29th Oct 2007 09:30
HSBC Holdings PLC29 October 2007 HSBC BANK CANADA THIRD QUARTER 2007 RESULTS^ - HIGHLIGHTS • Net income attributable to common shares was C$145 million for the quarter ended 30 September 2007, an increase of 5.1 per cent over the quarter ended 30 September 2006. • Net income attributable to common shares was C$419 million for the nine months ended 30 September 2007, an increase of 13.6 per cent over the same period in 2006. • Return on average common equity was 21.3 per cent for both the quarter and nine months ended 30 September 2007 compared with 23.0 per cent and 21.2 per cent, respectively, for the same periods in 2006. • The cost efficiency ratio was 48.9 per cent and 50.8 per cent for the quarter and nine months ended 30 September 2007 compared with 48.2 per cent and 51.3 per cent, respectively, for the same periods in 2006. • Total assets were C$63.6 billion at 30 September 2007 compared with C$55.9 billion at 30 September 2006. • Total funds under management were C$27.1 billion at 30 September 2007 compared with C$22.4 billion at 30 September 2006. ^ Results are prepared in accordance with Canadian generally accepted accounting principles. Financial Commentary Overview HSBC Bank Canada recorded net income attributable to common shares of C$145million for the quarter ended 30 September 2007, an increase of C$7 million, or5.1 per cent, from C$138 million for the third quarter of 2006. Net incomeattributable to common shares for the nine months ended 30 September 2007 wasC$419 million compared with C$369 million for the same period in 2006, anincrease of C$50 million, or 13.6 per cent. Net income attributable to common shares in the nine months ended 30 September2007 benefited from gains of C$21 million after related income taxes, on thesale of the bank's shares in the Montreal Exchange. Excluding these gains, netincome attributable to common shares for the nine months ended 30 September 2007increased by 7.9 per cent from the same period last year. Commenting on the results, Lindsay Gordon, President and Chief ExecutiveOfficer, said:"HSBC Bank Canada recorded satisfactory results in the third quarter with good growth in revenue and net income compared to previous periods. The strongCanadian economy and strategic investments in key businesses and markets drovegrowth. The recent volatility in international credit and liquidity markets hasprovided evidence that we need to continue to manage our businesses prudently. "For the remainder of 2007 and into 2008, we plan to continue our existingstrategy of enhancing sales through careful expansion in key target markets andimproving operational efficiencies while maintaining close control over creditquality. We continue to work on global initiatives with the HSBC Group andrecently, along with 34 other countries and territories, we launched HSBC GlobalPremier, a product that offers the world's mass affluent the most comprehensiveglobal banking and wealth management service in the market. Global Premierleverages HSBC's presence in 83 markets to provide customers with seamlessinternational service." Net interest income Net interest income was C$319 million for the quarter ended 30 September 2007compared with C$282 million for the same quarter in 2006, an increase of C$37million, or 13.1 per cent. The increase was driven by growth in assets in allbusinesses. Average interest-earning assets were C$5.9 billion or 12.2 per centhigher compared with the same period in 2006. The net interest margin increasedto 2.33 per cent for the quarter compared with 2.31 per cent for the same periodin 2006. Net interest income in the third quarter of 2007 was C$12 million highercompared with the second quarter of 2007. An increase in the Canadian prime rateduring the quarter together with higher commercial loan volumes improved netinterest income. This was partly offset by higher interest rates on deposits, asa result of the widening credit spreads recently experienced in internationalcredit and liquidity markets. The net interest margin was four basis pointshigher than the previous quarter. On a year-to-date basis, net interest income was C$920 million compared withC$824 million for the same period last year, an increase of C$96 million, or11.7 per cent. Year-to-date net interest income in 2007 benefited from continuedgrowth in assets across all businesses, partially offset by a