16th May 2005 11:15
HSBC Holdings PLC16 May 2005 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: MAY 16, 2005 --------------------- COMMISSION FILE NUMBER 1-8198 HSBC FINANCE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 86-1052062 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER) 2700 SANDERS ROAD, PROSPECT HEIGHTS, ILLINOIS 60070 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (847) 564-5000 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Check the appropriate box below if the Form 8-K filing is intended tosimultaneously satisfy the filing obligation of the registrant under any of thefollowing provisions (see General Instruction A.2. below): ( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) -------------------------------------------------------------------------------- ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION-------------------------------------------------------------------------------- Financial supplement pertaining to the financial results of HSBC FinanceCorporation for the quarter ended March 31, 2005. The information shall not bedeemed "filed" for the purposes of Section 18 of the Securities Exchange Act of1934, as amended (the Exchange Act), or otherwise incorporated by reference intoany filing pursuant to the Securities Act of 1933, as amended, or the ExchangeAct except as otherwise expressly stated in such a filing. ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS-------------------------------------------------------------------------------- (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. NO. EXHIBIT--- ------- 99 Quarterly Financial Supplement for the quarter ended March 31, 2005. SIGNATURE-------------------------------------------------------------------------------- Pursuant to the requirement of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned hereunto duly authorized. HSBC FINANCE CORPORATION (Registrant) By: /s/ Patrick D. Schwartz ------------------------------------ Patrick D. Schwartz Vice President-Deputy General Counsel-Corporate Dated: May 16, 2005 EXHIBIT 99 HSBC FINANCE CORPORATION QUARTERLY FINANCIAL SUPPLEMENT - MARCH 31, 2005 INDEX PAGE NO.----- -------- Basis of Reporting.......................................... 2Consolidated Statements of Income - Owned Basis: Three Months.............................................. 3Receivables Analysis........................................ 5Financial Highlights - Managed Basis: Three Months.............................................. 6Credit Quality/Credit Loss Reserves - Managed Basis......... 7Reconciliations to GAAP Financial Measures: Revenues, Average Interest-Earning Assets and Net Interest Income: Three Months........................................... 8 Selected Financial Ratios................................. 9 Credit Quality/Credit Loss Reserves: Two-Months-and-Over Contractual Delinquency............ 11 Quarter-to-Date Charge-offs, Net of Recoveries......... 11 Real Estate Charge-offs and REO Expense................ 13 Credit Loss Reserves................................... 14 Nonperforming Assets................................... 14 HSBC Finance Corporation-------------------------------------------------------------------------------- BASIS OF REPORTING-------------------------------------------------------------------------------- NON-GAAP FINANCIAL MEASURES-------------------------------------------------------------------------------- This Quarterly Financial Supplement includes financial information which ispresented on a non-GAAP basis as discussed below. Information included in thisQuarterly Financial Supplement is intended to supplement and should not beconsidered a substitute for owned basis reporting. This Quarterly FinancialSupplement should be read in conjunction with the owned basis informationreported in our Quarterly Report on Form 10-Q. See "Reconciliations to GAAP Financial Measures" for quantitativereconciliations of non-GAAP financial information to the equivalent owned basisGAAP financial information. MANAGED BASIS REPORTING We monitor our operations and evaluate trends on amanaged basis (a non-GAAP financial measure), which assumes that securitizedreceivables have not been sold and are still on our balance sheet. We manage andevaluate our operations on a managed basis because the receivables that wesecuritize are subjected to underwriting standards comparable to our ownedportfolio, are serviced by operating personnel without regard to