28th Feb 2005 11:30
HSBC Holdings PLC28 February 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: FEBRUARY 28, 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 year ended December 31, 2004. The informationshall not be deemed "filed" for the purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended (the Exchange Act), or otherwise incorporatedby reference into any filing pursuant to the Securities Act of 1933, as amended,or the Exchange Act 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 and year ended December 31, 2004.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: February 28, 2005 EXHIBIT 99 HSBC FINANCE CORPORATION QUARTERLY FINANCIAL SUPPLEMENT - DECEMBER 31, 2004 INDEX PAGE NO.----- --------Basis of Reporting.......................................... 2Consolidated Statements of Income - Owned Basis: Three Months.............................................. 4 Twelve Months............................................. 6Receivables Analysis........................................ 8Financial Highlights - Managed Basis: Three Months.............................................. 9 Twelve Months............................................. 10Credit Quality/Credit Loss Reserves - Managed Basis......... 11Reconciliations to GAAP Financial Measures: Revenues, Average Interest-Earning Assets and Net Interest Income: Three Months........................................... 12 Twelve Months.......................................... 13 Selected Financial Ratios................................. 14 Credit Quality/Credit Loss Reserves: Two-Months-and-Over Contractual Delinquency............ 16 Quarter-to-Date Charge-offs, Net of Recoveries......... 16 Real Estate Charge-offs and REO Expense................ 18 Credit Loss Reserves................................... 19 Nonperforming Assets................................... 19 HSBC Finance Corporation-------------------------------------------------------------------------------- RESTATEMENT-------------------------------------------------------------------------------- HSBC Finance Corporation has restated its consolidated financial statements forthe previously reported quarterly periods ended March 31, 2004, June 30, 2004and September 31, 2004; and the period March 29, 2003 through December 31, 2003.This Quarterly Financial Supplement includes all adjustments relating to therestatement for these prior periods. See Note 3, "Restatement," to ourconsolidated financial statements in our Annual Report on Form 10-K for the yearended December 31, 2004 for further discussion of the restatement. 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 Annual Report on Form 10-K. 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. 2 HSBC Finance Corporation-------------------------------------------------------------------------------- A reconciliation of net income to operating net income follows: THREE MONTHS ENDED YEAR ENDED ---------------------------------- --------------------- 12/31/04 9/30/04 12/31/03 12/31/04 12/31/03 (RESTATED) (RESTATED) (RESTATED)------------------------------------------------------------------------------------------------------ (IN MILLIONS)Net income................................ $712 $325 $592 $1,940 $1,603Gain on bulk sale of private label receivables, after-tax.................. (423) -- -- (423) --Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax.......... 121 -- -- 121 --HSBC acquisition related costs and other merger related items incurred by HSBC Finance Corporation, after-tax.......... -- -- -- -- 167 ---- ---- ---- ------ ------Operating net income...................... $410 $325 $592 $1,638 $1,770 ==== ==== ==== ====== ====== PREDECESSOR AND SUCCESSOR PERIODS-------------------------------------------------------------------------------- HSBC Finance Corporation's acquisition by HSBC on March 28, 2003 has resulted ina new basis of accounting reflecting the fair value of our assets andliabilities for the "successor" period beginning March 29, 2003. Information forall "predecessor" periods prior to the merger are presented using our historicalbasis of accounting, which impacts comparability with the "successor" periodbeginning March 29, 2003. To assist in the comparability of our financialresults and to make it easier to discuss and understand our results ofoperations, this Quarterly Financial Supplement combines the "predecessor"period (January 1 to March 28, 2003) with the "successor" period (March 29 toDecember 31, 2003) to present "combined" results for the year ended December 31,2003. RECLASSIFICATIONS-------------------------------------------------------------------------------- Certain reclassifications have been made to prior period amounts to conform tothe current period presentation. Immaterial adjustments have been made todecrease finance income and increase securitization revenue as reported in priorperiods. These adjustments reflect corrections after discovery of a systemprogramming error in the posting of finance income between owned receivables andreceivables serviced with limited recourse. Reported net income for all priorperiods was not affected by these adjustments. 