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HSBC CANADA 1Q 2007 RESULTS

24th Apr 2007 09:30

HSBC Holdings PLC24 April 2007 HSBC BANK CANADA FIRST QUARTER 2007 RESULTS^ - HIGHLIGHTS - Net income attributable to common shares was C$139 million for the quarter ended 31 March 2007, an increase of 19.8 per cent over the same period in 2006. - Return on average common equity was 22.0 per cent for the quarter ended 31 March 2007 compared with 20.7 per cent for the same period in 2006. - The cost efficiency ratio was 52.2 per cent for the quarter ended 31 March 2007 compared with 53.1 per cent for the same period in 2006. - Total assets were C$60.9 billion at 31 March 2007 compared with C$52.3 billion at 31 March 2006. - Total funds under management were C$25.1 billion at 31 March 2007 compared with C$21.8 billion at 31 March 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$139million for the quarter ended 31 March 2007, an increase of C$23 million, or19.8 per cent, from C$116 million for the first quarter of 2006. Compared to thefourth quarter of 2006, net income attributable to common shares was C$11million, or 8.6 per cent, higher in the first quarter of 2007. Results for thequarter ended 31 March 2007 benefited from a C$14 million gain, after relatedincome taxes, on the sale of some of the bank's shares in the Montreal Exchange. Commenting on the results, Lindsay Gordon, President and Chief ExecutiveOfficer, said: "HSBC Bank Canada is off to a satisfactory start in fiscal 2007and underlying business performance reflected good year-on-year revenue and netincome growth. The Commercial Banking business achieved strong asset growthwhile maintaining a high level of credit quality. The Corporate, InvestmentBanking and Markets business also recorded good growth, benefiting from higheradvisory and underwriting fees, participating in a number of significanttransactions. The Personal Financial Services business achieved good growth inHigh Rate and Direct Savings Accounts through a continued focus on directbanking capabilities. "The bank's focus for the rest of this year is to continue to achievesustainable revenue growth by deepening existing customer relationships andacquiring new customers. The bank will continue to build on direct bankingcapabilities and the branch network, and focus on further improving efficiencyand customer service through business transformation initiatives. The bank willalso continue marketing initiatives to build on progress made in increasing theawareness of the HSBC brand within Canada." Net interest income Net interest income was C$294 million for the quarter ended 31 March 2007compared with C$266 million in the same quarter of 2006, an increase of C$28million, or 10.5 per cent. The increase was driven by growth in assets in allbusinesses. Average interest earning assets for the quarter were C$6.4 billion,or 13.9 per cent, higher than the same period in 2006. Continuing competitivepressures and a challenging interest rate environment impacted the net interestmargin, which decreased to 2.29 per cent for the quarter ended 31 March 2007from 2.36 per cent for the same period in 2006. Net interest income in the first quarter of 2007 was C$3 million higher comparedwith C$291 million in the fourth quarter of 2006 despite there being two fewerdays in the first quarter. Average interest earning assets increased by C$2.0billion while the net interest margin was in line with the fourth quarter of2006. Non-interest revenue Non-interest revenue was C$185 million for the first quarter of 2007 comparedwith C$156 million in the same quarter of 2006, an increase of C$29 million, or18.6 per cent. Investment securities gains were C$20 million higher due to gainson the sale of some of the bank's shares in the Montreal Exchange and sale ofinvestments within Private Equity Funds. Investment administration fees werehigher as funds managed in the wealth management businesses continued to grow.These increases were partially offset by lower trading income. The increase in non-interest revenue from the fourth quarter of 2006 was C$17million, or 10.1 per cent, primarily as a result of higher