ownership andresult in a similar credit loss exposure for us. In addition, we fund ouroperations, review our operating results, and make decisions about allocatingresources such as employees and capital on a managed basis. When reporting on a managed basis, net interest income, provision for creditlosses and fee income related to receivables securitized are reclassified fromsecuritization revenue in our owned statement of income into the appropriatecaption. Additionally, charge-off and delinquency associated with thesereceivables are included in our managed basis credit quality statistics. Debt analysts, rating agencies and others also evaluate our operations on amanaged basis for the reasons discussed above and have historically requestedmanaged basis information from us. We believe that managed basis informationenables investors and other interested parties to better understand theperformance and quality of our entire managed loan portfolio and is important tounderstanding the quality of originations and the related credit risk inherentin our owned and securitized portfolios. As the level of our securitizedreceivables falls over time, managed basis and owned basis results willeventually converge, and we will only report owned basis results. OPERATING RESULTS, PERCENTAGES AND RATIOS Certain percentages and ratios havebeen presented on an operating basis and have been calculated using "operatingnet income", a non-GAAP financial measure. "Operating net income" is net incomeexcluding certain nonrecurring items shown in the table below. Thesenonrecurring items are also excluded in calculating our operating basisefficiency ratios. We believe that excluding these nonrecurring items helpsreaders of our financial statements to better understand the results and trendsof our underlying business. See our Annual Report for 2004 on Form 10-K forfurther discussion of these items. A reconciliation of net income to operating net income follows: THREE MONTHS ENDED ---------------------------- 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Net income.................................................. $626 $ 712 $470Gain on bulk sale of private label receivables, after-tax... - (423) -Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax....... - 121 - ---- ----- ----Operating net income........................................ $626 $ 410 $470 ==== ===== ==== 2 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS THREE MONTHS % CHANGE FROM THREE MONTHS ENDED PRIOR ------------------------------- ------------- 3/31/05 12/31/04 3/31/04 QTR. YEAR-------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income..................... $2,950 $3,001 $2,528 (1.7)% 16.7%Interest expense...................................... 1,062 918 708 15.7 50.0 ------ ------ ------ ----- ----NET INTEREST INCOME................................... 1,888 2,083 1,820 (9.4) 3.7Provision for credit losses........................... 841 1,286 928 (34.6) (9.4) ------ ------ ------ ----- ----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.............................................. 1,047 797 892 31.4 17.4 ------ ------ ------ ----- ----Other revenues: Securitization revenue.............................. 85 127 348 (33.1) (75.6) Insurance revenue................................... 221 221 211 - 4.7 Investment income................................... 33 30 41 10.0 (19.5) Derivative income................................... 260 263 52 (1.1) 100+ Fee income.......................................... 306 282 265 8.5 15.5 Taxpayer financial services income.................. 243 8 206 100+ 18.0 Other income........................................ 314 164 100 91.5 100+ Gain on bulk sale of private label receivables...... - 663 - (100.0) - ------ ------ ------ ----- ----TOTAL OTHER REVENUES.................................. 1,462 1,758 1,223 (16.8) 19.5 ------ ------ ------ ----- ----Costs and expenses: Salaries and fringe benefits........................ 497 472 485 5.3 2.5 Sales incentives.................................... 82 104 78 (21.2) 5.1 Occupancy and equipment expenses.................... 87 86 83 1.2 4.8 Other marketing expenses............................ 180 199 132 (9.5) 36.4 Other servicing and administrative expenses......... 258 209 226 23.4 14.2 Support services from HSBC affiliates............... 209 194 177 7.7 18.1 Amortization of acquired intangibles................ 107 85 116 25.9 (7.8) Policyholders' benefits............................. 