3 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS THREE MONTHS % CHANGE FROM THREE MONTHS ENDED PRIOR ----------------------------------- -------------- 9/30/04 12/31/03 12/31/04 (RESTATED) (RESTATED) QTR. YEAR---------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income.................. $ 3,001 $ 2,779 $ 2,625 8.0% 14.3%Interest expense................................... 918 810 669 13.3 37.2 -------- -------- -------- ----- -----NET INTEREST INCOME................................ 2,083 1,969 1,956 5.8 6.5Provision for credit losses........................ 1,286 1,123 917 14.5 40.2 -------- -------- -------- ----- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES........................................... 797 846 1,039 (5.8) (23.3) -------- -------- -------- ----- -----Other revenues: Securitization revenue........................... 127 267 347 (52.4) (63.4) Insurance revenue................................ 221 203 193 8.9 14.5 Investment income................................ 30 36 45 (16.7) (33.3) Derivative income................................ 263 72 107 100+ 100+ Fee income....................................... 282 302 281 (6.6) .4 Taxpayer financial services income............... 8 (3) (1) 100+ 100+ Other income..................................... 164 163 158 .6 3.8 Gain on bulk sale of private label receivables... 663 - - 100.0 100.0 -------- -------- -------- ----- -----TOTAL OTHER REVENUES............................... 1,758 1,040 1,130 69.0 55.6 -------- -------- -------- ----- -----Costs and expenses: Salaries and fringe benefits..................... 472 472 507 - (6.9) Sales incentives................................. 104 91 64 14.3 62.5 Occupancy and equipment expenses................. 86 77 104 11.7 (17.3) Other marketing expenses......................... 199 174 142 14.4 40.1 Other servicing and administrative expenses...... 209 235 280 (11.1) (25.4) Support services from HSBC affiliates............ 194 183 - 6.0 100.0 Amortization of acquired intangibles............. 85 83 84 2.4 1.2 Policyholders' benefits.......................... 113 93 90 21.5 25.6 -------- -------- -------- ----- -----TOTAL COSTS AND EXPENSES........................... 1,462 1,408 1,271 3.8 15.0 -------- -------- -------- ----- -----Income before income tax expense................... 1,093 478 898 100+ 21.7Income tax expense................................. 381 153 306 100+ 24.5 -------- -------- -------- ----- -----NET INCOME......................................... $ 712 $ 325 $ 592 100+% 20.3% ======== ======== ======== ===== =====Gain on bulk sale of private label receivables, after-tax........................................ (423) - - (100.0) (100.0)Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax........................................ 121 - - 100.0 100.0 -------- -------- -------- ----- -----Operating net income(1)............................ $ 410 $ 325 $ 592 26.2% (30.7)% ======== ======== ======== ===== ===== --------------- (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. 4 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION REVENUE THREE MONTHS ENDED ----------------------------- 12/31/04 9/30/04 12/31/03------------------------------------------------------------------------------------------- (IN MILLIONS)Net initial gains(1)........................................ $ - $ - $ 84Net replenishment gains(1).................................. 69 112 139Servicing revenue and excess spread......................... 58 155 124 ---- ---- ----Total....................................................... $127 $267 $347 ==== ==== ==== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED THREE MONTHS ENDED ----------------------------- 12/31/04 9/30/04 12/31/03------------------------------------------------------------------------------------------- (IN MILLIONS)Auto finance................................................ $ - $ - $ 516MasterCard/Visa(1).......................................... - - -Private label............................................... - - 1,000Personal non-credit card.................................... - - 1,620 ---- ---- ------Total....................................................... $ - $ - $3,136 ==== ==== ====== --------------- (1) MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively. 5 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - OWNED BASIS TWELVE MONTHS TWELVE MONTHS ENDED ---------------------- 12/31/03(1) 12/31/04 (RESTATED) % CHANGE----------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income........................... $10,945 $10,242 6.9%Interest expense............................................ 3,143 2,928 7.3 ------- ------- ------NET INTEREST INCOME......................................... 7,802 7,314 6.7Provision for credit losses................................. 4,334 3,967 9.3 ------- ------- ------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 3,468 3,347 3.6 ------- ------- ------Other revenues: Securitization revenue.................................... 1,008 1,461 (31.0) Insurance revenue......................................... 