25th Oct 2005 09:00
HSBC Holdings PLC25 October 2005 HSBC BANK CANADA THIRD QUARTER 2005 RESULTS - HIGHLIGHTS •Net income attributable to common shares was C$325 million for the nine months ended 30 September 2005, an increase of 25.5 per cent over the same period in 2004. •Net income attributable to common shares was C$113 million for the quarter ended 30 September 2005, an increase of 37.8 per cent over the third quarter of 2004. •Return on average common equity was 20.4 per cent for the nine months ended 30 September 2005 and 20.9 per cent for the quarter ended 30 September 2005 compared with 19.0 per cent and 16.4 per cent, respectively, for the same periods in 2004. •The cost:income ratio was 52.9 per cent for the nine months ended 30 September 2005 and 51.2 per cent for the quarter ended 30 September 2005 compared with 56.1 per cent and 58.1 per cent, respectively, for the same periods in 2004. •Total assets were C$49.4 billion at 30 September 2005 compared with C$42.3 billion at 30 September 2004. •Total funds under management were C$19.9 billion at 30 September 2005 compared with C$16.2 billion at 30 September 2004. Financial Commentary Overview HSBC Bank Canada recorded net income attributable to common shares of C$325million for the nine months ended 30 September 2005, an increase of C$66million, or 25.5 per cent, from C$259 million for the same period in 2004. Netincome attributable to common shares for the quarter ended 30 September 2005 wasC$113 million, an increase of C$31 million, or 37.8 per cent, from C$82 millionfor the quarter ended 30 September 2004. Commenting on the results, Lindsay Gordon, President and Chief ExecutiveOfficer, said: "Results for the quarter continue to be robust. The stableinterest rates in Canada and strong economy continue to provide stimulus forgrowth. Net income in 2005 benefited from strong performance across all customergroups, which helped increase both net interest income and non-interest revenue.A stable credit environment in Canada and a strong economy has helped keepprovision for credit losses lower in 2005 compared with 2004. In PersonalFinancial Services, growth in residential mortgages, consumer loans, and fundsunder management all contributed to improved performance. In Commercial Banking,growth in lending volumes contributed to strong revenue growth. Revenue inCorporate, Investment Banking and Markets was impacted by the flatter yieldcurve in 2005. "We are excited about the launch of two new initiatives in the quarter whichwill help us to deepen our existing client relationships and attract newcustomers. Our LifeMapTM investment solution of bundled underlying mutual fundswill help simplify investing as well as align investors' changing needsthroughout all stages of their life. Our MasterCard product was upgraded toinclude two new HSBC Rewards programs: HSBC Travel & Merchandise Rewards, orHSBC Cash Back Rewards. "With our positive results for this quarter and year-to-date, we have goodmomentum leading into the final quarter of 2005. We will ensure that our focusremains on executing core business strategies to achieve our growth objectives." Net interest income Net interest income for the nine months ended 30 September 2005 was C$741million, up C$74 million or 11.1 per cent, compared with C$667 million for thesame period in 2004. For the quarter ended 30 September 2005, net interestincome was C$261 million, C$31 million or 13.5 per cent higher, compared withC$230 million for the same quarter in 2004. Growth in net interest income during2005 has been aided by growth in assets from each of our customer groups.Despite tightening of interest rates in the US over the course of 2005, and theone increase in Canada in September of this year, economic sentiment remainspositive. Average assets were C$46.5 billion for the nine months ended 30September 2005 compared with C$39.6 billion for the same period in 2004 andC$48.8 billion for the quarter ended 30 September 2005 compared with C$40.9billion for the same quarter last year. Net interest margins were negatively impacted by lower average interest rates in2005 compared with 2004. The net interest margin, as a percentage of averageinterest earning assets, was 2.38 per cent for the nine months ended 30September 2005 compared with 2.53 per cent for the same period in 2004. For thequarter ended 30 September 2005 the net interest margin was 2.36 per centcompared with 2.51 per cent for the same period in 2004. Net interest marginshave been impacted in 2005 by continued competitive product pricing,particularly in personal financial services. Additionally, a flatter