investment securitiesgains and higher investment administration fees. Capital market fees were alsohigher due to higher underwriting fees earned by the Global Investment Bankingbusiness. Securitization income was lower, impacted by the timing of certainsecuritizations, and trading revenues were also lower. Non-interest expenses Non-interest expenses were C$250 million for the first quarter of 2007 comparedwith C$224 million in the same quarter of 2006, an increase of C$26 million, or11.6 per cent. Salaries and employee benefits expenses were higher by C$20million in 2007 due largely to increased variable compensation costs driven byhigher revenues, and a higher employee base. The cost efficiency ratio of 52.2per cent for the first quarter of 2007 improved from 53.1 per cent for the sameperiod in 2006, favourably impacted by the gain on the sale of shares in theMontreal Exchange. Non-interest expenses were C$14 million higher than the fourth quarter of 2006.Salaries and benefits were C$19 million higher primarily due to higher pensionand other benefits costs, which are usually higher in the first quarter of eachyear. Credit quality and provision for credit losses The provision for credit losses was C$10 million for the first quarter of 2007,compared with C$6 million in the first quarter of 2006, and C$17 million for thefourth quarter of 2006. Overall credit quality remains good, reflecting strongeconomic conditions in Canada. Gross impaired loans were C$145 million, C$19 million, or 11.6 per cent, lowercompared with C$164 million at 31 December 2006, and C$8 million, or 5.2 percent, lower compared with C$153 million at 31 March 2006. Total impaired loans,net of specific allowances for credit losses, were C$87 million at 31 March 2007compared with C$106 million at 31 December 2006 and C$97 million at 31 March2006. The general allowance for credit losses remained unchanged at C$269million compared with 31 December 2006 and 31 March 2006. The total allowancefor credit losses, as a percentage of loans outstanding, decreased to 0.88 percent at 31 March 2007 compared with 0.92 per cent at 31 December 2006 and 0.99per cent at 31 March 2006 as the bank's loan portfolios grew. The bank considersthe total allowance for credit losses to be appropriate given the credit qualityof its portfolios and the current credit environment. Income taxes The effective tax rate in the first quarter of 2007 was 32.9 per cent comparedwith 35.1 per cent in the first quarter of 2006 and 33.2 per cent in the fourthquarter of 2006. The lower tax rate in the quarter ended 31 March 2007 was aresult of lower taxes applicable on the sale of certain investments. Balance sheet Total assets at 31 March 2007 were C$60.9 billion, an increase of C$4.1 billionfrom 31 December 2006, and C$8.6 billion from 31 March 2006. Commercial loansand bankers' acceptances increased by C$1.4 billion since the end of 2006, ascommercial activity was strong, spurred by the strength of the Canadian economy.Residential mortgages increased by C$0.2 billion, although the rate of growthslowed in the first quarter, and consumer loans increased by C$0.1 billion. Thesecurities portfolio increased by C$3.0 billion in the quarter, primarily inGovernment of Canada securities. Total deposits increased by C$1.8 billion to C$46.0 billion at 31 March 2007from C$44.2 billion at 31 December 2006 and were C$5.6 billion higher comparedwith C$40.4 billion at 31 March 2006. Commercial deposits grew by C$1.6 billion,of which C$0.4 billion was from Commercial Banking relationships. Personaldeposits grew by C$0.2 billion driven by growth in High Rate and Direct SavingsAccounts. Total assets under administration Funds under management were C$25.1 billion at 31 March 2007 compared with C$23.3billion at 31 December 2006 and C$21.8 billion at 31 March 2006. Funds undermanagement in the first quarter of 2007 benefited from strong investment salesand buoyant equity markets, particularly in Canada. Including custody andadministration balances, total assets under administration were C$34.0 billioncompared with C$31.9 billion at 31 December 2006 and C$30.4 billion at 31 March2006. Capital