30th Jul 2007 09:47
HSBC Holdings PLC30 July 2007 HSBC BANK CANADA SECOND QUARTER 2007 RESULTS^ - HIGHLIGHTS • Net income attributable to common shares was C$135 million for the quarter ended 30 June 2007, an increase of 17.4 per cent over the quarter ended 30 June 2006. • Net income attributable to common shares was C$274 million for the half-year ended 30 June 2007, an increase of 18.6 per cent over the same period in 2006. • Return on average common equity was 20.7 per cent for the quarter ended 30 June 2007 and 21.4 per cent for the half-year ended 30 June 2007 compared with 19.9 per cent and 20.3 per cent respectively for the same periods in 2006. • The cost efficiency ratio was 51.2 per cent for the quarter ended 30 June 2007 and 51.7 per cent for the half-year ended 30 June 2007 compared with 52.6 per cent and 52.8 per cent respectively for the same periods in 2006. • Total assets were C$61.2 billion at 30 June 2007 compared with C$53.1 billion at 30 June 2006. • Total funds under management were C$25.8 billion at 30 June 2007 compared with C$21.7 billion at 30 June 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$135million for the quarter ended 30 June 2007, an increase of C$20 million, or 17.4per cent, from C$115 million for the second quarter of 2006. Net incomeattributable to common shares for the first half of 2007 was C$274 millioncompared with C$231 million for the same period in 2006, an increase of C$43million, or 18.6 per cent. Net income attributable to common shares in the first and second quarters of2007 benefited from gains of C$14 million and C$7 million respectively, afterrelated income taxes, on the sale of the bank's shares in the Montreal Exchange.Excluding these gains, net income attributable to common shares for the secondquarter of 2007 increased by 11.3 per cent compared to the equivalent quarter in2006 and net income attributable to common shares for the first half of 2007increased by 9.5 per cent from the same period last year. Commenting on the results, Lindsay Gordon, President and Chief ExecutiveOfficer, said: "HSBC Bank Canada has achieved satisfactory results for the quarter with good year-on-year revenue and net income growth. All of our business lines reported growth in net income in the first half of 2007 compared with the same period last year. Our Commercial Banking business continues to achieve strong results spurred by robust asset growth arising from the continuing strength of theCanadian economy, while maintaining a high level of credit quality. Our PersonalFinancial Services business has been adversely affected by slower residentialmortgage growth and by competitive pressures on interest margins. Our Corporate,Investment Banking and Markets business has benefited from growth in fee incomefrom a number of advisory and underwriting mandates. "Our focus for the remainder of 2007 will be on leveraging initiatives toenhance sales and improve efficiencies in our operations, while continuing tofurther develop our direct banking capabilities. The launch in 2006 of ourin-branch High Rate savings account was a success and we have followed this upwith the recent launch of our internet only Direct Savings account with anintroductory rate of 5.0 per cent. The Commercial Banking business will continueto expand distribution and product offerings in the Payments and Cash Managementbusiness, leveraging the capabilities of HSBC Group platforms, including systemsand software." Net interest income Net interest income was C$307 million for the quarter ended 30 June 2007compared with C$276 million for the same quarter in 2006, an increase of C$31million, or 11.2 per cent. The increase was driven by growth in assets in allbusinesses. Average interest-earning assets were C$6.5 billion or 14.0 per centhigher compared with the same period in 2006. Competitive pressures and achallenging interest rate environment impacted the net interest margin whichdecreased to 2.29 per cent for the quarter compared with 2.35 per cent for thesame period in 2006. Net interest income in the second quarter of 2007 was C$13 million highercompared with the first quarter of 2007, due partly to one extra day in thequarter and to an annualised growth in interest-earning assets of 12.3 per cent.The net interest margin, as a percentage of average interest-earning assets, wasthe same as the previous quarter. On