yield curvein 2005 has impacted net interest margins in our treasury and markets groups. Non-interest revenue Non-interest revenue was C$429 million for the nine months ended 30 September2005, C$46 million or 12.0 per cent higher, compared with C$383 million for thesame period in 2004. For the quarter ended 30 September 2005, non-interestrevenue was C$145 million, up C$19 million or 15.1 per cent, compared with C$126million for the same quarter in 2004. Credit fees were higher in 2005 due to increased activity in commercial banking,particularly in shorter term facilities such as bankers' acceptances, financialguarantees and letters of credit. Capital market fees improved slightly in thethird quarter of 2005 as customers increased their retail trading activity onthe back of improved equity markets in Canada, driven by higher natural resourceprices. Investment administration fees increased in 2005 due to higher fundsunder management, driven partly by increases in our Private Client products.Foreign exchange revenues in 2005 have benefited from the significant volatilityof the exchange rate between the Canadian and US dollars. Other non-interestrevenue is higher in 2005 from stronger fee income from our Canadian ImmigrantInvestor Program ("CIIP") and due to upward fair value adjustments to ourinvestment company assets, resulting from new accounting requirements in 2005. Non-interest expenses Non-interest expenses were C$619 million for the nine months ended 30 September2005, C$30 million or 5.1 per cent higher, compared with C$589 million for thesame period in 2004. For the quarter ended 30 September 2005 non-interestexpenses were C$208 million compared with C$207 million for the same quarter in2004. Salaries and benefits for the nine months ended 30 September 2005 were higherthan the same period in 2004 due to an increased employee base resulting fromthe acquisition of Intesa Bank Canada in 2004, investments in our branchnetwork, and higher variable-based compensation. In the third quarter of 2005,employee benefits were lower as a result of adjustments to our pension planexpenses. Other non-interest expenses were higher for the nine months to 30September 2005 compared with 2004 due to higher transactions costs associatedwith increased volumes in our brokerage subsidiary and administration feesassociated with the CIIP. In addition, increased activity in banking operationsresulted in higher administrative and technical services fees. Non-interestexpenses in 2005 included a net credit arising from successful resolution ofcertain commodity tax issues from previous years. Credit quality and provision for credit losses Provision for credit losses was C$21 million for the nine months ended 30September 2005 compared with C$44 million in the same period of 2004. For thequarter ended 30 September 2005 the provision for credit losses was C$7 millioncompared with C$10 million in the same period last year. Credit quality remainsstable, as has been the case for most of 2005, and reflects the strong economicconditions in Canada and the United States. This has resulted in lower defaultrates, primarily in loans to businesses, and related allowances for creditlosses. Gross impaired loans decreased C$58 million to C$132 million at 30 September2005 compared with C$190 million at 30 September 2004. Gross impaired loans tobusinesses were C$104 million at 30 September 2005 compared with C$153 millionat 30 September 2004. Gross impaired consumer loans were C$28 million at 30September 2005 compared with C$37 million at the same time last year. Totalimpaired loans, net of specific allowances, were C$78 million at 30 September2005 compared with C$108 million at 30 September 2004. The general allowance forcredit losses was C$283 million compared with C$273 million at 30 September2004. The total allowance for credit losses, as a percentage of loansoutstanding, was 1.04 per cent per cent at 30 September 2005 compared with 1.25per cent at 30 September 2004. Balance sheet Total assets at 30 September 2005 were C$49.4 billion, an increase of C$6.1billion, or 14.1 per cent, from C$43.3 billion at 31 December 2004 and anincrease of C$7.1 billion, or 16.8 per cent, from C$42.3 billion at 30 September2004. Loan growth during 2005 was strong across all customer groups and wassupported by strong economic conditions and stable interest rates in Canada.Commercial loans increased by $1.7 billion in 2005 to C$15.1 billion at 30September 2005. Residential mortgages and consumer loans grew by C$2.2 billionto C$17.4 billion in total at 30 September 2005. Total deposits at 30 September 2005 were C$38.6 