1st Aug 2005 16:30
HSBC Holdings PLC01 August 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: AUGUST 1, 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 and six months ended June 30, 2005. The informationincluded in the financial supplement is presented on a managed basis, which is anon-GAAP financial measure that assumes that securitized receivables have notbeen sold and remain on our balance sheet. This information shall not be deemed to be "filed" for the purposes ofSection 18 of the Securities Exchange Act of 1934, as amended (the ExchangeAct), or otherwise incorporated by reference into any filing pursuant to theSecurities Act of 1933, as amended, or the Exchange Act except as otherwiseexpressly 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 June 30, 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: August 1, 2005 EXHIBIT 99 HSBC FINANCE CORPORATION QUARTERLY FINANCIAL SUPPLEMENT -- JUNE 30, 2005 INDEX PAGE NO.----- -------- Basis of Reporting.......................................... 2Consolidated Statements of Income -- Owned Basis: Three Months.............................................. 3 Six Months................................................ 5Receivables Analysis........................................ 7Financial Highlights -- Managed Basis: Three Months.............................................. 8 Six Months................................................ 9Credit Quality/Credit Loss Reserves -- Managed Basis........ 10Reconciliations to GAAP Financial Measures: Revenues, Average Interest-Earning Assets and Net Interest Income: Three Months......................................... 11 Six Months........................................... 12 Selected Financial Ratios................................. 13 Credit Quality/Credit Loss Reserves: Two-Months-and-Over Contractual Delinquency............ 14 Quarter-to-Date Charge-offs, Net of Recoveries......... 14 Real Estate Charge-offs and REO Expense................ 16 Credit Loss Reserves................................... 17 Nonperforming Assets................................... 17 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 remain 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 forcredit losses and fee income related to receivables securitized are reclassifiedfrom securitization revenue in our owned statement of income into theappropriate caption. Additionally, charge-off and delinquency associated withthese receivables 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. 2 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME -- OWNED BASIS THREE MONTHS % CHANGE FROM THREE MONTHS ENDED PRIOR --------------------------- ------------- 6/30/05 3/31/05 6/30/04 QTR. YEAR ------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income................... $3,139 $2,950 $2,637 6.4% 19.0%Interest expense.................................... 1,104 1,062 707 4.0 56.2 ------ ------ ------ ----- -----NET INTEREST INCOME................................. 2,035 1,888 1,930 7.8 5.4Provision for credit losses......................... 1,031 841 997 22.6 3.4 ------ ------ ------ ----- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................................ 1,004 1,047 933 (4.1) 7.6 ------ ------ ------ ----- -----Other revenues: Securitization revenue............................ 54 85 266 (36.5) (79.7) Insurance revenue................................. 229 221 204 3.6 12.3 Investment income................................. 33 33 30 -- 10.0 Derivative income................................. 76 260 124 (70.8) (38.7) Fee income........................................ 354 306 242 15.7 46.3 Taxpayer financial services income................ 18 243 6 (92.6) 100+ Other income...................................... 360 314 180 14.6 100.0 ------ ------ ------ ----- -----TOTAL OTHER REVENUES................................ 1,124 1,462 1,052 (23.1) 6.8 ------ ------ ------ ----- -----Costs and expenses: Salaries and fringe benefits...................... 526 497 457 5.8 15.1 Sales incentives.................................. 90 82 90 9.8 -- Occupancy and equipment expenses.................. 82 87 77 (5.7) 6.5 Other marketing expenses.......................... 185 180 131 2.8 41.2 Other servicing and administrative expenses....... 143 258 198 (44.6) (27.8) Support services from HSBC affiliates............. 217 209 196 3.8 10.7 Amortization of acquired intangibles.............. 83 107 79 (22.4) 5.1 Policyholders' benefits........................... 