivables.................... 57,570 171 57,741
------- ----- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)............... 1.31% - 1.31%
======= ===== =======
THREE MONTHS ENDED DECEMBER 31, 2003
Real estate charge-offs and REO expense.................... $ 183 $ 1 $ 184
------- ----- -------
Average real estate secured receivables.................... 53,642 203 53,845
------- ----- -------
Real estate charge-offs and REO expense as a percentage of
average real estate secured receivables(1)............... 1.37% 1.58% 1.37%
======= ===== =======
---------------
(1) Certain percentages may not recompute from the dollar figures presented due
to rounding.
18
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, 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%
-------- ------- --------
THREE MONTHS ENDED SEPTEMBER 30, 2004
Reserves for receivables at beginning of quarter............ $ 3,795 $ 1,904 $ 5,699
Provision for credit losses................................. 1,123 (232) 891
Charge-offs, net of recoveries.............................. (969) (394) (1,363)
Other, net.................................................. 4 (32) (28)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,953 $ 1,246 $ 5,199
======== ======= ========
Receivables................................................. $106,437 $20,175 $126,612
Credit loss reserves as a percent of receivables............ 3.71% 6.18% 4.11%
-------- ------- --------
THREE MONTHS ENDED DECEMBER 31, 2003
Reserves for receivables at beginning of quarter............ $ 3,779 $ 1,954 $ 5,733
Provision for credit losses................................. 917 831 1,748
Charge-offs, net of recoveries.............................. (884) (420) (1,304)
Other, net.................................................. (19) 9 (10)
-------- ------- --------
Reserves for receivables at end of quarter.................. $ 3,793 $ 2,374 $ 6,167
======== ======= ========
Receivables................................................. $ 92,378 $26,201 $118,579
Credit loss reserves as a percent of receivables............ 4.11% 9.06% 5.20%
-------- ------- --------
NONPERFORMING ASSETS:
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%
-------- ------- --------
SEPTEMBER 30, 2004
Nonaccrual receivables...................................... $ 2,891 $ 585 $ 3,476
Accruing receivables 90 or more days delinquent............. 905 296 1,201
Renegotiated commercial loans............................... 1 - 1
-------- ------- --------
Total nonperforming receivables............................. 3,797 881 4,678
Real estate owned........................................... 601 - 601
-------- ------- --------
Total nonperforming assets.................................. $ 4,398 $ 881 $ 5,279
======== ======= ========
Credit loss reserves as a percent of nonperforming
receivables............................................... 104.1% - 111.1%
-------- ------- --------
DECEMBER 31, 2003
Nonaccrual receivables...................................... $ 3,144 $ 865 $ 4,009
Accruing receivables 90 or more days delinquent............. 904 311 1,215
Renegotiated commercial loans............................... 2 - 2
-------- ------- --------
Total nonperforming receivables............................. 4,050 1,176 5,226
Real estate owned........................................... 631 - 631
-------- ------- --------
Total nonperforming assets.................................. $ 4,681 $ 1,176 $ 5,857
======== ======= ========
Credit loss reserves as a percent of nonperforming
receivables............................................... 93.7% - 118.0%
-------- ------- --------
19
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