decrease in netinterest margins to 2.30 per cent compared with 2.34 per cent in 2006. Non-interest revenue Non-interest revenue was C$184 million for the third quarter of 2007 comparedwith C$160 million in the same quarter of 2006, an increase of C$24 million, or15.0 per cent. Investment administration fees were higher as the bank's fundsunder management in the wealth management business continued to record stronggrowth. Deposit and payment service charges and credit fees increased as aresult of increased customer activity. Capital market fees were lower arisingfrom lower activity as a result of uncertainties in the markets, particularlyfrom new issue underwriting and advisory mandates. Trading income was higher,mainly due to positive impacts of changes in the carrying values of certain debtobligations recorded at fair value. Investment securities gains were lower dueto an increase in the fair value of the bank's investments in private equityfunds recorded in the third quarter of 2006, not repeated in the third quarterof 2007. Non-interest revenue was C$7 million higher in the third quarter of 2007compared with the previous quarter, mainly due to higher trading revenues asnoted above offset by a reduction in investment securities gains on sale ofshares in the Montreal Exchange included in the second quarter and a reductionin capital market fees, particularly from lower market activity impactingunderwriting and advisory mandates. On a year-to-date basis, non-interest revenue was C$546 million, C$63 million,or 13.0 per cent, higher compared with C$483 million for the same period lastyear. Trading income was higher than the same period in 2006, mainly due topositive impacts of changes in the carrying values of certain debt obligationsrecorded at fair value. Investment administration fees increased due to growthin funds under management, and deposit and payment service charges were alsohigher. Investment securities gains were higher due to the sale of the bank'sMontreal Exchange shares, partially offset by a lower increase in fair value ofthe private equity funds than that recorded in 2006. Non-interest expenses and operating efficiency Non-interest expenses were C$246 million for the third quarter of 2007 comparedwith C$213 million in the same quarter of 2006, an increase of C$33 million, or15.5 per cent. Salaries and employee benefits expenses were higher in 2007 dueto an increase in the employee base as a result of strategic growth initiativesin new branches in Alberta and the Greater Toronto Area. Investments were alsomade in the Direct Bank, Private Banking and Wealth Management and the Paymentsand Cash Management businesses. Stock-based compensation and pension plan costswere also higher than in the comparative period. Premises and equipment expenseswere higher due to the opening of new branches, investments in systems andhigher transaction costs arising from increased customer activity. Marketingexpenses also increased as we continued to build the HSBC brand in Canada. Thecost efficiency ratio of 48.9 per cent increased marginally compared with thesame period in 2006. Non-interest expenses for the third quarter of 2007 were also little changedcompared with the second quarter of 2007. Salaries and benefits were lower as aresult of decreased variable compensation resulting from lower capital marketrevenues and lower employee benefit costs seasonally experienced in the thirdquarter. This was offset by higher other expenses due to increases in corporatecapital taxes, marketing and other infrastructure expenses. On a year-to-date basis, non-interest expenses were C$744 million compared withC$670 million for the same period last year, an increase of C$74 million, or11.0 per cent. Salaries and benefits expenses were higher due to an increasedemployee base, increased variable compensation, and higher pension costs. Otherexpenses were higher due to continued investment in the business, as well ashigher costs arising from increased customer transactions. The cost efficiencyratio improved to 50.8 per cent compared with 51.3 per cent for the same periodin 2006. Credit quality and provision for credit losses The provision for credit losses was C$21 million for the third quarter of 2007,compared with C$5 million in the third quarter of 2006, and C$12 million for thesecond quarter of 2007. Overall credit quality remains sound, reflecting