116 122 93 (4.9) 24.7 ------ ------ ------ ----- -----TOTAL COSTS AND EXPENSES............................ 1,442 1,542 1,321 (6.5) 9.2 ------ ------ ------ ----- -----Income before income tax expense.................... 686 967 664 (29.1) 3.3Income tax expense.................................. 214 341 231 (37.2) (7.4) ------ ------ ------ ----- -----NET INCOME.......................................... $ 472 $ 626 $ 433 (24.6)% 9.0% ====== ====== ====== ===== ===== 3 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION REVENUE THREE MONTHS ENDED --------------------------- 6/30/05 3/31/05 6/30/04 ----------------------------------------------------------------------------------------- (IN MILLIONS) Net initial gains(1)........................................ $ -- $ -- $ 22Net replenishment gains(1).................................. 44 53 113Servicing revenue and excess spread......................... 10 32 131 ----- ----- ----Total....................................................... $ 54 $ 85 $266 ===== ===== ==== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED THREE MONTHS ENDED --------------------------- 6/30/05 3/31/05 6/30/04 ----------------------------------------------------------------------------------------- (IN MILLIONS) Auto finance................................................ $-- $-- $300MasterCard/Visa(1).......................................... -- -- 500Private label............................................... -- -- 190 --- --- ----Total....................................................... $-- $-- $990 === === ==== --------------- (1) MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively. 4 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME -- OWNED BASIS SIX MONTHS SIX MONTHS ENDED ---------------------------- 6/30/05 6/30/04 % CHANGE ------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS) Finance and other interest income........................... $6,089 $5,165 17.9%Interest expense............................................ 2,166 1,415 53.1 ------ ------ -----NET INTEREST INCOME......................................... 3,923 3,750 4.6Provision for credit losses................................. 1,872 1,925 (2.8) ------ ------ -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 2,051 1,825 12.4 ------ ------ -----Other revenues: Securitization revenue.................................... 139 614 (77.4) Insurance revenue......................................... 450 415 8.4 Investment income......................................... 66 71 (7.0) Derivative income......................................... 336 176 90.9 Fee income................................................ 660 507 30.2 Taxpayer financial services income........................ 261 212 23.1 Other income.............................................. 674 280 100+ ------ ------ -----TOTAL OTHER REVENUES........................................ 2,586 2,275 13.7 ------ ------ -----Costs and expenses: Salaries and fringe benefits.............................. 1,023 942 8.5 Sales incentives.......................................... 172 168 2.4 Occupancy and equipment expenses.......................... 169 160 5.6 Other marketing expenses.................................. 365 263 38.8 Other servicing and administrative expenses............... 401 424 (5.4) Support services from HSBC affiliates..................... 426 373 14.2 Amortization of acquired intangibles...................... 190 195 (2.6) Policyholders' benefits................................... 238 206 15.5 ------ ------ -----TOTAL COSTS AND EXPENSES.................................... 2,984 2,731 9.3 ------ ------ -----Income before income tax expense............................ 1,653 1,369 20.7Income tax expense.......................................... 555 466 19.1 ------ ------ -----NET INCOME.................................................. $1,098 $ 903 21.6% ====== ====== ===== 5 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION REVENUE SIX MONTHS ENDED ----------------- 6/30/05 6/30/04 ------------------------------------------------------------------------------- (IN MILLIONS) Net initial gains(1)........................................ $ -- $ 25Net replenishment gains(1).................................. 97 233Servicing revenue and excess spread......................... 