billion, an increase of C$4.8billion from C$33.8 billion at 31 December 2004 and an increase of C$5.6 billionfrom C$33.0 billion at 30 September 2004. Commercial deposits and deposits frombanks increased during 2005 by C$4.3 billion to C$23.3 billion in total as at 30September 2005. This increase was used to fund the increase in loans over theperiod. During 2005, personal deposits increased C$0.4 billion to C$15.3 billionas at 30 September 2005. At constant exchange rates, this increase would havebeen C$0.6 billion. Total assets under administration Funds under management were C$19.9 billion at 30 September 2005 compared withC$16.2 billion at the same time last year and C$18.8 billion at 30 June 2005.Including custody and administration balances, total assets under administrationwere C$26.5 billion compared with C$24.7 billion at 30 June 2005 and C$21.4billion at 30 September 2004. Funds under management grew in the third quarter of 2005 due to increasedactivity in our securities brokerage firm, as Canadian equity markets improvedsupported by higher natural resource prices, and increases in funds in ourPrivate Client products. Custodial assets under administration grew C$0.7billion in the third quarter due largely to higher institutional businessvolumes in our trust company. Capital ratios The tier 1 capital ratio was 8.7 per cent and the total capital ratio was 10.9per cent at 30 September 2005. This compares with 8.7 per cent and 11.2 percent, respectively, at 30 September 2004. On 30 September 2005, all of the issued and outstanding Class 1 Preferred Shares- Series A, totalling C$125 million, were redeemed for C$25.00 per share. Dividends During the third quarter of 2005, we declared and paid a C$75 million dividendon our common shares. For the fourth quarter of 2005, a C$75 million dividend onour common shares was declared. A regular dividend of 31.875 cents per share hasbeen declared on the Class 1 Preferred Shares - Series C. The preferred sharedividends will be payable in cash on 31 December 2005, for shareholders ofrecord on 15 December 2005. About HSBC Bank Canada HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.With over 9,700 offices in 77 countries and territories and assets of US$1,467billion at 30 June 2005, the HSBC Group is one of the world's largest bankingand financial services organisations. For more information about HSBC BankCanada and its products and services, visit our website at hsbc.ca. HSBC Bank Canada's third quarter 2005 report will be sent to shareholders duringNovember 2005. Basis of presentation These consolidated financial statements have been prepared in accordance withCanadian generally accepted accounting principles. Forward-looking financial information This document contains forward-looking statements, including statementsregarding the business and anticipated financial performance of HSBC BankCanada. These statements are subject to a number of risks and uncertainties thatmay cause actual results to differ materially from those contemplated by theforward-looking statements. Some of the factors that could cause suchdifferences include legislative or regulatory developments, technologicalchange, global capital market activity, changes in government monetary andeconomic policies, changes in prevailing interest rates, inflation levels andgeneral economic conditions in geographic areas where HSBC Bank Canada operates.Canada is an extremely competitive banking environment and pressures on interestrates and our net margin may arise from actions taken by individual banks actingalone. Varying economic conditions may also affect equity and foreign exchangemarkets, which could also have an impact on our revenues. The factors disclosedabove may not be complete and there could be other uncertainties and potentialrisk factors not considered here which may impact our results and financialcondition. SummaryFigures in Quarter ended Nine months ended C$ millions (except per share amounts) 30Sep05 30Jun05 30Sep04 30Sep05 30Sep04 EarningsNet income attributable to common shares 113 104 82 325 259Basic earnings per share 0.23 0.21 0.17 0.67 0.54 Performance ratios (%)Return on average common equity 20.9 19.7 16.4 20.4 19.0Return onaverage assets 0.92 0.90 0.80 0.93 0.87Net interest margin 2.36 2.34 2.51 2.38 2.53Cost:income ratio 51.2 54.6 58.1 52.9 56.1Non-interest revenue:total revenue ratio 35.7 36.6 35.4 36.7 36.5 Credit informationImpaired loans 132 125 190 Allowance for credit losses - Balance at end of period 337 338 355 - As a percentage of impaired loans 255% 270% 187% - As a percentage of loans outstanding 1.04% 1.09% 