839 746 12.5 Investment income......................................... 137 196 (30.1) Derivative income......................................... 511 286 78.7 Fee income................................................ 1,091 1,064 2.5 Taxpayer financial services income........................ 217 185 17.3 Other income.............................................. 607 381 59.3 Gain on bulk sale of private label receivables............ 663 - 100.0 ------- ------- ------TOTAL OTHER REVENUES........................................ 5,073 4,319 17.5 ------- ------- ------Costs and expenses: Salaries and fringe benefits.............................. 1,886 1,998 (5.6) Sales incentives.......................................... 363 263 38.0 Occupancy and equipment expenses.......................... 323 400 (19.3) Other marketing expenses.................................. 636 548 16.1 Other servicing and administrative expenses............... 868 1,149 (24.5) Support services from HSBC affiliates..................... 750 - 100.0 Amortization of acquired intangibles...................... 363 258 40.7 Policyholders' benefits................................... 412 377 9.3 HSBC acquisition related costs incurred by HSBC Finance Corporation............................................. - 198 (100.0) ------- ------- ------TOTAL COSTS AND EXPENSES.................................... 5,601 5,191 7.9 ------- ------- ------Income before income tax expense............................ 2,940 2,475 18.8Income tax expense.......................................... 1,000 872 14.7 ------- ------- ------NET INCOME.................................................. $ 1,940 $ 1,603 21.0% ======= ======= ======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 - 100.0HSBC acquisition related costs incurred by HSBC Finance Corporation, after-tax.................................... - 167 (100.0) ------- ------- ------Operating net income(2)..................................... $ 1,638 $ 1,770 (7.5)% ======= ======= ====== --------------- (1) To assist in the comparability of our financial results, the "predecessor" period (January 1 to March 28, 2003) has been combined with the "successor" period (March 29 to December 31, 2003) to present "combined" results for the twelve months ended December 31, 2003. See "Basis of Reporting" for additional information regarding the "successor" period and "predecessor" period. (2) 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. 6 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION REVENUE TWELVE MONTHS ENDED ----------------------- 12/31/04 12/31/03(1)------------------------------------------------------------------------------------- (IN MILLIONS)Net initial gains(2)........................................ $ 25 $ 176Net replenishment gains(2).................................. 414 548Servicing revenue and excess spread......................... 569 737 ------ ------Total....................................................... $1,008 $1,461 ====== ====== --------------- (1) To assist in the comparability of our financial results, the "predecessor" period (January 1 to March 28, 2003) has been combined with the "successor" period (March 29 to December 31, 2003) to present "combined" results for the twelve months ended December 31, 2003. See "Basis of Reporting" for additional information regarding the "successor" period and "predecessor" period. (2) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED TWELVE MONTHS ENDED ---------------------- 12/31/04 12/31/03(1)------------------------------------------------------------------------------------ (IN MILLIONS)Auto finance................................................ $ - $1,523MasterCard/Visa............................................. 550 670Private label............................................... 190 1,250Personal non-credit card.................................... - 3,320 ---- ------Total....................................................... $740 $6,763 ==== ====== --------------- (1) To assist in the comparability of our financial results, the "predecessor" period (January 1 to March 28, 2003) has been combined with the "successor" period (March 29 to December 31, 2003) to present "combined" results for the twelve months ended December 31, 2003. See "Basis of Reporting" for additional information regarding the "successor" period and "predecessor" period. 7 HSBC Finance Corporation-------------------------------------------------------------------------------- RECEIVABLES ANALYSIS END-OF-PERIOD RECEIVABLES % CHANGE FROM PRIOR -------------------- 12/31/04 9/30/04 12/31/03 QTR. YEAR-------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)OWNED RECEIVABLES: Real estate secured(1)................... $ 64,820 $ 58,726 $ 51,221 10.4% 26.5% Auto finance............................. 7,544 6,823 4,138 10.6 82.3 MasterCard/Visa.......................... 14,635 11,666 11,182 25.5 30.9 Private label(2)......................... 3,411 14,000 12,604 (75.6) (72.9) Personal non-credit card................. 16,128 14,888 12,832 8.3 25.7 Commercial and other..................... 