42 356 ----- -----Total....................................................... $ 139 $ 614 ===== ===== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED SIX MONTHS ENDED ----------------- 6/30/05 6/30/04 ------------------------------------------------------------------------------- (IN MILLIONS) Auto finance................................................ $-- $ 300MasterCard/Visa............................................. -- 550Private label............................................... -- 190 --- ------Total....................................................... $-- $1,040 === ====== 6 HSBC Finance Corporation-------------------------------------------------------------------------------- RECEIVABLES ANALYSIS END-OF-PERIOD RECEIVABLES % CHANGE FROM PRIOR --------------- 6/30/05 3/31/05 6/30/04 QTR. YEAR ---------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) OWNED RECEIVABLES: Real estate secured....................... $ 71,930 $ 68,486 $ 56,033 5.0% 28.4% Auto finance.............................. 8,997 8,107 5,459 11.0 64.8 MasterCard/Visa........................... 17,421 15,554 10,816 12.0 61.1 Private label(1).......................... 2,905 3,130 12,759 (7.2) (77.2) Personal non-credit card.................. 17,255 16,608 14,019 3.9 23.1 Commercial and other...................... 253 276 346 (8.3) (26.9) -------- -------- -------- ------ ------Total owned receivables..................... 118,761 112,161 99,432 5.9 19.4 -------- -------- -------- ------ ------RECEIVABLES SERVICED WITH LIMITED RECOURSE: Real estate secured....................... -- 73 176 (100.0) (100.0) Auto finance.............................. 1,819 2,175 3,877 (16.4) (53.1) MasterCard/Visa........................... 4,752 6,140 9,345 (22.6) (49.1) Private label(1).......................... -- -- 4,723 -- (100.0) Personal non-credit card.................. 2,409 3,098 4,715 (22.2) (48.9) -------- -------- -------- ------ ------Total receivables serviced with limited recourse.................................. 8,980 11,486 22,836 (21.8) (60.7) -------- -------- -------- ------ ------MANAGED RECEIVABLES:(2) Real estate secured....................... 71,930 68,559 56,209 4.9 28.0 Auto finance.............................. 10,816 10,282 9,336 5.2 15.9 MasterCard/Visa........................... 22,173 21,694 20,161 2.2 10.0 Private label(1).......................... 2,905 3,130 17,482 (7.2) (83.4) Personal non-credit card(3)............... 19,664 19,706 18,734 (.2) 5.0 Commercial and other...................... 253 276 346 (8.3) (26.9) -------- -------- -------- ------ ------Total managed receivables................... $127,741 $123,647 $122,268 3.3% 4.5% ======== ======== ======== ====== ====== --------------- (1) On December 29, 2004, all domestic private label receivables were sold to HSBC Bank USA, N.A. (2) Managed basis reporting is a non-GAAP financial measure. See "Basis of Reporting" for a discussion on the use of non-GAAP financial information. (3) Personal non-credit card receivables are comprised of the following: 6/30/05 3/31/05 6/30/04 --------------------------------------------------------------------------------------- (IN MILLIONS) Domestic personal unsecured............................... $10,942 $10,736 $ 9,787Union Plus personal unsecured............................. 387 426 576Personal homeowner loans.................................. 4,395 4,390 4,556Foreign unsecured......................................... 3,940 4,154 3,815 ------- ------- -------Total..................................................... $19,664 $19,706 $18,734 ======= ======= ======= 7 HSBC Finance Corporation-------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1) REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS % CHANGE THREE MONTHS ENDED FROM PRIOR ------------------------------------------------------ ------------- 6/30/05 (2) 3/31/05 (2) 6/30/04 (2) QTR. YEAR ---------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income.......................... $ 3,488 10.75% $ 3,391 10.78% $ 3,416 10.95% 2.9% 2.1%Interest expense.................. 1,204 3.71 1,171 3.72 834 2.67 2.8 44.4 -------- ----- -------- ----- -------- ----- ----- -----NET INTEREST INCOME............... 2,284 7.04% 2,220 7.06% 2,582 8.28% 2.9 (11.5)Provision for credit losses....... 1,083 871 1,145 24.3 (5.4) -------- -------- -------- ----- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES..... $ 1,201 $ 1,349 $ 1,437 (11.0)% (16.4)% ======== ======== ======== ===== =====Other revenues:Insurance revenue................. $ 229 $ 221 $ 204 3.6% 12.3%Investment income................. 33 33 30 -- 10.0Fee income........................ 