122 113 113 8.0 8.0 ------ ------ ------ ----- ----TOTAL COSTS AND EXPENSES.............................. 1,542 1,462 1,410 5.5 9.4 ------ ------ ------ ----- ----Income before income tax expense...................... 967 1,093 705 (11.5) 37.2Income tax expense.................................... 341 381 235 (10.5) 45.1 ------ ------ ------ ----- ----NET INCOME............................................ $ 626 $ 712 $ 470 (12.1)% 33.2% ====== ====== ====== ===== ====Gain on bulk sale of private label receivables, after-tax........................................... - (423) - 100.0 -Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax........................................... - 121 - (100.0) - ------ ------ ------ ----- ----Operating net income(1)............................... $ 626 $ 410 $ 470 52.7% 33.2% ====== ====== ====== ===== ==== --------------- (1) Operating net income is a non-GAAP financial measure which is provided for comparison of our operating trends and should be read in conjunction with our owned basis GAAP financial information. See "Basis of Reporting" for a discussion on the use of non-GAAP financial information and "Reconciliations to GAAP Financial Measures" for quantitative reconciliations to the equivalent GAAP basis financial measure. 3 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION REVENUE THREE MONTHS ENDED ---------------------------- 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Net initial gains(1)........................................ $ - $ - $ 3Net replenishment gains(1).................................. 53 69 120Servicing revenue and excess spread......................... 32 58 225 --- ---- ----Total....................................................... $85 $127 $348 === ==== ==== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED THREE MONTHS ENDED ---------------------------- 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Auto finance................................................ $ - $ - $ -MasterCard/Visa(1).......................................... - - 50Personal non-credit card.................................... - - - --- ---- ----Total....................................................... $ - $ - $ 50 === ==== ==== --------------- (1) MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively. 4 HSBC Finance Corporation-------------------------------------------------------------------------------- RECEIVABLES ANALYSIS END-OF-PERIOD RECEIVABLES % CHANGE FROM PRIOR --------------- 3/31/05 12/31/04 3/31/04 QTR. YEAR---------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) OWNED RECEIVABLES: Real estate secured(1).................... $ 68,486 $ 64,820 $ 52,440 5.7% 30.6% Auto finance.............................. 8,107 7,544 4,936 7.5 64.2 MasterCard/Visa........................... 15,554 14,635 10,788 6.3 44.2 Private label(2).......................... 3,130 3,411 11,759 (8.2) (73.4) Personal non-credit card.................. 16,608 16,128 13,343 3.0 24.5 Commercial and other...................... 276 317 384 (12.9) (28.1) -------- -------- -------- ----- ------Total owned receivables..................... 112,161 106,855 93,650 5.0 19.8 -------- -------- -------- ----- ------RECEIVABLES SERVICED WITH LIMITED RECOURSE: Real estate secured....................... 73 81 182 (9.9) (59.9) Auto finance.............................. 2,175 2,679 4,093 (18.8) (46.9) MasterCard/Visa........................... 6,140 7,583 9,536 (19.0) (35.6) Private label(2).......................... - - 5,261 - (100.0) Personal non-credit card.................. 3,098 3,882 5,285 (20.2) (41.4) -------- -------- -------- ----- ------Total receivables serviced with limited recourse.................................. 11,486 14,225 24,357 (19.3) (52.8) -------- -------- -------- ----- ------MANAGED RECEIVABLES:(3) Real estate secured....................... 68,559 64,901 52,622 5.6 30.3 Auto finance.............................. 10,282 10,223 9,029 .6 13.9 MasterCard/Visa........................... 21,694 22,218 20,324 (2.4) 6.7 Private label(2).......................... 3,130 3,411 17,020 (8.2) (81.6) Personal non-credit card(4)............... 19,706 20,010 18,628 (1.5) 5.8 Commercial and other...................... 