21st Feb 2005 09:02
HSBC Holdings PLC21 February 2005 HSBC BANK CANADA FOURTH QUARTER 2004 RESULTS - HIGHLIGHTS •Net income attributable to common shares was C$345 million for the year ended 31 December 2004, an increase of 18.2 per cent over 2003. •Net income attributable to common shares was C$86 million for the quarter ended 31 December 2004, an increase of 21.1 per cent over the same period in 2003. •Return on average common equity was 18.3 per cent for the year ended 31 December 2004 and 16.6 per cent for the quarter ended 31 December 2004 compared with 18.7 per cent and 17.0 per cent, respectively, for the same periods in 2003. •The cost:income ratio improved to 56.0 per cent for the year ended 31 December 2004 and 55.6 per cent for the quarter ended 31 December 2004 compared with 57.0 per cent and 61.6 per cent, respectively, for the same periods in 2003. •Total assets were C$43.3 billion at 31 December 2004, an increase of C$5.8 billion, or 15.5 per cent, from C$37.5 billion at 31 December 2003. •Total funds under management were C$17.7 billion at 31 December 2004, an increase of C$3.4 billion, or 23.8 per cent, from C$14.3 billion at 31 December 2003. Financial Commentary Overview HSBC Bank Canada recorded net income attributable to common shares of C$345million for the year ended 31 December 2004, an increase of C$53 million, or18.2 per cent, from C$292 million for 2003. Net income attributable to commonshares for the quarter ended 31 December 2004 was C$86 million, an increase ofC$15 million, or 21.1 per cent, compared with C$71 million for the same periodin 2003. Net income in 2004 benefited from growth in the balance sheet, growthin funds under management, an improvement in the equity markets and a one-timechange in accounting for mortgage loan prepayment fees. These were partiallyoffset by higher salaries and benefits costs and other operating expenses due toincreased business activities. Commenting on the results, Lindsay Gordon, President and Chief ExecutiveOfficer, said: "We are pleased with our results for the year. We have achievedour objectives for 2004 in that we grew revenues, controlled our costs andmanaged our capital efficiently. Revenue grew faster than costs, and resulted ina 100 basis point improvement in our cost:income ratio over 2003. We achievedthis in an extremely competitive interest rate environment, which negativelyimpacted spreads throughout 2004. It was encouraging to see increased growth inour non-interest revenue during 2004, which shows the better balance of ouroperations. "The integration of Intesa Bank Canada was successfully completed in the fourthquarter of 2004, with minimal impact to our customers. We will leverage theseassets, along with the expanded capabilities of the ABM-network sharingagreement with the BMO Financial Group, to further increase our customers'access to our banking services." Net interest income Net interest income for the year ended 31 December 2004 was C$896 million, anincrease of C$31 million, or 3.6 per cent, from C$865 million for 2003. For thequarter ended 31 December 2004 net interest income was C$229 million, anincrease of C$16 million, or 7.5 per cent, from C$213 million for the samequarter in 2003. Net interest income benefited from the acquisition of theformer Intesa Bank Canada (Intesa) and a one-time change in accounting formortgage loan prepayment fees. An improving economy in Canada, along withhistorically low borrowing costs, helped spur increases in lending across allcustomer groups. Average loan balances for the year ended 31 December 2004 wereC$26,922 million, an increase of C$2,379 million, or 9.7 per cent, compared withC$24,543 million for last year. For the fourth quarter of 2004, average loanbalances were C$28,235 million compared with C$25,113 million for the sameperiod in 2003. The net interest margin, as a percentage of average interest earning assets, was2.49 per cent for the year ended 31 December 2004 and 2.38 per cent for fourthquarter of 2004. For the same periods in 2003, the net interest margin was 2.66per cent and 2.53 per cent, respectively. Net interest margins continue to beimpacted by extremely competitive industry pricing on all lending and depositproducts, particularly in personal financial services. Non-interest revenue Other income