428 397 440 7.8 (2.7)Securitization revenue............ (217) (308) (436) (29.5) (50.2)Derivative income................. 76 260 124 (70.8) (38.7)Taxpayer financial services income.......................... 18 243 6 (92.6) 100+Other income...................... 360 314 180 14.6 100.0 -------- -------- -------- ----- -----TOTAL OTHER REVENUES.............. $ 927 $ 1,160 $ 548 (20.1)% 69.2% ======== ======== ======== ===== =====Average managed receivables Real estate secured.................. $ 70,217 $ 66,562 $ 54,398 5.5% 29.1%Auto finance...................... 10,504 10,242 9,177 2.6 14.5MasterCard/Visa................... 22,066 21,928 20,212 .6 9.2Private label..................... 3,017 3,227 17,362 (6.5) (82.6)Personal non-credit card.......... 19,729 19,827 18,568 (.5) 6.2Commercial and other.............. 261 306 367 (14.4) (28.6)Purchase accounting fair value adjustments..................... 153 184 347 (16.8) (55.9) -------- -------- -------- ----- -----Average managed receivables....... $125,947 $122,276 $120,431 3.0% 4.6%Average noninsurance investments..................... 3,106 2,927 3,728 6.1 (16.7)Other interest-earning assets..... 673 666 647 1.1 4.0 -------- -------- -------- ----- -----Average managed interest-earning assets.......................... $129,726 $125,869 $124,806 3.1% 3.9% ======== ======== ======== ===== =====SELECTED FINANCIAL RATIOS:Return on average managed assets.......................... 1.30% 1.73% 1.23% (24.9)% 5.7%Efficiency ratio.................. 42.84 43.59 40.43 (1.7) 6.0Net interest margin............... 7.04 7.06 8.28 (.3) (15.0)Risk adjusted revenue............. 7.17 7.34 6.65 (2.3) 7.8 ======== ======== ======== ===== ===== --------------- (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) % Columns: comparison to average managed interest-earning assets, annualized. 8 HSBC Finance Corporation-------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1) REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME SIX MONTHS SIX MONTHS ENDED ------------------------------------ 6/30/05 (2) 6/30/04 (2) % CHANGE ----------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income............ $ 6,879 10.77% $ 6,833 10.94% .7%Interest expense............................. 2,375 3.72 1,677 2.68 41.6 -------- ------ -------- ----- -----NET INTEREST INCOME.......................... 4,504 7.05% 5,156 8.26% (12.6)Provision for credit losses.................. 1,954 2,326 (16.0) -------- -------- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.............................. $ 2,550 $ 2,830 (9.9)% ======== ======== =====Other revenues: Insurance revenue.......................... $ 450 $ 415 8.4% Investment income.......................... 66 71 (7.0) Fee income................................. 825 901 (8.4) Securitization revenue..................... (525) (785) (33.1) Derivative income.......................... 336 176 90.9 Taxpayer financial services income......... 261 212 23.1 Other income............................... 674 280 100+ -------- -------- -----TOTAL OTHER REVENUES......................... $ 2,087 $ 1,270 64.3% ======== ======== =====Average managed receivables Real estate secured........................ $ 68,390 $ 53,281 28.4% Auto finance............................... 10,373 9,040 14.7 MasterCard/Visa............................ 21,997 20,517 7.2 Private label.............................. 3,122 17,416 (82.1) Personal non-credit card................... 19,778 18,712 5.7 Commercial and other....................... 283 379 (25.3) Purchase accounting fair value adjustments............................. 169 369 (54.2) -------- -------- -----Average managed receivables.................. $124,112 119,714 3.7Average noninsurance investments............. 3,016 4,521 (33.3)Other interest-earning assets................ 669 644 3.9 -------- -------- -----Average managed interest-earning assets...... $127,797 $124,879 2.3% ======== ======== =====SELECTED FINANCIAL RATIOS:Return on average managed assets............. 1.52% 1.26% 20.6%Efficiency ratio............................. 43.22 40.59 6.5Net interest margin.......................... 7.05 8.26 (14.6)Risk adjusted revenue........................ 7.25 6.77 7.1 -------- -------- ----- --------------- (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. 9 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. 6/30/05 3/31/05 6/30/04----------------------------------------------------------------------------------------------- Real estate secured............................................ 