276 317 384 (12.9) (28.1) -------- -------- -------- ----- ------Total managed receivables................... $123,647 $121,080 $118,007 2.1% 4.8% ======== ======== ======== ===== ====== --------------- (1) Real estate secured receivable levels reflect sales to HSBC Bank USA, N.A. of $.9 billion on March 31, 2004. (2) Private label receivable levels reflect the bulk sale of domestic private label receivables in December 2004 of $12.2 billion ($15.6 billion on a managed basis) to HSBC Bank USA, N.A. (3) Managed basis reporting is a non-GAAP financial measure. See "Basis of Reporting" for a discussion on the use of non-GAAP financial information. (4) Personal non-credit card receivables are comprised of the following: 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Domestic personal unsecured................................. $10,736 $10,725 $ 9,659Union Plus personal unsecured............................... 426 474 640Personal homeowner loans.................................... 4,390 4,582 4,580Foreign unsecured........................................... 4,154 4,229 3,749 ------- ------- -------Total....................................................... $19,706 $20,010 $18,628 ======= ======= ======= 5 HSBC Finance Corporation-------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - MANAGED BASIS(1) REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS % CHANGE FROM THREE MONTHS ENDED PRIOR ------------------------------------------------------ --------------- 3/31/05 (2) 12/31/04 (2) 3/31/04 (2) QTR. YEAR------------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income........................... $ 3,391 10.78% $ 3,601 10.64% $ 3,417 10.94% (5.8)% (.8)%Interest expense................... 1,171 3.72 1,050 3.10 843 2.70 11.5 38.9 -------- ----- -------- ----- -------- ----- ------ -----NET INTEREST INCOME................ 2,220 7.06% 2,551 7.54% 2,574 8.24% (13.0) (13.8)Provision for credit losses........ 871 1,305 1,181 (33.3) (26.2) -------- -------- -------- ------ -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES................ $ 1,349 $ 1,246 $ 1,393 8.3% (3.2)% ======== ======== ======== ====== =====Other revenues: Insurance revenue................ $ 221 $ 221 $ 211 -% 4.7% Investment income................ 33 30 41 10.0 (19.5) Fee income....................... 397 437 462 (9.2) (14.1) Securitization revenue........... (308) (477) (350) (35.4) (12.0) Derivative income................ 260 263 52 (1.1) 100+ Taxpayer financial services income......................... 243 8 206 100+ 18.0 Other income..................... 314 164 100 91.5 100+ Gain on bulk sale of private label receivables.............. - 663 - (100.0) - -------- -------- -------- ------ -----TOTAL OTHER REVENUES............... $ 1,160 $ 1,309 $ 722 (11.4)% 60.7% ======== ======== ======== ====== =====Average managed receivables Real estate secured.............. $ 66,562 $ 61,543 $ 52,165 8.2% 27.6% Auto finance..................... 10,242 10,052 8,902 1.9 15.1 MasterCard/Visa.................. 21,928 21,221 20,823 3.3 5.3 Private label.................... 3,227 17,858 17,471 (81.9) (81.5) Personal non-credit card......... 19,827 19,593 18,857 1.2 5.1 Commercial and other............. 306 321 391 (4.7) (21.7) Purchase accounting fair value adjustments.................... 184 243 391 (24.3) (52.9) -------- -------- -------- ------ -----Average managed receivables........ $122,276 $130,831 $119,000 (6.5)% 2.8%Average noninsurance investments... 2,,927 3,889 5,313 (24.7) (44.9)Other interest-earning assets...... 666 660 641 .9 3.9 -------- -------- -------- ------ -----Average managed interest-earning assets........................... $125,869 $135,380 $124,954 (7.0)% .7% ======== ======== ======== ====== =====SELECTED FINANCIAL RATIOS:Return on average managed assets... 1.73% 1.87% 1.30% (7.5)% 33.1%Efficiency ratio................... 43.59 36.00 40.75 21.1 7.0Net interest margin................ 7.06 7.54 8.24 (6.4) (14.3)Risk adjusted revenue.............. 8.17 8.37 7.06 (2.4) 15.7EXCLUDING NONRECURRING ITEMS/ OPERATING BASIS:Return on average managed assets... 1.73 1.07 1.30 61.7 33.1Efficiency ratio................... 43.59 42.18 40.75 3.3 7.0Risk adjusted revenue.............. 8.17 7.32 7.06 11.6 15.7 ======== ======== ======== ====== ===== --------------- (1) Managed basis reporting is a non-GAAP financial measure. See "Basis of Reporting" for a discussion on the use of non-GAAP financial information and "Reconciliations to GAAP Financial Measures" for quantitative reconciliations to the equivalent GAAP basis financial measure. (2) % Columns: comparison to average managed interest-earning assets, annualized. 