prudentlending standards and strong economic conditions in Canada. The increased chargein the third quarter of 2007 compared to the same period last year is due toadditional provisions related to a single commercial exposure compared to anunusually low loan loss experience in 2006 where corporate default rates were athistorically low levels. Gross impaired credit exposures were C$206 million, C$11 million higher comparedwith C$195 million at 30 June 2007, and C$40 million higher compared with C$166million at 30 September 2006. Total impaired exposures, net of specificallowances for credit losses, were C$139 million at 30 September 2007 comparedwith C$141 million at 30 June 2007 and C$117 million at 30 September 2006. The general allowance for credit losses of C$269 million remained unchanged from30 June 2007 and 30 September 2006. The total allowance for credit losses, as apercentage of loans and acceptances outstanding, was 0.75 per cent at 30September 2007 compared with 0.74 per cent at 30 June 2007 and 0.80 per cent at30 September 2006. The bank considers the total allowance for credit losses tobe appropriate given the credit quality of its portfolios and the current creditenvironment. Income taxes The effective tax rate in the third quarter of 2007 was 35.2 per cent, which wascomparable to 34.9 per cent in the same quarter of 2006 and 35.5 per cent in thesecond quarter of 2007. On a year-to-date basis in 2007, the effective tax ratewas 34.5 per cent compared with 36.4 per cent for the same period last yearprimarily due to a higher level of gains subject to a lower tax rate and highernon-deductible expenses in 2006. Balance sheet Total assets at 30 September 2007 were C$63.6 billion, an increase of C$6.8billion from 31 December 2006 and C$7.7 billion from 30 September 2006. The loanportfolio continues to be a major driver of balance sheet growth. Commercialloans and bankers' acceptances grew C$3.3 billion since 31 December 2006 on thecontinued strong economy, particularly in Western Canada. Residential mortgagesincreased C$0.9 billion, before securitisation during the period. Balance sheetmanagement activity in the Treasury and Markets business has increased thesecurities portfolio by C$1.9 billion although this was offset by slightdecreases in balances under reverse repurchase agreements. Total deposits increased C$3.3 billion to C$47.5 billion at 30 September 2007from C$44.2 billion at 31 December 2006 and by C$4.7 billion from C$42.8 billionat 30 September 2006. Growth in personal deposits resulted largely from the newHigh Rate and Direct Savings accounts. Commercial deposits were higher due togrowth in term products, driven by improved product offerings in the Paymentsand Cash Management business and growth in commercial banking relationships.Other liabilities increased largely from an increase in short positions insecurities resulting from an increase in activities in the Treasury and Marketsbusiness. Compared with the balance at 30 September 2006, total assets were higher largelydue to growth in commercial loans and markets activities. Residential mortgageswere also higher. Deposit growth benefited from increased cash managementbalances from corporate customers as well as personal deposit growth from theHigh Rate and Direct Savings accounts. Total assets under administration Funds under management were C$27.1 billion at 30 September 2007 compared withC$25.8 billion at 30 June 2007 and C$22.4 billion at 30 September 2006.Including custody and administration balances, total assets under administrationwere C$36.4 billion compared with C$34.8 billion at 30 June 2007 and C$31.3billion at 30 September 2006. Growth in funds under management in 2007 benefited from strong acquisitions ofnew clients, strong investment sales and the success of Private Client productsassisted by growth in equity markets. Capital management The tier 1 capital ratio was 8.5 per cent and the total capital ratio was 10.9per cent at 30 September 2007. These compare with 8.8 per cent and 11.5 percent, respectively, at 30 June 2007 and 8.9 per cent and 11.1 per cent,respectively, at 30 September 2006. In addition to net income, regulatory capital increased from an issuance ofC$400 million in subordinated debentures in the second quarter of 2007. This waspartially offset by dividends declared on preferred and common shares and theredemption of C$100 