a year-to-date basis, net interest income was C$601 million compared withC$542 million for the same period last year, an increase of C$59 million, or10.9 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 2.29 per cent compared with 2.35 per cent in 2006. Non-interest revenue Non-interest revenue was C$177 million for the second quarter of 2007 comparedwith C$167 million in the same quarter of 2006, an increase of C$10 million, or6.0 per cent. Deposit and payment service charges increased as a result ofincreased customer activity, particularly in the Payments and Cash Managementbusiness. Capital market fees were higher as a result of increased underwritingand advisory mandates in the Global Investment Banking business. Investmentadministration fees were higher as the bank's funds under management in thewealth management business continued to record strong growth. Investmentsecurities gains decreased as gains on sales of the bank's remaining shares inthe Montreal Exchange during the quarter were lower than the C$10 millionincrease in the fair value of the bank's investments in private equity fundsduring the same period in 2006. Non-interest revenue was C$8 million lower in the second quarter of 2007compared with the previous quarter mainly due to a reduction in investmentsecurities gains on sale of shares in the Montreal Exchange and lower gains onthe bank's investments in the private equity funds. However, there was anincrease in deposit and payment service charges, and significant growth ininvestment administration fees. Other income was also higher as activity in thebank's investor immigration programme increased while capital market feesdecreased due to lower global investment banking revenues. On a year-to-date basis, non-interest revenue was C$362 million, C$39 million,or 12.1 per cent, higher compared with C$323 million for the same period lastyear. This was mainly due to higher investment securities gains arising from thesale of the bank's Montreal Exchange shares, which were partially offset by alower increase in fair value of the private equity funds than that recorded in2006. Investment administration fees from higher funds under management, anddeposit and payment service charges were also higher than the same period in2006. These were partially offset by lower trading income, which was negativelyaffected by reductions in the fair values of derivatives related to balancesheet hedging activities. Non-interest expenses and operating efficiency Non-interest expenses were C$248 million for the second quarter of 2007 comparedwith C$233 million in the same quarter of 2006, an increase of C$15 million, or6.4 per cent. Salaries and employee benefits expenses were higher in 2007 due toan increase in variable compensation driven by higher revenues, and an increasedemployee base from continued investments in the business. These increasesresulted from strategic growth initiatives in new branches in Alberta and theGreater Toronto Area, increases in the Direct Bank, Private Banking and WealthManagement as well as the Payments and Cash Management businesses. Pension plancosts also increased. This was partially offset by a reduction in stock-basedcompensation, as 2006 was impacted by a charge of C$9 million arising from thewaiver of certain conditions in respect of previous awards granted under theHSBC Group's Share Option Plan. Other non-interest expenses were higher due toincreased premises and equipment expenses arising from new branches and theirrelated operating expenses as well as increases in investments in systems,together with the impact of higher transaction costs arising from increasedcustomer activity. The cost efficiency ratio improved to 51.2 per cent comparedwith 52.6 per cent for the same period in 2006. Non-interest expenses for the second quarter of 2007 were little changedcompared with the first quarter of 2007. On a year-to-date basis, non-interest expenses were C$498 million compared withC$457 million for the same period last year, an increase of C$41 million, or 9.0per cent. Salaries and benefits expenses were higher due to an increasedemployee base, increased variable compensation, and increased pension costs.Other non-interest expenses were higher due to continued investments in thebusiness, as well as higher costs arising from increased customer transactions.The cost efficiency ratio