6 HSBC Finance Corporation-------------------------------------------------------------------------------- CREDIT QUALITY/CREDIT LOSS RESERVES - MANAGED BASIS(1) TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY AS A PERCENT OF MANAGED CONSUMER RECEIVABLES, EXCLUDES COMMERCIAL. 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------------ Real estate secured............................................ 2.64% 2.97% 3.89%Auto finance................................................... 2.26 2.96 2.63MasterCard/Visa................................................ 3.97 3.98 4.35Private label.................................................. 4.71 4.13 4.98Personal non-credit card....................................... 9.16 9.30 10.36 ---- ---- -----TOTAL.......................................................... 3.93% 4.24% 5.06% ==== ==== ===== QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 3/31/05 12/31/04 3/31/04-------------------------------------------------------------------------------------------------------------------- Real estate secured...................................................... .87% 1.04% 1.15%Auto finance............................................................. 5.82 4.47 7.81MasterCard/Visa(2)....................................................... 6.56 7.54 7.08Private label(2)......................................................... 4.18 9.22 5.06Personal non-credit card................................................. 8.54 8.55 11.21 ---- ---- -----TOTAL.................................................................... 3.65% 4.61% 4.88% ==== ==== =====Real estate charge-offs and REO expense as a percent of average managed real estate secured receivables.................................................... 1.01% 1.17% 1.63% ==== ==== ===== CREDIT LOSS RESERVES 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Reserves for managed receivables at beginning of quarter.... $ 4,515 $ 5,199 $ 6,167Provision for credit losses................................. 871 1,305 1,181Charge-offs, net of recoveries.............................. (1,118) (1,502) (1,442)Other, net.................................................. (26) (487) 6 ------- ------- -------Reserves for managed receivables at end of quarter.......... $ 4,242 $ 4,515 $ 5,912 ======= ======= =======Reserves as a percent of managed receivables................ 3.43% 3.73% 5.01% ------- ------- ------- NONPERFORMING ASSETS 3/31/05 12/31/04 3/31/04------------------------------------------------------------------------------------------ (IN MILLIONS) Nonaccrual managed receivables.............................. $3,387 $3,558 $3,726Accruing managed receivables 90 or more days delinquent..... 579 607 1,208Renegotiated commercial loans............................... 1 2 2 ------ ------ ------Total nonperforming managed receivables..................... 3,967 4,167 4,936Real estate owned........................................... 509 587 656 ------ ------ ------TOTAL NONPERFORMING ASSETS.................................. $4,476 $4,754 $5,592 ====== ====== ======Managed credit loss reserves as a percent of nonperforming managed receivables....................................... 106.9% 108.4% 119.8% ------ ------ ------ --------------- (1) Managed basis reporting is a non-GAAP financial measure. See "Basis of Reporting" for a discussion on the use of non-GAAP financial information and "Reconciliations to GAAP Financial Measures" for quantitative reconciliations to the equivalent GAAP basis financial measure. (2) The adoption of charge-off policies in accordance with the Uniform Retail Credit Classification and Account Management Policy issued by the Federal Financial Institutions Examination Council for our domestic private label and our MasterCard and Visa portfolios in December 2004 increased private label net charge-offs by $197 million (442 basis points), MasterCard/Visa net charge-offs by $5 million (10 basis points) and total consumer net charge-offs by $202 million (62 basis points) during the quarter ended December 31, 2004. 7 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS THREE MONTHS ENDED 3/31/05 THREE MONTHS ENDED 12/31/04 ----------------------------------- ----------------------------------- SERVICED WITH SERVICED WITH LIMITED LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED---------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income........................ $ 2,950 $ 441 $ 3,391 $ 3,001 $ 600 $ 3,601Interest expense............... 