2.56% 2.64% 3.41%Auto finance................................................... 2.69 2.26 3.03MasterCard/Visa................................................ 3.77 3.97 4.21Private label.................................................. 4.91 4.71 4.81Personal non-credit card....................................... 9.11 9.16 9.81 ---- ---- ----TOTAL.......................................................... 3.85% 3.93% 4.70% ==== ==== ==== QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 6/30/05 3/31/05 6/30/04------------------------------------------------------------------------------------------------------------------- Real estate secured...................................................... .78% .87% 1.04%Auto finance............................................................. 3.68 5.82 5.04MasterCard/Visa.......................................................... 6.49 6.56 7.62Private label............................................................ 4.36 4.18 4.92Personal non-credit card................................................. 8.17 8.54 11.00 ---- ---- -----TOTAL.................................................................... 3.28% 3.65% 4.57% ==== ==== =====Real estate charge-offs and REO expense as a percent of average managed real estate secured receivables.................................................... .84% 1.01% 1.47% ==== ==== ===== CREDIT LOSS RESERVES 6/30/05 3/31/05 6/30/04 ----------------------------------------------------------------------------------------- (IN MILLIONS) Reserves for managed receivables at beginning of quarter.... $4,242 $4,515 $5,912Provision for credit losses................................. 1,083 871 1,145Charge-offs................................................. (1,162) (1,224) (1,483)Recoveries.................................................. 134 106 116Other, net.................................................. (16) (26) 9 ------ ------ ------Reserves for managed receivables at end of quarter.......... $4,281 $4,242 $5,699 ====== ====== ======Reserves as a percent of managed receivables................ 3.35% 3.43% 4.66% ------ ------ ------ NONPERFORMING ASSETS 6/30/05 3/31/05 6/30/04 ----------------------------------------------------------------------------------------- (IN MILLIONS) Nonaccrual managed receivables.............................. $3,348 $3,387 $3,506Accruing managed receivables 90 or more days delinquent..... 537 579 1,134Renegotiated commercial loans............................... 1 1 2 ------ ------ ------Total nonperforming managed receivables..................... 3,886 3,967 4,642Real estate owned........................................... 459 509 624 ------ ------ ------TOTAL NONPERFORMING ASSETS.................................. $4,345 $4,476 $5,266 ====== ====== ======Managed credit loss reserves as a percent of nonperforming managed receivables....................................... 110.2% 106.9% 122.8% --------------- (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. 10 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS THREE MONTHS ENDED 6/30/05 THREE MONTHS ENDED 3/31/05 ----------------------------------- ------------------------------------- SERVICED WITH SERVICED WITH LIMITED LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED -------------------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income...... $ 3,139 $ 349 $ 3,488 $ 2,950 $ 441 $ 3,391Interest expense....................... 1,104 100 1,204 1,062 109 1,171 -------- ------- -------- ---------- ------- --------NET INTEREST INCOME.................... 2,035 249 2,284 1,888 332 2,220Provision for credit losses............ 1,031 52 1,083 841 30 871 -------- ------- -------- ---------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES........................ $ 1,004 $ 197 $ 1,201 $ 1,047 $ 302 $ 1,349Other revenues: Securitization revenue............... $ 54 $ (271) $ (217) $ 85 $ (393) $ (308) Insurance revenue.................... 229 -- 229 221 -- 221 Investment income.................... 33 -- 33 33 -- 33 Fee income........................... 354 74 428 306 91 397 Derivative income.................... 76 -- 76 260 -- 260 Taxpayer financial services income... 18 -- 18 243 -- 243 Other income......................... 360 -- 360 314 -- 314 -------- ------- -------- ---------- ------- --------TOTAL OTHER REVENUES................... $ 1,124 $ (197) $ 927 $ 1,462 $ (302) $ 1,160Average receivables: Real estate secured.................. $ 70,205 $ 12 $ 70,217 $ 66,485 $ 77 $ 66,562 Auto finance......................... 