improved to 51.7 per cent compared with 52.8 per centfor the same period in 2006. Credit quality and provision for credit losses The provision for credit losses was C$12 million for the second quarter of 2007,compared with C$6 million in the second quarter of 2006, and C$10 million forthe first quarter of 2007. Overall credit quality remains sound, reflectingprudent lending standards and strong economic conditions in Canada. Theincreased charges in 2007 compared to the same period last year is reflective ofan unusually low loan loss experience in 2006. Gross impaired credit exposures were C$195 million, C$42 million higher comparedwith C$153 million at 31 March 2007, and C$36 million higher compared with C$159million at 30 June 2006. Total impaired exposures, net of specific allowancesfor credit losses, were C$141 million at 30 June 2007 compared with C$95 millionat 31 March 2007 and C$109 million at 30 June 2006. Although total impairedcredit exposures at 30 June 2007 have increased compared to previous quarters,the increase arises from a single commercial exposure. The general allowance for credit losses of C$269 million remained unchanged from31 March 2007 and 30 June 2006. The total allowance for credit losses, as apercentage of loans and acceptances outstanding, decreased to 0.74 per cent at30 June 2007 compared with 0.77 per cent at 31 March 2007 and 0.84 per cent at30 June 2006 as the bank's loan portfolios grew. The bank considers the totalallowance for credit losses to be appropriate given the credit quality of itsportfolios and the current credit environment. Income taxes The effective tax rate in the second quarter of 2007 was 35.5 per cent comparedwith 39.4 per cent in the same quarter of 2006 and 32.9 per cent in the firstquarter of 2007. On a year-to-date basis in 2007, the effective tax rate was34.2 per cent compared with 37.3 per cent for the same period last year. The higher effective income tax rate in the second quarter of 2007 compared tothe prior quarter was due to lower gains from the sale of the shares in theMontreal Exchange, which are taxed at a lower rate. The second quarter of 2007also included a C$2 million charge for the write-down of future income taxassets resulting from the recent enactment of future federal corporate tax ratereductions announced in the fall of 2006. When compared to the second quarter of 2006, the effective income tax rate forthe second quarter of 2007 reflects lower tax rates applicable on sale of sharesin the Montreal Exchange and a charge of C$6 million in the second quarter of2006 relating to the write-down of federal corporate future tax assets arisingfrom previously announced tax rate decreases. The effective tax rate in 2006 wasfurther impacted by the expense related to stock options, which was notdeductible for income tax purposes. The year-to-date tax rate for the first half of 2007 was lower than the sameperiod in 2006 due to a higher level of gains subject to a lower tax rate andhigher non-deductible expenses in 2006. Balance sheet Total assets at 30 June 2007 were C$61.2 billion, an increase of C$4.4 billionfrom 31 December 2006 and C$8.1 billion from 30 June 2006. The loan portfoliocontinues to be a major driver of balance sheet growth. Commercial loans andbankers' acceptances grew C$1.9 billion since 31 December 2006 on the continuedstrong economy, primarily in Western Canada. Residential mortgages increasedC$0.4 billion, before securitisation during the period, although the rate ofincrease has slowed. Balance sheet management activity in the Treasury andMarkets business has increased the securities portfolio by C$3.2 billionalthough this was offset by decreases in balances under reverse repurchaseagreements of C$2.0 billion. Total deposits increased C$2.0 billion to C$46.2 billion at 30 June 2007 fromC$44.2 billion at 31 December 2006 and C$41.0 billion at 30 June 2006. Growth indeposits resulted from higher interest rates and other initiatives, whichhighlighted term savings products as well as the recently launched High Rate andDirect Savings accounts. Commercial deposits were higher due to growth in termproducts, driven by improved product offerings in the Payments and CashManagement business and growth in commercial banking relationships. Otherliabilities increased largely from an increase in short positions in securitiesresulting from an increase