was C$526 million for the year ended 31 December 2004, an increaseof C$83 million, or 18.7 per cent, compared with C$443 million for 2003. For thequarter ended 31 December 2004, other income was C$143 million, an increase ofC$28 million, or 24.3 per cent, from C$115 million in the fourth quarter of2003. Credit fees were higher in 2004 due to increased commercial lending activitiesas economic conditions improved through the year. In addition, expectations ofcontinued low interest rates in 2004 shortened the average term of loans enteredinto, which resulted in an increase in the number of lending transactions.Capital market fees in 2004 were higher than the comparative periods in 2003 dueto increased retail brokerage commissions as customer trading volume improvedalongside the equity markets in 2004. Benefits from our investment in our wealthmanagement businesses during 2004 also drove higher trading volumes. Investmentadministration fees increased in 2004 over 2003 due to higher sales of ourpersonal investment products. The continued volatility of foreign currencyexchange rates during 2004, particularly between the Canadian and US dollars,benefited foreign exchange revenue as it drove increased customer activity.Other income in 2004 was higher than in 2003 due to gains from merchant bankingactivities and higher advisory fees. Non-interest expenses Non-interest expenses were C$796 million for the year ended 31 December 2004, anincrease of C$51 million, or 6.8 per cent, compared with C$745 million for 2003.For the quarter ended 31 December 2004, non-interest expenses were C$207million, an increase of C$5.0 million, or 2.5 per cent, from C$202 million inthe fourth quarter of 2003. Salaries and benefits in 2004 were C$423 million compared with C$379 million in2003. Variable compensation costs were higher in 2004, reflective of theincrease in capital market fees and other revenue-related compensation. Thebalance of the increase in salaries and benefits was primarily due to theacquisition of Intesa and from higher benefits costs, resulting from increasedpension and employee benefits costs. Premises and equipment expenses in 2004 were C$101 million compared with C$107million in 2003. Higher occupancy costs in 2004, and the costs from theacquisition of Intesa, were offset by lower expenses related to ownedinfrastructure equipment. Other non-interest expenses in 2004 were C$272 million compared with C$259million in 2003. Expenses were higher in the fourth quarter of 2004 comparedwith the same period in 2003 due to Intesa expenses, increased operating lossesand increased administrative and information technology service fees arisingfrom increased business volumes. For the year, other non-interest expenses werehigher primarily due to the increased information technology service feesresulting from increased business activity during the year. These were partiallyoffset by lower operating losses in 2004 compared with 2003. Credit quality and provision for credit losses The provision for credit losses was C$66 million for the year ended 31 December2004 compared with C$61 million for 2003. For the quarter ended 31 December 2004the provision for credit losses was C$22 million compared with C$8.0 million forthe same period in 2003. The increase in the provision in the fourth quarter of2004 compared with the same period in 2003 was primarily attributable to a smallnumber of exposures across the customer groups. For the year, the provision forcredit losses increased slightly compared to 2003. This was a result of theincreased lending volumes in 2004, which was reflective of the improvement ineconomic conditions in North America. Gross impaired loans decreased to C$182 million at 31 December 2004 comparedwith C$203 million at 31 December 2003. Total impaired loans, net of specificallowances for credit losses, were C$112 million at 31 December 2004 comparedwith C$148 million at 31 December 2003. The general allowance for credit losseswas C$279 million at 31 December 2004 compared with C$258 million at 31 December2003. The total allowance for credit losses, as a percentage of loansoutstanding was 1.22 per cent at 31 December 2004 compared with 1.24 per cent at31 December 2003. Balance sheet Total assets at 31 December 2004 were C$43.3 billion, an increase