management The tier 1 capital ratio was 8.9 per cent and the total capital ratio was 11.0per cent at 31 March 2007. These compare with 9.0 per cent and 11.1 per cent,respectively, at 31 December 2006 and 9.0 per cent and 11.3 per cent,respectively, at 31 March 2006. Subsequent to the quarter end, on 9 April 2007, the bank issued C$400 million ofsubordinated debentures maturing in 2022. Interest at an annual rate of 4.8 percent is payable half-yearly until 10 April 2017. Thereafter, interest is payableat an annual rate equal to the 90-day Bankers' Acceptance Rate plus 1.0 percent, payable quarterly until maturity. Proceeds from the offering will be usedfor general corporate purposes and to further strengthen the bank's tier 2capital base. On 16 April 2007, HSBC Bank Canada gave notice that on 14 June 2007, subject toregulatory approval, the bank will redeem its C$100 million 5.6 per centDebenture due 14 June 2012 at a redemption price of 100 per cent of theprincipal amount plus unpaid accrued interest due at the redemption date. Dividends During the first quarter of 2007, the bank declared and paid C$65 million individends on HSBC Bank Canada 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 30 June2007, for shareholders of record on 15 June 2007. 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 first quarterarising from the adoption of these new standards, more detailed information onthe impact of adopting these standards will be included in HSBC Bank Canada'sfirst quarter 2007 report to shareholders. About HSBC Bank Canada HSBC Bank Canada, a subsidiary of HSBC Holdings plc, has more than 170 offices.With around 10,000 offices in 82 countries and territories and assets ofUS$1,861 billion at 31 December 2006, the HSBC Group is one of the world'slargest banking and financial services organisations. Visit the bank's websiteat hsbc.ca for more information about HSBC Bank Canada and its products andservices. Media enquiries to: Ernest Yee 604-641-2973 Sharon Wilks 416-868-3878 Copies of HSBC Bank Canada's first quarter 2007 report will be sent toshareholders in May 2007. Caution regarding forward-looking financial statements This document may contain forward-looking statements, including statementsregarding the business and anticipated financial performance of HSBC BankCanada. These statements are subject to a number of risks and uncertainties thatmay cause actual results to differ materially from those contemplated by theforward-looking statements. Some of the factors that could cause suchdifferences include legislative or regulatory developments, technologicalchange, global capital market activity, changes in government monetary andeconomic policies, changes in prevailing interest rates, inflation level andgeneral economic conditions in geographic areas where HSBC Bank Canada operates.Canada is an extremely competitive banking environment and pressures on interestrates and the bank's net interest margin may arise from actions taken byindividual banks acting alone. Varying economic conditions may also affectequity and foreign exchange markets, which could also have an impact on thebank's revenues. The factors disclosed above may not be complete and there couldbe other uncertainties and potential risk factors not considered here which mayimpact the bank's results and financial condition. Summary Quarter endedFigures in C$ millions (except per share amounts) 31Mar07 31Dec06 31Mar06 EarningsNet income attributable to common shares 139 128 116Basic earnings per share (C$) 0.28 0.26 0.24 Performance ratios (%)Return on average common equity 22.0 20.6 20.7Return on average assets 0.93 0.87 0.92Net interest margin^ 2.29 2.30 2.36Cost efficiency ratio^^ 52.2 51.4 53.1Non-interest revenue:total revenue ratio 38.6 36.6 37.0 Credit informationGross impaired loans 145 164 153Allowance for credit losses- Balance at end of period 327 327 325- As a percentage of gross impaired loans 226% 199% 212%- As a percentage of loans outstanding 0.88% 0.92% 0.99% Average balancesAssets 60,656 58,883 50,986Loans 35,994 34,943 32,252Deposits 45,855 44,491 40,022Common equity 2,558 2,464 2,276 Capital ratios (%)Tier 1 8.9 9.0 9.0Total capital 11.0 11.1 11.3 Total assets under administrationFunds under management 25,083 23,340 21,796Custodial accounts 8,868 8,574 8,564Total assets under administration 33,951 31,914 30,360 ^ Net interest margin is net interest income divided by average interest earning assets for the period.