in activities in the Treasury and Markets business. Compared with the balance at 30 June 2006, total assets were C$8.1 billionhigher largely due to growth in loans and markets activities. Deposit growthbenefited from increased cash management balances from corporate customers aswell as personal deposit growth from the High Rate and Direct Savings accounts. Total assets under administration Funds under management were C$25.8 billion at 30 June 2007 compared with C$25.1billion at 31 March 2007 and C$21.7 billion at 30 June 2006. Including custodyand administration balances, total assets under administration were C$34.8billion compared with C$34.0 billion at 31 March 2007 and C$30.2 billion at 30June 2006. Growth in funds under management in 2007 benefited from strong acquisitions ofnew clients, strong investment sales and the success of Private Client products. Capital management The tier 1 capital ratio was 8.8 per cent and the total capital ratio was 11.5per cent at 30 June 2007. These compare with 8.9 per cent and 11.0 per cent,respectively, at 31 March 2007 and 9.0 per cent and 11.2 per cent, respectively,at 30 June 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 in subordinated debentures in the second quarter of2007. 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 second 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 second 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 30September 2007, to shareholders of record on 14 September 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 82 countries and territories and assets ofUS$1,861 billion at 31 December 2006, the HSBC Group is one of the world'slargest banking and financial services organisations. Visit the bank's websiteat hsbc.ca for more information about HSBC Bank Canada and its products andservices. Copies of HSBC Bank Canada's second quarter 2007 report will be sent toshareholders in August 2007. Caution regarding forward-looking financial statements This document may contain forward-looking statements, including statementsregarding the business and anticipated financial performance of HSBC BankCanada. These statements are subject to a number of risks and uncertainties thatmay cause actual results to differ materially from those contemplated by theforward-looking statements. Some of the factors that could cause suchdifferences include legislative or regulatory developments, technologicalchange, global capital market activity, changes in government monetary andeconomic policies, changes in prevailing interest rates, inflation level andgeneral economic conditions in geographic areas where HSBC Bank Canada operates.Canada is an extremely competitive banking environment and pressures on interestrates and the bank's net interest margin may arise from actions taken byindividual banks acting alone. Varying economic conditions may also affectequity and foreign exchange markets, which could also have an impact on thebank's revenues. The factors disclosed above may not be complete and there couldbe other uncertainties and potential risk factors not considered here which mayimpact the bank's results and financial condition. Summary Quarter ended Half-year endedFigures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06 (except per share amounts) EarningsNet income attributable to common shares 135 139 115 274 231 Basic earnings per share (C$) 0.28 0.28 0.24 0.56 0.47 Performance ratios (%)Return on average common equity 20.7 22.0 19.9 21.4 20.3Return on average assets 0.86 0.93 0.88 0.89 0.90Net interest margin^ 2.29 2.29 2.35 2.29 2.35Cost efficiency ratio^^ 51.2 52.2 52.6 51.7 52.8Non-interest revenue:total revenue ratio 36.6 38.6 37.7 37.6 37.3 Credit informationGross impaired credit exposures 195 153 159 Allowance for credit losses 323 327 319- As a percentage of gross impaired credit exposures 166% 214% 201%- As a percentage of gross loans and acceptances 0.74% 0.77% 0.84% Average balancesAssets 63,286 60,656 52,573 61,979 51,784 Loans 37,067 35,994 33,262 36,534 32,760Deposits 46,691 45,855 40,847 46,275 40,437Common equity 2,618 2,558 2,316 2,588 2,296 Capital ratios (%)Tier 1 8.8 8.9 9.0Total capital 11.5 11.0 11.2 Total assets under administrationFunds under management 25,795 25,083 21,659Custody accounts 9,012 8,868 8,494Total assets under administration 34,807 33,951 30,153 ^ Net interest margin is net interest income divided by average interest-earning assets for the period.