of C$5.8billion from C$37.5 billion at 31 December 2003. The acquisition of Intesa inthe second quarter of 2004 added approximately C$1.2 billion in assets.Commercial loans and acceptances increased by C$2.3 billion year-to-date due toour continued strategy to grow this business and due to the improved economicfactors. Total residential mortgages and consumer loans grew by C$1.6 billionyear-to-date as a result of the continued strong residential housing market andlow interest rates. Total deposits at 31 December 2004 were C$33.8 billion, an increase of C$4.5billion from C$29.3 billion at 31 December 2003. Commercial deposits increasedby C$3.6 billion year-to-date which reflected increased business activity as aresult of the improved economy. Personal deposits grew by C$0.9 billionyear-to-date. The strengthening of the Canadian dollar relative to the US dollarduring 2004 impacted personal deposits. At constant exchange rates, personaldeposits in 2004 would have increased by C$1.2 billion. Total assets under administration Funds under management were C$17.7 billion at 31 December 2004 compared withC$14.3 billion at 31 December 2003. The increase during the year was primarilyattributable to growth in our retail brokerage company from continued investmentin the business during the year and by the improvement in the equity marketscompared to 2003. Including custody and administration balances, total assets under administrationwere C$22.8 billion at 31 December 2004 compared with C$18.7 billion at 31December 2003. Capital ratios The bank's tier 1 capital ratio was 8.6 per cent and the total capital ratio was11.0 per cent at 31 December 2004. This compares with 8.4 per cent and 11.1 percent, respectively, at 31 December 2003. The improvement in the tier 1 ratio wasattributable to the issuance of C$175 million in common shares and net incomeearned in excess of the C$150 million in dividends declared. These werepartially offset by an increase in risk-weighted assets due to the growth in ourbusinesses during 2004. Preferred share dividends A quarterly dividend of 39.0625 cents per share, totalling C$2 million, has beendeclared on the Class 1 Preferred Shares - Series A. The dividend will bepayable in cash on 31 March 2005, for shareholders of record on 18 March 2005. About HSBC Bank Canada HSBC Bank Canada (HSB.PR.A - TSX), a subsidiary of HSBC Holdings plc, has morethan 170 offices. With about 10,000 offices in 76 countries and territories andassets of US$1,154 billion at 30 June 2004, the HSBC Group is one of the world'slargest banking and financial services organisations. For more information aboutHSBC Bank Canada and its products and services, visit our website at hsbc.ca. Copies of HSBC Bank Canada's 2004 Annual Report will be sent to shareholdersduring March 2005. This document may contain forward-looking statements, including statementsregarding the business and anticipated financial performance of HSBC BankCanada. These statements are subject to a number of risks and uncertainties thatmay cause actual results to differ materially from those contemplated by theforward-looking statements. Some of the factors that could cause suchdifferences include legislative or regulatory developments, competition,technological change, global capital market activity, changes in governmentmonetary and economic policies, changes in prevailing interest rates, inflationlevels and general economic conditions in geographic areas where HSBC BankCanada operates. Summary Figures in C$ millions Quarter ended Year ended(except per share amounts) 31Dec04 30Sep04 31Dec03 31Dec04 31Dec03 EarningsNet income attributable to common shares 86 82 71 345 292Basic earnings per share 0.18 0.17 0.15 0.72 0.62 Performance ratios (%)Return on average common equity 16.6 16.4 17.0 18.3 18.7Return on average assets 0.80 0.80 0.75 0.85 0.80Net interest margin 2.38 2.51 2.53 2.49 2.66Cost:income ratio 55.6 58.1 61.6 56.0 57.0Non-interest revenue: total revenue ratio 38.4 35.4 35.1 37.0 33.9 Credit informationImpaired loans 182 190 203Allowance for credit losses- Balance at end of period 349 355 313- As a percentage of impaired loans 192% 187% 154%- As a percentage of loans outstanding 1.22% 1.25% 1.24% Average balancesAssets 43,008 40,925 37,717 40,421 36,635Loans 28,235 27,727 25,113 