1.25% Average balancesAssets 48,754 46,523 40,925 46,502 39,552Loans 31,535 29,901 27,727 30,102 26,481Deposits 38,572 37,028 31,825 36,779 30,544Common equity 2,157 2,411 1,991 2,132 1,825 Capital ratios (%)Tier 1 8.7 9.0 8.7Total capital 10.9 11.2 11.2 Total assets under administrationFunds under management 19,872 18,820 16,220Custody accounts 6,585 5,875 5,190Total assets under administration 26,457 24,695 21,410 Consolidated Statement of Income (Unaudited) Figures in Quarter ended Nine months ended C$ millions (except per share amounts) 30Sep05 30Jun05 30Sep04 30Sep05 30Sep04 Interest and dividend incomeLoans 417 396 352 1,187 1,030Securities 31 25 20 80 60Deposits with regulated financial institutions 45 39 17 114 43 493 460 389 1,381 1,133 Interest expenseDeposits 226 211 150 621 440Debentures 6 6 9 19 26 232 217 159 640 466 Net interest income 261 243 230 741 667 Provision for credit losses 7 6 10 21 44Net interest income after provision for credit losses 254 237 220 720 623 Non-interest revenueDeposit and payment service charges 20 22 20 62 61Credit fees 23 24 21 69 60Capital market fees 25 24 21 81 78Investment administration fees 24 17 16 58 45Foreign exchange 19 19 16 55 50Trade finance 7 7 8 21 22Trading revenue 5 2 4 12 10Securitization income 5 5 6 18 21Other 17 20 14 53 36 145 140 126 429 383 Net interest andnon-interest revenue 399 377 346 1,149 1,006 Non-interest expensesSalaries and employee benefits 112 110 113 331 316Premises and equipment 26 27 26 80 79Other 70 72 68 208 194 208 209 207 619 589 Income before the undernoted 191 168 139 530 417Effect of accounting change - - - - 14Income before provision for income taxes and non-controlling interest in income of trust 191 168 139 530 431Provision for income taxes 67 55 51 179 159Non-controlling interest in income of trust 7 5 4 16 12Income from continuing operations 117 108 84 335 260Income from discontinued operations^ - - - - 5Net income 117 108 84 335 265Preferred share dividends 4 4 2 10 6Net income attributable to common shares 113 104 82 325 259 Average common shares outstanding (000) 488,668 488,668 488,668 488,668 478,513Basic earnings per share (C$) 0.23 0.21 0.17 0.67 0.54 ^ Reflects the sale of HSBC Canadian Direct Insurance Incorporated effective 30 April 2004. Condensed Consolidated Balance Sheet (Unaudited)Figures in C$ millions At 30Sep05 At 31Dec04 At 30Sep04 AssetsCash and deposits with Bank of Canada 340 328 297Deposits with regulated financial institutions 5,191 4,094 4,123 5,531 4,422 4,420 Investment securities 2,912 1,967 2,023Trading securities 1,459 1,055 966 4,371 3,022 2,989 Assets purchased under reverse repurchase agreements 1,821 2,264 2,002 Loans- Businesses and government 15,122 13,450 13,230- Residential mortgage 13,407 11,966 11,835- Consumer 3,999 3,252 3,320- Allowance for credit losses (337) (349) (355) 32,191 28,319 28,030 Customers' liability under acceptances 3,903 3,754 3,560Land, buildings and equipment 95 101 95Other assets 1,490 1,381 1,209 5,488 5,236 4,864Total assets 49,402 43,263 42,305 Liabilities and shareholders' equityDeposits- Regulated financial institutions 1,960 635 594- Individuals 15,267 14,818 14,822- Businesses and governments 21,353 18,395 17,595 38,580 33,848 33,011 Acceptances 3,903 3,754 3,560Assets sold under repurchase agreements 286 23 119Other liabilities 3,400 2,785 2,725Non-controlling interest in trust and subsidiary 430 230 230 8,019 6,792 6,634 Subordinated debentures 423 426 501 Shareholders' equity- Preferred shares 175 125 125- Common shares 1,125 1,125 1,125- Contributed surplus 184 177 175- Retained earnings 896 770 734 2,380 2,197 2,159Total liabilities and shareholders' equity 49,402 43,263 42,305 Condensed Consolidated Statement of Cash Flows (Unaudited) Quarter ended Nine months endedFigures in C$millions 30Sep05 30Jun05 30Sep04 30Sep05 30Sep04 Cash flows (used in)/ provided by:- Operating activities 412 (293) (28) 524 356- Financing activities 1,174 2,154 841 4,990 2,823- Investing activities (1,483) (1,623) (641) (4,697) (2,772) Increase in cash and Cash equivalents 103 238 172 817 407Cash and cash equivalents, beginning of period 4,721 4,483 3,684 4,007 3,449Cash and cash equivalents, end of period 4,824 4,721 3,856 4,824 3,856 Represented by:- Cash resources per balance sheet 5,531 5,344 4,420 - less non-operating deposits^ (707) (623) (564) - Cash and cash equivalents, end of period 4,824 4,721 3,856 ^ Non operating deposits are comprised primarily of cash which reprices after 90 days and cash restricted for recourse on securitization transactions. 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