317 334 401 (5.1) (20.9) -------- -------- -------- ------ ------Total owned receivables.................... 106,855 106,437 92,378 .4 15.7 -------- -------- -------- ------ ------RECEIVABLES SERVICED WITH LIMITED RECOURSE: Real estate secured...................... 81 165 194 (50.9) (58.2) Auto finance............................. 2,679 3,060 4,675 (12.5) (42.7) MasterCard/Visa.......................... 7,583 8,843 9,967 (14.2) (23.9) Private label(2)......................... - 3,921 5,261 (100.0) (100.0) Personal non-credit card................. 3,882 4,186 6,104 (7.3) (36.4) -------- -------- -------- ------ ------Total receivables serviced with limited recourse................................. 14,225 20,175 26,201 (29.5) (45.7) -------- -------- -------- ------ ------MANAGED RECEIVABLES:(3) Real estate secured...................... 64,901 58,891 51,415 10.2 26.2 Auto finance............................. 10,223 9,883 8,813 3.4 16.0 MasterCard/Visa.......................... 22,218 20,509 21,149 8.3 5.1 Private label(2)......................... 3,411 17,921 17,865 (81.0) (80.9) Personal non-credit card(4).............. 20,010 19,074 18,936 4.9 5.7 Commercial and other..................... 317 334 401 (5.1) (20.9) -------- -------- -------- ------ ------Total managed receivables.................. $121,080 $126,612 $118,579 (4.4)% 2.1% ======== ======== ======== ====== ====== --------------- (1) Real estate secured receivable levels reflect sales to HSBC Bank USA, N.A. of $.9 billion on March 31, 2004 and $2.8 billion on December 31, 2003. (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: 12/31/04 9/30/04 12/31/03------------------------------------------------------------------------------------------- (IN MILLIONS)Domestic personal unsecured................................. $10,725 $10,054 $ 9,966Union Plus personal unsecured............................... 474 510 714Personal homeowner loans.................................... 4,582 4,587 4,639Foreign unsecured........................................... 4,229 3,923 3,617 ------- ------- -------Total....................................................... $20,010 $19,074 $18,936 ======= ======= ======= 8 HSBC Finance Corporation-------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - MANAGED BASIS(1) REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS THREE MONTHS ENDED % CHANGE ---------------------------------------------------------- FROM PRIOR 9/30/04 12/31/03 ------------ 12/31/04 (2) (RESTATED) (2) (RESTATED) (2) QTR. YEAR------------------------------------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS) Finance and other interest income..............$ 3,601 10.64% $ 3,494 10.79% $ 3,472 11.11% 3.1% 3.7%Interest expense.................................1,050 3.10 944 2.91 803 2.57 11.2 30.8 -------- ----- -------- ----- -------- ----- ----- -----NET INTEREST INCOME..............................2,551 7.54% 2,550 7.88% 2,669 8.54% -- (4.4)Provision for credit losses......................1,305 891 1,748 46.5 (25.3) -------- -------- -------- ----- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES...................................... $ 1,246 $ 1,659 $ 921 (24.9)% 35.3% ======== ======== ======== ===== =====Other revenues: Insurance revenue............................$ 221 $ 203 $ 193 8.9% 14.5% Investment income............................ 30 36 45 (16.7) (33.3) Fee income................................... 437 498 482 (12.2) (9.3) Securitization revenue....................... (477) (742) 264 (35.7) (100)+ Derivative income............................ 263 72 107 100+ 100+ Taxpayer financial services income........... 8 (3) (1) 100+ 100+ Other income................................. 164 163 158 .6 3.8 Gain on bulk sale of private label receivables. 663 - - 100.0 100.0 -------- -------- -------- ----- ----TOTAL OTHER REVENUES........................ $ 1,309 $ 227 $ 1,248 100+ 4.9% ======== ======== ======== ===== =====Average managed receivables Real estate secured......................... $61,543 $ 57,741 $ 53,845 6.6% 14.3% Auto finance................................ 10,052 9,598 8,628 4.7 16.5 MasterCard/Visa............................. 21,221 20,441 20,323 3.8 4.4 Private label............................... 17,858 17,626 17,058 1.3 4.7 Personal non-credit card.................... 19,593 18,928 18,866 3.5 3.9 Commercial and other........................ 321 336 403 (4.5) (20.3) Purchase accounting fair value adjustments.. 243 295 444 (17.6) (45.3) -------- -------- -------- ----- -----Average managed receivables................ $130,831 $124,965 $119,567 4.7% 9.4%Average noninsurance investments........... 3,889 3,878 4,793 .3 (18.9)Other interest-earning assets.............. 660 654 637 .9 3.6 -------- -------- -------- ----- -----Average managed interest-earning assets.... $135,380 $129,497 $124,997 4.5% 8.3% ======== ======== ======== ===== =====SELECTED FINANCIAL RATIOS:Return on average managed assets........... 1.87% .89% 1.67% 100+% 12.0%Efficiency ratio............................ 36.0 49.0 30.8 (26.5)% 16.9Net interest margin......................... 