million and C$25 million in subordinated debentures in thesecond and third quarters of 2007 respectively. Accounting policies adopted in 2007 Effective 1 January 2007, the bank adopted new Canadian Institute of CharteredAccountants (CICA) Handbook Standards relating to the recognition, measurementand disclosure of financial instruments including hedges and comprehensiveincome. Although these standards were adopted prospectively without restatementof prior year comparatives, the impact on initial adoption as well as theeffects of certain transitional adjustments have been recorded as adjustments toopening retained earnings or opening accumulated other comprehensive income.Although there was no material impact on the results for the third quarterarising from the adoption of these new standards, more detailed information onthe impact of adopting these standards was included in HSBC Bank Canada's firstquarter 2007 report to shareholders. Dividends During the third quarter of 2007, C$65 million in dividends were declared andpaid on the bank's common shares. Regular quarterly dividends of 31.875 cents per share have been declared on HSBCBank Canada Class 1 Preferred Shares - Series C and 31.25 cents per share onClass 1 Preferred Shares - Series D. The dividends will be payable on 31December 2007, to shareholders of record on 14 December 2007. About HSBC Bank Canada HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.With around 10,000 offices in 83 countries and territories and assets ofUS$2,150 billion at 30 June 2007, the HSBC Group is one of the world's largestbanking and financial services organisations. Visit the bank's website athsbc.ca for more information about HSBC Bank Canada and its products andservices. Copies of HSBC Bank Canada's third quarter 2007 report will be sent toshareholders in November 2007. Caution regarding forward-looking financial statements This document may contain forward-looking statements, including statementsregarding the business and anticipated financial performance of HSBC BankCanada. These statements are subject to a number of risks and uncertainties thatmay cause actual results to differ materially from those contemplated by theforward-looking statements. Some of the factors that could cause suchdifferences include legislative or regulatory developments, technologicalchange, global capital market activity, changes in government monetary andeconomic policies, changes in prevailing interest rates, inflation level andgeneral economic conditions in geographic areas where HSBC Bank Canada operates.Canada is an extremely competitive banking environment and pressures on interestrates and the bank's net interest margin may arise from actions taken byindividual banks acting alone. Varying economic conditions may also affectequity and foreign exchange markets, which could also have an impact on thebank's revenues. The factors disclosed above may not be complete and there couldbe other uncertainties and potential risk factors not considered here which mayimpact the bank's results and financial condition. HSBC Bank Canada Summary Quarter ended Nine months endedFigures in C$ millions 30Sept07 30Jun07 30Sept06 30Sept07 30Sept06(except per share amounts) EarningsNet income attributable to common shares 145 135 138 419 369Basic earnings per share 0.30 0.28 0.28 0.86 0.76 Performance ratios (%)Return on average common equity 21.3 20.7 23.0 21.3 21.2Return on average assets 0.91 0.86 1.01 0.90 0.94 Net interest margin^ 2.33 2.29 2.31 2.30 2.34 Cost efficiency ratio^ 48.9 51.2 48.2 50.8 51.3Non-interest revenue:total revenue ratio 36.6 36.6 36.2 37.2 37.0 Credit informationGross impaired credit exposures 206 195 166 Allowance for credit losses 336 323 318- As a percentage of gross impaired credit exposures 163% 166% 192%- As a percentage of gross loans and acceptances 0.75% 0.74% 0.80% Average balancesAssets 62,934 63,286 53,945 62,301 52,512Loans 38,405 37,067 34,144 37,164 33,226Deposits 47,588 46,691 42,206 46,717 41,033Common equity 2,693 2,618 2,387 2,623 2,326 Capital ratios (%)Tier 1 8.5 8.8 8.9Total capital 10.9 11.5 11.1 Total assets under administrationFunds under management 27,129 25,795 22,372Custody accounts 9,279 9,012 8,973Total assets under administration 36,408 34,807 31,345 ^ Net interest margin is net interest income divided by average interest earning assets for the period. ^^ The cost efficiency