8,510 1,994 10,504 7,779 2,463 10,242 MasterCard/Visa...................... 16,626 5,440 22,066 15,079 6,849 21,928 Private label........................ 3,017 -- 3,017 3,227 -- 3,227 Personal non-credit card............. 16,972 2,757 19,729 16,332 3,495 19,827 Commercial and other................. 261 -- 261 306 -- 306 Purchase accounting fair value adjustments........................ 153 -- 153 184 -- 184 -------- ------- -------- ---------- ------- --------Average receivables.................... $115,744 $10,203 $125,947 $ 109,392 $12,884 $122,276Average noninsurance investments....... 3,106 -- 3,106 2,927 -- 2,927Other interest-earning assets.......... 673 -- 673 666 -- 666 -------- ------- -------- ---------- ------- --------Average interest-earning assets........ $119,523 $10,203 $129,726 $ 112,985 $12,884 $125,869Net interest income as a percentage of average interest-earning assets...... 6.81% 9.76% 7.04% 6.68% 10.31% 7.06% ======== ======= ======== ========== ======= ======== THREE MONTHS ENDED 6/30/04 ----------------------------------- SERVICED WITH LIMITED OWNED RECOURSE(1) MANAGED ---------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income...... $ 2,637 $ 779 $ 3,416Interest expense....................... 707 127 834 -------- ------- --------NET INTEREST INCOME.................... 1,930 652 2,582Provision for credit losses............ 997 148 1,145 -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES........................ $ 933 $ 504 $ 1,437Other revenues: Securitization revenue............... $ 266 $ (702) $ (436) Insurance revenue.................... 204 -- 204 Investment income.................... 30 -- 30 Fee income........................... 242 198 440 Derivative income.................... 124 -- 124 Taxpayer financial services income... 6 -- 6 Other income......................... 180 -- 180 -------- ------- --------TOTAL OTHER REVENUES................... $ 1,052 $ (504) $ 548Average receivables: Real estate secured.................. $ 54,220 $ 178 $ 54,398 Auto finance......................... 5,197 3,980 9,177 MasterCard/Visa...................... 10,913 9,299 20,212 Private label........................ 12,249 5,113 17,362 Personal non-credit card............. 13,570 4,998 18,568 Commercial and other................. 367 -- 367 Purchase accounting fair value adjustments........................ 347 -- 347 -------- ------- --------Average receivables.................... $ 96,863 $23,568 $120,431Average noninsurance investments....... 3,728 -- 3,728Other interest-earning assets.......... 647 -- 647 -------- ------- --------Average interest-earning assets........ $101,238 $23,568 $124,806Net interest income as a percentage of average interest-earning assets...... 7.63% 11.07% 8.28% ======== ======= ======== --------------- (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 fromsecuritization revenue in our owned statements of income into the appropriate caption. 11 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME SIX MONTHS SIX MONTHS ENDED 6/30/05 SIX MONTHS ENDED 6/30/04 ----------------------------------- ---------------------------------- SERVICED WITH SERVICED LIMITED WITH LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED --------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) Finance and other interest income....................... $ 6,089 $ 790 $ 6,879 $ 5,165 $ 1,668 $ 6,833Interest expense............... 2,166 209 2,375 1,415 262 1,677 -------- ------- -------- -------- ------- --------NET INTEREST INCOME............ 3,923 581 4,504 3,750 1,406 5,156Provision for credit losses.... 1,872 82 1,954 1,925 401 2,326 -------- ------- -------- -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....................... $ 2,051 $ 499 $ 2,550 $ 1,825 $ 1,005 $ 2,830Other revenues: Securitization revenue....... $ 139 $ (664) $ (525) $ 614 $(1,399) $ (785) Insurance revenue............ 450 -- 450 415 -- 415 Investment income............ 66 -- 66 71 -- 71 Fee income................... 660 165 825 507 394 901 Derivative income............ 336 -- 336 176 -- 176 Taxpayer financial services income..................... 261 -- 261 212 -- 212 Other income................. 674 -- 674 280 -- 280 -------- ------- -------- -------- ------- --------TOTAL OTHER REVENUES........... $ 2,586 $ (499) $ 2,087 $ 2,275 $(1,005) $ 1,270Average receivables: Real estate secured.......... $ 68,346 $ 44 $ 68,390 $ 53,098 $ 183 $ 53,281 Auto finance................. 