^^ The cost efficiency ratio is defined as non-interest expenses divided by total revenue. Consolidated Statement of Income (Unaudited) Quarter ended Half-year endedFigures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06(except per share amounts) ^ ^ Interest and dividend incomeLoans 616 597 523 1,213 985Securities 71 58 46 129 89Deposits with regulated financial institutions 62 59 55 121 113 749 714 624 1,463 1,187 Interest expenseDeposits 431 413 341 844 632Debentures 11 7 7 18 13 442 420 348 862 645 Net interest income 307 294 276 601 542 Non-interest revenueDeposit and payment service charges 25 23 23 48 44Credit fees 28 27 27 55 52Capital market fees 29 32 26 61 58Investment administration fees 33 30 25 63 49Foreign exchange 9 9 8 18 15Trade finance 6 6 6 12 12Trading revenue 16 14 17 30 34Investment securities gains 10 25 13 35 18Securitisation income 9 10 11 19 19Other 12 9 11 21 22 177 185 167 362 323 Total revenue 484 479 443 963 865 Non-interest expensesSalaries and employee benefits 139 143 136 282 259Premises and equipment 32 31 27 63 56Other 77 76 70 153 142 248 250 233 498 457 Net operating income before provision for credit losses 236 229 210 465 408 Provision for credit losses 12 10 6 22 12 Income before taxes and non-controlling interest in income of trust 224 219 204 443 396Provision for income taxes 77 70 78 147 143Non-controlling interest in income of trust 7 6 6 13 13Net income 140 143 120 283 240Preferred share dividends 5 4 5 9 9Net income attributable to common shares 135 139 115 274 231 Average common shares outstanding (000) 488,668 488,668 488,668 488,668 488,668Basic earnings per share (C$) 0.28 0.28 0.24 0.56 0.47 ^ Certain prior period amounts have been reclassified to conform with the current period presentation. Condensed Consolidated Balance Sheet (Unaudited) Figures in C$ millions At 30Jun07 At 31Dec06 At 30Jun06 ^ ^Assets Cash and deposits with Bank of Canada 448 368 378Deposits with regulated financial institutions 4,403 4,346 4,193 4,851 4,714 4,571 Available for sale securities 6,024 - -Investment securities - 3,604 3,576Trading securities 1,891 1,162 2,120Other securities 53 - - 7,968 4,766 5,696 Assets purchased under reverse repurchase agreements 2,794 4,760 3,473 Loans- Businesses and government 19,197 17,819 16,979- Residential mortgage 14,367 14,016 13,130- Consumer 4,236 3,728 3,638- Allowance for credit losses (323) (327) (319) 37,477 35,236 33,428 Customers' liability under acceptances 5,644 5,130 4,454Derivatives 535 308 233Land, buildings and equipment 130 121 99Other assets 1,766 1,735 1,178 8,075 7,294 5,964Total assets 61,165 56,770 53,132 Liabilities and shareholders' equityDeposits- Regulated financial institutions 2,087 1,469 1,709- Individuals 17,010 17,039 16,108- Businesses and governments 27,068 25,665 23,172 46,165 44,173 40,989 Acceptances 5,644 5,130 4,454Assets sold under repurchase agreements 95 162 375Derivatives 675 316 242Securities sold short 1,506 715 1,256Other liabilities 2,811 2,413 2,108Non-controlling interest in trust and subsidiary 430 430 430 11,161 9,166 8,865 Subordinated debentures 836 563 559 Shareholders' equity- Preferred shares 350 350 350- Common shares 1,125 1,125 1,125- Contributed surplus 204 202 199- Retained earnings 1,336 1,191 1,045- Accumulated other comprehensive income (12) - - 3,003 2,868 2,719Total liabilities and shareholders' equity 61,165 56,770 53,132 ^ Certain prior period amounts have been reclassified to conform with the current period presentation. Condensed Consolidated Statement of Cash Flows (Unaudited) Quarter ended Half-year endedFigures in C$ millions 30Jun07 31Mar07 30Jun06 30Jun07 30Jun06 Cash flows provided by/ (used in):- operating activities 389 466 (69) 855 184- financing activities 62 2,024 706 2,086 2,405- investing activities (771) (2,188) (1,128) (2,959) (3,631) (Decrease) increase in cash and cash equivalents (320) 302 (491) (18) (1,042)Cash and cash equivalents, beginning of period 4,340 4,038 4,649 4,038 5,200Cash and cash equivalents, end of period 4,020 4,340 4,158 4,020 4,158 Represented by:- Cash resources per balance sheet 4,851 4,837 4,571 - less non-operating deposits^ (831) (497) (413)- Cash and cash equivalents, end of period 4,020 4,340 4,158 ^ 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:
HSBC Holdings