26,922 24,543Deposits 32,640 31,825 29,700 30,823 29,041Common equity 2,070 1,991 1,658 1,886 1,563 Capital ratios (%)Tier 1 8.6 8.7 8.4Total capital 11.0 11.2 11.1 Total assets under administrationFunds under management 17,687 16,220 14,323Custodial accounts 5,077 5,190 4,409Total assets under administration 22,764 21,410 18,732 Consolidated Statement of Income (Unaudited) Figures in C$ millions Quarter ended Year ended(except per share amounts) 31Dec04 30Sep04 31Dec03 31Dec04 31Dec03 Interest and dividend incomeLoans 366 352 343 1,396 1,375Securities 22 20 24 82 103Deposits with regulated financial institutions 26 17 13 69 54 414 389 380 1,547 1,532Interest expenseDeposits 177 150 159 617 632Debentures 8 9 8 34 35 185 159 167 651 667Net interest income 229 230 213 896 865 Provision for credit losses 22 10 8 66 61Net interest income after provision for credit losses 207 220 205 830 804 Non-interest revenueDeposit and payment service charges 20 20 19 81 79Credit fees 21 21 18 81 69Capital market fees 32 21 29 110 93Investment administration fees 15 16 14 60 53Foreign exchange 18 16 17 68 61Trade finance 6 8 6 28 26Trading revenue 2 4 1 12 9Securitisation income 4 6 2 25 26Other 25 14 9 61 27 143 126 115 526 443 Net interest and non-interest revenue 350 346 320 1,356 1,247 Non-interest expensesSalaries and employee benefits 107 113 107 423 379Premises and equipment 22 26 24 101 107Other 78 68 71 272 259 207 207 202 796 745 Income before the under-noted 143 139 118 560 502Effect of accounting change - - - 14 -Income before provision and non-controlling interest in income of trust 143 139 118 574 502Provision for income taxes 51 51 41 210 188Non-controlling interest in income of trust 4 4 4 16 16Income from continuing operations 88 84 73 348 298Income from discontinued operations^ - - - 5 2Net income 88 84 73 353 300Preferred share dividends 2 2 2 8 8Net income attributable to common shares 86 82 71 345 292 Average common shares outstanding (000) 488,668 488,668 471,168 481,066 471,168Basic earnings per share (C$) 0.18 0.17 0.15 0.72 0.62 ^Reflects the sale of HSBC Canadian Direct Insurance Incorporated effective 30 April 2004. Condensed Consolidated Balance Sheet (Unaudited) Figures in C$ millions At 31Dec04 At 31Dec03 AssetsCash and deposits with Bank of Canada 328 256Deposits with regulated financial institutions 4,094 3,373 4,422 3,629 Investment securities 1,967 2,234Trading securities 1,055 642 3,022 2,876 Assets purchased under reverse repurchase agreements 2,264 1,572 Loans- Businesses and government 13,450 11,664- Residential mortgage 11,966 10,880- Consumer 3,252 2,702- Allowance for credit losses (349) (313) 28,319 24,933 Customers' liability under acceptances 3,754 3,247Land, buildings and equipment 101 111Other assets 1,381 1,141 5,236 4,499Total assets 43,263 37,509 Liabilities and shareholders' equityDeposits- Regulated financial institutions 635 641- Individuals 14,818 13,924- Businesses and governments 18,395 14,774 33,848 29,339 Acceptances 3,754 3,247Assets sold under repurchase agreements 23 30Other liabilities 2,785 2,340Non-controlling interest in trust and subsidiary 230 230 6,792 5,847 Subordinated debentures 426 504 Shareholders' equity- Preferred shares 125 125- Common shares 1,125 950- Contributed surplus 177 169- Retained earnings 770 575 2,197 1,819Total liabilities and shareholders' equity 43,263 37,509 Condensed Consolidated Statement of Cash Flows (Unaudited) Quarter ended Year endedFigures in C$ millions 31Dec04 30Sep04 31Dec03 31Dec04 31Dec03 Cash flows provided by/ (used in):- Operating activities 60 (28) (109) 416 751- Financing activities 669 841 167 3,492 811- Investing activities (578) (641) (426) (3,350) (1,750) Increase/(decrease)in cash and cash equivalents 151 172 (368) 558 (188)Cash and cash equivalents, beginning of period 3,856 3,684 3,817 3,449 3,637Cash and cash equivalents, end of period 4,007 3,856 3,449 4,007 3,449 Represented by:- Cash resources per balance sheet 4,422 4,420 3,629- less non-operating deposits^ (415) (564) (180)- Cash and cash equivalents, end of period 4,007 3,856 3,449 ^Non-operating deposits are comprised primarily of cash which reprices after 90 days and cash restricted for recourse on securitisation transactions. 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