8,144 2,229 10,373 4,854 4,186 9,040 MasterCard/Visa.............. 15,853 6,144 21,997 11,021 9,496 20,517 Private label................ 3,122 -- 3,122 12,229 5,187 17,416 Personal non-credit card..... 16,652 3,126 19,778 13,342 5,370 18,712 Commercial and other......... 283 -- 283 379 -- 379 Purchase accounting fair value adjustments.......... 169 -- 169 369 -- 369 -------- ------- -------- -------- ------- --------Average receivables............ $112,569 $11,543 $124,112 $ 95,292 $24,422 $119,714Average noninsurance investments.................. 3,016 -- 3,016 4,521 -- 4,521Other interest-earning assets....................... 669 -- 669 644 -- 644 -------- ------- -------- -------- ------- --------Average interest-earning assets....................... $116,254 $11,543 $127,797 $100,457 $24,422 $124,879Net interest income as a percentage of average interest-earning assets...... 6.75% 10.07% 7.05% 7.47% 11.51% 8.26% ======== ======= ======== ======== ======= ======== --------------- (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. 12 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES SELECTED FINANCIAL RATIOS THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ------------------- 6/30/05 3/31/05 6/30/04 6/30/05 6/30/04 ---------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS) RETURN ON AVERAGE COMMON SHAREHOLDER'S EQUITY:Net income.............................. $ 472 $ 626 $ 433 $ 1,098 $ 903 Dividends on preferred stock.......... (19) (18) (18) (37) (36) -------- -------- -------- -------- --------Net income available to common shareholders.......................... $ 453 $ 608 $ 415 $ 1,061 $ 867 -------- -------- -------- -------- --------Average common shareholder's equity..... $ 16,671 $ 16,170 $ 17,160 $ 16,421 $ 16,903 -------- -------- -------- -------- --------Return on average common shareholder's equity................................ 10.87% 15.04% 9.67% 12.92% 10.26% ======== ======== ======== ======== ========RETURN ON AVERAGE ASSETS:Net income.............................. $ 472 $ 626 $ 433 $ 1,098 $ 903 -------- -------- -------- -------- --------Average assets: Owned basis........................... $134,834 $131,954 $117,467 $133,394 $118,428 Serviced with limited recourse........ 10,203 12,884 23,568 11,543 24,422 -------- -------- -------- -------- -------- Managed basis......................... $145,037 $144,838 $141,035 $144,937 $142,850Return on average owned assets.......... 1.40% 1.90% 1.47% 1.65% 1.52%Return on average managed assets........ 1.30 1.73 1.23 1.52 1.26 ======== ======== ======== ======== ========EFFICIENCY RATIO:Total costs and expenses less policyholders' benefits............... $ 1,326 $ 1,420 $ 1,228 $ 2,746 $ 2,525 -------- -------- -------- -------- --------Net interest income and other revenues less policyholders' benefits: Owned basis................................. $ 3,043 $ 3,228 $ 2,889 $ 6,271 $ 5,819 Serviced with limited recourse........ 52 30 148 82 401 -------- -------- -------- -------- -------- Managed basis......................... $ 3,095 $ 3,258 $ 3,037 $ 6,353 $ 6,220 -------- -------- -------- -------- --------Owned basis efficiency ratio............ 43.58% 43.99% 42.51% 43.79% 43.39%Managed basis efficiency ratio.......... 42.84 43.59 40.43 43.22 40.59 ======== ======== ======== ======== ========MANAGED BASIS RISK ADJUSTED REVENUE:Net interest income..................... $ 2,284 $ 2,220 $ 2,582 $ 4,504 $ 5,156Other revenues, excluding securitization revenue and derivative income......... 1,068 1,208 860 2,276 1,879Less: Net charge-offs................... (1,028) (1,118) (1,367) (2,146) (2,809) -------- -------- -------- -------- --------Risk adjusted revenue................... $ 2,324 $ 2,310 $ 2,075 $ 4,634 $ 4,226Average interest-earning assets......... $129,726 $125,869 $124,806 $127,797 $124,879 -------- -------- -------- -------- --------Managed basis risk adjusted revenue..... 7.17% 7.34% 6.65% 7.25% 6.77% -------- -------- -------- -------- -------- 13 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES Two-Months-and-Over Contractual Delinquency Quarter-to-Date Charge-offs, ------------------------------------------ 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) JUNE 30, 2005 OWNED: First mortgage......... $ 1 $ 24 6.24% $ -- $ 24 .03%Related Shares:
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