^^ The cost efficiency ratio is defined as non-interest expenses divided by total revenue. Consolidated Statement of Income (Unaudited) Quarter endedFigures in C$ millions (except per share amounts) 31Mar07 31Dec06 31Mar06 Interest and dividend incomeLoans 597 593 462Securities 58 49 43Deposits with regulated financial institutions 59 62 58 714 704 563 Interest expenseDeposits 413 406 291Debentures 7 7 6 420 413 297 Net interest income 294 291 266 Non-interest revenueDeposit and payment service charges 23 23 21Credit fees 27 26 25Capital market fees 32 30 32Investment administration fees 30 28 24Foreign exchange 9 9 7Trade finance 6 6 6Trading revenue 14 17 17Investment securities gains 25 7 5Securitization income 10 13 8Other 9 9 11 185 168 156 Total revenue 479 459 422 Non-interest expensesSalaries and employee benefits 143 124 123Premises and equipment 31 34 29Other 76 78 72 250 236 224 Net operating income before provision for credit losses 229 223 198 Provision for credit losses 10 17 6 Income before taxes and non-controlling interest in income of trust 219 206 192Provision for income taxes 70 66 65Non-controlling interest in income of trust 6 7 7Net income 143 133 120Preferred share dividends 4 5 4Net income attributable to common shares 139 128 116 Average common shares outstanding (000) 488,668 488,668 488,668Basic earnings per share (C$) 0.28 0.26 0.24 Condensed Consolidated Balance Sheet (Unaudited) Figures in C$ millions At 31Mar07 At 31Dec06 At 31Mar06 AssetsCash and deposits with Bank of Canada 457 368 374Deposits with regulated financial institutions 4,380 4,346 4,808 4,837 4,714 5,182 Available for sale securities 5,572 - -Investment securities - 3,604 4,254Trading securities 2,211 1,162 1,762Other securities 25 - - 7,808 4,766 6,016 Assets purchased under reverse repurchase agreements 3,592 4,760 2,536 Loans- Businesses and government 19,059 17,819 16,149- Residential mortgage 14,170 14,016 13,185- Consumer 3,870 3,728 3,427- Allowance for credit losses (327) (327) (325) 36,772 35,236 32,436 Customers' liability under acceptances 5,314 5,130 4,483Land, buildings and equipment 122 121 100Other assets 2,466 2,043 1,574 7,902 7,294 6,157Total assets 60,911 56,770 52,327 Liabilities and shareholders' equityDeposits- Regulated financial institutions 2,162 1,469 1,994- Individuals 17,248 17,039 15,809- Businesses and governments 26,551 25,665 22,625 45,961 44,173 40,428 Acceptances 5,314 5,130 4,483Assets sold under repurchase agreements 467 162 165Other liabilities 5,220 3,444 3,605Non-controlling interest in trust and subsidiary 430 430 430 11,431 9,166 8,683 Subordinated debentures 560 563 563 Shareholders' equity- Preferred shares 350 350 350- Common shares 1,125 1,125 1,125- Contributed surplus 203 202 188- Retained earnings 1,266 1,191 990- Accumulated other comprehensive income 15 - - 2,959 2,868 2,653Total liabilities and shareholders' equity 60,911 56,770 52,327 Condensed Consolidated Statement of Cash Flows (Unaudited) Quarter endedFigures in C$ millions 31Mar07 31Dec06 31Mar06 Cash flows provided by/(used in):- operating activities 466 361 253- financing activities 2,024 1,165 1,699- investing activities (2,188) (2,430) (2,503) Increase (decrease) in cash and cash equivalents 302 (904) (551)Cash and cash equivalents, beginning of period 4,038 4,942 5,200Cash and cash equivalents, end of period 4,340 4,038 4,649 Represented by:- Cash resources per balance sheet 4,837 4,714 5,182- less non-operating deposits^ (497) (676) (533)- Cash and cash equivalents, end of period 4,340 4,038 4,649 ^ Non-operating deposits are comprised primarily of cash that reprices after 90 days and cash restricted for recourse on securitization transactions. This information is provided by RNS The company news service from the London Stock Exchange

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