7.54 7.88 8.54 (4.3)% (11.7)Risk adjusted revenue....................... 8.37 6.66 7.51 25.7% 11.5EXCLUDING NONRECURRING ITEMS/OPERATING BASIS:Return on average managed assets............. 1.07 .89 1.67 20.2% (35.9)Efficiency ratio............................. 42.2 49.0 30.8 (13.9)% 37.0Risk adjusted revenue........................ 7.32 6.66 7.51 9.6% (2.8) ======== ======== ======== ===== ===== --------------- (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. 9 HSBC Finance Corporation-------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- MANAGED BASIS(1) REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME TWELVE MONTHS TWELVE MONTHS ENDED -------------------------------------- 12/31/03(3) 12/31/04 (2) (RESTATED) (2) % CHANGE--------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income..................... $ 13,928 10.83% $ 13,682 11.55% 1.8%Interest expense...................................... 3,671 2.86 3,494 2.95 5.1 -------- ----- -------- ----- ------NET INTEREST INCOME................................... 10,257 7.97% 10,188 8.60% .7Provision for credit losses........................... 4,522 6,242 (27.6) -------- -------- ------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.............................................. $ 5,735 $ 3,946 45.3% ======== ======== ======Other revenues: Insurance revenue................................... $ 839 $ 746 12.5% Investment income................................... 137 196 (30.1) Fee income.......................................... 1,836 1,779 3.2 Securitization revenue.............................. (2,004) 147 (100+) Derivative income (expense)......................... 511 286 78.7 Taxpayer financial services income.................. 217 185 17.3 Other income........................................ 607 381 59.3 Gain on bulk sale of private label receivables...... 663 - 100.0 -------- -------- ------TOTAL OTHER REVENUES.................................. $ 2,806 $ 3,720 (24.6)% ======== ======== ======Average managed receivables Real estate secured................................. $ 56,462 $ 50,124 12.6% Auto finance........................................ 9,432 7,918 19.1 MasterCard/Visa..................................... 20,674 19,272 7.3 Private label....................................... 17,579 16,016 9.8 Personal non-credit card............................ 18,986 19,041 (.3) Commercial and other................................ 354 430 (17.7) Purchase accounting fair value adjustments.......... 319 397 (19.6) -------- -------- ------Average managed receivables........................... $123,806 $113,198 9.4%Average noninsurance investments...................... 4,203 4,651 (9.6)Other interest-earning assets......................... 650 629 3.3 -------- -------- ------Average managed interest-earning assets............... $128,659 $118,478 8.6% ======== ======== ======SELECTED FINANCIAL RATIOS:Return on average managed assets...................... 1.33% 1.19% 11.8%Efficiency ratio...................................... 41.0 35.6 15.2Net interest margin................................... 7.97 8.60 (7.3)Risk adjusted revenue................................. 7.30 7.18 1.7EXCLUDING NONRECURRING ITEMS/OPERATING BASIS:(4)Return on average managed assets...................... 1.12 1.32 (15.2)Efficiency ratio...................................... 42.9 34.1 25.8Risk adjusted revenue................................. 7.03 7.18 (2.1) -------- -------- ------ (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. (3) To assist in the comparability of our financial results, the "predecessor" period (January 1 to March 28, 2003) has been combined with the "successor" period (March 29 to December 31, 2003) to present "combined" results for the twelve months ended December 31, 2003. See "Basis of Reporting" for additional information regarding the "successor" period and "predecessor" period. (4) 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. 10 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. 12/31/04 9/30/04 12/31/03-------------------------------------------------------------------------------------------------Real estate secured............................................ 2.97% 3.30% 4.35%Auto finance................................................... 2.96 2.74 3.84MasterCard/Visa................................................ 3.98 4.44 4.16Private label.................................................. 4.13 4.76 4.94Personal non-credit card....................................... 9.30 9.52 10.69 ---- ---- -----TOTAL.......................................................... 4.24% 4.59% 5.39% ==== ==== ===== QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 12/31/04 9/30/04 12/31/03---------------------------------------------------------------------------------------------------------------------Real estate secured...................................................... 1.04% 1.19% .94%Auto finance............................................................. 4.47 6.04 6.27MasterCard/Visa(2)....................................................... 7.54 6.92 7.03Private label(2)......................................................... 