ratio is defined as non-interest expenses divided by total revenue. Consolidated Statement of Income (Unaudited) Figures in C$ millions Quarter ended Nine months ended (except per share amounts) 30Sept07 30Jun07 30Sept06 30Sept07 30Sept06 Interest and dividend incomeLoans 663 616 566 1,876 1,551Securities 70 71 47 199 136Deposits with regulated financial institutions 61 62 59 182 172 794 749 672 2,257 1,859Interest expense Deposits 464 431 383 1,308 1,015Debentures 11 11 7 29 20 475 442 390 1,337 1,035 Net interest income 319 307 282 920 824 Non-interest revenueDeposit and payment service charges 25 25 23 73 67Credit fees 30 28 28 85 80Capital market fees 21 29 27 82 85Investment administration fees 33 33 26 96 75Foreign exchange 10 9 8 28 23Trade finance 6 6 6 18 18Trading revenue 40 16 18 70 52Investment securities gains - 10 5 35 23Securitisation income 10 9 10 29 29Other 9 12 9 30 31 184 177 160 546 483 Total revenue 503 484 442 1,466 1,307 Non-interest expensesSalaries and employee benefits 132 139 120 414 379Premises and equipment 31 32 26 94 82Other 83 77 67 236 209 246 248 213 744 670Net operating income before provision for credit losses 257 236 229 722 637Provision for credit losses 21 12 5 43 17 Income before taxes and non-controlling interest in income of trust 236 224 224 679 620Provision for income taxes 81 77 76 228 219Non-controlling interest in income of trust 6 7 6 19 19Net income 149 140 142 432 382Preferred share dividends 4 5 4 13 13Net income attributable to common shares 145 135 138 419 369 Average common shares outstanding (000) 488,668 488,668 488,668 488,668 488,668Basic earnings per share (C$) 0.30 0.28 0.28 0.86 0.76 Condensed Consolidated Balance Sheet (Unaudited) At 30Sept07 At 31Dec06 At 30Sept06Figures in C$ millions ^ ^AssetsCash and deposits with Bank of Canada 384 368 386Deposits with regulated financial institutions 4,066 4,346 4,753 4,450 4,714 5,139 Available for sale securities 4,675 - -Investment securities - 3,604 3,225Trading securities 1,920 1,162 1,821Other securities 59 - - 6,654 4,766 5,046 Assets purchased under reverse repurchase agreements 4,552 4,760 3,843 Loans- Businesses and government 20,995 17,819 17,500- Residential mortgage 14,220 14,016 13,597- Consumer 4,612 3,728 3,855- Allowance for credit losses (336) (327) (318) 39,491 35,236 34,634 Customers' liability under acceptances 5,237 5,130 4,880Derivatives 737 308 215Land, buildings and equipment 136 121 100Other assets 2,301 1,735 2,037 8,411 7,294 7,232Total assets 63,558 56,770 55,894 Liabilities and shareholders' equityDeposits- Regulated financial institutions 2,608 1,469 1,889- Individuals 18,244 17,039 16,648- Businesses and governments 26,683 25,665 24,278 47,535 44,173 42,815 Acceptances 5,237 5,130 4,880Assets sold under repurchase agreements 686 162 290Derivatives 941 316 208Securities sold short 1,461 715 1,215Other liabilities 3,372 2,413 2,700Non-controlling interest in trust and subsidiary 430 430 430 12,127 9,166 9,723 Subordinated debentures 799 563 559 Shareholders' equity- Preferred shares 350 350 350- Common shares 1,125 1,125 1,125- Contributed surplus 205 202 199- Retained earnings 1,416 1,191 1,123- Accumulated other comprehensive income 1 - - 3,097 2,868 2,797Total liabilities and shareholders' equity 63,558 56,770 55,894 ^Certain prior period amounts have been reclassified to conform with the current period presentation. Condensed Consolidated Statement of Cash Flows (Unaudited) Quarter ended Nine months ended 30Sept07 30Jun07 30Sept06 30Sept07 30Sept06Figures in C$ millions Cash flows provided by/(used in):- operating activities 205 389 128 1,060 312- financing activities 1,867 62 1,677 3,953 4,082- investing activities (1,721) (771) (1,021) (4,680) (4,652) (Decrease) increase in cash and cash equivalents 351 (320) 784 333 (258)Cash and cash equivalents, beginning of period 4,020 4,340 4,158 4,038 5,200Cash and cash equivalents, end of period 4,371 4,020 4,942 4,371 4,942 Represented by:Cash resources per balance sheet 4,450 4,851 5,139- less non-operating deposits^ (79) (831) (197)Cash and cash equivalents, end of period 4,371 4,020 4,942 ^Non-operating deposits are comprised primarily of cash which reprices after 90 days and cash restricted for recourse on securitisation transactions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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