1,062 109 1,171 918 132 1,050 -------- ------- -------- -------- ------- --------NET INTEREST INCOME............ 1,888 332 2,220 2,083 468 2,551Provision for credit losses.... 841 30 871 1,286 19 1,305 -------- ------- -------- -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES... $ 1,047 $ 302 $ 1,349 $ 797 $ 449 $ 1,246 ======== ======= ======== ======== ======= ========Other revenues: Securitization revenue........ $ 85 $ (393) $ (308) $ 127 $ (604) $ (477) Insurance revenue............. 221 - 221 221 - 221 Investment income............. 33 - 33 30 - 30 Fee income.................... 306 91 397 282 155 437 Derivative income............. 260 - 260 263 - 263 Taxpayer financial services income...................... 243 - 243 8 - 8 Other income.................. 314 - 314 164 - 164 Gain on bulk sale of private label receivables........... - - - 663 - 663 -------- ------- -------- -------- ------- --------TOTAL OTHER REVENUES........... $ 1,462 $ (302) $ 1,160 $ 1,758 $ (449) $ 1,309 ======== ======= ======== ======== ======= ========Average receivables: Real estate secured........... $ 66,485 $ 77 $66,562 $ 61,445 $ 98 $61,543 Auto finance.................. 7,779 2,463 10,242 7,191 2,861 10,052 MasterCard/Visa............... 15,079 6,849 21,928 13,009 8,212 21,221 Private label................. 3,227 - 3,227 14,349 3,509 17,858 Personal non-credit card...... 16,332 3,495 19,827 15,671 3,922 19,593 Commercial and other.......... 306 - 306 321 - 321 Purchase accounting fair value adjustments................. 184 - 184 243 - 243 -------- ------- -------- -------- ------- --------Average receivables............ $109,392 $12,884 $122,276 $112,229 $18,602 $130,831Average noninsurance investments................... 2,927 - 2,927 3,889 - 3,889Other interest-earning assets........................ 666 - 666 660 - 660 -------- ------- -------- -------- ------- --------Average interest-earning assets........................ $112,985 $12,884 $125,869 $116,778 $18,602 $135,380 ======== ======= ======== ======== ======= ========Net interest income as a percentage of average interest-earning assets....... 6.68% 10.31% 7.06% 7.13% 10.06% 7.54% ======== ======= ======== ======== ======= ======== THREE MONTHS ENDED 3/31/04 ---------------------------------- SERVICED WITH LIMITED OWNED RECOURSE(1) MANAGED------------------------------- ---------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income........................ $ 2,528 $ 889 $ 3,417Interest expense............... 708 135 843 ------- ------- --------NET INTEREST INCOME............ 1,820 754 2,574Provision for credit losses.... 928 253 1,181 ------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES... $ 892 $ 501 $ 1,393 ======= ======= ========Other revenues: Securitization revenue........ $ 348 $ (698) $ (350) Insurance revenue............. 211 - 211 Investment income............. 41 - 41 Fee income.................... 265 197 462 Derivative income............. 52 - 52 Taxpayer financial services income...................... 206 - 206 Other income.................. 100 - 100 Gain on bulk sale of private label receivables........... - - - ------- ------- --------TOTAL OTHER REVENUES........... $ 1,223 $ (501) $ 722 ======= ======= ========Average receivables: Real estate secured........... $51,976 $ 189 $ 52,165 Auto finance.................. 4,511 4,391 8,902 MasterCard/Visa............... 11,129 9,694 20,823 Private label................. 12,209 5,262 17,471 Personal non-credit card...... 13,115 5,742 18,857 Commercial and other.......... 391 - 391 Purchase accounting fair value adjustments................. 391 - 391 ------- ------- --------Average receivables............ $93,722 $25,278 $119,000Average noninsurance investments................... 5,313 - 5,313Other interest-earning assets........................ 641 - 641 ------- ------- --------Average interest-earning assets........................ $99,676 $25,278 $124,954 ======= ======= ========Net interest income as a percentage of average interest-earning assets....... 7.30% 11.93% 8.24% ======= ======= ======== --------------- (1) When reporting on a managed basis, finance and other interest income, interest expense, provision for credit losses and fee income related to securitized receivables are reclassified from securitization revenue in our owned statements of income into the appropriate caption. 