9.22 4.85 4.95Personal non-credit card................................................. 8.55 10.12 10.05 ---- ----- -----TOTAL.................................................................... 4.61% 4.38% 4.39 ==== ===== =====Real estate charge-offs and REO expense as a percent of average managed real estate secured receivables.................................................... 1.17% 1.31% 1.37% ==== ===== ===== CREDIT LOSS RESERVES 12/31/04 9/30/04 12/31/03------------------------------------------------------------------------------------------- (IN MILLIONS)Reserves for managed receivables at beginning of quarter.... $ 5,199 $ 5,699 $ 5,733Provision for credit losses................................. 1,305 891 1,748Charge-offs, net of recoveries.............................. (1,502) (1,363) (1,304)Other, net.................................................. (487) (28) (10) ------- ------- -------Reserves for managed receivables at end of quarter.......... $ 4,515 $ 5,199 $ 6,167 ======= ======= =======Reserves as a percent of managed receivables................ 3.73% 4.11% 5.20% ------- ------- ------- NONPERFORMING ASSETS 12/31/04 9/30/04 12/31/03------------------------------------------------------------------------------------------- (IN MILLIONS)Nonaccrual managed receivables.............................. $3,558 $3,476 $4,009Accruing managed receivables 90 or more days delinquent..... 607 1,201 1,215Renegotiated commercial loans............................... 2 1 2 ------ ------ ------Total nonperforming managed receivables..................... 4,167 4,678 5,226Real estate owned........................................... 587 601 631 ------ ------ ------TOTAL NONPERFORMING ASSETS.................................. $4,754 $5,279 $5,857 ====== ====== ======Managed credit loss reserves as a percent of nonperforming managed receivables....................................... 108.4% 111.1% 118.0% ------ ------ ------ --------------- (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. 11 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS THREE MONTHS ENDED 9/30/04 THREE MONTHS ENDED 12/31/04 (RESTATED) ----------------------------------- ----------------------------------- SERVICED WITH SERVICED WITH LIMITED LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED--------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income........ $ 3,001 $ 600 $ 3,601 $ 2,779 $ 715 $ 3,494Interest expense........ 918 132 1,050 810 134 944 -------- ------- -------- -------- ------- --------NET INTEREST INCOME..... 2,083 468 2,551 1,969 581 2,550Provision for credit losses................. 1,286 19 1,305 1,123 (232) 891 -------- ------- -------- -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.......... $ 797 $ 449 $ 1,246 $ 846 $ 813 $ 1,659 ======== ======= ======== ======== ======= ========Other revenues: Securitization revenue.............. $ 127 $ (604) $ (477) $ 267 $(1,009) $ (742) Insurance revenue...... 221 - 221 203 - 203 Investment income...... 30 - 30 36 - 36 Fee income............. 282 155 437 302 196 498 Derivative income...... 263 - 263 72 - 72 Taxpayer financial services income...... 8 - 8 (3) - (3) Other income........... 164 - 164 163 - 163 Gain on bulk sale of private label receivables.......... 663 - 663 - - - -------- ------- -------- -------- ------- --------TOTAL OTHER REVENUES.... $ 1,758 $ (449) $ 1,309 $ 1,040 $ (813) $ 227 ======== ======= ======== ======== ======= ========Average receivables: Real estate secured.... $ 61,445 $ 98 $61,543 $ 57,570 $ 171 $57,741 Auto finance........... 7,191 2,861 $10,052 6,238 3,360 9,598 MasterCard/Visa........ 13,009 8,212 $21,221 11,251 9,190 20,441 Private label.......... 14,349 3,509 $17,858 13,310 4,316 17,626 Personal non-credit card................. 15,671 3,922 $19,593 14,423 4,505 18,928 Commercial and other... 321 - $ 321 336 - 336 Purchase accounting fair value adjustments.......... 243 - $ 243 295 - 295 -------- ------- -------- -------- ------- --------Average receivables..... $112,229 $18,602 $130,831 $103,423 $21,542 $124,965Average noninsurance investments............ 3,889 - 3,889 3,878 - 3,878Other interest-earning assets................. 660 - 660 654 - 654 -------- ------- -------- -------- ------- --------Average interest-earning assets................. $116,778 $18,602 $135,380 $107,955 $21,542 $129,497 ======== ======= ======== ======== ======= ========Net interest income as a percentage of average interest-earning assets................. 7.13% 10.06% 7.54% 7.29% 10.79% 7.88% ======== ======= ======== ======== ======= ======== THREE MONTHS ENDED 12/31/03 (RESTATED) ----------------------------------- SERVICED WITH LIMITED OWNED RECOURSE(1) MANAGED------------------------ ----------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income........ $ 2,625 $ 847 $ 3,472Interest expense........ 669 134 803 -------- ------- --------NET INTEREST INCOME..... 1,956 713 2,669Provision for credit losses................. 917 831 1,748 -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.......... $ 1,039 $ (118) $ 921Related Shares:
HSBC Holdings