8 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES SELECTED FINANCIAL RATIOS THREE MONTHS ENDED -------------------------------- 3/31/05 12/31/04 3/31/04--------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) RETURN ON AVERAGE COMMON SHAREHOLDER'S EQUITY:Net income................................................. $ 626 $ 712 $ 470 Dividends on preferred stock............................. (18) (18) (18) -------- -------- --------Net income available to common shareholders................ $ 608 $ 694 $ 452Gain on bulk sale of private label receivables, after-tax................................................ - (423) -Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax...... - 121 - -------- -------- --------Operating net income available to common shareholders...... $ 608 $ 392 $ 452 -------- -------- --------Average common shareholder's equity........................ $ 16,170 $ 16,838 $ 16,645 -------- -------- --------Return on average common shareholder's equity.............. 15.04% 16.49% 10.86%Return on average common shareholder's equity, operating basis.................................................... 15.04 9.31 10.86 ======== ======== ========RETURN ON AVERAGE ASSETS:Net income................................................. $ 626 $ 712 $ 470Operating net income....................................... 626 410 470 -------- -------- --------Average assets: Owned basis.............................................. $131,954 $134,316 $119,388 Serviced with limited recourse........................... 12,884 18,602 25,278 -------- -------- -------- Managed basis............................................ $144,838 $152,918 $144,666 -------- -------- --------Return on average owned assets............................. 1.90% 2.12% 1.57%Return on average owned assets, operating basis............ 1.90 1.22 1.57Return on average managed assets........................... 1.73 1.87 1.30Return on average managed assets, operating basis.......... 1.73 1.07 1.30 ======== ======== ======== 9 HSBC Finance Corporation-------------------------------------------------------------------------------- THREE MONTHS ENDED -------------------------------- 3/31/05 12/31/04 3/31/04--------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) EFFICIENCY RATIO:Total costs and expenses less policyholders' benefits...... $ 1,420 $ 1,349 $ 1,297 -------- -------- --------Net interest income and other revenues less policyholders' benefits: Owned basis.............................................. $ 3,228 $ 3,728 $ 2,930 Serviced with limited recourse........................... 30 19 253 -------- -------- -------- Managed basis............................................ $ 3,258 $ 3,747 $ 3,183 -------- -------- --------Gain on bulk sale of private label receivables............. $ - $ 663 $ -Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios: Owned basis.............................................. - 151 - Managed basis............................................ - 107 -Net interest income and other revenues less policyholders' benefits, excluding nonrecurring items: Owned basis.............................................. $ 3,228 $ 3,216 $ 2,930 Serviced with limited recourse........................... 30 (25) 253 -------- -------- -------- Managed basis............................................ $ 3,258 $ 3,191 $ 3,183 -------- -------- --------Owned basis efficiency ratio............................... 43.99% 36.14% 44.27%Owned basis efficiency ratio, operating basis.............. 43.99 41.95 44.27Managed basis efficiency ratio............................. 43.59 36.00 40.75Managed basis efficiency ratio, operating basis............ 43.59 42.24 40.75 ======== ======== ========MANAGED BASIS RISK ADJUSTED REVENUE:Net interest income........................................ $ 2,220 $ 2,551 $ 2,574Other revenues, excluding securitization revenue........... 1,468 1,786 1,072Less: Net charge-offs...................................... (1,118) (1,502) (1,442) -------- -------- --------Risk adjusted revenue...................................... $ 2,570 $ 2,835 $ 2,204 Gain on bulk sale of private label receivables........... - (663) - Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios...... - 309 - -------- -------- --------Risk adjusted revenue, excluding nonrecurring items........ 2,570 2,481 2,204 -------- -------- --------Average interest-earning assets............................ $125,869 $135,380 $124,954 -------- -------- --------Managed basis risk adjusted revenue........................ 8.17% 8.37% 7.06%Managed basis risk adjusted revenue, operating basis....... 8.17 7.32 7.06 ======== ======== ======== 10 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES TWO-MONTHS-AND-OVER QUARTER-TO-DATE CHARGE-OFFS, CONTRACTUAL DELINQUENCY NET OF RECOVERIES ------------------------------------------ ------------------------------------------ TWO-MONTHS- TWO-MONTHS- AND-OVER CONSUMER AND-OVER AVERAGE CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-OFFS RECEIVABLES CHARGE-OFFS(1)------------------------------------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS) MARCH 31, 2005 OWNED: First mortgage............... $ 1 $ 26 5.25% $ - $ 26 1.22% Real estate secured.......... 1,797 68,486 2.62 144 66,485 .87 Auto finance................. 134 8,107 1.65 74 7,779 3.80 MasterCard/Visa.............. 716 15,554 4.60 270 15,079 7.17 Private label................ 148 3,130 4.71 34 3,227 4.18 Personal non-credit card..... 1,433 16,608 8.63 334 16,332 8.18 ------ -------- ----- ------ -------- ----- Total........................ $4,229 $111,911 3.78% $ 856 $108,928 3.15% ====== ======== ===== ====== ======== ===== SERVICED WITH LIMITED RECOURSE: Real estate secured.......... $ 10 $ 73 13.70% $ 1 $ 77 5.19% Auto finance................. 98 2,175 4.51 75 2,463 12.18 MasterCard/Visa.............. 146 6,140 2.38 90 6,849 5.26 Personal non-credit card..... 372 3,098 12.01 89 3,495 10.19 ------ -------- ----- ------ -------- ----- Total........................ $ 626 $ 11,486 5.45% $ 255 $ 12,884 7.92% ====== ======== ===== ====== ======== ===== MANAGED: First mortgage............... $ 1 $ 26 5.25% $ - $ 26 1.22% Real estate secured.......... 1,807 68,559 2.64 145 66,562 .87 Auto finance................. 232 10,282 2.26 149 10,242 5.82 MasterCard/Visa.............. 862 21,694 3.97 360 21,928 6.56 Private label................ 148 3,130 4.71 34 3,227 4.18 Personal non-credit card..... 1,805 19,706 9.16 423 19,827 8.54 ------ -------- ----- ------ -------- ----- Total........................ $4,855 $123,397 3.93% $1,111 $121,812 3.65% ====== ======== ===== ====== ======== =====DECEMBER 31, 2004 OWNED: First mortgage............... $ 1 $ 26 5.04% $ - $ 26 -% Real estate secured.......... 1,920 64,820 2.96 159 61,445 1.04 Auto finance................. 156 7,544 2.07 49 7,191 2.73 MasterCard/Visa.............. 714 14,635 4.88 275 13,009 8.44 Private label................ 141 3,411 4.13 328 14,349 9.16 Personal non-credit card..... 1,401 16,128 8.69 316 15,671 8.06 ------ -------- ----- ------ -------- ----- Total........................ $4,333 $106,564 4.07% $1,127 $111,691 4.04% ====== ======== ===== ====== ======== ===== SERVICED WITH LIMITED RECOURSE: Real estate secured.......... $ 10 $ 81 12.35% $ 1 $ 98 4.08% Auto finance................. 147 2,679 5.49 63 2,861 8.81 MasterCard/Visa.............. 170 7,583 2.24 125 8,212 6.09 Private label................ - - - 83 3,509 9.46 Personal non-credit card..... 461 3,882 11.88 103 3,921 10.51 ------ -------- ----- ------ -------- ----- Total........................ $ 788 $ 14,225 5.54% $ 375 $ 18,601 8.06% ====== ======== ===== ====== ======== ===== MANAGED: First mortgage............... $ 1 $ 26 5.04% $ - $ 26 -% Real estate secured.......... 1,930 64,901 2.97 160 61,543 1.04 Auto finance................. 303 10,223 2.96 112 10,052 4.47 MasterCard/Visa.............. 884 22,218 3.98 400 21,221 7.54 Private label................ 141 3,411 4.13 411 17,858 9.22 Personal non-credit card..... 1,862 20,010 9.30 419 19,592 8.55 ------ -------- ----- ------ -------- ----- Total........................ $5,121 $120,789 4.24% $1,502 $130,292 4.61% ====== ======== ===== ====== ======== ===== --------------- (1) Certain percentages may not recompute from the dollar figures presented due to rounding. 11 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED) QUARTER-TO-DATE CHARGE-OFFS, TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY NET OF RECOVERIES -------------------------------------------- ------------------------------------------ TWO-MONTHS- TWO-MONTHS- AND-OVER CONSUMER AND-OVER AVERAGE CONTRACTUAL RECEIVABLES CONTRACTUAL NET CONSUMER NET DELINQUENCY OUTSTANDING DELINQUENCY(1) CHARGE-OFFS RECEIVABLES CHARGE-OFFS(1)----------------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) MARCH 31, 2004 OWNED: First mortgage...... $ 2 $ 32 7.00% $ 1 $ 34 5.10% Real estate secured.......... 2,031 52,440 3.87 149 51,976 1.15 Auto finance........ 83 4,936 1.68 52 4,511 4.65 MasterCard/Visa..... 637 10,788 5.90 241 11,129 8.66Related Shares:
HSBC Holdings